Understanding the 4 Channels of Distribution in Pharmaceutical Industry

The pharmaceutical industry is a complex and ever-evolving sector, with manufacturers investing heavily in the development and safety of their products. To ensure efficient movement of products to patients, manufacturers must consider the various distribution channels available to them. In this article, we'll explore the four main channels of distribution in the pharmaceutical industry, and how they can be used to maximize efficiency and profits. The traditional model of pharmaceutical distribution relied on large, centralized wholesale distributors to manage the supply chain. This model is still the most efficient for a large percentage of products, but with improvements in transportation, changes in health insurance coverage, and the explosion of drugs for rare disorders, manufacturers are increasingly shipping direct to national retail pharmacy and hospital chains, mail-order pharmacies, and specialty pharmacies.

They also distribute products directly to government buyers such as the Veterans Administration (VA), AIDS Drug Assistance Programs (ADAP) and Vaccines for Children (VFC).Efficiency is the primary goal of large distribution centers, which manage and coordinate the delivery of bulk products to smaller regional centers, which are then shipped to individual supplier locations. Without wholesale distributors, manufacturers would have to maintain separate relationships with each supplier from coast to coast and coordinate the delivery of their products, which would not only be a costly logistical nightmare but would likely create inventory shortages and compromise quality controls that ensure medicines are transported safely. Every day, distributors deliver 15 million prescription drugs and health products to hundreds of thousands of state and federally licensed healthcare providers. Some wholesalers sell to a wide range of potential customers, while others specialize in selling certain products. Many distribution companies also offer a variety of specialized services, including electronic ordering, specialty drug distribution, pharmaceutical repackaging, drug buyback programs, and reimbursement support. Advances in production and distribution methods have focused on cost containment, inventory control and asset management.

Marketers have shifted from a production orientation to a sales orientation in order to expand sales and advertising expenses to persuade individual customers to buy their specific brands. The classic four-P classification of marketing mix variables (product, price, promotion, and place) emerged as a marketing principle. Distribution issues were relegated to the domain of 'place'. Failure to build a good distribution channel for a new specialized pharmaceutical product can lead to poor acceptance by prescribers. Longer distribution channels can also mean fewer profits: each middleman charges a manufacturer for their service. Providing contractual efficiency, routinization, variety or customer trust creates value in distribution channels. Traditionally, pharmaceuticals are developed and produced at a manufacturing site, transferred to wholesale distribution centers, transported to suppliers, and then administered to patients.

There are several types of risks associated with exchanges in distribution channels, including uncertainty of need, market uncertainty and transaction uncertainty. In that condition, the distributor must know the distributor of that product and will make the product available to the retailer. Genentech says these specialized distributors and wholesalers have agreed not to distribute bevacizumab through secondary wholesalers. To understand current specialty channels, it may be useful to place them in the context of modern drug distribution in general. Sophisticated computer systems track each pill, capsule and tablet from its point of production at a pharmaceutical manufacturer to its point of sale at points of sale around the world. Of course, there are many variations in this basic structure given the variations in geography, type of drug and commercial relationship between distribution centers and suppliers. The roles performed by marketing brokers simultaneously meet the needs of all channel members in a variety of ways. However, the introduction of 250 wholesale distributors in the pharmaceutical channel reduces the number of annual transactions to around 26 million.

This figure shows the many physical, financial and transactional factors that specialty pharmaceutical manufacturers need to consider when designing channels through which products will reach patients. During the era of consolidation, multiple solutions were applied simultaneously to address challenges presented by pharmaceutical distribution.

Rachel Celli
Rachel Celli

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