Kalyan Pharma

Presented by:
Anju Khatri
Anshulika Singh
Amulya Sharma
Divya Prabhu
Shrabani Mohanty
Vinay Thakur
 Objectives of the distribution system pre
1991
Reduces distribution costs accrued due to account
receivables from wholesalers
Wholesalers were not willing or equipped to handle
sales promotion
To increase customer service
Debt collecting was a major duty of the branch staff
Results after 1991
Reduction of inventory levels post 1991
Reduction in book debts
Increase in profitability
Decrease in the distribution related staff
Time saving
Effect of DPCO on channels
DPCO (1962)
Aim - Contain inflammatory forces expected as a
consequence of war
Action – publishing the price list of products by
manufacturers, importers, distributors and chemists
DPCO (1963)
Freezing of sales prices of drugs at the level obtained
on 1st April 1963
Addition in 1966 were as follows
Manufacturers had to secure prior approval of the
government before increasing the prices of any
formulations in their lists as per the 30th June, 1966
Prices of drugs sold in loose were regulated
Manufacturers to stamp the retail selling prices on the
containers of the drugs
Impact of DPCO (1963)
Reduction in the profitability
Hampered long term growth
Voluntary price reductions – might not be seen in
future
DPCO (1970)
To reduce the high prices of essential drugs
Providing sufficient incentives to the industry to facilitate
its growth
To develop research facilities and expansion in a planned
manner
To promote diversification of entrepreneurship in future
development of industry thus providing better opportunity
for technically qualified Indian personnel's.
Curb excessive profits
Bulk Drugs were divided into “ Essential and Others”
Markup’s were dictated
Impact of DPCO (1970)
Reduction in profitability due to price control in 1970
Increase in prices of some of the products
DPCO (1979)
The bulk drugs were grouped into three different
categories
The maximum sale prices of selective bulk drugs were
fixed
Category 1 prices – 14% post tax on net worth
Category 2 prices – 14% post tax on net worth
Category 3 (Others) prices – 12% post tax on net worth
Impact of DPCO (1979)
Mark up for three different categories turned out to be
unrealistic
Mark ups for category 1 and 2 were much lower than
break even level hence they had no incentives to produce
Considerable time taken for the revision of prices. As
the cost increases remain uncompensated for some time,
the profits as a results was even less.
While granting price approvals, cost accounting based on
certain norms was favorable for some while penalized
others
Impact on KPL channels after DPCO 1979
DPCO forced to reduce retailer margin from 25% to
15 %
Introduction of Wholesaler (2000 by 1982)
Wholesalers were expected to give credit to retailers
The sales target linked rebate for the wholesalers was
from 2.5%-5%
Direct sales to retailers was stopped in 1982
This helped in lesser effort of invoicing and order
processing
Distribution Network

Co Wh Ret
mpa oles aile
ny aler r
DPCO (1987)
Reclassification of three categories of drugs into two
categories
a) Category 1 – Drugs necessary for national health
program ( 27 drugs – entitled to 75% MAPE)
b) Category 2 – Other essential drugs ( 139 drugs –
entitled to 100% MAPE)
 Results
 regulate equitable distribution
 Increase supply of indigenously produced bulk drugs
Impact of DPCO (1987)
No consideration on increase in costs of input,
conversion and packaging while fixing prices in 1979
Since cost updating of essential drugs was not done
periodically many companies were opting out of
manufacturing them
Present System
Improved customer service
Reduce accounts receivable
Improve sales and profitability
Branches eliminated the functions of receiving
supplies,sorting,stocking and dispatching
Better services to wholesalers which helped in
negotiating for reduced margin
Benefits
Reduction in inventory with increase in order
frequency
Customer service increased
Faster order processing
Book Debt reduced from 90 days to 7 days of sales
Distribution staff reduced from 600 to 200
Current distribution channel

Factory Distributing
KRD
Branch

Institutional buyers Retailer/Doctor Wholesaler

Order Information Flow

Goods Flow Retailer

Objective Pre-1991
Reduces distribution costs accrued due to account
receivables from wholesalers
Wholesalers were not willing or equipped to handle
sales promotion
To increase customer service
Debt collecting was a major duty of the branch staff
Results after 1991
Increase in customer service
Faster order processing
Reduction in the book debts
Objective of adding the new layer of KRD
Reduces distribution costs accrued due to account
receivables from wholesalers
Wholesalers were not willing or equipped to handle
sales promotion
To increase customer service
Debt collecting was a major duty of the branch staff
Reasons of failure (pre-1991)
Higher cost of distribution
Poor customer service
Time of staff at branch level was spent of distribution
and collections
Sales promotions were neglected
Functions of KRD post 1991 i.e. after
introduction of Distributors
Improved customer and wholesaler services
Order processing
Reducing accounts receivable
Improving sales and profitability
Branches no longer the part of physical flow
Warehousing and infrastructure
Book debts were reduced
Cost advantages – cost and service
a.Manpower related costs:
 Elimination of people employed at the KRD
 Order processing
 Reduction in the manpower cost pertaining to
receiving supplies, sorting, stocking and despatching
b. Inventory related costs:
 Cost incurred in inventory keeping by the KRD’s
would be zero
 Inventory level needed at KRD would be zero
 Establishment costs in terms of infrastructure would
decrease
 Inventory costs pertaining to the factory inventory
would be reduced
c. Commissions and account receivables’ cost:
 Reduction in cost of accounts receivable by
elimination of the KRD
 Reduction in the transportation cost due to elimination
of one company level in the channel
 Cost related to debt collection would be reduced
Service related cost advantages
 Change in the responsiveness of the order processing
 On time delivery
 Customer satisfaction
 Time saving
Implementation of IT
Increase in the demand accuracy and order fulfillment
satisfaction levels
Reduce inventory levels and increased inventory turns
across the network
Increase profitability and productivity
Integrate sales and operations planning process