IIM Ranchi Analysis of the Sales and Distribution System of Bio-Med Pvt Ltd in Ranchi Interim Report for

the course Sales and Distribution

By Chintan Dave Mukesh Yadav Sujeet Anand Vishal Shetty Yogesh Taak

Contents: 1) Introduction. Pg 3 2) Literature Survey Pg 3 3) The Distribution System.. Pg 5 4) Market Coverage Pg 6 5) Monthly targets, margins and Incentives Pg 7 6) Market Survey. Pg 7 7) Channel Structure and Design Pg 8 8) Analysis Pg 8 9) Sales Force Management Pg 9 10) Appendix.. Pg 12 11) References... Pg 14

Introduction: Bio-Med Pvt Ltd Bio-Med Pvt Ltd is a company that manufactures vaccines. It was founded in the year 1972. The organization commenced with developing and manufacturing animal vaccines in 1973. The company was initially formed to develop vaccines for animals. It is the first private sector company to develop vaccines for poultry. The organization displayed rapid growth and with the development of infrastructure it earned its name throughout India in the field of animal vaccines. Later, it acquired the license to manufacture human vaccines. The demand for vaccines in India was high and most of it was being imported from abroad. India, with its climate, was more prone to diseases that could attain epidemic status. Bio-Med entered the fray of human vaccines in 1995 with the manufacture of Oral Polio vaccines. It has now added four more products and is conducting research on many more. It managed the incredible feat of developing the Worlds first Vi Conjugated Typhoid VaccinePeda Typh in 2008. With a constant drive to improve, Bio-Med Pvt Ltd has been developing vaccines for the health programmes in the nation for the past thirty years. The products have not only attained a respectable position among the Indian diaspora but in international markets as well. Literature Survey The pharmaceutical structure of each country normally consists of some small efficient local players and other large multinational companies. The local companies normally provide 10%15% of the market demand while the rest is taken up by the multinational companies as mentioned in THE INTERNATIONAL PHARMACEUTICAL INDUSTRY AND LESS DEVELOPED COUNTRIES, WITH SPECIAL REFERENCE TO INDIA By SANJAYA LALL. It also mentions about the market share of companies. According to the report, the maximum share of each company rarely crosses 7%. This is because the pharmaceutical market consists of various sub markets so no one company can be considered the market leader. This leads to more stable and productive concentration within each product segment. It was also noticed that no one firm had an advantage when it came to manufacturing since there was no economies of scale to bank upon to reduce manufacturing costs. The firms also have to deal with long gestation periods and high costs in developing, testing and marketing of the products. The profitability in the pharmaceutical industry normally depends on the number of patents held by the company and this affects the R&D costs indirectly. Thus, multinational companies with their huge laboratories are the ones who hold maximum patents. Holding patents also helps the companies with holding exclusivity over their products and thus ensure that they control a certain segment of the market. The marketing of the products are of paramount importance in the pharmaceutical market. It is seen that the promotional costs sometimes are more expensive than the cost of manufacturing drugs in countries like USA and UK. This is because the company has to spend enough to attract its primary customers, the doctors. In case of major drugs, there is no direct contact between the

consumers and the manufacturers. There is no pressure on the doctors and they can prescribe the drug they feel they want to prescribe. Hence, the consumers have to take the medicines prescribed by the doctors. There has also been a distinct difference between the way products marketed under their drug generic name and the companys brand name. A lot of effort is placed upon promoting the brand name as the doctors are influenced by it and it also helps create segmentation for the product. It helps those products which are patented as this helps in maintaining brand image of the company. The drug manufacturers resort to various techniques to maintain their customer relationships by providing free samples, regular medical representative visits and providing various types of incentives. This is because its difficult for the companies to market drugs based on price. The doctors themselves dont have the time to actually compare products based on price. In fact, it is seen that countries like USA have deemed it illegal to sell on the concept of pricing. The role of a medical representative cannot be underestimated as they are responsible for promoting both new and old products. Their conversations are unrecorded and go a long way in convincing the doctor to purchase their products. These measures also help the multinationals stay ahead of the local competition.

Most of the Pharma companies have CFA in India because of following reasons: The distribution setup in the Indian Pharma industry is highly fragmented and has evolved on the basis of the two tier sales tax structure viz. the central sales tax (CST) and the local sales tax. While the inter-state sale of goods attracts CST, inter-state transfer of goods does not attract any tax. Therefore, in order to avoid CST, all the medium and big Pharma companies have a Carrying and Forwarding Agent (CFA)/ company depot in each state and transfer goods as interstate stock transfer. The smaller companies (sales less than USD 20 million or Rs 100 crore) adopted the super-stockiest model as cost of infrastructure for depots or CFAs outweighs the accrued tax advantages (Ernst & Young Report , October, 2006) Normally, stockist markets products which are of 7-8 pharmaceutical companies. They have their own visiting salesman who surveys the retailers on regular basis. The margin paid to stockiest and wholesaler is very different. There is now huge competition in this segment. Sometime they act as control point is whole chain. Retailer or prescribers in Pharma have considerable margins and gifts, According to Ernst and Young report India have 500000 retailers. They account for 70-80% sales of Pharmaceutical in India. In rural market or market which is not easily accessible for the distributor and CFA,

