emerging markets: developing supply chain...
TRANSCRIPT
October 9th, 2012
Emerging Markets: Developing Supply Chain Capabilities
Health and Personal Care Logistics Conference
A.T. Kearney 2
Vishal Bhandari
Principal
Mike Wise
Partner
Summary of experience
• Over 12 years of consulting experience
• Worked with companies across pharmaceutical, biotech, medical devices and pharmacy sectors
• Specific experience in pharmaceutical supply chain (procurement, planning, distribution) and M&A
• Worked across US, Europe and Asia
Summary of experience
• Over 20 years of consulting experience
• Member of A.T. Kearney Healthcare practice leadership
• A.T. Kearney global account partner; accountable for quality of all work conducted
• Experience across the entire supply chain
Introductions
A.T. Kearney 3
A.T. Kearney – Helping our clients achieve immediate impact and growing advantage
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Asia/Pacific • Bangkok • Beijing • Hong Kong • Jakarta • Kuala
Lumpur • Melbourne • Mumbai • New Delhi • Seoul • Shanghai • Singapore • Sydney • Tokyo
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South
America • Sao Paulo
Europe • Madrid • Milan • Moscow • Munich • Oslo • Paris
• Frankfurt • Helsinki • Istanbul • Lisbon • Ljubljana • London
• Amsterdam • Berlin • Brussels • Bucharest • Copenhagen • Düsseldorf
• Prague • Rome • Stockholm • Stuttgart • Vienna • Warsaw • Zurich
A.T. Kearney‟s Global Reach
Firm Facts
• Top global management consultancy – 80 years of history – 50+ offices in over 30
countries – 2700+ global
colleagues
• Unique approach – Industry expertise,
strategic insight, and operational know-how
– A collaborative working style
A.T. Kearney 4
What is the recipe for growing in Emerging Markets?
Source: CIA World Factbook. 2. http://asiancorrespondent.com/76351/how-many-languages-are-spoken-in-india/ 3..http://www.blackrock.es/content/groups/uksite/documents/literature/1111106088.pdf
Recipe Ingredients:
• 3.8 Bn healthcare consumers speaking 100‟s of languages
• Still-developing Infrastructure (rails, roads, harbors)
• No real-time cold chain/temperature monitoring
• Uncertain regulatory environment
• Fragmented distribution and pharmacy structure
• Complexity of local partnerships
• Add additional spices, according to taste…and place in oven
Emerging Markets Cookbook
A.T. Kearney 5
Key Messages for Today
1. Rapid Growth in Emerging Markets is one of six fundamental disruptors reshaping pharmaceutical business and operating models
2. Many supply chain clients feel they are playing catch up developing capabilities to support forecasted/desired growth
3. There is no one size fits all, Emerging Markets vary widely in their market maturity, customer expectations and supply chain challenges
4. Conventional solutions often do not work – market capabilities, human talent and business case are often lacking
5. Creative solutions and new competencies are required to thrive in these markets
A.T. Kearney 6
Healthcare Disruptors
A.T. Kearney 7
Research Inputs to A.T. Kearney Disruptors Study
Emerging realities that will disrupt future Health Operations
Disruptors
FUTURISTS (Game changing trends
in macro forces)
ACADEMICIANS (External view of
disruptors and trends)
PHARMA EXECUTIVES
(Inside out view of disruptors to industry)
Inputs into Disruptors of Future Health
Operations GLOBAL BUSINESS POLICY COUNCIL
(Global macro-economic perspectives)
A.T. KEARNEY EXPERTS
(Cross Industry input)
SECONDARY RESEARCH
(Informs and supports developing theories)
A.T. Kearney 8
