CONTENTS

Chapter I : Introduction of the topic and brief profile of the Organization Chapter II: Objectives of the study and Research Methodology Chapter III: Presentation of Tabulated Data and Analysis Chapter IV: Main findings/Suggestions/Recommendations Chapter V: Summary and Conclusion Bibliography Annexure

INTRODUCTION TO TOPIC & COMPANY PROFILE

Distribution Channel
2

Definition Path or 'pipeline' through which goods and services flow in one direction (from vendor to the consumer), and the payments generated by them flow in the opposite direction (from consumer to the vendor). A distribution channel can be as short as being direct from the vendor to the consumer or may include several inter-connected (usually independent but mutually dependent) intermediaries such as wholesalers, distributors, agents, retailers. Each intermediary receives the item at one pricing point and moves it to the next higher pricing point until it reaches the final buyer. Also called channel of distribution or marketing channel.
DISTRIBUTION CHANNEL MANAGMENT

A distribution channel is a method of getting a product to its consumer. Distribution channels are part of a company's marketing mix. A marketing mix refers to each business' unique combination of product, price, promotion and place. Distribution affects the place or path through which consumers can buy and receive the product. A distribution channel may be an on-site store, a virtual store, a retailer, a wholesaler, an agent, a telemarketer or direct mail. Direct mail distribution channels work on a large scale. Materials advertising the product and presenting an offer usually target a specific audience most likely to purchase the item. Direct marketing materials inform and compel the target audience to take immediate action and respond at once by mailing in the order form. The reward for the urgent response is often a discount price or added value such as free gifts.

TELEMARKETING

Telemarketing is also a distribution channel that works to get a target customer's direct response to an offer. Unlike direct mail that may reach a national audience, telemarketing is often done on a local or regional basis. Telemarketing distribution channels are most often used for small businesses that offer services rather than products. For example, painting contractors may telephone potential customers in the area with a special offer to try to get new business. Buying a house is a good example of a distribution channel that requires an agent. A real estate agent markets the product, which in this case is the home for sale. Interested consumers must contact the agent. Insurance is a common product distributed through an agent. While it wouldn't make sense to distribute inexpensive, short-term, mass-produced products such as breakfast cereal through an agent, it does works well for big ticket, unique items such as insurance plans and homes. Wholesalers and retailers are the distribution channel to get their products to a specific group of people. Wholesalers market items to business owners that will in turn sell the products to consumers. Retailers sell products directly to consumers. Distribution channels may change when businesses grow; sometimes a retailer will become a wholesaler and vice versa. Many companies do both retailing and wholesaling. An online store may have a national or even international distribution channel, while on-site stores tend to have a local customer base. In some cases, on-site stores also have an online, or e-commerce, component of their marketing mix. Local consumers can read information about products on a company's website before shopping in person on-site, or they can choose to order items online and have them shipped just as national or international customers do. Importance of Distribution Channels As noted, distribution channels often require the assistance of others in order for the marketer to reach its target market. But why exactly does a company need others to help with the distribution of their product? Wouldnt a company that handles its own distribution functions be in a better position to exercise control over product sales and potentially earn higher profits? Also, doesnt the Internet make it much easier to distribute products thus lessening the need for others to be involved in selling a companys product?
4

While on the surface it may seem to make sense for a company to operate its own distribution channel (i.e., handling all aspects of distribution) there are many factors preventing companies from doing so. While companies can do without the assistance of certain channel members, for many marketers some level of channel partnership is needed. For example, marketers who are successful without utilizing resellers to sell their product (e.g., Dell Computers sells mostly through the Internet and not in retail stores) may still need assistance with certain parts of the distribution process (e.g., Dell uses parcel post shippers such as FedEx and UPS). In Dells case creating their own transportation system makes little sense given how large such a system would need to be in order to service Dells customer base. Thus, by using shipping companies Dell is taking advantage of the benefits these services offer to Dell and to Dells customers. Types of Distribution Channels Distribution channels are the methods that companies use to enter the consumer market with their product. While many methods exist, they have changed over the years because of the Internet and global sales. Definition A distribution channel is the method a company uses to get its products into the marketplace for consumer use. The traditional channel goes from supplier, manufacturer, distributor, wholesaler and retailer. Two types of distribution channels exist: indirect and direct. Indirect Channel The indirect channel is used by companies who do not sell their goods directly to consumers. Suppliers and manufacturers typically use indirect channels because they exist early in the supply chain. Depending on the industry and product, direct distribution channels have become more prevalent because of the Internet. Direct Channel A direct distribution channel is where a company sells its products direct to consumers. While direct channels were not popular many years ago, the Internet has greatly increased

the use of direct channels. Additionally, companies needing to cut costs may use direct channels to avoid middlemen markups on their products. Indirect Channel Methods Distributors, wholesalers and retailers are the primary indirect channels a company may use when selling its products in the marketplace. Companies choose the indirect channel best suited for their product to obtain the best market share; it also allows them to focus on producing their goods. Direct Channel Methods Selling agents and Internet sales are two types of direct distribution channels. Selling agents work for the company and market their products directly to consumers through mail order, storefronts or other means. The Internet is an easy distribution channel because of the global availability to consumers. Distribution Channel Development Selecting the right mix of sales channels and optimizing their performance is a critical issue with many of our clients. At Sun valley Communication we work in maximizing the effectiveness of direct sales organizations, representative, distributors, and resellers. Assessing the performance of the sales channels, recommending alternative means of reaching customers and developing the capabilities of the sales organization are important aspects of many of our assignments. Exploiting the latest electronic and non-electronic means of reaching customers directly is an increasingly important part of our work in developing distribution channel effectiveness. Many of the practices implemented in these consulting engagements are directly tied to the principles of Process, Competence, Value Enablement and Leadership developed in our customized sales excellence training programs. In addition to consulting services, many of our training programs address these areas as well. Future Trends In Pharmaceutical and Biotech Distribution
6

White paper Robert B. Handfield, PhD Medicaid Drug Distribution Chain Example Manufacturers Wholesalers Retail Pharmacies Medicaid Agencies Sales-based price: AMP Published price: WAC Pharmacies Actual Acquisition Cost Published Price: AWP Reimbursement: EAC (plus dispensing fee) Once the true costs of acquisition become available and open to the public, it is highly likely that increasing pressure on wholesalers will be imminent. Unfortunately, these estimates fail to account for the significant value-added services of wholesalers, and do not reflect a number of hidden risks associated with management of distribution channels. Some of the hidden costs and risks associated with these channels include: Credit risk Returns Damaged goods Losses on counterfeit and/or gray market goods that are discovered in the channel. IT infrastructure Distribution costs. Saleable returns Business continuity planning Avoidance of lost therapy associated with lower service costs

As the transparency of costs without an effective estimate of the hidden distribution costs associated with service continues, it will become imperative for wholesalers to better track and document these costs. The most important point to note here is that service fees have never been addressed in calculation of AMP. CMS has stated that if the service fee was a bonafide fee at fair market value and was not passed on to customer, that it could be

excluded from the calculation. However, manufacturers still include the service fee in AMP, as they are not clear about this position. It is important that manufacturers consider dropping the fee from their AMP to pass value onto their customers. As the share of generics in the market increases, it is also likely that retailers will not be able to maintain the current margins they enjoy on generic drugs, and will be forced to accept lower reimbursements from the government. This will negatively impact their margins and levels of service. Combined with the increasing pressure to move to 90 day scrips, retailers stand to lose
margins based on these changes.

