Reviewing Supply Chain Associated costs
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Neil Johnston is a pharmacist who trained as a management consultant. He was the first consultant to service the pharmacy profession and commenced practice as a full time consultant in 1972, specialising in community pharmacy management, pharmacy systems, preventive medicine and the marketing of professional services.
He has owned, or part-owned a total of six pharmacies during his career, and for a decade spent time both as a clinical pharmacist and Chief Pharmacist in the public hospital system.
He has been editor of i2P since 2000.
As the grind to remain profitably afloat continues to wear down community pharmacy on multiple fronts, the ability to pare down operating costs has become quite limited.
What can be done better, or done away with if it is under-performing?
In any review process it is inevitable that you will eventually have to come face-to-face with franchise marketing costs and wholesaler supply costs.
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The recent Pfizer-induced supply chain changes have challenged the entire supply system in pharmacy. This is because of market share control, as Pfizer is estimated to own 20% of medicinal products distributed to pharmacy.
In a similar way, wholesaler franchising imposes a control mechanism over community pharmacy.
Retail activity in pharmacy is often bandied about as sales controlled and generated by franchised market groups as if they actually owned those sales. In this regard, community pharmacy has become complacent and allowed yet another influence to control its destiny.
Many community pharmacists are looking at structuring buying groups as one strategy for survival. To match the buying power of wholesalers, buying groups will have to organise themselves into some form of national alliance.
When you get to that stage in your thinking you then have to ask yourself whether your market group franchise is a real embedded cost – or does it really pay?
The results of a recent Roy Morgan survey into pharmacy customer satisfaction illustrated that consumers see very little difference between one community pharmacy banner and any other (84% rating at the low end and 89% at the top end).
Perhaps this was not the right question to be surveyed and maybe the question should have been one of rating brand recognition of banner groups compared with non-franchised pharmacies
When one of the first of this type of survey was undertaken in the late 1970’s it was found that Soul’s was the only franchise to register at a just above the radar rate of 3% of total respondents. All other groups hardly registered.
In the minds of consumers at that time they also registered that they did not find any difference between one pharmacy over another, irrespective of whether they belonged to a franchise or not.
While franchise operations have become more skilled since that time I have not seen any recent data as to whether consumers have moved from that position.
I suspect they haven't, so why are you wearing the cost of a wholesaler franchise?
Most of the warehouse pharmacies run under their own independent brand not controlled by wholesalers.
The reality is that if pharmacists were to organise themselves regionally and identify closely with the consumers within that natural catchment, greater marketing penetration would be achieved at a much lower cost.
So why not develop a marketing concept that could be added on to a bulk buying group, particularly if it is formed up as a national alliance?
In the 1970’s this was how the Soul’s group perceived themselves and their distribution centre was actually defined by them as a “retail-oriented warehouse” not as a wholesaler.
The concept was a great success and although at that time Soul’s had a similar reputation to the “warehouse pharmacies” of today, all other pharmacists envied their success.
The branding of community pharmacies has been a mixed bag.
Initially, consumers looked for a Kodak Film awning sign as the first evidence that a pharmacy was located at that point-one reason for the generic image of pharmacy.
The next clue to pharmacy identity was usually a generic trading name e,g, Anytown Pharmacy and finally in the small print, the actual pharmacist’s name.
As a management consultant at that time I always recommended that the pharmacist always take top billing e.g. John Smith’s Pharmacy; followed by any other affiliation e.g. agent for the products of Soul Pattinson.
This is the natural order of things, but in many instances it is hard to know who the principal of your local pharmacy actually is, and that has allowed goodwill to erode because of eradication of the personality of the pharmacist.
Community pharmacy has never seemed to understand that its business was about primary care and it was the clinical service offering that motivated consumer preference.
Unless this service is highlighted and restored, even that segment of pharmacy is vulnerable to attack from GP’s, nurse consultants and even services offered by natural practitioners.
So a regional marketing group structured to promote and service local pharmacy primary care services at all levels would seem to be a priority. As part of a national bulk-buying group alliance providing scales of economy, it should be possible to generate a stability and profitability better than the current situation.
A percentage of a community pharmacy’s business still needs to involve itself in commercial product sale to generate a certain level of customer traffic. It is the percentage of this type of business to the total business that is important and is the generator of the type atmosphere that would prevail in a pharmacy.
There is so much that can be positively done to offset marketing/supply chain problems - and it is all about control - your control of your own business.