Examine the challenges encountered by the pharamaceutical wholesale distributor for surviving and thriving in this new and ever chsnging environment.
Answers
The wholesale distribution industry has annual sales of approximately $7 trillion and the US wholesale distribution industry includes approximately 330,000 companies. Wholesale distributors have served an important role in the distribution and flow of goods for well over 100 years and have been a driving force in the economy, but the challenges they face today are unprecedented and greater than ever before. As a result, some are struggling to maintain their market position, market share and sustainable profitability.
Many wholesalers are finding themselves caught in the middle between retailers who want to pay less while receiving more in order to meet the ever increasing demands of their customers and manufacturers who want to increase prices because commodity prices and costs are continuing to rise. The challenges are increasing as the global marketplace is becoming more competitive, retailers and wholesalers struggle to adapt to the new and ever evolving omni-channel markets, supply chain networks become increasingly complex and the technology required to manage this complexity requires a significant investment, and costs continue to escalate – all while consumers are demanding more choices, faster fulfillment and lower prices. As a result, some wholesale distributors are finding themselves and their profits squeezed from both sides.
In addition, wholesale distributors are seeing more goods being shipped directly to the retailer or consumer by manufacturers, totally bypassing the wholesale distribution channel. Online purchases for many types of goods are now being shipped directly from manufacturers, and this trend is increasing in an effort to speed delivery and reduce supply chain costs. Mega retailers such as Wal-Mart, Home Depot, and Costco buy most of their merchandise directly from manufacturers, bypassing wholesale distributors altogether. Because they buy in large quantities and operate their own warehouses, these retailers don’t need wholesale distributors. These superstores and warehouse clubs are increasingly taking market share from other retailers and now account for more than 60 percent of sales of general merchandise stores, up from just 35 percent 10 years ago.
In this complex new environment, wholesale distributors need to focus on strategically planning how they will respond to these challenges with solutions that create a competitive market advantage and ensure their sustainable profitability. As important, they must also aggressively transform their organizations from a slow, tactical, and reactive culture to an agile, quick, and strategic culture. Today’s challenges make the need for agility and quick, decisive, action greater than ever. “Facing the Forces of Change: Decisive Actions for an Uncertain Economy” is a recent research study on wholesale distribution published by the National Association of Wholesaler Distributors (NAW). Guy Blissett, IBM’s wholesale distribution lead, wrote the study and states “Given the lingering uncertainty in the economy, wholesaler-distributors must continue to take decisive actions that will position their companies for growth and prosperity. Gone are the days of overly cautious and slow decision-making processes. The business world is moving too fast, and wholesaler-distributors must be informed, intelligent and nimble enough to make rapid but prudent decisions, and then adjust and iterate as necessary.”
Despite alluring potential, most large pharmaceutical firms have not been able to maintain a stable position in emerging markets – developing countries account for only 10-20% of the overall revenue of multinationals. Enter China and India. Competition has brought low cost generic drugs and medical products to the masses, and along with it much growth in both the manufacturing and distribution sectors, especially for SMEs (Small to Medium-sized Enterprises). But for local distributors in developing markets, substantial challenges are looming as population growth cannot keep pace with the flood of products and competitors entering their markets. The weak players that are not able to adapt to this new reality and changing landscape will fade away and die.
Distributors in emerging markets throughout Africa, Asia, the Middle East, South America and East Europe need an effective, multifaceted strategy to sustain competitiveness and drive profits. We, at AdvaCare, have analyzed the value and supply chain to identify the main challenges that could lead distributors to start thinking about how to take the necessary steps now to be ahead of the curve and create competitive advantages. Keep in mind that in every challenge, there is also an opportunity – the key is to spot where and how to exploit what others are not doing.