Enhanced Cold Chain Control of storage and transportation temperatures is a major factor in maintaining the quality of medicinal products in the supply chain. Increasing international trade in medicines (for example parallel import/export of insulin) together with the growth of the biotechnology industry, has resulted in an increasing reliance on the distribution chain for many companies with international operations as well as major pharma companies. For example, some mediscience products, such as vaccines, are rendered ineffective or can even be potentially harmful if they are not stored and transported at the correct temperature. The threat of bioterrorism has highlighted the need for safe transportation of vaccines using secure, tamper-proof systems. The UK and US military have both recently demonstrated an interest in secure shippers and are currently carrying out their own validation tests. With the increase in cross-border movements of pharmaceuticals, theft is a significant potential problem and packaging specialists are now using computer technology event loggers and reinforced outer casing to make containers resistant to unauthorized access. In developing a temperature profile(s) used to design a shipping container or system, a complete analysis of the distribution process flow is required. Distributors should walk through their system to the extent possible to gain a better understanding of what happens to the freight. Each step should be analyzed to provide the shipper with a very clear expectation of the time/temperature relationship throughout the distribution process. This understanding will allow for the development of a temperature profile that will be used to design and challenge a package or system through the qualification process and will therefore provide the shipper with a high degree of assurance that his merchandise can be shipped to its final destination, while minimizing the risk associated with loss of product as a result of deviations in temperature and/or humidity during transit. It is impossible to develop a temperature profile
8

that will represent every shipment you make, but do develop a profile that is a representative
challenge of the distribution process to minimize the risk of temperature

Key Trends in the Pharmaceutical Industry Recent breakthroughs in genomics and proteomics may be mind-boggling to most. And, although news reports remind us regularly of the strides pharmaceutical companies are making in the fight against disease and pain, little is reported about the increasing struggles pharmaceutical companies face in this fight. In fact, the pharmaceutical industry is experiencing unparalleled change and challenges. All of the usual suspects that impact business today are at play: globalization, treatment and pricing economics, government controls and technology.1 However, in an era of continuing consolidation, innovation abounds not only in R&D, but also in business models. Business Innovation is Restructuring the Value Chain The value chain is restructuring as business innovations are implemented. For example, nearly half of the health-insured population in the United States now receives pharmacy care from pharmaceutical benefits managers (PBMs). As a consequence, the mail order channel has grown dramatically, with supply chain requirements differing from those of the hospital or retail store channel. Additionally, drug manufacturers and health care providers are implementing disease management programs that provide specialized services for a specific disease.2 These programs allow drug manufacturers to get much closer to the consumer and to better control inventory levels and, subsequently, demand planning. Companies that choose to ignore or languish in optimizing their sales and distribution channel strategies may well miss prime opportunities to develop consumer loyalty and lower-cost-to-serve channels. Market Share and Margins are Declining Declining market share and margins are being experienced for the first time in many years. The number one culprit is the increased competition from generics. However, price pressures, shortened new drug exclusivity periods, mergers, acquisitions, consolidation and escalating R&D costs also play significant roles.3 Overall drug utilization continues to be a source for growth. However, as competition increases and companies achieve intended globalization, erosion of market share and margins will have greater and greater impact on
9

profitability. UPS Consulting anticipates that as the attempts to preserve market share, margin and growth intensify, those companies that address cost and efficiency structures within their supply chain will be best positioned to meet Wall Street expectations. In the coming years, pharmaceutical companies that do not adapt to optimized cost- and businesseffective structures will risk survival. Consumers have Less Access to New Drugs While it is helpful that consumers are becoming more knowledgeable due to mass communications (including advertising), consumer Websites and consumer demand for information knowledge is not turning into power. Managed care use of formularies, HMO use of therapeutic interchange and step-care therapy prevent many consumers from buying drugs of their choice.2 Once formularies and treatment programs are defined, the power rests primarily with pharmacists, who choose how they will fill prescriptions. Shifts in treatment and buying decision power will continue to change, requiring more agile, tiered marketing and nonrevenue product fulfillment. Mass communications and sales processes that have traditionally focused on educating and building awareness within the medical provider community will need to anticipate and accommodate power shifts. More recently, large pharmaceutical companies have started mass marketing to U.S. consumers. However, the growing limitations of consumer influence may render such programs profitless in the future. As the focus of control changes, information needs and the needs of various decision makers will need to be addressed to successfully and profitably launch new products. 2present a whole new cadre of needs. CRM and customer support will need to be expanded to meet these new categories of need. Although they generate extra cost, these direct channels also present new opportunities to build loyalty and get closer to real-time demand. Channel Management As new channels develop, pharmaceutical companies will need to re-evaluate channel strategies. These new channel opportunities paired with the increasing role of PBMs and disease management programs could present a ripe-for-picking time to address channel costs and performance for both nonrevenue and revenue business streams.2 On the nonrevenue side, pharmaceutical companies can investigate the value of alternative
10

distribution for samples and literature. For example, distributing direct to disease management programs or leveraging the role of retail pharmacies may provide opportunities to strengthen retail relationships and gather more accurate demand information. On the revenue side, shifting to cost- and performance-based channel management can lead to cost savings, more reliable distribution and improved demand visibility. Drug makers can now sell direct to retailers and providers through e-marketplaces such as the Worldwide Retail Exchange and Global Healthcare Exchange.8 Additionally, as PBMs and disease management programs continue to evolve and mature, drug makers should anticipate their technology and information needs in order to seek ways to integrate their fulfillment, customer management and financial processes. New Product Development and Rollout In new product development, highly specialized niche companies are demonstrating that they can bring innovation faster. With escalating R&D costs, we believe drug manufacturers that leverage the intellectual property of such companies, as well as facilitate collaborative efforts through alliances and partnerships, can better manage risk and portfolio profitability. As more parties participate in the race for innovation, integrating research, development and design efforts will become a source for competitive advantage. Technology, information sharing and process integration will become paramount to lowering costs and optimizing intellectual property. Additionally, once a new product has been developed, the cycle for commercializing that product and rolling it out must become tighter. With exclusivity periods shortening and generics gaining higher market share, the time it takes to get product commercialized and demand generated will directly affect the profitability and life of that product.5 Forrester Research calculates that the per-day cost in lost sales for a $1 billion drug is $2.74 million. Regulations and compliance also affect the transition from development to rollout. The FDA allows new drugs to be marketed in the United States immediately following approval, but Europe often experiences delays of up to 12 months between drug approval and market availability.2 Tighter and more intelligent synchronization between production, fulfillment, marketing and channel networks will enable faster rollouts. Reverse logistics of information and feedback will need to be considered along with fulfillment and demand generation processes.

11

Positioning to Win Ultimately, UPS Supply Chain Solutions believes that price pressures along with these trends will force margins down so much so that inefficiency in a pharmaceutical companys supply chain could put the organization at risk. These underperforming organizations may in turn create an environment rich in desirable acquisition targets or license arrangements. The winning pharmaceutical companies will be those organizations that can: 1. 2. 3. Maintain profitability despite falling margins Generate and conserve cash flow for future acquisitions and licensing arrangements Resiliently merge and integrate supply chains to enable M&A, licensing and collaborative R&D strategies What does it take to become a winner? Pharmaceutical companies that want to be well positioned for the future, despite the growing hardships and complexity of the industry, should achieve excellence by focusing on these five supply chain areas: Production Fulfillment Customer Management Forecasting & Planning Procurement

EXECUTIVE SUMMARY This research study was oriented primarily around the Pharmaceutical and Biotech distribution sector. We focused on the analysis of the current situation and the likely changes in this industry in the next 3 to 5 years. At the outset of the study, we developed a list of key hypotheses that served as the foundation stones for our research. These hypotheses were explored through focused interviews with over 60 subject matter experts. Based on our exploration of these hypotheses and review of key opinion leader interviews, several key insights emerged from this situational analysis. Our interviews were carried out with multiple participants in the pharmaceutical supply chain, including manufacturers, wholesalers, chain drug stores, HMOs, pharmacies, hospitals, PBMs, 3PLs, regulators and

12

financial analysts. The study was performed using a process consisting of facilitated brainstorming, structured interviews, primary data collection with multiple subject matter experts and secondary research to address the following critical questions: What is the overall response to the new Fee for Service model proposed by the wholesalers ? Are there alternative distribution channels emerging that could replace/bypass the wholesalers, and how successful can they be given the complexities of the life sciences supply chain ? What is the likely impact on reimbursement of impending legislation in Medicare and Medicaid? What are the future impacts of cold chain and RFID technology on distribution in the channel? The following key points emerged from our research. Overall response to Fee for Service A diverse set of views regarding the fee for service model exists. Overall, we classified manufacturers based on their likelihood to explore other options and their perception on whether they paid a fair rate. These classifications included Stable (unlikely to change), Explorers (researching other options), Malcontents (actively engaged in discussions with 3PLs to dis-intermediate wholesale channels), and Oblivious (indifferent to the model, and unlikely to change). Although manufacturers in the Malcontent and Explorer groups are pursuing other options, our research suggests that downstream participants (retailers, hospitals, mail order divisions of Pharmaceutical Benefit Managers (PBMs)) are NOT open to this
option, fearing deteriorated service levels, higher inventory, and higher costs

Manufacturers do not fully grasp the potential hidden costs of business continuity planning, accounts receivable, lost days of therapy, and lower service levels associated with alternative channels that are not robust and well-developed. Likelihood of alternative channels Our research also suggests that 3PLs and manufacturers may be largely unaware of
13

the complexities associated with the distribution channel, and have not actively engaged customers in discussing alternative options. A subset of wholesalers believe that manufacturers can by-pass them if they charge too high a price. Impact of Medicare/Medicaid Legislation on the Channel The OIG concludes that there is significant interest in changing Medicaid reimbursement for prescription drugs by aligning pharmacy reimbursement more closely with pharmacy acquisition cost. The changes proposed in the Presidents 2006 budget would make Medicaid reimbursement consistent with Medicare by basing reimbursement on actual sales transactions. Once the true costs of acquisition become available and open to the public, it is highly likely that increasing pressure on wholesalers and retailers will be imminent. Unfortunately, these estimates fail to account for the significant value-added services of wholesalers and pharmacy retailers, and do not reflect a number of hidden risks associated with management of distribution channels. Some of the hidden costs and risks associated with these channels include: Credit risk Returns Damaged goods Losses on counterfeit and/or gray market goods that are discovered in the channel. IT infrastructure Distribution costs.

