Kalyan Pharma

Presented by: Anju Khatri Anshulika Singh Amulya Sharma Divya Prabhu Shrabani Mohanty Vinay Thakur

Objectives of the distribution system pre 1991y Reduces distribution costs accrued due to account

receivables from wholesalers y Wholesalers were not willing or equipped to handle sales promotion y To increase customer service y Debt collecting was a major duty of the branch staff

Results after 1991y Reduction of inventory levels post 1991 y Reduction in book debts y Increase in profitability y Decrease in the distribution related staff y Time saving

Effect of DPCO on channels

DPCO (1962)Aim - Contain inflammatory forces expected as a consequence of war Action publishing the price list of products by manufacturers, importers, distributors and chemists

DPCO (1963)y Freezing of sales prices of drugs at the level obtained on 1st

April 1963 y Addition in 1966 were as followsy Manufacturers had to secure prior approval of the government

before increasing the prices of any formulations in their lists as per the 30th June, 1966 y Prices of drugs sold in loose were regulated y Manufacturers to stamp the retail selling prices on the containers of the drugs

Impact of DPCO (1963)y Reduction in the profitability y Hampered long term growth y Voluntary price reductions might not be seen in future

DPCO (1970)y To reduce the high prices of essential drugs y Providing sufficient incentives to the industry to facilitate its y y

y y y

growth To develop research facilities and expansion in a planned manner To promote diversification of entrepreneurship in future development of industry thus providing better opportunity for technically qualified Indian personnel's. Curb excessive profits Bulk Drugs were divided into Essential and Others Markups were dictated

Impact of DPCO (1970)y Reduction in profitability due to price control in 1970 y Increase in prices of some of the products

DPCO (1979)y The bulk drugs were grouped into three different categories y The maximum sale prices of selective bulk drugs were fixedy Category 1 prices 14% post tax on net worth y Category 2 prices 14% post tax on net worth y Category 3 (Others) prices 12% post tax on net worth

Impact of DPCO (1979)y Mark up for three different categories turned out to be

unrealisticy Mark ups for category 1 and 2 were much lower than break

even level hence they had no incentives to produce y Considerable time taken for the revision of prices. As the cost increases remain uncompensated for some time, the profits as a results was even less. y While granting price approvals, cost accounting based on certain norms was favorable for some while penalized others

Impact on KPL channels after DPCO 1979y DPCO forced to reduce retailer margin from 25% to 15 % y Introduction of Wholesaler (2000 by 1982) y Wholesalers were expected to give credit to retailers y The sales target linked rebate for the wholesalers was from

2.5%-5% y Direct sales to retailers was stopped in 1982 y This helped in lesser effort of invoicing and order processing

Distribution Network

Company

Wholesaler

Retailer

DPCO (1987)y Reclassification of three categories of drugs into two

categoriesa) b)

Category 1 Drugs necessary for national health program ( 27 drugs entitled to 75% MAPE) Category 2 Other essential drugs ( 139 drugs entitled to 100% MAPE) regulate equitable distribution Increase supply of indigenously produced bulk drugs

y

Resultsy y

Impact of DPCO (1987)y No consideration on increase in costs of input, conversion

and packaging while fixing prices in 1979 y Since cost updating of essential drugs was not done periodically many companies were opting out of manufacturing them

Present Systemy Improved customer service y Reduce accounts receivable y Improve sales and profitability y Branches eliminated the functions of receiving

supplies,sorting,stocking and dispatching y Better services to wholesalers which helped in negotiating for reduced margin

Benefitsy Reduction in inventory with increase in order frequency y Customer service increased y Faster order processing y Book Debt reduced from 90 days to 7 days of sales y Distribution staff reduced from 600 to 200

Current distribution channelFactory KRD Distributing Branch

Institutional buyers

Retailer/Doctor

Wholesaler

Order Information Flow

Goods Flow

Retailer

Objective Pre-1991y Reduces distribution costs accrued due to account

receivables from wholesalers y Wholesalers were not willing or equipped to handle sales promotion y To increase customer service y Debt collecting was a major duty of the branch staff

Results after 1991y Increase in customer service y Faster order processing y Reduction in the book debts

Objective of adding the new layer of KRDy Reduces distribution costs accrued due to account

receivables from wholesalers y Wholesalers were not willing or equipped to handle sales promotion y To increase customer service y Debt collecting was a major duty of the branch staff

Reasons of failure (pre-1991)y Higher cost of distribution y Poor customer service y Time of staff at branch level was spent of distribution and

collections y Sales promotions were neglected

Functions of KRD post 1991 i.e. after introduction of Distributorsy Improved customer and wholesaler services y Order processing y Reducing accounts receivable y Improving sales and profitability y Branches no longer the part of physical flow y Warehousing and infrastructure y Book debts were reduced

Cost advantages cost and serviceManpower related costs: Elimination of people employed at the KRD Order processing Reduction in the manpower cost pertaining to receiving supplies, sorting, stocking and despatchinga.

b. Inventory related costs: Cost incurred in inventory keeping by the KRDs would be zero Inventory level needed at KRD would be zero Establishment costs in terms of infrastructure would decrease Inventory costs pertaining to the factory inventory would be reduced

c. Commissions and account receivables cost: Reduction in cost of accounts receivable by elimination of the KRD Reduction in the transportation cost due to elimination of one company level in the channel Cost related to debt collection would be reduced

Service related cost advantages Change in the responsiveness of the order processing On time delivery Customer satisfaction Time saving

Implementation of ITy Increase in the demand accuracy and order fulfillment

satisfaction levels y Reduce inventory levels and increased inventory turns across the network y Increase profitability and productivity y Integrate sales and operations planning process