Drivers for the New Pharmaceutical Industry Paradigm
These forces are profoundly impacting Pharma Operations
6 Fundamental Forces are reshaping the healthcare landscape
Disruptors
The balance of power is shifting: payers; generics; regulator transparency decreasing
Increased access to clinical data impact care & reimburse –ment
Traditional innovation insufficient to maintain growth
Cost pressure will increase current system is un-sustainable
Value Chain activities Increasingly complex with low visibility
C A E D B Emerging markets create new growth opportunities
A.T. Kearney 9
Traditional innovation is no longer sufficient
Source: BioPharm Insight; CMAJ.ca; Journal of Health Economics; A.T. Kearney analysis
C A E D B
7.9
9.8
12.7
14.7
0
5
10
15 1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
05-‟09 00-‟04 95-99 90-94
“It‟s a cruel model.” CFO, Global Pharmaceutical Manufacturer
– In Years – $ (000‟s) MM
Avg. Length of Market Exclusivity & Development Cost
There is demand to develop products & services for evolving health needs
Disruptors
A.T. Kearney 10
Value chain activities increasingly complex – visibility limited
Source: Business Insights, A.T. Kearney analysis
“The world is so small and interwoven – we don‟t know our own blind spots,” Former CEO, Pharmaceutical Company
Multiple Levels of Business Complexity
Product science, genesis & idea sourcing increasingly complex
Research Manufacturing
Outsourced activities & tighter control/regulation varies by market
Supply Chain
Diverse supply base, complex portfolio delivered across worldwide network
C A E D B
Disruptors
A.T. Kearney 11
C A E D B
Clinical data drives new protocols and reimbursement decisions
“Outcomes data will start dictating standards of care and what treatments get approved for reimbursement”, President, Biotech Firm
1. Represents the number of unique trade name products/variations that have received FDA approval Source: FDA.gov; BioPharm Insight; A.T. Kearney analysis
Allergies Glaucoma
33
12
2015 2010 1990
? ?
Approved Rx Products on the Market1 – Examples –
45
13
2015 2010 1990
Disruptors
A.T. Kearney 12
Source: A.T. Kearney interviews with pharma executives
Balance of power is rapidly shifting between industry players
Physicians : Key Decision Makers
Branded Medications
Regulators : Collaborative Partner
Regulators : „Black Box‟
Payers : Key Decision Makers
Generic Medications
Shifts from: To: “Balance of power clearly
shifting to the payers”
“Biosimilars causing Wall
Street to recalculate
biotech‟s revenue models”
“Worry about role of
international regulators”
C A E D B
Disruptors
A.T. Kearney 13
Existing healthcare models are not sustainable
“Must integrate Health Economic Research early in trial design”, Director of Alliance Management, Global Pharmaceutical Manufacturer
Source: United Nations, World Health Organization; A.T.Kearney analysis
Dependency Ratios in Developed Countries Are Out of Balance
Most health systems were designed for this demographic…
…but will have to deal with this reality
= Retirement age
USA UK Germany
1950
2020
Japan
= Working age
C A E D B
Disruptors
A.T. Kearney 14
The Emerging Realities for Future Pharma Operations
A world of virtual partners
where orchestration is an
essential competency
Emerging Reality #1:
Vertical Integration is Dead
A world of rapid commoditization where differentiation based on efficiencies rules the day
Emerging Reality #2: Race to the Bottom
Two emerging realities are “disrupting” pharma operations
How is your company responding to these new realities?
