KALYAN PHARMA LIMITED Presented By: Parth V. Purohit
2INTRODUCTION• 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.
5DPCO (1962)• Published The price list of products by o Manufacturers o Importers o Distributors o Chemists.
6DPCO (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.
7IMPACT OF DPCO (1963) ON PHARMACEUTICAL SECTOR• Reduction in the profitability.• Troubled long term growth.• Voluntary price reductions.
8DPCO (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 personnels.• Restriction on excessive profits.• Bulk Drugs were divided into “ Essential and Others”.• Profit margin were dictated.
9IMPACT OF DPCO (1970)• Reduction in profitability due to price control in 1970.• Increase in prices of some of the products.
10DPCO (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.
11IMPACT 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.
12IMPACT 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.
13DPCO (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.
14IMPACT OF DPCO (1987)• No attention on increase in costs of input, conversion and packaging while fixing prices in 1979.
17OBJECTIVES 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.
18ACTIONS 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.
19BENEFITS• 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.
20OBJECTIVES PRE-1991 POST-1991• Reduces distribution costs • Increase in customer service. (increased due to account • Faster order processing. receivables from wholesalers). • Reduction in the book debts.• Wholesalers were not willing or prepared to handle sales promotion.• To increase customer service.
21OBJECTIVES 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.
22REASONS 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.
23FUNCTIONS OF KRD POST-1991I.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.
24 COST ADVANTAGES Manpower related Other costs Inventory related• Elimination of 200 • Reduction in cost of • Cost incurred in inventory people employed at the accounts receivable by keeping by the KRD’s would be zero. KRD affecting to elimination of the KRD . • Establishment costs in receiving supplies, • Reduction in the terms of infrastructure sorting, stocking and transportation cost due to would decrease. dispatching. elimination of one • Inventory costs affecting to• Order processing. company level in the the factory inventory would channel. be reduced. • Cost related to debt collection would be reduced.
25SERVICE RELATED COST ADVANTAGES• Improvement In: o The responsiveness of the order processing. o On time delivery. o Customer satisfaction. o Time consumption.
26IMPLEMENTATION 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.
27SOCIAL RESPONSIBILITY• Category Distribution.• Competition.• Printing price on medicine.
28S.W.O.T ANALYSISStrength Weakness• Only Seller. • Unplanned Expansion.• Large Product Line. • Distribution Channel.• Credibility Period. • Delivery Period.• No Control Over Price Earlier. • Inventory Control.• Large Sellers and Wholesalers.• Large Group of M.R and Stockiest.• KRD.
29Cont.Opportunity Threat• Global Expansion. • DPCO.• One of The Pioneer. • Government. • Receivables. • Territorial Barrier. • Completion.
30STRATEGY• 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?