Team name: Goldratt

Team members:

Disha Nikam 09881373117 disha.nikam27@gmail.com

Purnit Chhajer 09833069101 purnit.chhajer@gmail.com
Rohit Adarkar 09819407704 rohitsadarkar@gmail.com

Institute: Prin L. N. Welingkar Institute of Management Development & Research,

Mumbai

Index:
1. Current Distribution system of Indian Drug Industry
2. Proposed Consolidated Distribution system for MegaIndia
3. Implementation (using Hub & Spoke model)
4. Replication of US model in India
5. Features of new system
6. Comparison & Conclusion
 Current Distribution System in India
Challenges in Current Distribution
System: Manufacturer
• Spurious drugs
– Outright fraud
– Little differences in packaging CFA’s
• No online connectivity between company &
stockist /chemist
• Price control imposed by government – thus Stockist
companies do not invest in technology like
RFID/SAP
• Multilayered inventory management –
manufacturers do not have direct access
Institutio
Hospitals Retailers
to retailers’ data (tertiary sales) n
• Competition between wholesalers and
retailers – prolonged credit period and retailers
ask for more discounts Consumer
• Infrastructure of cold-chain technology at
nascent stage
 Proposed Consolidated Distribution System
Branded Retail
Pharma
Hospitals
Generic
Pharma MegaIndia- Clinics
Manufacturers
HealthyUS Dispensers
Biotech (Prime Vendor) PBM/Mail

Physicians
HBA/OTC
LT Care

Data/Services
Importance of Prime Vendor:
Manufacturers Dispensers
• Product Delivery • Product Delivery
• Data Delivery • Decreased Administration Cost
• Credit Management • Financing Source
• Inventory Management • Just-In-Time Inventory
• Services to Enhance Business
Implementation of Hub & Spoke model in
Proposed system:
Manufacturers • Major Pharmacy companies – MNC and Indian

F Mother Hub
• 35 in number
• 45 Days of inventory. 1 Mother Hub for 10 Local Hub

L • 35x10 = 350 in number. 10 in each state

State Hub • 20 days of inventory. 1 State Hub for 20 Local Hub
O
• 350x20 = 7,000 in number. 200 in each state
w Local Hub • 7 days of inventory. 1 Local Hub for 100 retailers

• Approx. 700,000 retailers

Retailers/ Hospitals • Hospitals – government and private
 Hub & Spoke model- PAN India … cont’d
INDIA