We also believe that state programs and private party payors will also follow. As people begin to accept higher co-pays and costs with Medicare, other parties will also follow suit. As the transparency of costs is mandated without being accompanied by an effective estimate of the hidden distribution costs, it will become imperative for wholesalers to better track and document these costs.

14

As the share of generics in the market increases, it is also likely that retailers will NOT be able to maintain the current margins they enjoy on generic drugs, and will be forced to accept lower reimbursements from the government. This will negatively impact their margins and levels of service. Combined with the increasing pressure to move to 90 day scripts, retailers stand to lose revenues based on these changes. INTRODUCTION Todays Pharma and Bio-Tech supply chain is more complex than ever! Multiple events occurring on a daily basis are shaping the competitive and regulatory environment in which channel members operate their business. ASP regulation is changing, and non-conventional players (such as 3PLs) are threatening to dis-intermediate conventional players. Regulators are demanding that wholesalers and manufacturers reveal pricing, and are challenging the cost of pharmaceutical distribution. Market channels such as mail order, direct shipping and website pharmacies are also important competitive channels to consider. Pharmaceutical distribution is highly complex and fragmented. Prescriptions are filled at more than 140,000 outlets in the US, but only six percent of sales are sold direct by manufacturers. The drivers for the high wholesaler market share are: Beginning in the early 1980s, hospitals began pushing inventory management back to the wholesalers in an effort to reduce investments in inventory and receivables Another driver lies in the fact that manufacturers wanted to outsource much of the distribution work to wholesalers in the 1990s and focus on their core competencies R&D and Marketing Another driver for this trend was the unsatisfactory service levels provided by manufacturers during the 1990s and which continues today! The manufacturers typically sought to attain a fixed sales target each quarter- and then would shut down sales once the target was achieved! We had people who needed to have prescriptions filled, and we could not purchase the drugs from the source! (A PBM) Another major driver of change is the increasing share of generics that are coming into the market, as some largest branded drugs go off patent in the next three years. Although the process of manufacturing and distributing branded and generic drugs is quite similar, the
15

design of the distribution channel might be substantially different. Many generic companies are exploring relationships with Indian & Chinese manufacturers to market their products. Generics are increasingly becoming commoditized as one manufacturer noted: Retailers are running reverse auctions on generic products how much more commoditized can you get? The share of generic drugs is likely to increase sharply in the next two to three years, which is likely to have an impact on wholesaler and retail pharmacy volumes. Depending on how reimbursements change, total volumes may increase due through increased access to medicine provided by Medicare Part D, while total revenues may increase, but profits will remain unchanged. This is driven largely by the Pharmacy Benefits Managers, who negotiate contracts directly with manufacturers and secure rebates.. Given these changes, it is little wonder manufacturers, wholesalers, pharmacies, hospitals, and other participants are bewildered with the array of different competitive challenges that face them! The unfortunate result is that misperceptions have been created at differentpoints in the supply and distribution chain, and channel participants have failed to communicate and work together to resolve the problems caused by these misperceptions.

A research study was therefore proposed to answer the following question: What are the emerging trends that are imminent in the pharma / biotech supply chain? This study sought to capture the current thinking and strategies from the following: Manufacturers (Pharma and Bio-Tech companies) 3PL providers (Non-Wholesaler distribution agents) Wholesalers (The Big Three) Customers (Pharmacies, Hospitals) Regulators FDA and other Government agencies

Our study addresses the following four questions: What is the overall response to the new Fee for Service model proposed by the wholesalers? Are there alternative distribution channels emerging that could replace/bypass the
16

wholesalers, and how successful can they be given the complexities of the life sciences supply chain ? What is the likely impact on reimbursement of impending legislation in Medicare and Medicaid? What are the future impacts of cold chain and RFID technology on distribution in the
channel?

METHODOLOGY This project was completed in three phases.

Phase 1: Development of Research Framework The research team met to develop an initial scope document outlining the key research questions that required analysis. A preliminary set of interviews with a focus group was conducted, and an initial set of interview participants was developed. The key questions were then organized as the basis for investigation. The steps followed included the following: 1. 2. Determine what to include. Develop scope document based on preliminary interviews with focus group. Create preliminary benchmarking assessment interview protocols, and identify existing best practice information available in Supply Chain Resource Consortium database. We drew from primary interviews as well as secondary research. Phase 2: Data Collection
.

In this phase we completed several interviews. We interviewed over 65 subject matter experts from multiple organizations. This list of interviewees represented the following groups: Manufacturers 21 Pharmacies 5 Hospitals 3
17

HMOs 1 Wholesalers 5 Financial Analysts 2 Legal Experts 5 PBMs 3 3PLs 5 GPOs 5 Phase 3: Data Analysis, Preparation of Report, and Presentation of Findings This final report was drafted and issued to all participants who were interviewed for this study. The results are intended to provoke discussion and communication within the industry, in an effort to drive further collaboration between participants in the channel. The material from this research will also appear in a book by Dr. Handfield titled Future Trends in the Pharmaceutical and Biotech Supply Chain. Additional details of the study and questions can be directed to Dr. Handfield at Robert_handfield@ncsu.edu. Q: What is the industrys perception of the Fee for Service (FFS) model? With the reduction in the opportunity to make profits based on building inventory and price inflation of drugs, wholesalers adopted a Fee For Service (FFS) model. Each wholesaler has taken a different approach to fee for service. One wholesaler seems to have a specific activity-based cost that is customized and calculated for each manufacturer that determines the fee for service, based on each manufacturers specific characteristics: o o o o o Sales Volume Line Extensions Special Handling requirements Number of Ship-To points Product Concentration This move has created a great degree of turmoil in the Pharma and Bio Tech industry. In this section, we provide the Industry perception of the FFS model.

Manufacturers In general, our research supports the notion of a diverse set of views regarding the fee for
18

service model. Overall, we classified manufacturers based on their likelihood to explore other options and their perception on whether they paid a fair rate. Based on these parameters, we classified manufacturers into four groups as shown below. In general, manufacturers have accepted the FFS model, but may well be exploring options in the future. As for the others, the rule is that generally the larger the manufacturer, the more likely they are to resist. Smaller manufacturers are more likely to sign agreements as they have fewer options.

