KALYAN PHARMA LIMITED

Presented By: Parth V. Purohit

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INTRODUCTION

• Incorporated in 1907.

• Paid up capital:

o Pre 1991: 5 lakhs.

o Post 1991: 411 Lakhs.

• 60 different Products.

• 16 KRDs.

• 24 Branch Offices.

• 40 Distribution channels.

• 2000 Stockiest and Wholesalers.

• 687 Medical Representatives.

DISTRIBUTION CHANNEL PRE 1991

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EFFECT OF DPCO ON CHANNELS

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DPCO (1962)

• Published The price list of products by

o Manufacturers

o Importers

o Distributors

o Chemists.

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DPCO (1963)

• Freezing of sales prices of drugs at the level obtained on 1st April 1963.

• In 1966 were as follows:

o 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.

o Prices of drugs sold in loose were regulated.

o Manufacturers to stamp the retail selling prices on the containers of the drugs.

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IMPACT OF DPCO (1963) ON PHARMACEUTICAL SECTOR

• Reduction in the profitability.

• Troubled long term growth.

• Voluntary price reductions.

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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.

• Restriction on excessive profits.

• Bulk Drugs were divided into “ Essential and Others”.

• Profit margin were dictated.

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IMPACT OF DPCO (1970)

• Reduction in profitability due to price control in 1970.

• Increase in prices of some of the products.

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DPCO (1979)

• The bulk drugs were grouped into three different categories.

• The maximum sale prices of selective bulk drugs were fixed:

o Category 1 prices – 14% post tax on net worth.

o Category 2 prices – 14% post tax on net worth.

o Category 3 (Others) prices – 12% post tax on net worth.

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IMPACT OF DPCO (1979)

• Mark up for three different categories turned out to be unrealistic:

o Mark ups for category 1 and 2 were much lower than break even level

hence they had no incentives to produce.

o 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.

o While granting price approvals, cost accounting based on certain norms

was favorable for some while penalized others.

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IMPACT OF KPL CHANNELS AFTER DPCO 1979

• DPCO forced to reduce retailer margin from 25% to 15 %.

• Wholesalers were expected to give credit to retailers.

• The sales target linked discount 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.

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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 Maximum Allowed Post Manufacturing

Expenses).

b) Category 2 – Other essential drugs ( 139 drugs – entitled to 100%

MAPE).

• Results

o regulate reasonable distribution.

o Increase supply of produced bulk drugs.

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IMPACT OF DPCO (1987)

• No attention on increase in costs of input, conversion and packaging while

fixing prices in 1979.

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DISTRIBUTION NETWORK (THREE LAYERED)

Company

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DISTRIBUTION CHANNEL POST-1991

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OBJECTIVES OF NEW SYSTEM

• Improvements in:

▫ Customer service.

▫ Sales and profitability.

• Reduction in:

▫ Accounts receivable.

▫ The functions of receiving supplies,sorting,stocking and dispatching at

various branches.

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ACTIONS TAKEN BY KPL AFTER 1991

• Reduction in:

o Inventory levels post 1991.

o Book debts.

o The distribution related staff.

o Time consumption in logistics.

• Resulting in increase in profitability.

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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.

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OBJECTIVES

PRE-1991

• Reduces distribution costs (increased due to account receivables from wholesalers).

• Wholesalers were not willing or prepared to handle sales promotion.

• To increase customer service.

• Increase in customer service.• Faster order processing.• Reduction in the book debts.

POST-1991

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OBJECTIVES OF ADDING NEW LAYER OF KRD

• Reduces distribution costs (increased 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.

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REASONS OF FAILURE (PRE-1991)

• Higher cost of distribution.

• Poor customer service.

• Time of staff at branch level was spent on distribution and collections.

• Negligence in Sales promotions.

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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.

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COST ADVANTAGES

Manpower related

• Elimination of 200

people employed at the

KRD affecting to

receiving supplies,

sorting, stocking and

dispatching.

• Order processing.

Inventory related• Cost incurred in inventory

keeping by the KRD’s

would be zero.

• Establishment costs in

terms of infrastructure

would decrease.

• Inventory costs affecting to

the factory inventory would

be reduced.

Other costs

• 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.

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SERVICE RELATED COST ADVANTAGES

• Improvement In:

o The responsiveness of the order processing.

o On time delivery.

o Customer satisfaction.

o Time consumption.

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IMPLEMENTATION OF IT

• Improvement In:

o The demand accuracy.

o Order fulfillment satisfaction levels.

o Inventory level control system and inventory turns across the network.

o Profitability and productivity.

o Sales and operations planning process through integration.

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SOCIAL RESPONSIBILITY

• Category Distribution.

• Competition.

• Printing price on medicine.

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S.W.O.T ANALYSIS

Strength

• Only Seller.

• Large Product Line.

• Credibility Period.

• No Control Over Price Earlier.

• Large Sellers and Wholesalers.

• Large Group of M.R and Stockiest.

• KRD.

Weakness

• Unplanned Expansion.

• Distribution Channel.

• Delivery Period.

• Inventory Control.

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Cont.

Opportunity

• Global Expansion.

• One of The Pioneer.

Threat

• DPCO.

• Government.

• Receivables.

• Territorial Barrier.

• Completion.

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STRATEGY• Employees.

• Branch.

• Pricing product line.

• Monopoly.

• Distribution channel.

• Receivables.

• Cost .

• Export.

• Introduction of KRD.

• The flow of material pass through KRD.

• Is there really need for KRD?

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DISTRIBUTION CHANNEL POST-1991

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ETHICS

• Reducing Employees.

• Delivery time.

• Profit.

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THANK YOU