Nagpur
Aurangabad

Mumbai
Pune

Kolhapur

MAHARASHTRA
35 Mother Hubs. One for each state/UT
10 State Hubs under a Mother Hub
20 Local Hubs under a State Hub
Ø Number of pharmacy retail points in India ~ 700,000
Ø Each Local Hub covers 100 pharmacy retail points
Replicating HealthyUS business model in India
• With 25 DC’s, HealthyUS is a leader in drug
distribution in USA
• MegaIndia-HealthyUS can be leader in drug
distribution in India due to
– 10,000 zip area reach of FastCarry courier
– 4,000 business partners spread across
USA
geographical terrains of India 25 DC’s point
– MegaIndia group’s footprint covering over 20,000 towns and 4.5 lakh villages
can be used for rural penetration and to sell OTC products
• RFID implementation at the Mother Hub, State Hub and Local Hub level will lead to
• Better visibility of demand of drugs
• Reduced inventory at Mother Hub, State Hub and Dispenser level
• Fewer out of stock scenarios
• Reduced supply chain shrink
• More accurate forecasts and stock replenishment
• GPS / cold chain in distribution vehicles
 Unique features of proposed Distribution
System
Hub and Spoke system
•Goods are centrally
ordered, assembled at
warehouse, known as
‘distribution center’ (hub),
from where they were
dispatched to the retailers
(spoke)
• Will allow JV to achieve
significant cost
advantages by centralized
purchase of goods in bulk
quantities and distributing
them through its own
logistics infrastructure –
FastCarry Courier & Cargo
Ltd. , to retail stores
spread across India
Cross Docking
•Finished goods are
directly picked up from
the manufacturing plant,
sorted out and then
directly supplied to
different hubs
•When State hub places
order with Mother Hub for
goods it also gives list of
goods demanded by each
local Hub
•Mother Hub can directly
deliver the goods to Local
Hub if its on route to State
Hub. Thus minimizing
logistics cost
RFID Technology
•Due to RFID
implementation
employees will no longer
be required to physically
scan the bar codes of
goods entering the Hubs,
thus saving labor cost and
time
•RFID would reduce the
instances of stock-outs at
stores and hospitals
 Current Distribution System (CDS) V/S
Consolidated Distribution System (CDS)
Current Distribution System
% Revenue spent on Supply 4-6%
chain management Eg. For Cipla, ~ 4% 2009-10
Credit Period 30-45 days credit given to
stockists
Margins CFA (1-10%), Stockist (8-10%),
Retailer (16-20%)
Currently 100Rs medicine
cost 145Rs to end user
Data collection Manufacturer is unknown to
retailer’s data on sales
(Tertiary sales)
Efficiency Less efficiency due to multi-
level distribution
Consolidated Distribution System
1-2%
For Cipla estimated % is ~1%
Returns earned as the drugs get
sold by retailers
MegaIndia-HealthyUS (10%),
Retailer (25%)
100Rs medicine will cost 137.5Rs
to end user
Manufacturer will have access
directly to retailer’s data on
sales(Secondary sales)
Better inventory & procurement
management and automated
solutions improves efficiency
 CDS V/S CDS … (cont’d)
Current Distribution System
Stock storage & its loss Probability of return of goods or
expiry of stock is high
Competition with Retailers prefer generics sale due High profit margins on branded
generic drugs to high margins
Rural market Large amount of rural India is
still untapped due to limitations
of current system
Advantage of scale Operating cost is high as scale of
operation is distributed &
fragmented
Demand in market Less focus on generation of
demand
Consolidated Distribution System
Better forecasting & inventory
control will lead to replenishment
of stock before stock expiration
drugs will give a tough
competition to Generic drugs
MegaIndia has presence in
20,000 towns & 4.5 lakhs villages
through which drugs can be made
available. Thus ~ 70% villages of
638,365 villages of India is
covered
Scale & size will incentivize players
to bring in Global standards / save
costs. Economies of scale can be
enjoyed
More focus on generation of
demand
 Problems
Logistic contingencies
• Current reach of FastCarry Courier & Cargo Ltd is 10,000 zip areas where as there
are151,2731 zip areas in India ( www.geopostcodes.com/india_zip_codes)
1

• Pharmacy manufacturers may not tie up with MegaIndia-HealthyUS if they face

resistance (boycott) from CFA’s and stockists because MegaIndia-HealtyUS’ reach
will be less then 7%
Solutions
• MegaIndia-HealthyUS can ramp up their penetration through existing network of
FastCarry Courier & Cargo Ltd and their 4,000 business partners along with
MegaIndia’s presence in 20,000 towns and 4.5 lakh villages
• HealthyUS’ three decades experience can be leveraged to modify FastCarry
Courier & Cargo Ltd’s network for distribution of medicines and setup new
channels of distribution
• They can buyout/tie up with existing CFA’s and stockists to leverage their reach of
retailers
• Direct MOU’s with retail chains like Apollo, Health & Glow; Hospitals like
Wockhardt, Fortis and other private hospitals
• Increase stake in FastCarry Courier & Cargo Ltd’s for better control
Conclusion:

We propose Mr Sachin Arora, CEO MegaIndia, to go ahead with the JV

with HealthyUS as
• Consolidation of drug distribution system is inevitable as it happened
with the retail sector
• It can leverage the expertise of HealthyUS who has been in this
business for more than three decades
• Replacing C&F system is possible and highly efficient in terms of cost,
control and technology
•First movers advantage, backing of HealthyUS and major stake in
India’s Largest Domestic express logistic Network Company outweighs
the risk involved to venture in this sector
•MegaIndia has multiple solutions to overcome any logistic
contingency