These are some of the comments we received from these groups of manufacturers: Manufacturers Stable Group Believe that the wholesalers provide a valuable service Believe the fee is appropriate Admit that they do not have the capabilities to run such a complicated network Compliance is the key for this group I think there might be value [in bypassing the wholesalers], and we are studying it and still in the middle of negotiations. However, I personally think that it would be too much of an effort for us We believe that in 5-10 years, the end user will be more of the customer, rather than the wholesaler. Ideally, we would like for the wholesaler to be an extension of the manufacturer I dont know how we would be able to by-pass wholesalers we have contracts with chains but we ship through wholesalers. The current environment is efficient. If Pharma companies could get together and collaborate maybe. Manufacturers Explorer Group A good portion of this group has signed agreements However, they wish to find other options to improve negotiating power in the future They do not have a viable structure to explore other options
19

They have approached PBMs to discuss options, and are discovering that PBMs are NOT open to the idea of shipping direct. Upper Management Pressure is the key for this group Most Explorers have an exaggerated estimate of their capabilities They are in the discussion phase with retailers and 3PLs, with no clear strategy or idea of the total cost to deploy such an effort Cost is not the only consideration for this group. Issues such as risk mitigation are important to Explorers. We do go direct to the warehouse today. We would have the capability to go direct, but I am not sure if we would. However, the recent events have forced us to look at alternatives models on how to partner. There is a potential in 3-5 years that we would go direct to the consumer. Even though there is a higher cost, it is not the only issue we look at, although not an insignificant one

Manufacturers Malcontent Group Most of this group has signed the FFS deals However, they have initiated active negotiations/strategies with 3PLs to bypass wholesalers Channel Control is the key for this group Companies are openly challenging the FFS model, using a rationale that they are paying too much, but are often unaware of the true costs of by-passing wholesalers. In addition, they believe that the returns being generated through these agreements are simply being passed on to pharmacies, and not being re-invested into the channel to make it more competitive, despite the fact that wholesaler margins have decreased in line with expense efficiencies. They are very interested, since they are already doing it with hospital groups in the metro New York area We have spoiled the customer to save us money and it is hard to get them to see how it is better if it is slower do they really need same day or next day? Will we ever get to engage with our end customers directly? Probably not. Our culture emphasizes security and brand protection. There is a potential that we could
20

I know XXX (a 3PL) has put their name in the hat we talked to them about it.

go direct in 3 - 5years. We would have the capability to go direct to stores, but I am not sure if we would. We probably would continue to have an intermediary for hospitals and pharmacies. Manufacturers Oblivious Group Consists of small emerging players who outsource their entire distribution network to third parties Most of them are focused on growing the business, clinical trials, or expanding the
business.

Business Maintenance/Expansion is the key for this group Retailers Study participants from the various retail groups were relatively indifferent to the FFS model. One of the key services provided by wholesalers to retailers in the Pharma supply chain is daily delivery of product with extremely short lead times. There are players in this industry that believe that the retailers are over-served. However, retailers made it clear that they would refuse to accept any decrease in service levels. As one retailer we interviewed noted: The big challenge is that we receive a wholesaler order every day. It comes in a nice gaylord, sorted by our aisles, and is easy to receive. If we were to switch to a 3PL, we now would get into large unbundled shipments from different players with different activities. Now we would have to carry safety stock on all those piles, there would be no forward DCs immediate response to stockouts, and lower service levels! Is the pharma community going to be willing to share the costs that we would incur associated with not going through wholesalers? Probably not! If I have to now incur larger safety stock carrying costs as a safeguard against lower service levels Will you Mr. Pharma give me financial incentives that will also my incremental labor cost associated with more POs? The big question is whether there is enough money for the pharma companies to gain enough, give us enough of an incentive, and give us something to sweeten the pot and still make a return on it. In the end, it seems it will be more costly. Wholesalers
21

Wholesalers stood behind their FFS models and reiterated that the fee being charged to the manufacturers was based on a careful analysis of the various costs involved. They believed that it would be impossible for any other entity to provide the same level of service at a lower cost. Wholesalers seem to have embraced the fact that the manufacturer is the customer, and believe that it is their goal to make them happy.

Group Purchasing Organizations (GPOs) GPOs share the belief that manufacturers are not capable of by-passing wholesalers and are generally satisfied with the level of service and cost savings provided by wholesalers to their hospital customers. However, significant potential conflict is beginning to be created by wholesalers who have allegedly auto-substituted their generic manufactured products for hospital-requested original products when stock-outs occur. There is also conflict created when wholesalers have attempted to direct source pharmaceutical products to hospitals, offering them a 2-3% savings over the GPO administration fee. In such cases, GPOs tell their clients that they are exposing themselves to undue risk, as GPOs are legitimately representing their hospital customers best interests. Pharmacy Benefit Managers (PBMs) PBMs do not believe that manufacturers are capable of shipping direct. This is based on the poor service levels they have experienced from manufacturers in the past who did not go through wholesalers. They feel that in general, wholesalers represent the only viable source for reliable distribution. One quote from an individual who noted that: The end of the year was typically the poorest service levels. Production was driven around sales numbers, not actual demand, and since manufacturers generally raised prices during the first week in January, there was no incentive to drive sales at the end of the fiscal year. So they would hold back inventory and not sell back into the channel. We fought that behavior for years and finally decided to switch to the wholesaler model. They had better relationships with manufacturers on the buy side, and we were willing to let them do the work. However, we
continue to work directly with the generics manufacturers.

22

Q: What alternative channels are on the horizon? In our opinion, there is an insufficient understanding of the complexities of the pharma/bio tech distribution supply chain. Many of the manufacturers have explored alternatives, not because they are not happy with the service, but because they fail to completely understand the complexity of the channel. In our interviews, we discussed many of the critical services offered by wholesalers, including: o o o o o o o o o o o o Forecasting demand Inventory management systems Ordering systems PO systems (only bill for what is shipped) Carrying 20 or more days of inventory for pharmacies at no cost for high moving drugs Delivery 5X per day, 24/7, 365 days a year Warehouse and cost structure to ship to multiple locations Business continuity requirements (multiple warehouses distributed nationally) Credit, billing, collections Collecting receivables and taking on that risk Returns and recalls Providing pedigree

Again, the manufacturers in the Stable group were aware of these services, but the Malcontents or Explorers believed that 3PLs were also able to offer these services. There are three alternative channels that are being proposed as credible alternatives to the current wholesaler model: o o o A 3PL model A consortium of smaller wholesalers replacing the larger wholesalers Smaller manufacturers forming a consortium to bypass the wholesalers

3PL Model

23

There are several 3PLs that have expressed an interest in entering the Pharma distribution market. Their offerings will be different from the wholesalers in the sense that they will not take ownership of the product. Their solutions would be oriented primarily around the actual distribution process. 3PLs claim that their costs will be lower than the fee that is currently charged by the wholesalers. In addition, they believe that the supply chain design would be simplified as by eliminating the wholesaler and playing the role of a 3PL, the DCs currently operated by the manufacturers could be eliminated. They claim these following advantages over the wholesalers: o o o o o o Better shipment level data Improved Security/Drug Safety Easier to roll out RFID Increased Simplicity Activity Based Costing will better represent work done Will allow manufacturers to build direct relationships with retailers

Wholesalers on the other hand believe that 3PLs will face these problems: o o o Existence of unions If 3PLs dont take ownership, manufacturers would be forced to retain liability for the product for a longer period It will be very difficult for a 3PL to take a saleable return back, and that it would probably have to be thrown away. There is no regulatory way for them to re-insert saleable products back into the supply chain, which would increase waste. o o o o o o o o o They believe that 3PLs are not as well-positioned to deal with business continuity planning as wholesalers. Retailers would not accept reduced service levels 3PLs do not have the level of reach that wholesalers do, especially in remote areas Lack of relationships with retailers Difficulty in providing a unified ordering interface for customers Customers do not want to have multiple order/receipt points Lack the scale/size/experience of wholesalers Lack of ability to provide these Value Added Services Returns
24

o o o o

Contract Administration Chargebacks Demand forecasting Absorbing bad loans Three manufacturers believe that the 3PLs could handle Pharma distribution Another believes that none of the providers have all the capabilities of a wholesaler, but believe that its only a matter of time A 3PL cannot replace the function of a wholesaler Another manufacturer doesnt believe that a 3PL would be the right choice as they understand their customers better than the 3PL Yet another manufacturer believes that although none of the 3PLs are capable of handling their distribution business independently, they would like to see an LLP
model with multiple providers

Here are some comments made by manufacturers about 3PLs

All in all, considering the complexity of the distribution network and the familiarity that wholesalers have with the model, it is unlikely that 3PLs would be able to offer the same level of service at a lower price. Consortium of Smaller Manufacturers The likelihood of a consortium of manufacturers being formed to by-pass wholesalers is unlikely. Most of these manufacturers do not have the resources or desire to create such a network. Further, the lack of channel competency and customer knowledge suggests that such an initiative would not succeed, even if a group of renegades were to emerge. Consortium of Smaller Wholesalers Q: What is the likely impact on reimbursement of impending legislation in Medicare and Medicaid? A complex issue in the Pharma / Bio Tech supply chain is the rebate structure and pricing structure. Again, this is a highly regulated issue that is under increased scrutiny in todays market. This is especially true for reimbursements of Medicaid and Medicare. The primary issue revolves around the calculation of estimated acquisition costs, which are shown in Figure 1. Several key terms are useful to define here:
25

Average manufacturer price (AMP): The average unit price paid to manufacturers by wholesalers for drugs distributed to the retail class of trade minus customary prompt pay discounts. The AMP is statutorily defined and calculated from actual sales transactions. Manufacturers must report AMP to CMS quarterly for the Medicaid drug rebate program.

