Pharmaceutical companies have geographically distributed end users (patients). End users buy their medicines from the pharmacy/retail stores. It is virtually impossible for any pharma company to directly sell to the pharmacies. The sheer volume of logistics involved makes it difficult to have such a kind of model.
This is where distributors bridge the gap. Distribution can be a simple or a complex hierarchy, depending on the geography and volumes which any pharma company handles. A distribution example can be summarized as per the following figure:
Pharma distribution mechanism
Let's briefly understand the roles of each of them briefly:
- CFA: CFA or Clearing and Forwarding Agents are the ones responsible to maintain stock of the pharma company. On request, a CFA supplies the drugs/medicines to the distributors (they are also known as super stockists). The number of CFAs may be one or more, depending on the geography and penetration of the pharma company in a particular market.
- Warehouse: It is the area where actual inventory (or stock of medicine/drug) is stored. The warehouse could be owned by the company or it could be rented. The warehouse can either be a central warehouse or a regional warehouse. Regional warehouse keep the stock in a particular region and this enables faster delivery to a stockist/pharmacy
- Distributors: Distributors or super stockists are the ones to whom pharma company does billing with, or in other words, the distributors place an order on the pharma company. This is commonly referred to as Primary sales. Having distributors makes it easy for the pharma company to have better logistics. The distributors manages several stockists and hospitals.
- Stockists: Stockists or sub-stockists are the ones who supply the drugs/medicines to the pharmacies. They may also supply to smaller hospitals. The stockists place their orders with the distributors. This is commonly referred to as Secondary sales. Stockists are associated with a distributor and they in turn manage several pharmacies/smaller hospitals.
- Hospitals: Hospitals often perform surgeries and cater to patients post surgery. They require medicines/drugs in significant quantities. The hospitals, depending on their size and requirement, may buy directly from a distributor/super-stockist or may buy from stockist.
- Pharmacy: Pharmacies are the outlets from where patients buy medicines. We will look at this in next section.