Discussion
A.T. Kearney 15
While existing business models are being disrupted – “pharmerging” markets are expanding
“Pharmerging” markets defined
Note: 1. Pharmarging defined by IMS 2. Developed markets are defined as the U.S., Japan,Top 5 Europe countries (Germany, France, Italy,Spain, UK), Canada and South Korea. Source: IMS Institute for Healthcare Informatics “Global Use of Medicines: Outlook through 2015” May 2011
Definition >$1Bn absolute spending
growth 2011-2015 GDP per
capita of < $25,000
Countries China, Brazil, India, Russia,
Mexico, Turkey, Poland,
Venezuela, Argentina,
Indonesia, South Africa,
Thailand, Romania, Egypt,
Ukraine, Pakistan and Vietnam
Emerging Markets
A.T. Kearney 16
Global pharmaceutical market is expected to reach $1.3 trillion by 2016; emerging markets are gaining share
129 133 137 141145 149
101
US
EU
Japan
Pharmerging
ROW
2016
1,310
540
117
397
106
2015
1,219
508
114
351
2014
1,133
477
111
312
93
2013
1,053
448
107
277
83
2012
982
421
104
248
76
2011
912
396
101
222
64
11%
3%
12%
6%
CAGR
3%
Global Pharmaceutical Market, $ bn (2011–2016)
Source: IMS, Espicom
Pharmerging markets expected to account for 43% of market growth over the next five years
Emerging Markets
A.T. Kearney 17
Government Healthcare
Infrastructure Investments
Growing Middle Class
Growth of Western Style
Diseases
The growing middle class is a key driver of emerging markets
Growth Drivers in Emerging Markets
1
2
3
Emerging Markets
Source: 1. IMS 2. http://money.cnn.com/2012/06/26/news/economy/china-middle-class/index.htm 3. http://blog.pharmexec.com/2012/07/12/can-emerging-markets-emerge-fast-enough/
$760
$316$280
$3,000
2010 2000 1990 1980 Annual Disposable Income, per capita
China‟s growing middle class
Since 1980, yearly earnings for an average Chinese household multiplied ten times over – fueling expenditure in healthcare
Disposable Income , per capita (USD)
A.T. Kearney 18
Government Healthcare
Infrastructure Investments
Growing Middle Class
Growth of Western Style
Diseases
Growth Drivers in Emerging Markets
1
2
3
Emerging Markets
Western style diseases are becoming more prevalent in emerging geographies
% of Population Overweight or Obese
Growth of “Western” Style Chronic Diseases
“The challenge is to activate demand given an underdeveloped infrastructure”, Global CFO, Pharmaceutical Manufacturer
68
2134
22
73
29
57
31
+41%
Advanced Economics
Low Income Countries
China India
+7%
+38%
+68%
2015 2005
Source: European Community Respiratory Health Study, International Study of Asthma and Allergies in Children, World Health Organization ; “Global Prevalence of Diabetes,” World Health Organization, Diabetes Action Now
A.T. Kearney 19
Government Healthcare
Infrastructure Investments
Growing Middle Class
Growth of Western Style
Diseases
Growth Drivers in Emerging Markets
1
2
3
Emerging Markets
Massive government investment fuels growth opportunities for healthcare companies
Government Investment: China‟s 12th 5-year plan
Between 2009-2011, the Chinese government invested $124 Bn in health care reforms
Note: 1. 125% Compound Annual Growth Rate
Source: Epsicom, IMS, 2. http://www.newswire.ca/en/story/1015133/china-increases-budget-for-rural-healthcare-spending
“China's network of rural diagnostic labs has increased from 86 in two provinces in 2009 to 977 in nine provinces, installed or under contract in 2012,“
- Wilson Yao, CEO, China Health 86
977
2012 2009
No. of Clinics – China
A.T. Kearney 20
.
.
Emerging markets are a key focus for the industry
Source: http://www.merckserono.com/corp.merckserono_2011/en/images/20120606_en_tcm1494_94968.pdf 2. http://online.wsj.com/article/PR-CO-20120813-909881.html
"Pfizer is continuing to enhance the value of our Consumer Healthcare business, through its
strong connection to…Emerging Markets and pharmacy customers worldwide”
- Ian Read, Pfizer Chairman and CEO, August 13, 2012
Selected Executive Remarks
“Emerging Markets already account for a fifth of our sales, and this percentage is certain to rise…Diagnostic sales in China were up 27% for the year, and pharma sales by 35%”
- Severin Schwan, CEO, Roche
.
“…We expect to generate 1/3 of our revenue in emerging markets in 2012…already in
2011, 75% of our organic growth was from emerging markets. And not by chance. We
have an operating model that is conducive to success in emerging markets.”
- Stefan Oschmann, CEO of Merck Serono, May 2012
Emerging Markets
How do you define emerging markets and what are your aspirations?
A.T. Kearney 21
Market Dynamics
A.T. Kearney 22
Succeeding in these markets requires a deep understanding of market dynamics
Market Dynamics
Market Dynamics
Key Questions
Healthcare Maturity and Delivery
• What are the health needs and priorities?
• How is healthcare delivered – where and what kind of delivery systems?