Average wholesale price (AWP): A price published in national drug pricing compendia issued by private companies such as First Databank and Medi-Span, based on pricing information provided by manufacturers. Its calculation is not defined in statute or regulation. It is generally considered a price for retailers.

Estimated Acquisition Cost (EAC): The State Medicaid agencys best estimate of the price generally and currently paid by providers for the drug. Within Federal parameters, each State establishes its own EAC formula in its State plan.

Wholesale Acquisition Cost (WAC): A price published in national drug pricing compendia issued by private companies such as First Databank and Medi-Span. It is now statutorily defined as the manufacturers list price for the drug to wholesalers or direct purchasers in the United States, not including prompt pay or other discounts, rebates or reductions in price, as reported in wholesale price guides or other
publications of drug pricing data.

Relationship of AMP, WAC, and AWP Several key points are important here. To begin with, AWPs are not defined by law or regulation, but are compiled in drug compendia such as Medical Economics Red Book and First Databanks Blue Book. Second, AMPs are a statutorily defined sales-based price used in determining Medicaid drug rebates. While States must reasonably reimburse pharmacies for prescription drugs provided to Medicaid beneficiaries, they often lack access to pharmacies actual market prices. Due to this lack of data, they rely on estimates to determine Medicaid reimbursement. Most States base their calculation of estimated acquisition costs on published average wholesale prices (AWP). These AWPs are the subject of much debate by the Office of the Inspector General, who alleges that Medicaid is paying too much for
26

prescription drugs. Robert A. Vito, Regional Inspector General for Evaluation and Inspections, Philadelphia, commented that: Our analysis comparing actual pharmacy acquisition costs to AWP for calendar year 1999 revealed that pharmacy acquisition costs for brand name and generic drugs were 21.8% and 65.9% below AWP, respectively . . . . and that the different between actual acquisition costs and the amount the Medicaid program would have paid using the States average estimated acquisition cost formulas was $1.5 billion
in 1999.

The OIG recently released two reports1 that further indicate that the published prices that Medicaid uses to calculate reimbursement amounts for prescripton drugs do not approximate pharmacy acquisition costs. The first report finds that for Medicaid-reimbursed drugs overall, Average Manufacturer Price (AMP a statutorily defined sales-based price used in determining Medicaid drug rebates) was 59% lower than Avreaged published prices such as AWP and Wholesale Acquisition Cost (WAC) In general, States reimburse pharmacies for drugs at the lower of estimated acquisition cost (EAC) plus a dispensing fee or the pharmacys usual and customary charge to the public. The EAC is the States best estimate of of the price generally and currently paid by providers for the drug. Rebates are provided by manufacturers to various entities in the channel, including PBMs and wholesalers as an added incentive to buy their product. This dynamic is changing today With increasing legislation around drug pricing, transparency is a big issue. In the past a greater portion of rebates were kept by PBMs. Today, there is more of a migration of rebates passing through to the end payer. One PBM we interviewed noted that: We have adopted an above the board policy to develop an agreement pass through on all new products, so everyone knows the exact amount of the rebates coming from the manufacturer. We will now pass on 90% of the rebate to customer. We have an open-books policy that allows the payer to come in and audit our contract down to the wholesaler NDC numbers. Another form of rebates are rebate administration fees. In order to obtain the goal of positioning their product in second tier status, rebate arrangements may be made to allow the product to be placed on a second tier instead of a third tier. This is becoming more transparent as the Office of the Inspector General is pushing for increased fraud prevention
27

and abuse legislation. The recent OIG study published in June 20052 contains some findings that highlight the fact that reimbursements and unbundling of WAC-based reimbursements is inevitable in Medicaid legislation (see Figure 2). The OIGA found in their audits the following key highlevel results: At the median, AMP is 59% lower than AWP. Forty-nine States use AWP to estimate pharmacy acquisition costs. The median State EAC formula is AWP minus 12 percent. For 98 percent of Medicaid reimbursed NDCs this median State EAC formula would reimburse at a price higher than AMP. At the median, AMP is 25% lower than WAC. Generic drugs exhibit the largest differences between average manufacturer price and the published prices. For generic drugs, AMP is 70% lower than the AWP at the median. For generic drugs, AMP is 40% lower than WAC at the median. Once the true costs of acquisition become available and open to the public, it is highly likely that increasing pressure on wholesalers will be imminent. Unfortunately, these estimates fail to account for the significant value-added services of wholesalers, and do not reflect a number of hidden risks associated with management of distribution channels. Some of the hidden costs and risks associated with these channels include: Credit risk Returns Damaged goods Losses on counterfeit and/or gray market goods that are discovered in the channel. IT infrastructure Distribution costs. Saleable returns Business continuity planning Avoidance of lost therapy associated with lower service costs
28

As the transparency of costs without an effective estimate of the hidden distribution costs associated with service continues, it will become imperative for wholesalers to better track and document these costs. The most important point to note here is that service fees have never been addressed in calculation of AMP. CMS has stated that if the service fee was a bonafide fee at fair market value and was not passed on to customer, that it could be excluded from the calculation. However, manufacturers still include the service fee in AMP, as they are not clear about this position. It is important that manufacturers consider dropping the fee from their AMP to pass value onto their customers. As the share of generics in the market increases, it is also likely that retailers will NOT be able to maintain the current margins they enjoy on generic drugs, and will be forced to accept lower reimbursements from the government. This will negatively impact their margins and levels of service. Combined with the increasing pressure to move to 90 day scrips, retailers stand to lose
margins based on these changes.

Q:

What are the trends in critical areas of the Pharma supply chain with respect to Cold Chain, RFID, and Pedigree requirements? Pedigree and Supply Chain Security There is no question that pedigree and security are at the top of the list at many manufacturers. This will continually drive distribution strategies in the next 3-5 years, so entities in the Pharma supply chain should continue to engage with customers, identify trends, and establish the requirements for success in this market. For example, one manufacturer we interviewed noted that:

Pedigree and securing the supply chain will be THE biggest issue in the next 3- 5 years. We made a statement that required all of our direct distributors that purchase from us to ONLY buy from us, and nobody else. We have been auditing our customers for the last 6 months to see if they are holding to that agreement and complying. We have established in the last 3 months a supply chain security taskforce exploring 5 or 6 components. We have established a legislative component exploring where pedigree is going to go, and what are other areas that pharmacies are looking at. We have also established a technology component, exploring RFID, overt, covert, and partnering to look at front and reverse logistics to ensure a secure supply chain to ensure customer gets their products every time.

29

A hospital pharmacist also agreed that pedigree is an important issue. This individual emphasized that hospital pharmacists are under the greatest pressure to keep drugs in stock, especially as hospitals are often the last resort for patients that are ill and are refused service by physicians offices. Theft and pilferage is also much more common in hospitals, as documented in the book Dangerous Doses. As such, hospital pharmacists are in some cases tempted to resort to secondary wholesalers and unreliable sources of drugs that mysteriously are advertised on fax machines and internet websites and email. This has driven increased scrutiny, and has become a major issue for hospital pharmacists. I think pedigree is a big issue. Incentive for counterfeiting is higher on high ticket items. I wouldnt anticipate that pedigree would be an issue for the 80% of drugs that are high volume and low cost. But there is already a trend in some cases for some of the high ticket items having specialized distribution systems, because there is a supply scarcity issue, or an FDA-directed issue, to be high potential targets for counterfeiting. It is very likely that a target for counterfeiters are high unit cost items going through an alternative distribution system to be targeted for pedigree requirements. I could see that happening. It will be a while before we get to a point where the drugs will be tagged and transferred using RFID! But in the next several years, the high unit cost items will go to some controlled access
distribution chain.

