Pharmaceutical Distribution Channel in Bangladesh

The aim of the study is to analyze the changes that took place in Bangladesh Pharmaceutical Industries Channel system in the past decade. The current scenario of the pharmaceutical Industry in Bangladesh and external effects that might bring in further changes in the industry is to be thoroughly looked at. Countries with similar channel structure are also analyzed in this course of study. Countries such as Japan, India and Myanmar are presented with their issues and successes.

The Rapid growth of the Bangladesh pharmaceutical industry gave birth to many scopes in creation of different forms of Channel Intermediaries such as wholesalers, retailers out sourced salesperson, and manufacturer sales reps. The pharmaceutical industry developed rapidly from the 1980s after the introduction of Drug (Control) Ordinance-1982. Adequate infrastructure and use of trained manpower were two essential requisites for implementation of national pharmaceutical policies in Bangladesh. The country was importing significant amount of medicine and also raw materials for the industry from abroad.But the industry has started to export its products in foreign market, especially in the Middle East and Europe with great success.

This study tries to identify the similarities and dissimilarities between the Bangladeshi pharmaceutical Industry and the Pharmaceutical Industries in neighboring countries where the industry infrastructure not too far from Bangladesh’s. Introduction The pharmaceutical sector is one of the thrust sectors in Bangladesh. Before Liberation, there was hardly any pharmaceutical enterprise in Bangladesh (then East Pakistan).After several years of liberation, the government could not increase (in relative terms) budgetary allocations for the improvement of health sector. At that time, most of the people had little access to the essential life-saving medicines.

This sector started to improve from 1980s. The pharmaceutical industry has grown in the last two decades at a considerable rate. After the promulgation of Drug Control Ordinance-1982, the development of pharmaceuticals industry has accelerated. The Pharmaceutical Industry is composed of 200 different companies with an industry growth rate of 17%.Now this development of the industry triggered a major Channel systems creation that ought to be very structured and induces no need for any reengineering. Lets looks into the channel structure: Insert Exhibit 1 here The channel Structure in Bangladesh pharmaceutical Industry is a very sophisticated a structure with multiple routes to reaching their end customer.

The use of many channel intermediaries allow the manufacturer provide the product to reach the end user with a strong potential of value creation.As seen in the Core competency of Orion infusion ltd., one of the leading pharmaceutical manufacturer in Bangladesh, who confirms their competitive edge as of ‘’Our extensive distribution network in al over Bangladesh provides a smooth operation to meet the need of our customer since its inception. Under the direct surveillance of the Central Distribution Centre, 700 people ensure te on time delivery through 20 depots and 45 customized vehicles confer the quality till it reaches to the hand of the end-customers.

’’ It is quite evident with that our channel structure is in a very sustainable, expandable and robust position.Insert Exhibit 2 here Marketing In Bangladesh Pharmaceutical Industry Marketing is the backbone of all industries. Though pharmaceuticals produce life saving drugs, they also need marketing. But their marketing is to some extent different from other industries. Some major characteristics of marketing sector are given below: * Their distributional channel includes invoice system, own distribution channel.

* Medical representatives are the key persons in marketing. * For promotion, the groups such as doctors, surgeons are targeted. * Major promotional strategies include printed promotional materials, physical sample, and clinical materials. * Special incentives are given to the doctors.For example, the doctors are given honeymoon packages, the cost of which is borne by the pharmaceuticals.

Channel Systems in Other Countries Moving on with the research, we now look into the pharmaceutical industries from the neighboring countries such as India, Japan and Myanmar. We look for similarities and dissimilarities between their channel system and strategies applied and Bangladesh’s one in the present time context.Channel Distribution Process in India Insert Exhibit 3 here The above mentioned Diagram shows the structure of the generic channel distribution used in the Indian Pharmaceutical Industry. There are various layer indentified in these diagram: The CFAs, stockists, wholesalers and retailers. The CFAs The position of CFAs is one of the weakest in the supply chain: they exist only because of India’s particular taxation systems, and new retail chains are attempting to by-pass the CFA and deal directly with producers. The rationale for the CFA depends on the divisions between central and state sales tax system.

In principle, each of the larger pharmaceuticals producers has one CFA in ach of India’s States; in practice, pecially in the case of a larger company, there may be several in each of the larger states, but not all states may warrant a CFA. If the 60 or so large companies have an average of 25 CFAs, then there are about 1500 in total: but things seem to be more complicated than this, Pharmaceutical Companies increasingly replaced company- owned epots and warehouses with CFAs, in order to cut overheads.Stockist’s/Wholesalers During 1970s and 1980s, attempts were made to expand drug distribution to emerging markets, many small players became stockiest and wholesalers, in order to compete and because of the higher profitability of drug marketing in comparison to drug production. Stockists typically market prioducts of 6-8 pharmaceutical companies, only a few distribute products of more than 50 companies. Mergers and acquisitions of pharmaceutical companies have almost doubled the number of stockists per company and created quite tough competition at this distribution level.