retailers keep good amount of stocks. Many hospitals in India such as Birla hospital in Pune have in-house pharmacies. Retailers have margin of 15 -20 % in India. Future prospects of Indian pharmaceutical market are being closely analyzed. Indian pharma market is expected to grow between 9 to 11 % over the next 5 years primarily due to the following reasons: Large population base; Increased life expectancy; High GDP growth and increased capacity to spend; High disease prevalence; Interest from global stakeholders. Vijay Jhangale mentions in his article Pharma marketing in India about the challenges faced by companies across India which include: Recent business and customer trends are creating new challenges and opportunities for increasing profitability, increased competition and shortened window of opportunity, low levels of customer knowledge, the number and quality of medical representatives. Above all, the pharma industry also faces challenges with respect to ethical marketing and promotional practices. The author suggests how to tackle these challenges and what is the way ahead. Innovation in marketing and carrying out operations more effectively would be the way ahead. Inculcating new technological developments would also be the key differentiator in the coming days. About how to tackle ethical challenges in pharma marketing, the author suggests responsible promotional communication, good market practices and self-regulation could lead companies and business houses to build a good image in customers mind.

The Distribution System: Patel Pharma has been entrusted with the responsibility of distributing the vaccines of Bio-Med Pvt Ltd. Mr Rajpal Patel owns the distribution system. He is the CNF cum distributor of BioMed in Jharkhand. He has been in this business for over ten years. He is the distributor for 14 companies, prominent among which are: GlaxoSmithKline Bio-Med Pvt Ltd Sonophic Pasture Bharat Biotech Serum Institute Pvt Ltd Bharat Serum Ltd Human Biological Pvt Ltd Santa Biotech Pvt Ltd Reliance Medicare The distribution in pharma sector is different from the distribution in consumer goods or consumer durables segment. In a distribution process,the goods are sent from the factories to the CNF. The CNF forwards the goods to the distributors and from here it is delivered to the retailers.

The number of parameters like mode of delivery, number of salesmen and order frequency varies across industries. Patel Pharma, acquires the goods through courier and delivers it to wholesalers, pharmacies and doctors through the salesmen. The quantity of vaccines is not high; hence, the distribution agency works on a small scale. Mr Patel employs one salesman who delivers the goods and if the need arises, he delivers the product himself. The total revenue generated by Patel Pharma is around Rs 8 lakh per annum. The major contributors were Bio-Med which generated around Rs 3.5 Lakhs and GlaxoSmithKline which generated around Rs 1.75 lakhs. The infrastructure required is simple but in tune with technology Vaccines are stored in refrigerators and deep freezers Certain vaccines like oral polio drops require a temperature range of -20 to -30 degrees. There are 8 refrigerators and 1 deep freezer in the warehouse. Temperature sensors are used to check the temperature on a regular basis. In case of power loss, Generators are used to maintain constant supply of electricity. Salesman has been provided with a motorbike to deliver products. Vaccines are delivered in a black thermocol box to maintain the temperature. Market Coverage The delivery may not be done to all the outlets (pharmacies and Clinics) on the same day. Deliveries are done through four other distributors under patel Pharma. The beats for delivery have been devised as follows: Tuesday:- Delivery is done to Hazaribagh and Ramgarh. There are around 135 outlets in this region. Wednesday:- Delivery to 7 outlets in Gumla and Lohardagga. Thursday:- Delivery to 21 outlets in Daltenganj and Ghuwa Friday:- Delivery to 15 outlets in Patratu and Bhurkhunda Once a fortnight deliveries are made to the 3 outlets in Shimdega Saturday and Monday:- Deliveries to 85 outlets in Ranchi The wholesalers to whom the vaccines are delivered are Sai Vaccine, Jharkhand Vaccine and Sambhavi Sales. These are located on Sardarnand Road.