Enhanced Cold Chain Control of storage and transportation temperatures is a major factor in maintaining the quality of medicinal products in the supply chain. Increasing international trade in medicines (for example parallel import/export of insulin) together with the growth of the biotechnology industry, has resulted in an increasing reliance on the distribution chain for many companies with international operations as well as major pharma companies. For example, some mediscience products, such as vaccines, are rendered ineffective or can even be potentially harmful if they are not stored and transported at the correct temperature. The threat of bioterrorism has highlighted the need for safe transportation of vaccines using secure, tamper-proof systems. The UK and US military have both recently demonstrated an interest in secure shippers and are currently carrying out their own validation tests. With the increase in cross-border movements of pharmaceuticals, theft is a significant potential problem and packaging specialists are now using computer technology event loggers and
30

reinforced outer casing to make containers resistant to unauthorized access. In developing a temperature profile(s) used to design a shipping container or system, a complete analysis of the distribution process flow is required. Distributors should walk through their system to the extent possible to gain a better understanding of what happens to the freight. Each step should be analyzed to provide the shipper with a very clear expectation of the time/temperature relationship throughout the distribution process. This understanding will allow for the development of a temperature profile that will be used to design and challenge a package or system through the qualification process and will therefore provide the shipper with a high degree of assurance that his merchandise can be shipped to its final destination, while minimizing the risk associated with loss of product as a result of deviations in temperature and/or humidity during transit. It is impossible to develop a temperature profile that will represent every shipment you make, but do develop a profile that is a representative challenge of the distribution process to minimize the risk of temperature deviations. Customized Therapeutic Distribution A major opportunity that exists today is the movement towards improving compliance to patients, and offering Therapeutic management services tied to track and trace technologies. Therapeutics requires that manufacturers create boutique drugs and formularies that are customized to patient requirements. In the future, the healthcare transaction model would begin by segmentation of patients based on clinical trials, into different categories based on initial testing and diagnosis of which therapies would work best for specific individuals. A patient seeking treatment would be tested and segmented into a category of treatment, and the physician would then recommend the therapy best suited to the individuals particular condition, including their recommended dosage, etc. That individual might not even receive reimbursement for their PBM for alternative therapies based on this diagnosis. The supply chain participants would then play an important role in creating specific boutique customized therapies to align with individual requirements, genetic characteristics, etc. In this manner, a truly customized set of therapies that is most effective would evolve. Followon technologies would then be used to ensure compliance to these requirements. Compliance This discussion reveals another important opportunity for supply chain participants to explore, which is how to offer services that promote compliance to prescribed therapeutics.
31

Compliance curves suggest that most people stop taking medicines that are proven to be therapeutically effective. Thus, a significant value proposition not satisfied is how to promote compliance, ensure that patients are taking their medicine. This would also provide a valuable service to manufacturers, in the form of increased revenues, and increased channel loyalty. As Medicare and Medicaid become a reality, retailers are going to be looking at other sources of revenue other than dispensing fees. Compliance management and pharmacy services will become an important service offering in this channel where there is money to made. There is definitely room for collaboration between manufacturers, wholesalers and pharmacies in compliance and persistency programs, and the pharmacies are in an excellent position to be able to drive this. The manufacturers are unlikely to be able to drive this. The wholesalers also have an opportunity to provide outsourced services to pharmacies on such programs, to ensure that people take their meds! The problems begin when the patient first receives the scrip form the physician. One retailer we spoke with noted that 15-25% of prescriptions are never filled. Even if they are filled, the fall off on compliance is substantial. A patient who takes the medication 80% of the time on a daily dose med is at the high end of compliance. Programs that could be put together to increase that initial fill rate by 10% would promote improved treatment for the patient, as well as improved revenue for the pharmacy, wholesale channel, and manufacturer! There are many electronic alternatives that have not yet been explored. For example, companies are exploring the possibility of creating a system to send a text message to a cell phone to a patient on a daily drug reminding you to take your meds today. If the patient ispaying two dollars a day for the drug that is the kind of thing that would improve market share and avoid the wrath of the government (it is good for the patient). One retailer and expert in the area of compliance noted the following. In the e-prescribing area, no one has explored whether a scrip is filled in the first place. For example, if a patients cholesterol is at 250, the physician will write a prescription for Lipitor. The patient then comes back in 30 days and their cholesterol is still at 250. So the physician will automatically assume that I picked the wrong drug or dose. But the patient may not have had it filled in the first place! With eprescribing, the physician would be able to quickly perform a trace revealing that the scrip was sent to CVS and the patient never picked it up! Or that the patient received a 90 day supply on March 1 and hasnt had a refill
32

and it is August. Today what happens is the doctor assumes they have prescribed a nonoptimal therapeutic, and just assume the drug was taken the way it was ordered. In the field, that is often not the case. Pharmacies today have the information, but they are not mining it. Scripts are not collected electronically, and manufacturers certainly do not have that information. There is major room in the pharmaceutical sector to get around the current safe harbor regulations to encourage eprescribing. This would entail getting the doctor wired, the pharmacy wired, getting the patient more involved and tied together. The single biggest key is to get doctors wired they are hesitant, and it interferes with their current workflow but there is change. Younger doctors understand technology, and are
willing to do different things.

Summary and Implications The trends towards managed care, dis-intermediation, compliance, RFID, pedigree, and therapeutic medicine will significantly change the look and feel of the Pharma Distribution channel, based on the new set of relationships and transactions that occur. Channel design will need to be changed significantly, and a much more hands on approach to crossfunctional channel design will be required to integrate product and demand realization strategies. Customer intimacy must begin with all parties clearly communicating and understanding customer needs, through interaction with prescribers, patients, and payors. Finally, partnerships between manufacturers and channel partners will be needed to design channels that deliver optimal value to the customer through customized delivery. Today, the pharmaceutical and biotech supply chain can best be described as a fragmented system of participants. There is a need for a clear model of collaboration and communication within the channel. While the focus in the past has been negotiating over fees charged for distribution, the real issue is how to make the pie bigger through improvements in technology and customer service. A focused discussion around how to better deliver value to customers is needed, with companies sharing their strategic plans and finding ways to complement each other. In this manner, the pharmaceutical/biotech supply chain of the future can evolve. Such a model would take inventory out of the channel, nd respond much more in an integrated on-demand model. Data integration would be key, so that retailers would have access to a single integrated data model, and forecasting is an integrated planning tool that is customer-facing and real-time. All participants would work together to eliminate stockouts while promoting patient compliance and therapeutic
33

benefits. Such a model will require that all of the participants shown in the above figure work together to share information, engage in joint planning activities, and identify exceptions and problems in the supply chain to combat counterfeiting and diversion. We would be happy to discuss the results of this research and our vision for this new model at your convenience.

34

COMPANY PROFILE

35

COMPANY PROFILE
Eveready Power Cell

History
Ask any Indian consumer to name a Battery and the first brand that comes to mind is Eveready. Not just among batteries, Eveready is a powerful brand across categories. Eveready has a portfolio comprising dry cell batteries (carbon zinc batteries, rechargeable batteries and alkaline batteries), flashlights (torches), CFLs (Compact Fluorescent Lamps) and packet tea. Recently it has also forayed into the mosquito repellant industry. Evereadys strength is the result of a continuous and well-orchestrated brand development strategy that maximizes the value from each consumer touch-point.

Is the iconic urban face of Eveready. The advertising byline of the popular Red series of batteries, it is today symbolic of the empowered urban lifestyle that the brand reflects. The original, path-breaking campaign won as many as 11 advertising awards. The current television commercial on Eveready Ultima, which has explored and demonstrated the technique of light painting (through the TVC) has been very well received and is a one of its kind commercial in the entire batteries segment.
36

The unmatched consumer confidence is also reflected through the various accolades that the company has got over the years. Few highlights have been listed below:

In the Confederation of Indian Industry (CII)s Brand of the year 2005 shortlist, Eveready made the top ten finalists list, along with brands like Nokia, HP, Titan, Dabur and five other Hindustan Lever Brands

As per AC Nielsen, Eveready stood 7th among all FMCG companies in terms of growth in the year 2004-2005.

The Economic Times Brand Equity survey of Brands by Sales, April 2004, put Eveready at no. 22 across brands in all categories.

Scores in the CII survey done by the independent brand consultancy Vertebrands, show Eveready scoring a near-perfect 99% total awareness among Target Consumers.

As per Vertebrands survey, on a 10-point scale, Eveready scored 8 on popularity and 7.7 on contemporariness. Of all consumers surveyed, 41% called it The Only Brand for Me.

