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Outside the box

Rob Skelding hears from a new firm that seeks to lift the lid on the dark art of supply chain management

Tanya_table1 Until the relatively recent emergence of direct-to-pharmacy (DTP) supply models, distribution of pharma's products hadn't changed notably for years. Some felt new thinking was overdue as the impact of cost cuts, parallel trade and the potential for medicine counterfeiting and supply tainting became progressively potent.

Yet the newer DTP supply models – with manufacturers using one or just a few specific wholesalers – do not enjoy universal acclaim as the best means of improving visibility in supply management. Indeed, one new firm – open for business from June 1, 2009 – claims that DTP is a misnomer for the majority of these purchase and distribution models.

PM asked Tanya Monteith, managing director of Clarity, to explain why she believes there's an appetite for something radically different to purify and protect product supply.

What's wrong with the 'standard' supply system in the UK?
Standard procedure in the UK is for pharma firms to ship their products to wholesalers. The wholesaler then delivers to retail pharmacists before the patient collects the medicines with a prescription. Therefore, the wholesaler – holding the direct relationship with the retail pharmacist – essentially becomes the key handler for those branded products. You can see why, conceptually, many manufacturers have a problem with this. The pharmaceutical developer, as the creator of the brand, should also own the brand and so, naturally, would want a direct relationship with the end buyer, instead of being cut off by the intermediary who has the ability to cut deals on the blind side. This applies to all pharmaceutical supply channels whether retail, hospital, dispensing doctor, direct to doctor and ultimately direct to patient.

Don't the new DTP schemes, where manufacturers work only with specific wholesalers, help to address this?
In the past two-to-three years we've seen the advent, indeed a bit of an avalanche, of so-called direct-to-pharmacy schemes. However, most of these do not link the manufacturer and pharmacist directly at all. Rather, the drugs companies involved simply choose to restrict business to one or just a few wholesalers. So it's exactly the same as the outmoded traditional process, just with fewer people involved.

These models might go some way to mitigating a few of the weaknesses in a fragmented distribution system, but crucially they provide no greater visibility of product supply, or improved relations with the retail pharmacist or hospital. What's more, 'abnormal orders' are still going through this model.

There is a lot of frustration in the manufacturing industry with the wholesaler, which has effectively become one of the biggest operators of retail pharmacy in Europe. The three main wholesalers have become traders, buying from anybody and everybody with a licence, and I'm sure the manufacturers have lost faith.  

How would you improve the system?
The fundamental question is: what does a manufacturer really need to get original stock on the pharmacist's shelf, on time and at the most competitive price? The answer is visibility in the supply chain and a direct relationship with the pharmacist.

Clarity is a new internet-based ordering facility and commercial management system for pharmaceuticals, which we set up to give manufacturers visibility of product right from the factory gates to actually ending up on the UK pharmacy shelf. In fact, in a future development we anticipate that pharma will have visibility right through to the patient, which – from a manufacturer's point of view – is invaluable.

Companies don't have that currently; once their branded product has been sold to the main UK wholesaler, they effectively lose all control and sight. The next batch of IMS data is all they have.

In contrast we would enable manufacturers to improve their visability by providing real time sales data and manage product prices, discounts and supply online directly with the pharmacist. With Clarity the manufacturer also has total choice; the choice to use the scheme in retail and all other channels or select specific channels to apply the scheme through. It is totally flexible

It sounds like you're effectively ousting the wholesaler as the intermediary. How do you expect them to react?
I guess the first thing the major wholesalers will do is go to a pharmacist and say, "What advantage does this scheme really offer? We already have a terminal and barcode reader in your shop, so you know how to run the stock control system. In addition, Clarity doesn't offer the advantage of 30-40 years' experience in the business as we do."

However, I think wholesalers have missed an opportunity in the IT revolution, particularly over the past decade or so, by not making their systems totally web-based. Pharmacists continue to use wholesalers' own systems linked in to their depots. These systems do not have the flexibility they need and which could be provided through a web-based system.

Look at other industries with key supply chains and you'll see that they are all web-based.

What do you claim are the benefits of improved visibility with Clarity versus the existing system?
It is a cutting-edge informative interface that gives pharmaceutical companies direct access to 14,000 outlets and total supply chain visibility. Not only can the highly valuable information this generates be used to create and enhance targeted campaigns and sales strategies, but the clear view of potential export strategies also gives users an extra handle on European trading and, therefore, the potential to reduce the risk of counterfeit medicines reaching pharmacists and patients.

Users are also able to recover control of the retail price. When we ran the various focus groups to understand how manufacturers view the current supply chain, the primary issues raised centred around the '12.5 per cent discount'.

The 12.5 per cent standard UK discount is being viewed with increasing interest by the manufacturers, many of whom want to understand what they are getting apart from distribution for this level of discount. In many cases the discount needs to be greater and in some cases it needs to be less. The discount needs to be specific to each product and each market sector.

Won't that make life harder for the retail pharmacist?
Firms don't want to penalise the retail pharmacist, but what they are trying to do is maximise their profits in a very challenging environment. With Clarity, pharmacists get direct control when achieving the net price they desire. It's nice and clean and all done upfront; the pharmacists can see exactly what they're getting, without any smoke and mirrors, and it will be delivered on time and in full.

Clarity also improves product recall processes and helps pharmacists deliver proven, authentic UK medicines to patients because distribution of all UK medicines will be tracked and recorded and is, therefore, secure.

Where does Clarity sit as regards the legal provision for free trade of pharmaceuticals across Europe?
We've researched this area thoroughly of course, and in accordance with the Treaty of Rome, Clarity does not in any way restrict pharmacies from trading products with EU Member States. Manufacturers are fully aware of the law in this area. Clarity will, however, give companies visibility where they may have potential issues.

Even where a large manufacturer might choose to deal with a single wholesaler supplying UK pharmacists – as we've seen in recent times – the same lack of visibility that affects the 'standard' multi-dealer system means that abnormal orders prevail. This could result in pharma firms having to audit the retail customers. In fact, this has happened already.

Clarity will eliminate the risk of that scenario occurring because the manufacturer will be able to see very clearly where the product goes. So, if you have a retail pharmacy somewhere in the UK that suddenly orders 1,000 packs out of the blue, the manufacturer will be able to pick this up very quickly and take the necessary action. In no way do we advocate a company using Clarity as a system to eliminate products going into Europe. That is a separate issue completely.

Can firms make cost efficiencies by selling/distributing through Clarity?
Well there is potentially a saving. Companies will obviously make their own decisions regarding strategy and discounts to customers. It would be a brave pharmaceutical company that decides to strip discount entirely out of the system, but there may be a company that decides to take that route. With Clarity they have that option.

We are giving them the visibility and the ability to manage that discount themselves, rather than letting their distributor do it on their behalf.

Under the current or 'old' system, where a manufacturer considers running a campaign of additional discount, the pharmacist buys it at whatever discount has come from their wholesaler and then, if the manufacturer wants to offer, say, a further 10 per cent, it either comes through the wholesaler or the originator sends a cheque to the pharmacist. It's messy and difficult to control.

Clarity gives the manufacturer the ability to alter the price directly and immediately online.

Are pharma companies geared up to switch to this kind of system?
There is some resistance by pharma towards the whole expansion of internet technology and web 2.0 applications and technology in particular, which is something we want to address. We see that as a natural progression for Clarity and an opportunity for companies to get involved in some of the more exciting elements of the internet.

We've seen the success of things like social networking and we're currently exploring the option of networking people right across the supply chain and NHS, to make sure that everyone is communicating effectively.

The Author
Rob Skelding is a freelance healthcare journalist

1st July 2009

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