• How does your product portfolio align with market needs
Market Complexity
• Is regulatory environment conducive? What are the pitfalls?
• How developed is the physical infrastructure necessary for our supply chain?
Market Attractiveness
• How large is the market size and what are the affordability considerations?
• What segments of the are market expected to grow?
• What cost structure is required to be competitive?
Channel Sophistication
• How is the distribution model structured – single/multi-tier and degree of fragmentation?
• How are pharmacies organized – chains vs. independents?
A.T. Kearney 23
Healthcare Market Maturity
Health Needs and Delivery Evolution
Health Needs
Healthcare Delivery
Nascent Mature
Disease Areas
Therapy Focus
• Infectious diseases
• Maternal / Perinatal • Nutritional deficiency
• Chronic heart • Diabetes
• Cancer, Rare diseases • Chronic respiratory
• Treating disease • Preventing disease • Prolonging life • Preventing death
Care providers
Route to Care Provider
• Govt.s / NGOs • Alternative medicine
• Primarily small clinics
• Hospitals • Pharmacies
• Hospital networks • Pharmacy chains
• Govt. agencies • Fragmented distributor base
• Multiple tiers of distributors
• Consolidated distributor base
Delivery Systems
• Bulk • Standard dosages
• Customized dosage • Customized packaging
• Personalized medicine
Market Dynamics - Market Maturity
Countries follow a similar path of evolution – understanding current position on the continuum can help define current and future requirements
Market Maturity
US W. Europe
Industrialized China
Rural China
Ghana
Picture 1
• Direct to Customer
A.T. Kearney 24
By 2016, the top-8 Pharmerging markets will represent >80% of a nearly 400 Billion market
8%
4%
20%
5%
14%
15%
CAGR
10%
10%
Market Attractiveness - Market Size and Growth, $ Bn (2011-2016)
42
62
24
19
1816
China
Brazil
Russia
India
Mexico
2016
397
145
45
44
32
11
2011
222
58
35
23
16
12 10
7
Turkey
Poland
Indonesia
All other Pharmerging
1. Note: “All other Pharmerging” includes: Argentina, Egypt, Pakistan, South Africa,Thailand, Romania, Ukraine, Venezuela and Vietnam Source: Espicom, IMS
8%
Picture 2
Market Dynamics - Market Attractiveness
A.T. Kearney 25
Pharmacy fragmentation much greater in Emerging Markets
% Pharmacy Chains (PoS) Persons per pharmacy
9,320
5,217
4,360
3,666
3,473
3,040
3,000
2,219
1,950
Indonesia
Poland
United States
Mexico
China
Turkey
Brazil
Russia
India
Source: Espicom, IMS, A.T. Kearney analysis
Pharmerging
Channel Sophistication - Pharmacy Concentration
Baseline
58%
35%30%
5%4%0%0%0% 0%
Me
xic
o
Ch
ina
Un
ited
Sta
tes
Po
lan
d
Tu
rke
y
Ind
ia
Ru
ss
ia
Ind
on
es
ia
Bra
zil
Increasing trends towards market consolidation in many markets
Market Dynamics - Channel Sophistication
Picture 3
A.T. Kearney 26
Distribution and Wholesalers are evolving
Distribution / Wholesaler Layers Pharmacies per wholesaler2
Layers Countries Supply Chain Impact
One
• Mexico • Brazil • Russia • Turkey • Indonesia • U.S.
• Distributor selection is a more straightforward process - all reasonably sized distributors serve pharmacies directly
• Decision based on value-add /
customers served
Multiple • India • China • Poland
• 2 or 3 layers of distribution (e.g. national to regional to local to pharmacy/hospital)
• Governments in some cases
dictate specific layers/distributors
1. Mexico and Saudi Arabia have 2 distribution layers that run in parallel as opposed to stacked (a separate distribution system for government delivery) 2. In some countries (e.g. Ukraine) the top wholesalers control significant market share despite overall fragmentation of the wholesaler market Source: Espicom, IMS
Channel Sophistication - Distributor / Wholesaler
83
64
28
22
12
8
U.S. 20,000
Mexico 833
Brazil 217
Turkey
Russia
China
Poland
India
Indonesia Pharmerging
Baseline
Market Dynamics - Channel Sophistication
Picture 3
A.T. Kearney 27
The regulatory and legal environments are unique and challenging
4.3
3.7
3.0
3.0
3.0
2.7
2.7
2.0
2.0
Turkey
China
Indonesia
India
U.S.