In the AAUTS (Awareness,Attitude,Ushership Tracking Study ) conducted by AC Nielsen in the year 2007-2008 , Eveready emerged with a Brand Equity of 7.5 out of 10 and the nearest competitor came up with 3.7.

The same study by AC Nielsen showed Eveready having 45% market share vis a vis its nearest competitor having 30% (2007-2008).

Eveready products are available under the mother brand name EVEREADY (Batteries and Lighting Solutions) and also extended brand names like

EVEREADY ULTIMA (Alkaline Batteries) EVEREADY RECHARGE (Rechargeable Batteries) EVEREADY JEEVAN-SATHI (Brass Torches), EVEREADY DigiLED (LED Flash Lights),
37

EVEREADY CFL (Compact fluorescent lamps), EVEREADY POWERON (Homecare products) and EVEREADY PREMIUM GOLD / JAAGO / TEZ (Packaged Tea) etc

Advertisement

Distribution
38

Eveready has a wide distribution network all over the country with 15 branches, 40 godowns and 4,000 distributors. Our products are available at grocery, general provision, music, electrical, hardware, stationery, gift /novelty stores, at the chemists shops and at photo studios and printing centres. So much so, that many of our products are even available at the paan and cigarette shops. According to AC Nielsen, Eveready batteries are available in 3.3 million outlets out of a total universe of 7.3 million FMCG outlets. The distribution structure extends coverage out to 5000-population villages. The company employs a strong sales force so that they can operate the extensive sales network successfully. As Eveready walks ahead in second century of existence, we have the following objectives

To consolidate our benchmark supplier position in all traditional outlets for batteries and flashlights. Employ a systematic and scientific approach towards increasing our reach and quality of reach.

To leverage our sales & distribution competencies into identified newer channels To service the outlets with a diversified range of products. This includes batteries, flashlights, homelights, packet tea, mosquito repellents, CFLs and bulbs.

To constantly explore new selling arrangements in identified markets to improve effectiveness of servicing

39

Range of Eveready Alkaline Batteries Alkaline Batteries Eveready Ultima Alkaline battery is the ultimate energy solution to the power-hungry electronic gadgets of modern times. It is undoubtedly a new benchmark of quality & performance in the category of alkaline batteries. The promise of performance comes with an affordable price tag, making it truly an ultimate choice. Eveready Ultima Alkaline Batteries are best suited for power-hungry new age gadgets like:

Digital cameras Remote-controlled toys Certain MP3 players High-end portable audio-recording systems etc.

More variety of sizes in the Ultima range will be available very soon.

40

AAA Alkaline - 2112 AA Alkaline - 2115 9V Alkaline - 2116

41

RESEARCH OBJECTIVE AND METHODOLOGY

42

RESEARCH OBJECTIVE AND METHODOLOGY

OBJECTIVE The study reviews effectiveness and performance of Distribution Channel management of Eveready Power Cell. Performance appraisal analysis of Distribution Channel management of Eveready Power Cell Study the distribution strategy of Eveready Power Cell Products To study the market coverage of Eveready Power Cell Products

43

Research Design
According to Aaker, Kumar & Day (2001) descriptive research covers a large proportion of marketing research. This being a quantitative research which is to decide of how one variable affects another variable, there are three basic types of research design that is exploratory, casual and descriptive research design. A descriptive research design is the one that describes something such as demographic characteristics of consumers who uses a product or a service. The descriptive study is typically concerned with determining frequency with which something occurs or how two variables vary. Aaker and George (2000), a descriptive study establishes only associations between variables. The purpose is to provide an accurate snapshot of some aspect of the market environment, There are three types of research designs, namely: (a) (b) (c) Exploratory Descriptive, Causative

Types of Research The object is comparing the brand equity of European and Asian Biscuit brands. Simple way to find out the relative success of one of the two identical Biscuit sold in India. In a research when we talk of research methodology, we not only take Research methodology, but also considered the logic behind the method we used in the contest of our research study and explain why we are using a particular method. This way we can be stated as under. 1. 2. 3. 4. It relies on empirical evidence it utilize relevant concepts it is committed to only objective consideration it result into probabilistic prediction

Descriptive research studies are those study which are concerned with describing the character. It is move valuable because researcher has no control over the variables what has happened or what is happening is considered so it is very accurate so we can say it is more valuable.
44

The object is comparing the brand equity of European and Asian Biscuit brands. Simple way to find out the relative success of one of the two identical Biscuit sold in India. In a research when we talk of research methodology, we not only take Research methodology, but also considered the logic behind the method we used in the contest of our research study and explain why we are using a particular method. This way we can be stated as under. It relies on empirical evidence it utilize relevant concepts it is committed to only objective consideration it result into probabilistic prediction In a method particular research problem involve usually the consideration of the followings the means of obtaining the information Explanation of the way in which related means of obtaining information will be organized and the reasoning leading to the selection Investing the reasons for human behavior i.e. people thinks or do certain thinks so we comes for quantitative reaches The research methodology used for this study was geared towards obtaining quantitative data.

SAMPLING The way a researcher plans to draw a sample is related to the best way to collect the data. Certain kinds of sampling approaches make it easier or more difficult to use one or another data collection strategy. The researcher will use the sampling technique as opposed to census, because it enables (Saunders et al, 2003) one to reduce the amount of data one needs to collect by considering only data from a subgroup rather than all possible cases from the larger group. Sampling enables the researcher to spend more time on designing and piloting the means of collecting the data. Sampling technique has been incorporated in this research primarily due to time constraints, which cannot accommodate the collection of information from each member of the population and also because of the need for increased accuracy in data collection. According to Rajendra (2003), sampling is the process of selecting units from a population of interest so that by studying the sample we may fairly generalize our
45

results back to the population from which they were chosen. Data is gathered through sampling techniques since it is usually not economically feasible for researchers to gather information from everyone (census or population). This is the reason why the researcher has chosen a sample for this study. The researcher has selected a sample (subset or portion) of the population of interest to represent the larger group.

Sampling Process

According to Tull & Hawkins (2004), when a decision is made to use a sample, a number of factors must be taken into consideration. The major activities associated with the sampling process are (1) identifying the target population, (2) determining the sampling frame, (3) resolving the differences, (4) selecting a sampling procedure, (5) determining the relevant sample size, (6) obtaining information for respondents, (7) dealing with the no response public and (8) generating the information for decision-making purposes.

Determining the Target Population

Sampling is intended to gain information about a population. In this study the sample is clearly defined as 50 customers Considering various limitations attached with this study like time, cost etc the most appropriate method would be to have a non-probability sample of 50 customer.

Types of Data collected for the Study This research combines both secondary and primary data to achieve research objectives. Collection of Primary Data

In descriptive type of research the data is collected through surveys, whether sample surveys or census surveys. In this research the researcher has resorted to sample survey. Then the

46

researcher can obtain primary data either through observation or through direct communication with respondents in one form or another or through personal interviews.

Interview Method The interview method of collecting data involves presentation of oral-verbal stimuli and reply in terms of oral-verbal responses. In the case of direct personal investigation the interviewer has to collect the information personally from the sources concerned. The researcher has preferred interview method leaving no air of doubt in the collection process of the data. In this study the above-mentioned method has been adopted with a predetermined structured questionnaire to collect information.

Collection of Secondary Data

According to Thorne (1990), Secondary data means data that is already available i.e., it refers to the data, which have already been collected and analyzed by someone else. Secondary data may either be published data or unpublished data. Although the researcher has not used the secondary data for the purpose of analysis this has been extensively used by the researcher to explore various theories attached with the topic that is brand strategy.

Tool used Questionnaire Design and Development This method of data collection is quite popular particularly in case of this type of survey which we need. On this method a questionnaire is sent to person concerned with a request to answer the question and return the questionnaire. A questionnaire consist of a number of questionnaire printed or typed in a define order on a form or set of form

The merit claimed on behalf of this method is as follows 1. Respondents have adequate time to give well thought out answer.
47

2. 3.

Respondent who are not easily approach can also be reached Results are move dependable and are reliable.

Data Analysis For any research the purpose of achieving the objectives is a very important criterion. Unless the information drawn from the survey is properly interpreted and explained the very purpose of a research cannot be served. Hence data analysis and interpretation is a very important aspect in a project report. Analysis of data is the process of orderly research objectives.

