This study explores the scope of technology which has significant improvement on the ability to provide and deliver healthcare services. Enterprises are started to switch to electronic mode for delivering healthcare effectively by making delivery better, faster, cheaper and more accessible to customer.
Electronic mode of transfer shows the potential in different sectors where it reaches beyond the capabilities and boundaries compared to traditional mode. Hence this study will grab the issues related to scope of electronic data transfer and electronic fund transfer in the delivery of drugs to customer in pharmaceutical supply chain.
To find the scope for implementing Electronic Data Interchange (EDI) and Electronic Fund Transfer (EFT) across pharmaceutical supply chain.
Limitation of the study
This study is limited only to particular zone. The result will bound to change for other zones across country.
1.3 Industry Overview:
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Pharmaceutical industry is heavily regulated and fragmented globally. It has many markets, products, processes and intermediaries. If a drug is getting delayed to reach the market, it costs the company around US$1 million a day. The challenge lies in streamlining the delivery of the product to the customer from the manufacturer. The logistics plays very important role in pharmaceutical value chain as they account for 45% to 55% of the total costs.
The pharmaceutical supply chain is complex in nature, and calls for a lot of accountability in order to ensure the delivery of right drug, at the right time and place, in the right condition - to the people in need of such drugs for fighting against the diseases. Another discerning feature of the pharmaceutical supply chain is product nature.
Pharmaceutical products usually need specialized climate control treatment throughout the period of transit especially in a country, such as India with diverse climatic conditions, and meagre cold storage facilities. Some drugs cannot be transported and stored together due to their sensitivity and possible contamination.
Indian Pharmaceutical industry
The Indian pharmaceutical industry is 3rd largest in the world in terms of volume accounting for 10 percent of world's production and stands 14th in terms of value. According to data published by the Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, the total turnover of Indian Pharmaceutical Industry is US$21 billion. Out of this total, domestic formulations market was worth US$8.34 billion and total APIs market was worth US$3.92 billion. Total Export market was worth US$8.47 billion. Indian exports go to more than 200 countries around the globe including the highly regulated markets of US, Europe, Japan and Australia.
Indian Pharma industry with more than 20,000 registered units is highly fragmented with severe price competition and government price control. There are approximately 250 large units and more than 8,000 small scale units, which form the core of the Pharmaceutical industry in India. Indian Pharma industry has shown remarkable progress in terms of infrastructure development, technology base creation and its range of products. The industry now produces bulk drugs belonging to all major therapeutic groups ranging from complex molecules to simpler manufacturing technologies.
Finished Formulations of various types tabs, caps, injectable, etc. of various dosage forms are being produced in GMP compliant facilities and transported globally. Indian pharmaceutical companies today are known for their global reach with high quality generic formulations and world class APIs.
Indian pharmaceutical industry is on a strong growth path with the total value of Indian Pharmaceutical industry expected to reach almost $50 Billion by 2015-2016.
A key issue faced by the industry is management of the supply chain. Supply chain in India is highly fragmented with more than 550,000 retail pharmacies in the country. According to a report by bio plan Associates, though the number of distributors have increased by 4 fold in the last three decades, from 125,000 in 1978, the volume of prescriptions distributed have not increased proportionally. Hence it is evident that though there is a growth in the number of distributors and retail pharmacies, distribution is not very efficient. Also the rural markets remain highly untapped.
Indian Pharmaceutical Supply chain:
Drug distribution in India has witnessed a paradigm shift. Before 1990, pharmaceutical companies established their own depots and warehouses. Now they have been replaced by clearing and forwarding agents (CFAs).
Tier-II: Clearance & Forward Agents
Always on Time
Marked to Standard
These organizations are primarily responsible for maintaining storage of the company's products and forwarding SKUs to the stockist on request. Most companies keep 1-3 CFAs in each Indian state. On an average, a company may work with a total of 25-35 CFAs. The CFAs are paid by the company yearly, once or twice, on a basis of the percentage of total turnover of products.