Brazil
Poland
Mexico
Russia
Insights
India Patent protection remains controversial
Indonesia Plagued by counterfeit drugs; inadequate IPR laws
China China remains on the USTR‟s Priority Watch List
Turkey Turkey is harmonizing regulatory environment w/ EU
Russia “Circulation of Pharmaceuticals” legislation now law
Mexico COFEPRIS to simplify procedures to increase
competitiveness
Poland EU Regulations now enforced
Brazil ANVISA‟s recent measures to increase drug safety
United
States Patent reform in discussion to strengthen IPR
protection
Regulatory and Legal Rating (1-5)1
Pharmerging
Baseline
1. Espicom rating of regulatory rigor and legal protection (1 is poor / low and 5 is strong / high) Source: Espicom, A.T. Kearney analysis
Market Complexity - Regulatory Environment
Picture 4
Market Dynamics - Market Complexity
A.T. Kearney 28
Infrastructure competitiveness varies
5.7
4.6
4.5
4.0
4.0
3.8
3.6
3.4
4.4
U.S.
China
Russia
Turkey
Brazil
Mexico
Indonesia
India
Poland
Insights
Poland Poor quality of roads
India Strong rail infrastructure, poor roads
Indonesia Port infrastructure lagging, rail advanced
Mexico Road network is the most advanced
Brazil Road & port infrastructure in bad state
Turkey Port infrastructure is lagging
Russia Solid rail infrastructure, road n/w deteriorating
China Heavy investment in rail and airports
United
States Advanced road network, aging infrastructure
Infrastructure Competitiveness (1-7)1
1. Executives in each country were asked to rate infrastructure competitiveness (1-7) by all components of infrastructure (rail, road, port, airport etc.) Source: World Economic Forum
Market Complexity - Infrastructure Competitiveness Pharmerging
Baseline
Picture 4
Market Dynamics - Market Complexity
A.T. Kearney 29
Despite country level variation, distinct segments emerge
89
47
16
11
54
9
8
Ma
rke
t C
om
ple
xit
y
(reg
ula
tio
ns &
in
fra
str
uc
ture
)
Distribution / POS Concentration
540
United States (10% actual size)
Ukraine
Egypt
Pakistan Romania Poland
Thailand South Africa
Vietnam Argentina
Venezuela
24 Mexico 18
Turkey
145 China
32 India
8
44 Russia 45 Brazil
Indonesia
High Low
Lo
w
Hig
h
III
I II
Pharmerging Market Clusters
Source: A.T. Kearney Analysis
2016 Market Sizes, $ Bn
Industrialized China
Industrialized Russia
Industrialized India
Emerging Markets Framework
Approaching these markets in clusters helps define a high level initial strategy
A.T. Kearney 30
Markets in each of these clusters share key characteristics and supply chain implications are similar
Emerging Markets Framework
Clusters and Level of Difficulty
Shared Characteristics Supply Chain Implications
Cluster I: “Extreme”:
Russia, Thailand, Egypt, Poland, Romania, Vietnam and Rural China, India, Russia
• Extremely fragmented POS • High market complexity
Focus on getting products most cost effectively to customers – heavy reliance on local partners
Cluster II: “Middle of Road”:
Brazil, Argentina, Ukraine, Venezuela, Pakistan, South Africa, Indonesia, Turkey
• Emerging industrialization • Medium POS / Distribution
concentration • Moderate market complexity
Increasing service and cost focus – Leverage a mix of own SC footprint and tiered distribution network
Cluster III: “Moderate”
Mexico and Industrialized Russia, China, India
• Industrialized, large markets • Increasing POS/ Distribution
concentration • Lower market complexity
Approaching similarities w/ mature markets – e.g. differentiating on service by collaborative relationships with POS chains
Source: A.T. Kearney Analysis
Do you apply similar segmentation to understand and approach these emerging markets? What other approaches have you used?