Monthly targets, margin Structure and Incentives Patel Pharma does not get any monthly targets from Bio-Med. GlaxoSmithKline has a monthly target of generating Rs 14lakh per month from Jharkhand. He generates profits of 7% of the total purchase in case of GSK while Bio-Med provides him with a higher percentage which amounts to 15% of the total purchase. In addition, Bio-med provides additional 3% margin to consider breakage and expiry of the vaccines. The overall purchase value for the period April 2011 to March 2012 was Rs 36 lakh. Patel Pharma generated a profit of 10% of this amount i.e. Rs 3.6 lakh. There are no weekly or biweekly orders taken as in other industries. They normally order twice in a month. The bill purchase value over May and June for Bio-Med are:

May (2 bills): Rs 3.78 lakhs June (2 bills): Rs 4.58 lakh

The revenue generated by GlaxoSmithKline- the market leader in Ranchi for vaccines is around Rs 12 lakhs. The revenue generated by Bio-Med pvt Ltd is around Rs 5 lakh. Patel Pharma has developed close relations with the doctors and provides them with a one month credit allowance. Market Survey: We had interviewed doctors like Dr.Ajit Sahay, Dr Suhas Poddar and Dr M M Alam who were associated with Bio Med Pvt Ltd. from past many years and they act as retailer as well as customers for their products. As vaccines are used for disease prevention, their demand is fairly stable throughout the year and seasonal variations are very less. We also asked them about why they chose to associate with only BioMed and not any other company for these vaccines; they provided us with satisfactory reason that it is an Indian company with a very good product. These vaccines provide close to zero per cent complexities. They also told mentioned about getting special offers from company because they are associated with company for a very long time. In that offer, if they bought ten SKUs, then they would get one SKU free. Later when we had interviewed Area Sales Manager he told us as BioMed is an Indian company, the profit margin is highest for the doctor. In addition to that doctor also gets various gift from company, which he politely refused to tell. Mr. Vinay Tiwari was working with BioMed for quite some time. He is involved with direct marketing of the product. He also told about having higher margin of the company products and giving various gift to the doctor for their retention. He mentioned that in the pharma industry, every product has a maximum Price To Retailer (PTR) above which the distributor can not sell. This allows them to regulate the profits given to the wholesalers and retailers. As the doctors dispensary is point of purchase for the product, they advertise the companys calendar to increase the visibility of the products. He also oversees the performance of three Medical Representative i.e. giving them targets and territories, evaluating their performances, resolving issues if any. He also does market visits to gather the feedback of pharmacists and doctors. He visits the distributors regularly and tries to build good relations with them. The ASM also ensures the

transport of their vaccines, and they rely on professional logistics companies such as Shyam Flight King, Good Luck and Nightingale to deliver products to the distributors. Channel structure and Design: Bio-Med Pvt Ltd has a simple organization structure in Jharkhand. The structure is designed to ensure quick service and maintain accountability. The channel structure for Bio-Med in Jharkhand is as follows: The organization has one manager for the state. He has three Medical Representatives (MRs) under him. The MRs undertakes orders from the doctors and pharmacists. The orders are then transferred to the distributors to deliver the goods. The delivery is done by the salesmen. The stock replenishment at the distributors are done when the distributor orders for the vaccines. It is delivered by courier. The expired stocks were taken back by the company earlier. Now, higher margins are provided but expired products are not taken back. The distributors are expected to sell all the SKUs present.

Analysis: The distribution system of the Pharma sector was different from any other sector. This was primarily the reason to choose a company from this segment.We found out that Patel Pharma was one of the leading distributors in this segment. He was also the CNF for Bio-Med pvt ltd. Mr Patel is an experienced distributor and he had all his plans mapped out. the infrastructure set up for his business was just about sufficient to meet the markets requirement. The use of technology (freezers, sensors and generators) allowed him to keep his stock fresh. The government officials would conduct regular checkups so the infrastructure had to be proficient.

He had one salesman and one more employee. These were sufficient to carry out his businesses. He ensured that his beat design was followed. He had to only supply the goods as the Medical representatives had the onus on them to provide orders. Mr Patel had built a rapport over the years with his customers, so they would also order on the phone. The model was simple and straightforward. The problem with this model was that the order could be delayed if the salesman does not arrive for duty for some reason. Since, he had only one salesman, many a time, he himself might have to go the market. The system here does use logistic and courier service for prompt supply but the distributor feels supplying the product using his salesman is a priority. The other prominent issue is that since Medical Representatives are responsible for collecting orders, they can also indulge in direct supply from the company. There has also been a distinct difference between the way products marketed under their drug generic name and the companys brand name. A lot of effort is placed upon promoting the brand name as the doctors are influenced by it and it also helps create segmentation for the product. It helps those products which are patented as this helps in maintaining brand image of the company. The drug manufacturers resort to various techniques to maintain their customer relationships by providing free samples, regular medical representative visits and providing various types of incentives. This is because its difficult for the companies to market drugs based on price. The doctors themselves dont have the time to actually compare products based on price. Since, the company deals in supplying through courier service it could turn out to be a loss since the doctor could directly order from the company itself if he needs bulk orders.