Stockist is the distributor, who can simultaneously handle more than one company (usually, 5-15 depending on the city area), and may go up to even 30-50 different manufacturers. They pay for the products directly in the name of the pharmaceutical company after 30 to 45 days.
Tier IV: Hospitals, Pharmaceutical outlets, retail shops
They obtains products from the stockist or sub stockist through whom it finally reaches the consumers (patients)
Tier V: Consumers
Supply chain doesn't end until customers get the value of the product.
Large drug manufacturers will have CFAs in almost every state in India. CFAs majorly help manufacturers in providing reach for its products. They majorly facilitate in by passing the state sales tax (CST- 4%). CFA's are just created to avoid local state taxes (they hardly take 1 or 2% margin). Mostly CFAs serve a single company. CFAs follow a stock transfer model from the manufacturer and all invoices sent to the stockists are on the name of the manufacturer itself.
Stockist or Distributor
All India Organization of Chemists & Druggists (AIOCD) has over 5.5 Lac members from retail chemists and pharma distributors/stockists. Stockist plays a very powerful role in the pharma distribution in India. Companies cannot bypass stockists and sell directly to institutions or retail chains. They may face a ban from the stockists and considering the substitutes available for each molecule, companies cannot take the risk of loosing the sales.
Organized pharmacy retail sales in India are only 3% of the total sales. They can procure the stock from the stockists registered in the association (AIOCD) only (Manufacturers would not sell their products directly to retails chains). The remaining 97% market is completely controlled by the stockists (There are many layers of stockists or distributors based on the volume and region they operate in). Sales representatives do rarely come and talk with the concerned distribution managers in the retail chains to sell their products.
Institutional supplies are 7% of the total drug sales in India. Distribution for institutions happen either through stockist or directly from the company CFA. Companies bid for the tenders passed by these institutions like major PSUs (Public Sector Units) including NTPC, BHEL etc.
Importance of Pharmaceutical SCM compared to other SCM:
End-user (i.e. patient) safety
Fraud prevention and detection
Electronic signature requirements
Records access and retention requirements
Drugs must carry unique identifiers at the item level
Tracking from manufacturer to distributors and point-of-use
Uncertainty in Indian pharmaceutical supply chain:
Inventory and back-order levels fluctuate considerably across the supply chain even when customer demand doesn't vary.
The variability worsens as we travel "up" the supply chain.
Forecasting doesn't help manufacturer much to predict demand with less forecast error.
Factors contributing to uncertainty:
Demand forecasting practices
Min-max inventory management
Longer lead times lead to greater variability in estimates of average demand, thus increasing variability and safety stock costs
Peaks and valleys in orders
Fixed ordering costs
Impact of transportation costs (e.g., fuel costs)
Promotion and discount policies
Lack of centralized information
Supply Chain Model
For planning the distribution of drugs, Indian companies follow two models,
1) Replenishment model
2) Forecast based model
Product sales are monitored daily from the supply nodes and based on the demand and availability; products are replenished it at the front end by the previous supply chain node. It is an end-to-end solution involving the front end distribution system, operations and procurement as well. It enables the company to be more agile in meeting market demands.
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Manage inventory without excess or shortage of inventory properly.
Stocking space will be less across supply chain.
Keeping the track of the sales and inventory daily and frequent supplies will be tough.
This model is followed by Dr.Reddys Laboratories. It is part of Pull strategy.
Forecast based model
Sales are forecasted based on the previous sales and the plan for the present year and then products are supplied periodically. It will work out best for the company as sending the stock once a month or fortnight based on the stockist inventory will be much easier for the company.
Lead time to deliver drugs will be less.
Reduce inventory carrying cost will be less for manufacturer.
Stockist requires more inventory handling space to store stocks.
Forecast errors may lead to huge loss across supply chain.
This model is used by Ranbaxy. It is a part of Push strategy.