A.T. Kearney 31
Russia Case Study
A.T. Kearney 32
Retail sales breakdown by regions, 2010
Source: Pharmexpert, A.T. Kearney analysis
0.9 (1.17)
2.3
(0.84)
3.9
(0.78) 2.5
(0.77)
2.2
(0.76)
2.0
(0.84)
7.2
(1.0)
2.5 (0.77)
price index (Moscow is taken as the basis)
sales (bn $)
In Russia – understanding geographic focus is key
Sales and price indices by federal regions, 2011
N. Novgorod
Novosibirsk
Samara
Ufa
Sverdlovsk region
Krasnodar
Ekaterenburg
Moscow region
St.-Petereburg
Moscow
42%
1% 1%
2% 2%
2% 2% 2%
6%
7%
18%
TOP-10 regional markets
Which segments should the pharma co. target based on size, growth and affordability considerations?
Russia Case Study– Market Attractiveness
A.T. Kearney 33
Companies choose supply model according to their strategic priorities and plans for Russia
1. In Central Federal region, all channels; Prescription pharma only Source: Press analysis, CHEManager Europe, Pharmexpert, A.T. Kearney
Supply practice of non-local companies on the Russian market
Russia Case Study – Manufacturing
Market share1) Import Packaging Partnership
Own production
GlaxoSmithKline 3.2%
Pfizer 2.2%
Orion 0.2%
Johnson & Johnson 2.8%
Servier 2.4%
Krka 1.6%
Stada 1.7%
AstraZeneca 2.0%
Novartis 7.1%
Nycomed 2.5%
Aurobindo Pharma 0.7%
Bayer Healthcare 3.2%
Gedeon Richter 2.0% - Existing
Companies with manufacturing facilities in Russia can benefit from government protectionist policies
- Planned
A.T. Kearney 34
Pharmaceutical Companies
Pharmacies
Hospitals Patients Distributors
< 3%
~97-98%
~ 80%
~ 20%
E-pharmacy (insignificant)
Source: CMI Pharmexpert
Structure of the Russian market
Wholesalers are key, the current distribution model presents significant limitations
Russia Case Study – Distribution
• Limited control over commercial terms to pharmacies
• Low granularity, accuracy and no timely sales info.
• No relationship with pharmacies / point of sales
• High exposure to concentration of wholesalers market
• Limitations on ability to do pharmaceutical care programs in PoS
Limitations of current model
Can / should Pharma‟s have a different model than market standard? Can / should they have a different model for certain drugs?
58% 24% 10%* To
p 5
Ma
rket
Sh
are
A.T. Kearney 35
Source: A.T. Kearney
There are several alternative distribution models that Pharma Co. can consider
Russia Case Study – Distribution
Alternative distribution models
•Direct distribution to pharmacies, using a selected number or sole wholesaler / 3PL as out-source provider on a fee for service and agency basis
•Appoint a number of preferred, exclusive wholesale providers on preferential negotiated economic and service terms
•Development of a payer-specific ePharmacy and Mailorder pharmacy service •Appointment of a preferred, accredited ePharmacy provider
DTP / Agency Scheme (Whole portfolio)
Reduced Wholesaling / Special Arrangements
E-Mail order Pharmacy
DTP / Agency Scheme (Product / part portfolio)
•Direct distribution to pharmacies, for specific product(s) using a sole wholesaler / 3PL as out-source service provider on a fee for service basis
•Delivery of product direct to ward (acute) or point-of-administration (specialist) Direct to Hospital Ward / Point of Admin.
Direct To Patient / Home •Delivery of therapy in home settings, may include nurse supported administration
•Physicians submit prescription to mail ordering company •Products are physically delivered to patient
Direct To Patient through mail order co.