48

DATA ANALYSIS

49

ANALYSIS OF DISTRIBUTION CHANNEL STRUCTURES IN BHOPAL

We have employed a mix of case research (Yin 1994) and grounded theoretic methodology (Glaser & Strauss 1967) in capturing the essence and substance of the structures of the various marketing channels of the sectors studied. ONE variable have been extracted from the detailed case studies and case summaries in the preceding section. This necessarily is subjective and a selective process. As one may observe, this set is limited and can easily be expanded by including consumer related variables (e.g. frequency of purchase) and several others. However, our purpose is to highlight a research process and its application, and the chosen variables and their measurement are both subject to improvement as we argue in this paper later but serve the illustration purpose as an embodiment of infusing rigour into qualitative research methodologies. The summary is presented in table 1 and has in columns the ten key variables

50

Q1. Which Brand you are selling?

Options
EVEREADY POWER CELL OTHER COMPANY

Percentage of Respondents 80 20

80 70 60 50 40 30 20 10 0 EV ER EADY POWER C EL L OTH ER C OMPANY

Interpretation:

80% of the respondents are selling Eveready Power Cell.

51

Q2. Reasons for selling a particular brand?

Options Margin Demand Others Percentage of Respondents 32 56 12

60 50 40 30 20 10 0 Series1

Margin

Demand

Others

Interpretation : 56% of the respondents say that their Reasons for selling a particular brand is

margin.

52

Q3. Which Brand is better in terms of margin?

Options
EVEREADY POWER CELL OTHER COMPANY

Percentage of Respondents 26 32

35 30 25 20 15 10 5 0 EVER EADY POW ER CEL L OTHER COMPANY

Interpretation : Most of the respondents say that Eveready Power Cell provides better margin

53

Q4. Which Brand is better in terms of customer Demand ?

Options
EVEREADY POWER CELL OTHER COMPANY

Percentage of Respondents 84 16

90 80 70 60 50 40 30 20 10 0

E VE RE AD Y P OW E RC E L L OT H E R C OMP ANY

Interpretation: 60% of the respondents say that customers demand is more.

54

Q5. Do you think that the distribution strategy of company attracts retailer?
Options Yes No Percentage of Respondents 68 32

70 60 50 40 30 20 10 0 Yes No Series1

Interpretation :
68% of the respondents say that the distribution strategy of company attracts retailer

55

Q6. How is the overall distribution policy of the company ?

Options Good Average Poor

Percentage of Respondents 36 42 22

45 40 35 30 25 20 15 10 5 0 Good Average Poor Series1

Interpretation : 42% of the respondents say that the overall distribution policy of the company is average, 36% of the respondents say that the policy is good.

56

Q7. Are you satisfied with availability of product of the company ?

Options Yes No

Percentage of Respondents 80 20

80 70 60 50 40 30 20 10 0 Yes No Series1

Interpretation : 80% of the respondents say that they are satisfied with availability of product of the company.

57

Q8. Is the material provided by the company are effective in Bhopal ?

Options Yes No

Percentage of Respondents 53 44

60 50 40 30 20 10 0 Yes No Series1

Interpretation : 56% of the respondents say that material of is effective in Bhopal.

58

Q9. Are you facing any problem in distribution?

Options Yes No

Percentage of Respondents 24 76

Yes No

Interpretation: Most of the respondents are not having problem

59

Q10. What are the responses of retailers toward distribution?

Options

Percentage of Respondents 55 10 12 6 17

Excellent Good Not good Poor Very poor

60 50 40 30 20 10 0 P ercentag e of R es pondents E xcellent G ood Not g ood P oor V ery poor

Interpretation:
Most of the respondents saying excellent distribution

RESULTS
60

Findings
40% of the respondents are selling EVEREADY POWER CELL. 56% of the respondents say that their Reasons for selling a particular brand is

margin.
Most of the respondents say that EVEREADY POWER CELL provides better margin 60% of the respondents say that customers demand is more.
68% of the respondents say that the distribution strategy of company attracts retailer

42% of the respondents say that the overall distribution policy of the company is average, 36% of the respondents say that the policy is good. 80% of the respondents say that they are satisfied with availability of product of the company. 56% of the respondents say that material of is effective in Bhopal. Most of the respondents are not having problem
Most of the respondents saying excellent distribution

Key findings and highlights OTHER EVEREADY POWER CELL distribution channel has the largest geographical base in India. Direct marketing distribution channel mainly caters mainly to retailers

Currently the number of other Eveready Power Cell holders is highest with corporate distributors.

Mostly it have own distribution channel but Eveready power cell use in India also prefer distribution companies.

61

 Third party distribution is now common across INDIA, managers offering third party and even more planning to in the next two years. There is significant variation in the proportion of third party distribution. .

62

CONCLUSION

63

This paper investigates the sales and distribution channel structures in thirteen different industries in India in an attempt to explore and explain the similarities and differences found in the varied set of industries. Marketing textbooks that deal with channels do not offer much guidance in this regard (Bowersox and Copper 1992, Coughlan et. al. 2002 Pelton et al. 2002 Rosenbloom 2001). These texts discuss functions and flows in very general terms, and more often than not focus on a single industry/sector. Not only do we find that the focus is narrow, but the organisation of texts is also an issue with chapters organised around different sectors. An example would be a chapter that focuses on retailing, industrial marketing or consumer goods channels. This treatment in our opinion does not recognise fully the similarities and differences that one finds across sectors in marketing channels. A thorough identification and recognition of these commonalties or lack thereof may prove helpful to businesses in making strategic and operational decisions concerning leveraging existing channels to their fullest potential by adding or deleting products and services. They may also decide to modify channels to suit their product and service portfolios. Our study offers a classification scheme using case research methodology (Oburai and Baker 1999a; Oburai and Baker 1999b), grounded theory approach (Glaser 1998), and modelling techniques. We employ case and grounded research in a descriptive way in data collection and organisation, and modelling for analysing the rich and varied data obtained. Though, the mix of methodologies employed makes the process rather idiosyncratic, it is hoped that researchers feel encouraged to adopt hybrid and varied methodologies in innovative and novel ways in their theory generating attempts..

64

Limitation

Limitations of the study: The study also has the some limitations which are as follows: The study is restricted to secondary data only The time is the main constraint so limited period of time is spent on this study. The support from the management side may be limited due to their pre occupied meetings and work. Not possible to get whole information because of their business secret and lack of awareness among people.

65

BIBLIOGRAPHY

66

BOOK REFERENCES:

Kotler, Philip. (1999):Marketing Management Prentice Hall Of India Pvt. Ltd., New Delhi. Kothari, C.R (2001):Research Methodology, Vishwa Publication., New Delhi Sharma,D.D(2002):Marketing Research,Sultan Chand Sons, New Delhi Verma H.V(1993):Marketing Of Services,Gobal Business Press, New Delhi

V.A.AVADHANI (2006): Security analysis and portfolio management, Himalaya publishing house. 6th Edition. L.M.BHOLE (2005) : Financial institutions and market, Tata Mcgraw hill. FISHER AND JORDEN (2000): Security analysis and portfolio management, Prentice hall.

PUBLISHED MAGAZINES AND ARTICLES: Thomos davenport (2007): Mutual fund investment, investors India. P.Prasad Rao(2007): distribution channels in the mutual fund industry, Money market(Icfai journals). News papers: Business Standard Economic Times

Company journals: Factsheets

WEBSITES: www.valueresearchonline.com www.parleagro.com www.google.com

67

QUESTIONNAIRE
The following data will only be used for classification purposes and will be kept strictly confidential Q1. Which Brand of FMCG you are selling ?

Options EVEREADY POWER CELL OTHER

Tick

Q2. Reasons for selling a particular brand? Options Margin Demand Others Tick

Q3. Which Brand is better in terms of margin ?

Options EVEREADY POWER CELL Other

Tick

68

Q4. Which Brand is better in terms of customer Demand?

Options EVEREADY POWER CELL Other

Tick

Q5. Do you think that the distribution strategy of company attracts retailer?

Options Yes No

Q6. How is the overall distribution policy of the company ?

Options Good Average Poor

Q7. Are you satisfied with availability of product of the company ?

Options Yes No

69

Q8. Is the promotional material provided by the company are effective in Bhopal ?

Options Yes No

Q9. Are you facing any problem in distribution?

Options Yes No

Q10. What are the responses of retailers toward distribution?

Options Excellent Good Not good Poor Very poor

70