Amgen is now the third pharma to alter its supply chain to bypass pharmacy wholesalers and deal directly with community pharmacies.
This will create a “double whammy” effect in relation to community pharmacies’ overheads in that more staff time will be required to prepare orders, and wholesalers, deprived of turnover and a scale of economy, will have to elevate margins for their remaining inventory items in order to survive.
Pharma thinking behind the direct supply process is that they believe they will be able to absorb the margins paid to wholesalers as a means of boosting their bottom line.
That is provided they can maintain an equivalent level of service at a price-point that makes it all worthwhile.

The community pharmacy experience with the first pharma (Pfizer) to go direct (nearly seven years ago on 31 January 2011), was not an altogether happy event and we are sure to see more hiccups (read more costs) being incurred as more pharma’s take the direct supply approach.
In an earlier article (written seven years ago) I attempted to describe what could evolve as an aftermath of such a deliberate disruption that could well send traditional wholesalers to the wall.
Read the article Pfizer Shatters Wholesaler Expectations at the foot of the link page.

One of the potential outcomes predicted was that wholesalers, through their franchises, might enter into professional services that could drive the sale of products – a system not necessarily beneficial to community pharmacy, because of their distributive nature.
It was also predicted that pharma’s would step up their direct to consumer activities to drive market share into their respective brands.
This has already begun, with Schedule 3 drugs being able to be advertised.
Having opened the door, control will eventually become vested in pharma’s, simply because they have more financial resources to buy control.
The future methods to be employed involve prescription drugs and will be driven by Health Literacy services and investment in Artificial Intelligence and information delivery involving holographic imaging, both having the effect of reducing the status of a clinical pharmacist, bypassing them at every opportunity.

In brief, community pharmacists will have to defend their business model against predation at all levels, by wholesalers and pharma’s.
Expect further attacks on ownership rules as wholesalers and pharma’s seek to shore up their income base through ownership of community pharmacies, by direct or indirect ownership.
We are currently seeing a similar extension through the attitude of Ramsay Private Hospital model using the language of ownership, even though the current laws prohibit their involvement in having a pecuniary interest.
There is nothing wrong with an alliance partnership model provided control is shared, rather than dominated by the more wealthy party.
This has always been the community pharmacy dilemma – private ownership demonstrates value through personal approaches.
Predators recognise that value and try to convince regulators they can do it better through direct ownership and financial power.
And a host of “talking heads” chip in, and in the process display an alarming lack of knowledge of pharmacy but continually add to the confusion.

It is obvious that the Pharmacy Guild of Australia (PGA) will have to step up its leadership role through providing practical solutions to the changes to community pharmacy logistics.
Perhaps a part-solution might be found in the grocery industry where direct supply is more common with the larger retail chains having to create their own distribution centres and smaller groups having to engage a logistics provider.

One recent addition to grocery logistics is found in a logistics platform called irexchange .
It is perhaps a platform that could support a pharmacy addition or alternatively PGA to invest in a similar model designed exclusively for community pharmacy.
irexchange is a technology and distribution business that aims to reshape the traditional supplier-wholesaler-retailer model to release margin, and help Suppliers and Independent Retailers gain greater independence and build long-term sustainable businesses.

From their website they say:

Advancements in technology have powerfully changed the economic landscape and companies that don’t keep pace can be replaced by problem solving ‘Game Changers’.

Our team recognised an opportunity to reshape what we perceive to be an outdated and inefficient supplier-wholesaler-retailer model. So we decided to rebuild the model, developing a fair and transparent system that puts suppliers and independent retailers in the driving seat. No conventional middlemen or wholesalers and no complex and costly processes.

Our team has developed an end-to-end model that capitalises on the disruptive capabilities of new technologies and distribution systems to provide suppliers and independent retailers with an opportunity to grow their businesses, and to offer consumers greater choice.

But we haven’t done it alone.
Our asset-light business model has been developed in collaboration with our execution partner (Tier-1 global consulting firm) and we have partnered with DHL, one of the world’s leading logistics and distribution providers.

Our model is an intelligent digital marketplace and distribution capability that aims to increase transparency in the retail sector, and to support suppliers and independent retailers improve revenue and growth.

irexchange is a team of retail, supply chain and technology experts. And we’re growing, fast.

Note that they already use DHL the preferred alliance partner of existing direct supply pharma’s.
The model aims to release margin and significantly decrease the costs associated with conventional wholesalers.
That places community pharmacists in the position of having to choose a logistics solution that works against the long-standing traditional full-line wholesaler’s interests.
Unfortunately it is a decision that has to be taken to stabilise the supply chain and contain the cost of logistics.
It may also involve the formation of “last mile” cooperative buying groups to manage local distributive problems at the micro-level.
The irexchange ordering process is illustrated below.

 

SUPPLIER UPLOADS PRODUCT AND PRICE

Supplier uploads product and price onto platform either as a full range or single product.
The product or product range are hosted in the POS file and on irexchange’s portal ready for retailers to order.

 

 

 

 

 

RETAILER PLACES ORDERS

The independant retailer places their order through the irexchange portal.

 

 

 

 

 

 

ORDER AGGREGATION

irexchange aggregates all retailer orders

 

 

 

 

 

 

CONSOLIDATE SUPPLIER PURCHASE ORDER

A consolidated purchase order is sent to the supplier to deliver goods

 

 

 

 

 

 

 

FLOW-THROUGH DISTRIBUTION

Supplier delivery = retailer aggregated order volume.
Pick to zero.

 

 

 

 

 

 Nearly seven years have elapsed since Pfizer first decided to go direct.
Community pharmacy leaders have not been able to persuade pharma’s to stay within the confines of the full-line wholesaler.
Decisions must now be taken to protect the stability of logistics costs, otherwise these costs will get out of hand and create instability for community pharmacies.
i2P recognises that community pharmacy decisions will now impact on traditional loyalties, but unless it takes protectionist steps it will damage its ability to maintain a stable marketing approach.
The alternative will be to disappear under the weight of new and higher cost levels.
Wholesalers will have to reinvent themselves and i2P predicts that to do so will involve wholesalers competing for community pharmacy market share.
Exactly how that plays out is yet to be established.
Meanwhile, pharmacy is again at the crossroads, so take a right turn and adjust your business model to suit your brand vision.
irexchange is an alternative model that provides a solution for small to medium supermarkets and would probably have the capacity to take on community pharmacy as well.
Only the PGA has the immediate capacity to negotiate a deal – otherwise form up your own local cooperatives and go it alone.
But don’t waste any more time!