Title: Efficient Supply Chain Management is Essential for Pharmaceutical Industry in India
A brief overview about Indian pharmaceutical supply chain. 95% of domestic demand is met by Indian companies only. Indian Pharmaceutical companies are growing in a very rapid pace but the distribution system is not kept pace with growth. Such inefficiency is very high in the highly fragmented industry. This article also emphasis on the pharmaceutical companies must focus on improving supply chain thereby improving value to the customer.
Pharmaceutical companies have to overcome several challenges which they face today world like planning for material and capacity, procurement, manufacturing quantity and time, till the final delivery. To bring efficiency in supply chain they must follow some techniques like forecasting and planning, procurement and customer relationship management.
Most important purpose in supply chain is to ensure right product at right time and right place, in the right condition to people who are suffering from the disease. Entire industry needs to improve infrastructure to improve the effectiveness. Different types of systems like warehouse management systems, transport management systems etc. can improve effectiveness. ( Singh & Arcot, 2012)
Title: Investigation of Supply Chain Risk in the Indian Pharmaceutical Industry
Pharmaceutical Supply chain is facing several challenges to survive and succeed in a competitive environment which is more complicated and uncertain. Cutting edge is R&D for pharmaceutical industry which suffers from severe risks like raw material shortages, quality of product demand fluctuations etc.
In this article, risk in supply chain is categorized into supply related, production related, demand related and other risks. Using 5-point scale, they evaluated the risk by
Frequency of occurrence
Impact of risk
Based on the results, they developed hypothesis for the risks with high frequency of occurrence & very high impact on supply chain. From the study, the reasons for risk which make it risky are 'Non- Availability of raw material". This is due to fluctuation of demand. This article helps to focus on risk factors. (Mahendran, Narasimhan, Nagarajan, & S, 2011)
Title: Supply Chain Management in the Pharmaceutical Industry: the Key to Further Enhancing Shareholder Value
There are several issues regarding pharmaceutical industry lies in supply chain are transport infrastructure, logistics and others. Inefficiencies anywhere in the supply chain will reduce the chances of the manufacturer success.
Four Fundamentals of SCM in Pharmaceutical industry:
Customer satisfaction and Optimize supply chain costs
Tackling barriers between internal functions
Efficient and effective management of material, money and information flows throughout supply chain.
Both internal and external customer/supplier relationship.
Addition to all the issues, growing trend in e-commerce technologies will also improve the satisfaction & efficiency of supply chain. These technologies will help in reducing supply chain costs. (Sweeney, 2006)
Title: Effectiveness of Automatic Inventory Replenishment in supply chain operations
Most important aspect of pharmaceutical SCM is replenish of stocks at right time at right quantity. This will help to maintain the minimal stock level i.e. safety stock.
Aspects of replenishment to be considered to be
Reduction in time to replenish.
Forecasting will help manufacturers to plan
Better communication links between the layers of supply chain
Ensuring the availability of drugs & Service enhancements.
Recent technique called Automatic Inventory Replenishment (ARP) is adopted by many leading companies like P&G. Automatic Inventory Replenishment (ARP) technique which came to picture when global competition pushed the companies to move towards effective inventory management. It is evident through the result of P&G's result in USA after adopting Automatic Inventory Replenishment to maintain retail inventories. Three major factors required for ARP techniques are transaction cost analysis, strategic consideration of firm and organizational factors. ARP to become effective IT plays major role in linking several parts of supply chain. (Myers, Daughtery, & Autry, 2000)
Title: The Pharmaceutical Supply Chain: Diagnosis of the State-of-the-Art
The pharmaceutical supply chain is a complex hence the best practices in this industry is more important. Proper investigation is done to find the relationship between key business drivers, supply chain infrastructure, and business practices to assess the effectiveness of the supply chains. In addition to the differences in the demand characteristics, there is a very unique problem of incentive alignment between the manufacturer and the distributor.
