Kalyan Pharma Limited is a pharmaceutical company incorporated in 1907 with a paid up capital of ₹411 lakhs. It produces 60 products across 16 therapeutic areas and has 24 branch offices, 2000 stockists, 687 medical representatives, and 40 distribution channels. The Drug Price Control Orders of the 1960s and 1970s imposed price controls that reduced profits and growth. In response, Kalyan Pharma introduced Key Regional Distributors in 1991 to streamline distribution, reduce inventory costs, improve customer service, and increase profitability. The new system decreased distribution staff from 600 to 200 and reduced accounts receivable from 90 to 7 days.

1. KALYAN PHARMA LIMITED
Presented By:
Parth V. Purohit

2. 2
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.

3. DISTRIBUTION CHANNEL PRE 1991

4. 4
EFFECT OF DPCO ON CHANNELS

5. 5
DPCO (1962)
• Published The price list of products by
o Manufacturers
o Importers
o Distributors
o Chemists.

6. 6
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.

7. 7
IMPACT OF DPCO (1963) ON PHARMACEUTICAL SECTOR
• Reduction in the profitability.
• Troubled long term growth.
• Voluntary price reductions.

8. 8
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.

9. 9
IMPACT OF DPCO (1970)
• Reduction in profitability due to price control in 1970.
• Increase in prices of some of the products.

10. 10
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.

11. 11
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.

12. 12
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.

13. 13
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.

14. 14
IMPACT OF DPCO (1987)
• No attention on increase in costs of input, conversion and packaging while
fixing prices in 1979.

15. 15
DISTRIBUTION NETWORK (THREE LAYERED)

16. 16
DISTRIBUTION CHANNEL POST-1991

17. 17
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.

18. 18
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.

19. 19
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.

20. 20
OBJECTIVES
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.

21. 21
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.

22. 22
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.

23. 23
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.

24. 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.

25. 25
SERVICE RELATED COST ADVANTAGES
• Improvement In:
o The responsiveness of the order processing.
o On time delivery.
o Customer satisfaction.
o Time consumption.

26. 26
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.

27. 27
SOCIAL RESPONSIBILITY
• Category Distribution.
• Competition.
• Printing price on medicine.

28. 28
S.W.O.T ANALYSIS
Strength 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.

29. 29
Cont.
Opportunity Threat
• Global Expansion. • DPCO.
• One of The Pioneer. • Government.
• Receivables.
• Territorial Barrier.
• Completion.

30. 30
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?

31. 31
DISTRIBUTION CHANNEL POST-1991

32. 32
ETHICS
• Reducing Employees.
• Delivery time.
• Profit.

33. 33
THANK YOU