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Commercial Trade Channel Management

Commercial Trade Channel Management. Richard Huckle Commercial Operations Manager. 15 th July 2008 . Objective. An Examination of The Changing Face of Pharmaceutical Distribution in The UK, The Emerging Channels and Likely Trends For The Future. To Be Aware of The ABPI Supply Chain Group .

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Commercial Trade Channel Management

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  1. Commercial Trade Channel Management Richard Huckle Commercial Operations Manager 15th July 2008

  2. Objective • An Examination of The Changing Face of Pharmaceutical Distribution in The UK, The Emerging Channels and Likely Trends For The Future. • To Be Aware of The ABPI Supply Chain Group

  3. Process • What is CTC Management • Company Developments • Review The Traditional Model • Reasons For Change • An Examination of The Alternative Channels • What's on The Horizon • Recommendations • ABPI Supply Chain Group

  4. Sources of Information • “Pharma Times” Conference 2007/ 8 • ABPI Challenge of The UK Distribution Environment Seminar – July 2007 • ABPI Supply Chain Group – New Distribution Models Work Stream • Consultant Activity • Being in The Market

  5. Commercial Trade Channel Management What is it.

  6. Traditional Model of Distribution Wholesaler Distribution Centre

  7. = Direct to Pharmacy Model (Agency) Using All Full Line Wholesalers as LSP = Direct to Pharmacy Model (Agency) 2007 Using UniChem Only as LSP = Direct to Pharmacy 2008 (Agency) Using AAH and UniChem as LSP = Hospitals – Agency Community – Restricted Wholesale DHL as 3PL AAH + A Unichem From Aug 08 = Maintaining Wholesale Distribution Model Changing ‘Zero Discount’ Process Restricted AAH/Phoenix/UniChem Company Developments = Maintaining Wholesale Distribution Model Restricted to AAH/Phoenix/UniChem = In Discussion

  8. Key Features of Traditional Wholesale Distribution • Manufacturer Supply Wholesale at 12.5% Discount • Wholesaler Takes Title of Goods • Wholesaler Sets The Selling Price to Pharmacy • Wholesaler Hold the Relationship With Pharmacy • Buyer/Seller Relationship Between Manufacturer – Wholesaler

  9. Traditional Wholesale Model: Disadvantages X • Distribution Costs High As % of Cost Price • 12.5% Does not Represent The Activity Cost • No Visibility of Stock in The Supply Chain • End Customer Knowledge Limited • No Control Over End User Pricing • Concerns Over Product ‘Diversion’ & Cross Border Trade

  10. Traditional Wholesale Distribution: Advantages • Simple Route To Market • c.10 Companies Cover All 12,000 Pharmacies • Pharma Co Can Concentrate on Core Operations • Debt Management Minimal With Predictable Cash Flow

  11. Reasons for Change(A T Kearney) • Re-gain Channel Control • Recover Supply Chain Margins • Reduce Un-Managed Cross Border Trade Flows • Increased Customer Intimacy

  12. What Are The Channels • Traditional Wholesale • Direct to Pharmacy • Direct to Consumer ( Homecare ) • Direct to Payer

  13. 3 Alternative Models – Emerging From Traditional Route • Direct to Pharmacy – Agency • 3PL (Third Party Logistics) • Restricted Wholesaler

  14. Commercial Relationship With Pharma Co Account with Manufacturer Invoiced In Pharma Co Name Title of Goods Retained Debt Liability Price Set By Manufacturer Volume Limits & Quotas Can Be Set Wholesaler – Becomes a LSP Handle Order Processing Collect Cash Hold Stock on Consignment Charge Fee For Service Pharmacy Order From Pharma Co – ‘Front End’ Direct Relationship ‘Direct to Pharmacy’ Key Features(Agency Model) (GSK / Pfizer / AstraZeneca)

  15. Direct to Pharmacy ADVANTAGES • Distribution Costs Separated From Discount • Direct Relationship With Customers • Control Prices / Discounts To Pharmacy • Full Visibility of Stock and Data • Full Supply Integrity Against Counterfeit • Overcome Price Change Issues • Control Volume • Better Set For Any Fundamental Change To Procurement

  16. Direct to Pharmacy X DISADVANTAGES • Considerable Set Up and Support Cost • Highly Complex and System Dependent • Potential Savings in Overall Discounts Unlikely To Be Retained • Increased Debt Risk • Supply Integrity Policy Impact Unclear • Potential Resistance From Customers • Loose Stock Holding Value When Change Over Occurs

  17. Quote Peter Behner - Booz Allen Hamilton “For a pharmaceutical company to change to a DTP model is an operational change to an order of magnitude, not previously experienced in the UK” Customers 100 15,000

  18. Restricted Wholesale – Key Features(NAPP, S-A & Novartis) • Retain The Existing Wholesale Model • Operate With Fewer Players

  19. Restricted Wholesaler ADVANTAGES • Maintains The Existing Model • Streamline Administrative Processes • Simplify Managing Shortages • Opportunity To Negotiate Better Support, e.g. Data / Stock Info • Relatively Quick and Easy To Implement • ½ Way House To DTP • Opportunity To Negotiate Reduced Fee For ‘Z D’ Lines • Puts Pharma Co in Control

  20. Restricted Wholesaler X DISADVANTAGES • Consolidate Buying Power Into 3 Nationals • Don’t Achieve the Controls of DTP • Loose Market Intelligence From Other Wholesalers • Limit Opportunity to Operate Competitive Discounting With Importers / Other Wholesalers

  21. 3PL : Third Party Logistics(Novartis – Hospitals) KEY FEATURES • Service Provider Holds Stock on Consignment • Pharma Co Holds Relationship With Pharmacy • Pharmacy Places Orders With Pharma Co • Fee For Service Paid on Activity

  22. 3PL : Advantages • Control of Supply • Stock Holding in One Central Point • Ideal For High Value / Low Volume • Maintain Direct Relationship With Customer • Providing Improved Customer Service • Ideal For Direct Cold Chain Products

  23. 3PL : Disadvantages X • Same as For ‘Direct to Pharmacy’ • Challenging For High Customer Base

  24. Other Models of Distribution DIRECT TO CONSUMER • Home Care • Internet Pharmacy and Home Delivery

  25. Other Models of Distribution LOCAL COMMISSIONING • Therapeutic Tendering • Procurement Hubs • Hospital Dispensing to Primary Care • PCT and Other Authorities Purchasing and Distributing • NHS Logistics

  26. Reasons For Change Direct to Pharmacy Direct to Consumer Traditional Wholesale Restricted Wholesale

  27. The Wyeth Portfolio 2007 Estimated

  28. ABPI Supply Chain Group • Reporting To Commercial Committee • 6 Meetings Per Year • Procurement and Commercial Channel Management Issues

  29. ABPI Supply Chain Group ON GOING WORKSTREAMS • Distribution Channels – Homecare • Flu Pandemic Planning Working With DOH • Procurement – BI Annual Meeting With PaSA and PMSG • Dispensing Doctors

  30. Recommendations For CTC Management in Your Organisation:- KEY QUESTIONS - For Your Portfolio: • What Commercial Opportunities Are Available To Drive Top Line Growth • To What Extent Can CTC Strategies Directly Lead To Higher Sales • To What Extent Can CTC Strategies Deliver Indirect Profit Growth • To What Extent Can CTC Strategies Lead To Better Compliance With GDP

  31. Commercial Trade Channel Management Richard Huckle Commercial Operations Manager 15th July 2008

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