(Singh M. , 2005)
Title: Supply Chain in the Pharmaceutical Industry
Managing supply chain of pharmaceutical industry is done through technology. Technology will always has a significant influence on the ability to provide and deliver health care services. Monitoring the targets and compare with the targets. It can improve the healthcare environment and change the way healthcare is delivered, making delivery better, faster, cheaper and more accessible to an ever-greater population.
Technology roadmap for visualizing the technology capability and its outcome both depends on success of the platform. IT platform would help to reach vision of improving the delivery of service and reduce burden also. Possibilities are endless but triggers and target are important to bring change in supply chain. The roadmap for the products which is reaching the customer by promotions and awareness. (Whewell, 2009)
3.1 Research Design
The design of the research conducted takes the form of by which basic knowledge is generated, clarifications will be brought into relevant issues, the information needed and alternatives need for the research uncovered. Research designs are concerned with turning the research question into a testing project. The best design depends on your research question.
3.2 Objectives of the study
To find the scope of EDI and EFT in pharmaceutical supply chain.
Perception about EDI and EFT in pharmaceutical supply chain.
3.3 Significance of study
The title of the project is â€•"A study on scope of EDI and EFT in Pharmaceutical supply chain".
The title is very much significant considering the present scenario. For this it is very important to study the knowledge level of EDI and EFT from players in supply chain and also to understand the factors considered by them. So the survey helped understand the supply chain and based on that I was able to make inferences and give suggestions on what steps could be taken to digitalize pharmaceutical supply chain.
The aim is to gauge response towards EDI & EFT in Pharmaceutical supply chain. The general level of knowledge and requirements of pharmaceutical supply chain players towards EDI &EFT. This data will be done by online and printed questionnaire. The essential attributes that drive and affect the supply chain enterprises.
3.5 Data Collection tools
The primary data was collected by interviewing the respondents and then giving them a printed questionnaire. A survey was conducted among the pharmacy outlets in Bangalore by the aid of well-structured questionnaire. The detailed description of the questionnaires is given below. The questions contained in the questionnaire are of two types:
1. Close-Ended Questions:
These are the types of questions where the respondent is supposed to select a response from the given set of options below the questions. The questionnaire had 28 close ended questions.
2. Open- Ended Questions:
Where the respondent was given a chance to reply or give suggestions to the company. The questionnaire had 1 open ended questions as the measurement of the responses would be difficult in open ended questions.
The different types of scaling techniques used to measure the response of the respondents were:
1. Likert Scale: Here the respondents are asked to indicate a degree of importance with each of a series of statement. Each scale item has five responses ranging from most important to least important.
2. Interval Scale: This scale is used to measure common statistical measures such as range, standard deviation and correlation. A researcher gauges preference, liking or importance of a particular aspect of brand on a continuous basis and distance between one points of scale to another is same.
a) Internal Secondary Data: Data from the company itself which the company already has.
b) External Secondary Data: Data from Company websites, brochures and newspapers.
3.6 Sampling Techniques
The sampling technique used for the research was random sampling. Different pharmacy outlets were picked across Chennai randomly.
The first step in conducting a research is to identify the people who are concerned with the respective area of research. Based on this data, the sample can be determined through which the research can be conducted.
Null Hypothesis: There is no scope for EFT in pharmaceutical supply chain.
Alternate Hypothesis: There is a significant scope for EFT in pharmaceutical supply chain.
Null Hypothesis: There is no scope for EDI in pharmaceutical supply chain.
Alternate Hypothesis: There is a significant scope for EDI in pharmaceutical supply chain.
Null Hypothesis: All these factors has significant contribution for preferring EFT by companies in pharmaceutical supply chain.
Alternate Hypothesis: All these factors don't have significant contribution for preferring EFT by companies in pharmaceutical supply chain.
Null Hypothesis: All these factors has significant contribution for preferring EDI by companies in pharmaceutical supply chain.
Alternate Hypothesis: All these factors don't have significant contribution for preferring EDI by companies in pharmaceutical supply chain.