Pharmaceutical Distribution: Balancing Availability and Speed with Shifting Models and Regulations

Pharma distributors face challenges and circumstances that other retailers do not, such as balancing suppliers and retailers.

FREMONT, CA: Distributors of pharmaceuticals undertake a delicate balancing act between suppliers and retailers, confronting obstacles and situations that do not exist in other retail sectors. In many ways, they are comparable, but significant differences impose tremendous pressure and necessitate a swift response to market developments that can affect consumer satisfaction and their economic and physical well-being.

What are the primary problems that pharmaceutical distributors have about supply chain and inventory management?

Targets for availability are stringent and subject to regulation. Government regulations necessitate that distributors continually maintain high stock levels, which can incur substantial expenditures.

Most wholesalers service industries other than retail. Hospitals, healthcare providers, and emergency services have different needs than retail pharmacies. Order volume, frequency, and variations in demand can fluctuate substantially, and distributors must fulfill all orders from the same facilities.

Changing restrictions are generating operating models and product assortment modifications. In other regions, distributors are only starting to develop into the retail sector of their business by acquiring retail shops and expanding their assortment offerings.

Suppliers have as much or more influence on inventory decisions as merchants. In some instances, agreements with pharmaceutical makers and suppliers impact distributors' inventory planning more than demand indications from retailers.

Substitutions are inherently complicated, and most regions have a sizable substitution market to compensate for drug shortages. However, due to the ongoing price fluctuations that influence the chosen drugs of healthcare and insurance providers, handling substitutions presents challenges.

With so many variables, it can be challenging to maintain precision in supply chain planning and execution. It is crucial to construct a solution that can accommodate the addition of new product categories, sales channels, or depots without complication. The system must be adaptable to purchase further limitations and changes in stock holding strategies, such as adding hubs, regional distribution centers, or modifications to service models. Finally, it must be able to replicate the operational impacts of any proposed changes across all stock-holding locations.

Regulated Availability Targets Increase Distributor Pressure

Most pharmaceutical distributors have the same primary concern at the top of their list: maintaining high inventory levels while keeping expenses in check. 

In most nations, availability targets are mandated by law, and the pressure to meet them is intense. Holding inventory to ensure availability incurs significant expenses; even slight adjustments to inventory decisions can significantly influence these costs.

Product type is one factor to consider when considering how much inventory to hold. The demand for prescription medications remains relatively stable for both common and unusual disorders. Even though distributors must always have access to mandated objectives for certain regulated pharmaceuticals, they may have greater purchase and holding freedom for some items.

Typically, Drug A is ordered once weekly with a three-day lead time from the supplier. This demand cycle is normal. However, the distributor can place an additional order from the same source with a shorter lead time in an emergency. This additional order will incur a higher fulfillment fee, which may not exceed the cost of holding the surplus inventory.

When making inventory decisions, distributors must be able to reconcile the expenses of each product type and its fulfillment possibilities.

Moreover, most locations have huge substitute markets to compensate for any shortages. In the event of a problem with a particular supplier or an external factor such as an outbreak, distributors must be able to evaluate possibilities for essential items across all accessible channels to meet availability criteria quickly and with the most cost-effective option possible.

Concerns Regarding Availability Are Not Limited to Prescription Drugs

Many pharmaceutical distributors are expanding their product lines to include over-the-counter (OTC) pharmaceuticals, health and beauty items, and other non-prescription products.

OTC pharmaceuticals, such as seasonal allergy and cold remedies, are not as strictly controlled, but they face the same availability pricing difficulties. Due to weather changes, environmental factors such as allergens or outbreaks, and market factors such as price and marketing, demand swings for seasonal and slow-moving medications might be unpredictable.

Most rapidly-moving drugs have replenishment difficulties caused by limited storage space and frequent orders. For slow-moving or seasonal products, distributors will have limited access to sales data. When data is scarce, a sophisticated system can provide projections on various aggregate levels to better estimate demand-influencing elements and boost precision.

To manage the availability of diverse product categories, distributors require a system that enables the creation and revision of rules that drive inventory decisions. This system would automatically evaluate retail data, such as the frequency of sales, against the cost of carrying the product to determine if and in what quantities a distributor should stock an item.