Part B: Sales Force Management Issues Bio-Med Pvt Ltd uses a simple organization structure. There is one ASM and he has three medical representatives who direct sell the products to the doctor. They indulge in to B2B marketing as it best suits the interests of both the customers and the company Distributors Sales Force: The sales force of the distributor does not depend on the companies i.e. the distributors are responsible for their own sales force. These salesmen are not highly educated but they do get the required job done. The salesmen are not expected to sell the products. Theyre mostly entrusted with the job of delivery. Since one distributor may be responsible for many companies, the job of selling mostly depends on the medical representatives.

Companys Sales Force:

1) Territory Distribution: The sales force required for each territory depends on the

number of doctors and pharmacists in an area. Territories are framed depending on the number of medical representatives. In case of Bio-Med, there are three medical representatives, thus, it is broadly divided into three major regions. This is how the company looks at the territories. The distributors normally chart their territories based on the frequency of purchase and revenue generated. Thus, an area generating higher revenue would be getting higher attention than certain rural areas. In Jharkhand, the delivery of drugs is done to the major cities and towns. The rural villages are not accessible. The beats are created keeping this aspect in mind. 2) SALES FORCE STAFFING The staffing of the sales force has the following methods:

Analyzing: Analyze the number of salesmen required to ensure maximum profitability.

The job profiles are given and the candidates who have applied are given a close look

Recruitment: This process looks at the recruitment of the sales force. This is done by
employee referrals and by the normal application process.

Selection: This includes two steps- An interview round where the communication and
interpersonal skills of the candidate is judged and verification process where the credentials of the candidate is verified. This is followed by a medical check up and if the candidate clears these rounds hes inducted into the organization.

3) SALES TRAINNING & MOTIVATION There are two types of training the selected candidates must undergo, these are as follow: 1. Initial Training Program (ITP) It is the program designed to assist in training the candidates and familiarize the candidates with the work theyre going to be assigned. The program consists of in depth training and knowledge sessions regarding the pharmaceutical market, customer preferences and competitor knowledge. Further sessions are assigned to improve their verbal and written communication and sharpen their behavioural skill set. This program is ideally designed for a period of 15 to 20 days. 2. Induction Program- This is an important aspect of training as this ensures that the salesman would be well versed with the market. Here the core aspects of sales and distribution are drilled into the salesman.

Many companies give training on technology and computer knowledge. This is not followed that closely in Bio-Med for Jharkhand as the technology know how in this region is on the lower side. The traditional way of noting in the records is followed stringently.

3. Motivational Factors- Various methods are followed to motivate a salesman prominent

among which are: Incentives on achieving sales target

Appreciation letters and Gifts

Appendix: The vaccines manufactured by Bio-Med Pvt Ltd are: Bi Meningo (MENINGOCOCCAL POLYSACCHARIDE VACCINE) This vaccine is given to the baby of 6 month to 2 years. Vaccination is recommended in regions of endemic infection, travelers to countries with epidemic meningococcal disease, household or institutional contacts, military recruits etc. It is also recommended for subjects living in close communities and close contacts of patients/carriers of Meningococcal.

BOTOGenie (PURIFIED NEUROTOXIN COMPLEX) This vaccine is used to correct undesirable muscular activity for a considerable period without surgical intervention. This action is reversible in nature in a few months. It is available in 50 and 100 unit vial with dilute.

Bio Typh

Immunizations not only prevent mortality and morbidity, it also reduces the expenditure of public and private resources. It is an effective tool to control the emerging pattern of typhoid fever in children and infants less than 2 years of age.

Vi Polysaccharide Typhoid Vaccine

It is the first indigenously manufactured Vi antigen based typhoid vaccine. It is very effective against the typhoid fever. It is given to the children above the age of 2 and also to adults.

QUADRI MENINGO(Meningococcal Polysaccharide Vaccine)

Meningitis is caused by Neisseria meningitidis bacteria. It may be severe and life threatening .This vaccine is very useful against such chronic disease

Peda Hib (The New Generation Conjugate vaccine) Haemophilus influenzae type b bacteria causes serious disease like meningitis in 60% cases and pneumonia, epiglotitis, pericarditis, cellulitis etc in 40% cases. The mortality rate with meningitis is quite high. Post neurological disorders have been seen in many cases after recovery

ORAL POLIO VACCINE (I.P.) Oral Polio is a serious but preventable disease. In India, hundreds and thousands of infants & children used to contract Polio, some of whom suffer from its serious consequences mainly paralysis. However the vaccine can be given to persons of any age who have not suffered from poliomyelitis and have not been vaccinated.

References:
1) http://www.biomed.co.in/

2) Pharmaceutical Distribution Systems In India- Working Paper 1a, prepared for Workshop on Tracing Pharmaceuticals In South Asia 2-3 July 2007, University of Edinburgh 3) Pharma marketing in India: Opportunities, challenges and the way forward by Vijay Bhangale 30th July,2007 4) The International Pharmaceutical Industry And Less Developed Countries ,With Special Reference To India By Sanjaya Lall