There is a trend towards direct distribution models across the globe, but it needs to be assessed which fits best Pharma Co. in Russia and to what drugs
A.T. Kearney 36
20
11 T
urn
ove
r, $
bn
20
11 M
ark
et S
ha
re
Yo
Y M
ark
et sh
are
in
cre
ase
(decre
ase)_
Client base Relative market share by region Operations
Nu
mb
er
of clie
nts
, „0
00
Ph
arm
acie
s s
erv
ed,
„000
Num
ber
of su
pp
liers
Dru
g typ
es s
old
, „0
00
Active
in g
ov.
purc
hase
s
Mo
scow
and
Cen
ter
St.
Pe
ters
burg
and
N
ort
h-W
est2
So
uth
Nort
h C
au
casu
s
Vo
lga
Re
gio
n
Ura
ls
Sib
eria
Far
Ea
st
Wa
reh
ousin
g a
rea
, „0
00
m2
Re
pre
sen
tative
o
ffic
es
Em
plo
yees
Katren 3,5 15% +14% 42,0 55 624 14,2 No
0,38 0,81 0,87 0,57 0,92 1,00 0,87 0,96
83,0 28 2 580
Protek 3,0 13% -12% 19,0 44 860 15,0 No
0,61 0,87 1,00 0,29 1,00 0,90 0,78 0,84
160,0 85 5 500
Rosta 2,1 9% -12% 15,0 n/d 440 n/d Yes
<0,31 0,84 0,51 <0,1 0,62 0,98 1,00 1,00
n/d 43 1 800
SIA Int‟l 3,2 14% +17% n/d 28 875 12,0 Yes
1,00 <0,57 0,87 <0,1 0,60 0,76 0,67 0,50
>45,0 38 15 000
Alliance
Healthcare 2,0 9% -10% 16,0 n/d n/d n/d No
0,31 <0,57 0,30 1,00 0,42 0,68 0,46 <0,21
33,4 44 2 000
Selecting the right distribution partners is key
1. Proxy based on sales in Central Federal Region 2. Imperia-Farma is the largest distributor in the region Source: “The World Pharmaceutical Markets Fact Book 2011”, Pharmexpert, A.T. Kearney
From the +1000 wholesalers in Russia, what is the right number and profile of partners?
Russia Case Study – Distribution
A.T. Kearney 37
Local distributors might be stronger – esp in particular regions
Interregional and regional distributors
• Due to the size of the country even national distributors don‟t have sufficient coverage in all regions of Russia
• Some regions, especially South Russia, are dominated by the local distributors
• Exclusive contracts with retailers are rare, each pharmacy is usually supplied by 5-10 wholesalers
• Local distributors often have close relationship with local authorities and healthcare organizations
Source: Pharmexpert, company data, A.T. Kearney
Revenue bn. $
Geography
R-Pharm 1.5 European part of Russia
Oriola 2.1 S.-Petersburg, Novosibirsk, Yekaterinburg, N. Novgorod, Chelyabinsk, Irkutsk, Kazan, Stavropol, Rostov
FK Puls 2.0 Western part of Russia, Povolzye, Western Siberia
Imperia Pharma
1.6 Moscow, Rostov-na-Donu, Novosibirsk, S.-Petersburg
Medexpert N/a
Omsk
Vitta company
N/a Moscow, Moscow region
Inte
rre
gio
na
l R
eg
ion
al
What should be the geographic coverage of promotion and distribution? How does promotion targeting affect distribution and vice versa?
