PROCUREMENT BUSINESS
MODEL FOR A RETAIL
PHARMACY
Pharmacies are often the first point of contact for patients seeking
health care as they are usually more accessible and less socially
distant than other providers, including medical doctors.
In low and middle income countries (LMIC) in Asia, pharmacies are
often patients’ first point of contact with the health care system and
their preferred channel for purchasing medicines.
The product range offered in the proposed Retail Pharmacy is a
blend of both multinational and national companies’ products and
general products (Food Supplements, Toiletries, Shampoos,
Soaps, Diapers (sanitary napkins) and Cellular Prepaid Cards).
Having too much inventory (or the wrong type) during certain
periods can slow your cash flow and reduce profits with too many
markdowns. On the other hand, if you under-buy (meaning buy too
little product) and miss sales opportunities, then you are not making
your potential profit (plus damaging the customer experience).
A retailer can be sure to stock the right amount of the right products
at the right time by using an Open-To-Buy (OTB) plan.
Open-To-Buy can be calculated in either Units or Value. However,
it's best to use Value since there are significant variations in costs
between same products.
Examples:
Omeprazole 20mg Caps 14s
TP 600 approx.
MRP 700 approx. (Local Pharma)
Omeprazole 20mg Caps 2x7s
TP 170 approx.
MRP 200 approx. (Local Pharma)
Omeprazole 20mg Caps 14s
TP 125 approx.
MRP 150 approx. (Local Pharma)
Omeprazole 20mg Caps 14s
TP 130 approx.
MRP 150 approx. (Local Pharma)
Omeprazole 20mg Caps 14s
TP 120 approx.
MRP 145 approx. (MNC)
Pre-Feasibility Study
RETAIL PHARMACY
Pakistan has a very vibrant and forward looking Pharmaceutical
Industry. Today Pakistan has about 800 pharmaceutical
manufacturing units including those operated by 25 multinationals
present in the country.
Pakistan’s Pharmaceutical Industry meets around 70% of the
country's demand of finished medicine. The domestic pharmaceutical
market, in terms of share market is almost evenly divided between the
local and multinational companies.
The total initial project cost for setting up a single outlet (750 sq. feet)
is estimated at Rs. 5.99 million; out of which:
Rs. 2.16 million is Capital Cost
Rs. 3.83 million as Working Capital
Project Cost
Amount
Description Rs.
Capital Cost
Furniture and Fixture 963,000
Medical Store Equipment 260,000
Pre-operating Cost 940,000
Total Capital Cost 2,163,000
Working Capital
Medicines Stock 2,792,850
Upfront Shop Rent 600,000
Cash 434,818
Total Working Capital 3,827,668
Total Project Cost 5,990,668
A key decision in retail pharmacy is how much inventory to keep on
hand. Inventory is usually a pharmacy’s largest asset. Once
inventory levels are established, they become an important input to
the financial aspect of any business, as they are key to driving cash
flow and profitability.
Brief Description of Project
& Product
The proposed project is a well-built medical store with all of the
product range in stock for sales.
The proposed Size of the medical store should be around 750 sq.
feet.
The proposed project is based on well-established pharmaceutical
retail chains of Pakistan.
Product Mix
The proposed medical store will be offering a blend of different
products. Percentage quantity of each item offered on the store is
based on a survey of distribution companies.
Following is the list of products, which are to be offered at the
medical store:
Product Category Percentage In Total Sales
Products of Multinational Companies 36.80
Products of National Companies 45.00
Herbal Products 4.55
Food Supplements 2.73
Eatables 4.55
Toiletries 1.82
Sanitation Products 1.82
Pre-Paid Cards 2.73
Total 100.00
Critical Factors
(Procurement)
Retail pharmacy is similar to a trading business, some of the Key
Success factors that will determine the success of this project
include:
Availability of complete product range
Availability of regular medicine supplies
Reasonable and competitive prices
Inventory control to avoid any expiry, damage, pilferage
Availability of complete
product range
Challenge 1: Sourcing & Stocks
Sourcing a high number of SKUs (Products) from a highly
fragmented market to manage hundreds and thousands of brands
and products in terms of sourcing, stocking and payments.
Recommendation:
It is recommended that a Medicines stock (Page 2 : PKR 2.79
Million for a single outlet of 750sq. feet) is maintained initially for:
WHO study for common diseases in Pakistan
Mosquito-borne Diseases Cancer
Heart Disease Diabetes
Intestinal Infections Stroke
Bacterial Diseases Respiratory
Viral Diseases Accidents, Injuries, Poisoning
Hepatitis A and E Seasonal Diseases
Tuberculosis
The following categories of drugs fall in the list of scheduled drugs
(source: DRAP):
Biological, Infusions and Drugs used for the treatment of Cancer,
T.B., Hepatitis, HIV, Thalassemia and Organ Transplant.