Stockists of the same company are competing against each other and thus possibly strengthening the bargaining position of retailers. Stockists’ have their own visiting salesman who contract and sock retailers on frequent basis. Stockists get 8-10% of their sale price to the retailer , by contrast, reported a margin of 8% of the maximum retail price of price – controlled drugs and 16% on de-controlled drugs. Retailers/Pharmacies/Dispensing Practitioners The remainder of the market is made up of a large number of small – scale suppliers, who often act as prescribers as well as retailers.The number of the retailers is subject to some considerable margins of error. It was reported that there are 50000 retailers in 2005 but an early domestic report concluded 550000 retailers by 2000.

In rural and small town India private medical Practitioners usually keep stocks of most of the medicine they expect to prescribe. Most small hospitals and nursing homes also have in –house pharmacies and require patients to by the drugs on the premises, whether they are in or out patients. Challenges the Channel System faces The simple picture is misleading, for two main reasons.First , individuals or companies occupy more than one position.

Secondly and partly as a result the allocation of margins to different levels of this structure is more apparent than real. Not only can some actors accrue the margns applicable to more than one level, and other have to share theirs with layers above or below them, but some companies seem to operate ad hoc schemes to reward some player with special or timed limited offers. It is also clear that changes underway in the retail sector will lead to an as yet untested situation. Here the power of the retailers associations may make a crucial difference.Increasing Competition Between Wholesalers and Retailers Today, with so many mergers and acquisitions in the Indian pharmaceutical industry, the number of stockists for each company has increased. Now two stockists of the same company may be competing against each other.

Retailers take advantage of this situation by prolonging the credit period and asking for more discounts, which has an adverse effect on stockists, because they have to comply with the retailers to sustain their business.Channel Distribution Process in Japan Distribution Channels and Stakeholders Pharmaceutical products, mainly ethical and Over-the-Counter (OTC) drugs, follow the traditional wholesaler-based method of distribution in Japan. Ethical drugs are transferred from wholesalers to the patients by hospitals, clinics or dispensing pharmacies, while OTC products are dispensed by dispensing pharmacies and drug stores. A Direct-to-Pharmacy (DTP) route is also used for the distribution of OTC products.

The pharmaceutical distribution (wholesale) industry in Japan is an oligopoly of the top four wholesalers: Medipal Holdings, Alfresa Holdings, Suzuken Group and Toho Holdings, which represent 89% of the market.The introduction of price revisions has increased competition among the wholesalers and forced them to lower their costs to remain profitable. Additionally, a trend of strategic consolidations, mainly M&As, has started in the industry, resulting in a 45% decrease in the number of companies in the last decade alone. The distribution of all medicines, including ethical drugs, OTC products and quasi-drugs (cosmeceuticals), from wholesalers is restricted to within five licensed distribution channels Drivers of Change In 2008, many batches of an anticoagulant, heparin, were recalled by the Food and Drug Administration (FDA) due to the contamination of the raw material imported from China.

The incident highlighted the challenges faced by the pharmaceutical supply chain globally. Contaminated and counterfeit products became a threat for patients and manufacturers. As a result, pharmaceutical companies and Contract Manufacturing Organizations (CMOs) became increasingly vigilant about the quality of raw materials and finished products entering or leaving the shop floor.Another setback for companies operating in Japan was the Ministry of Health, Labor and Welfare's (MHLW's) reduction of National Health Insurance drug prices by 6. 5% in 2010, significantly more than the normal 2% decrease that had been followed since 1994. Because of this price revision, purchasing and selling price negotiations became more challenging, thereby affecting the profit margins of supply chain participants.

Scope Segmentation of pharmaceutical supply industry by its major components such as manufacturers, wholesalers and medical institutions.Key issues and unmet needs of the pharmaceutical supply chain in Japan. Analysis of technologies adopted by pharmaceutical manufacturers and wholesalers to stay competitive in the current scenario. Insights into the legal and regulatory landscape, focusing on laws and regulations followed to obtain marketing, manufacturing and distribution licenses for drugs in Japan. Understanding of key risks that are encountered by pharmaceutical supply chain participants. Profile of key companies involved in the pharmaceutical supply chain.