Russia Case Study – Distribution
A.T. Kearney 38
Building Competencies to Serve Emerging Markets
A.T. Kearney 39
Supply Chain Competencies
SC Competencies
Succeeding in these markets requires building key supply chain competencies
Need for the Competency
Building and Scaling capabilities
• Need to tightly manage investments and returns
• Challenge to time investment with growth
• Managing risks associated with investments
Managing Complexity
• Large number of SKUs driven by multiple languages and regulatory considerations
• Large number of potential partners – e.g. 1000s of local / regional distributors
Orchestrating a virtual supply chain
• Limited established supply chain networks that a pharma company can simply “plug into”
• Cannot be vertically integrated in new markets from early stages
Integrated Strategic Planning
• Rapid pace of change in market dynamics and commercial plans
• No one set way of reaching the market - options need joint Commercial and SC evaluation
A.T. Kearney 40
Robust linkage between commercial and supply chain plan is critical
Commercial Inputs
Growth plans - target channels and mix
Product portfolio evolution
Customer trade channels
Non-traditional „route to market‟
Customer expectations on service levels
& value added services
Linkages between Commercial and Supply Chain Plans
SC Competencies - Integrated Strategic Planning
Supply Chain Inputs
Supply network capabilities required for
planned growth & portfolio
Investment & time required in
developing these capabilities
Alternative options for „route to market‟ &
their evaluation
Partner requirements for re-designing
„route to market‟
Impact on customer service levels &
other expectations
Joint planning processes bring these inputs into continuous and active dialogue (vs. a one-way communication)
A.T. Kearney 41
Complexity in emerging markets, if not managed well, can spiral out of control
Complexity in Emerging Markets
SC Competencies - Managing Complexity
Complexity Drivers
Mature Market Emerging Markets
SKUs • 1 language label • Standard packaging –
e.g. majority bottles
• Country specific labels • Specific packaging
preferences – e.g. Bottles vs. Blisters
Regulatory • 1 body – FDA • Robust legal
environment
• Country specific regulatory bodies
• Evolving regulations • Complex legal
environment
SC Partners
Top 3 concentration • Distributors 90-95% • Pharmacy chain ~60%
Top 3 Concentration • Distributors China ~18% • Pharmacy chains India
<5% share
Managing complexity
• Optimizing SKU portfolio
– Consolidating multiple country requirements
– Launching with subset of portfolio
• Postponement strategy
• Local partnerships to navigate local regulatory & legal environment
• Creating virtual supply chain networks suited for own portfolio
Note: 1. McKesson, AmerisourceBergen and Cardinal Health (big 3 U.S. Distributors) 2. big 3 Pharmacy U.S. includes Walgreens, CVS Caremark & Rite Aid 3. 3PL‟s U.S. includes UPS
logistics, C.H. Robinson, Expeditors, EGL, inc, Bax Global, UTI 4. big 3 Shanghai Pharmaceuticals, Sinopharm, and China Resources contribute 18% Source: A.T. Kearney Research 2. http://www.urchpublishing.com/publications/pharma_industry_trends/pharmaceutical_distribution_us.html 3. http://www.business-
standard.com/taketwo/news/apollo-pharmacy-betslarge-stores/482204/ 4. http://www.scribd.com/doc/61665600/3PL-Report-Frost-Sullivan
Picture 2
A.T. Kearney 42
Hospitals
Pharm-acies
TPMs
Suppliers Tier 1-x
Distributors
Carriers
3PLs
CROs
Supply Chain
Suppliers and Contract Mfg.
Pharma Manufacturers
Distributors
Pharmacies
Mature Markets: Established Model New Reality: The Orchestrator Model
Direct Partner to Partner Communication
Illustrative
Orchestrating partnerships with multiple diverse partners to create a virtual supply chain is critical
SC Competencies - Orchestrating a Virtual Supply Chain
A.T. Kearney 43
Scaling investments to synchronize with business growth
Phased approach to investments
SC Competencies - Building and Scaling Capabilities
Rely on import
agents to get
products into
market
Develop partnerships with next tier of local
distributors
Temp IT systems for local
SC tracking
Establish local
packaging facility
Establish own
automated DCs
Sales Growth and Market Maturity
Phased investment over time - Illustrative
HR Limited FTEs for tactical coordination
Robust local SC organization
Physical Assets
None Own DCs, Own packaging facilities
IT Simple / temp solutions
ERP systems
Nascent Mature Market Maturity
None Significant Sales Growth
Considerations
Investment areas
Illustrative
A.T. Kearney 44
Iterative Approach for Building Supply Chain Capabilities
SC Competencies - Roadmap
Source: A.T. Kearney Analysis
A structured and phased approach can be used to build supply chain capabilities in the emerging markets
1
Understand commercial plans and SC
capabilities required
2
Develop plans to build capabilities
3
Mobilize resources and build capabilities
Re-evaluate needs
4
A.T. Kearney 45
Questions?
A.T. Kearney 46
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