160 molecules of public health significance from the Essential Drug
List (EDL) of Drug Regulatory Authority of Pakistan.
Top 50 molecules in unit terms as per Information Medical Statistics
(IMS).
One can understand that 160 + 50 + 115 = 325 molecules of drugs from
Top 20 Pharmaceuticals will bring SKUs to 6,500 (which will double as
most of the drugs are available either in 2 or 3 strengths); it is
recommended FOR RETAIL PHARMA to adopt PROCUREMENT
“Open-To-Buy Plan with Value” instead of Units
Once the sourcing is established, following must be monitored to achieve
the targets:
Identifying and estimating the demand for the products in the area
Maintaining stock levels and ensuring availability of the products
Minimizing stock loss due to expiry (FEFO), damage, theft or pilferage
Negotiating prices, discounts and payment terms with the suppliers
Procuring in time and as per need
Maintaining a record of customer details, sales data and stock outs
Continuous updating of stock based on knowledge acquired over time
Managing Inventory:
Break down inventory into two broad classes: Base Stock and Safety Stock.
Base stock is the portion of inventory that is replenished after it’s sold to customers.
Think of base stock as the foundation of your pharmacy from which prescriptions are
filled day in and day out.
Safety stock is the portion of inventory that is held to protect against uncertainty. It’s
that extra bottle that you keep “just in case.” The rule of thumb in base stock and safety
stock is simple: Keep an adequate supply of base stock and as little safety stock as
possible.
Reduce overall inventory Get rid of excess safety stock, outdated products and items
that are on the shelves but rarely or never move by return for credit anything that hasn’t
moved in the last 30 days and increase safety stock on faster moving products to
ensure adequate stock.
Just in time ordering only works when you have reliable delivery, reliable supply, and
stable, predictable demand
Challenge 2: Low Quality and Fake Medicines
This can be catered by procuring all products directly from manufacturers and its direct
authorized distributors only.
The stocks are then meticulously maintained in proper storage conditions during
warehousing by following a Hub & Spoke model (wherein all the outlets are connected
to a mother distribution center)
This makes the distribution centralized and there is no scope of spurious drugs getting
into the system, in a way that right from procurement till the counter sale of products,
the batch number and expiry dates are traceable (which will also be helpful during
reverse logistics, in case of expiry, batch recall from manufacturer, defect et cetera).
Drug Regulatory Authority of Pakistan has also GS1 Data Matrix 2D Machine Readable
Bar Coding of Primary, Secondary & Tertiary Packaging
Procurement Team
Initially a Procurement Team comprising of 4 members to manage procurement process
(P2P) of 8 ~ 10 Retail Pharmacy Outlets within a city will be required for smooth and
hassle free operations.
Each individual can be assigned a Group of Product (like Drug Category e.g. Anti-
Allergy, Cardio-Vascular etc.)
OR
Each individual can be assigned a Group of Pharma Companies (Area-Wise e.g.
S.I.T.E, K.I.A. etc.)
OR
Each individual can be assigned a Group of Pharma Companies (like City-Wise e.g.
KHI, LHE, ISB etc.)
SUMMARY
Procurement Strategy: Open-To-Buy {Value Based (based on WHO study for
common diseases in Pakistan) instead of Unit Based}
Feasibility for a Single Outlet of 750 sq. feet.
Total initial project cost PKR 5.99 Million approx., including Medicine Stock Value
PKR 2.79 Million approx.
Product Mix (Open-To-Buy ~ Value Based supported by WHO study for common
diseases in Pakistan)
Products of Multinational Companies
Products of National Companies
Herbal Products
Food Supplements
Eatables
Toiletries
Sanitation Products
Pre-Paid Cards
Product Range
Based on WHO study for common diseases in Pakistan + Seasonal diseases
Categories of drugs fall in the list of scheduled drugs (source: DRAP)
Managing Inventory
Demand
Negotiation
Stocks, Par Levels (Base Stock, Safety Stock), First Expiry First Out (FEFO)
Hub & Spoke Model
Reordering via centralized distribution location to outlets
Delivery to outlets via centralized location:
Minimizing time & efforts
Reducing Overall Inventory by avoiding duplication
Control of Fake product
Traceability from Ordering till counter sale
Helpful in Reverse Logistics
Drug Regulatory Authority of Pakistan
GS1 Data Matrix 2D Machine Readable Bar Coding for counterfeiting drugs
Procurement Team
Drug Category
Area-Wise
City-Wise
Population of Karachi as per Census 2017 is 14,910,352 (Source: Pakistan Bureau of
Statistics)
Commonly bought Prescription Drugs: Antibiotics, Quinolones and Cephalosporins
Price Component of a locally manufactured generic (source: The Network for Consumer
Protection 2006)
Retail MarkUp 15%
WholeSale MarkUP 02%
Local Distribution 05%
Central Research Fund 01%
Manufacturer’s Selling Price 77%
Total 100%
THANK YOU
