Major Value Shift Anticipated for Pharmaceutical Distributors

Drug safety concerns, greater need for demand visibility changing distribution revenue model, Health Industry Insights

Drug safety concerns, greater need for demand visibility changing distribution revenue model, Health Industry Insights

Framingham, MA — August 16, 2006 — The way pharmaceutical distributors produce revenue will dramatically shift over the next five to 10 years as drug safety concerns and a greater need for demand visibility are changing distribution revenue models in the healthcare industry, according to a recent report by research firm IDC's Health Industry Insights unit.

According to a survey conducted for the report, currently the most important supply chain services provided by pharmaceutical distributors are logistics (54 percent) and inventory management (46 percent). However, when asked to forecast distributors' top value proposition in 10 years, collecting demand signals for manufacturers (36 percent) jumped into first place from its last place (3 percent) ranking today.

"Over the next few years, we are going to see a major shift in the way distributors operate," said Health Industry Insights Senior Research Analyst Eric Newmark. "They're going to shift from the inventory focus that they have today to being more focused on information."

Information Broker Role

Newmark said that logistics and inventory management services are becoming commodities, and distributors are evolving towards more of an information broker operating model. "Those distributors that are late to the table in creating demand visibility for manufacturers will watch helplessly as customers transfer business to their competitors," Newmark said.

Survey respondents, comprising 28 senior executives from leading pharmaceutical companies, also rated drug safety initiatives (with a score of eight on a scale of one to 10) as a major catalyst in changing the role of distributors. In his analysis, Newmark goes on to take an in-depth look at how these increased drug safety concerns are changing the pharmaceutical supply chain process and, consequently, affecting how the industry generates revenue.

The report also covers topics such as opportunities for manufacturers to explore direct-to-consumer (DTC) distribution; Wal-Mart and other consumer packaged goods (CPG) companies becoming role models for the pharmaceutical industry regarding product data visibility; and the role of item-level trace ability in the pharmaceutical supply chain evolution.

Newmark's report is entitled "Supply Chain Evolution: The Changing Role of Pharmaceutical Distributors."

Additional Articles of Interest

— A survey of consumer healthcare decision-makers shows opportunities for manufacturers to gain competitive advantage by focusing on some key points in their supply chains. Read more in the In Depth article "Leveraging the Supply Chain for Competitive Advantage."

— Read about one high-tech manufacturer's quest to deliver near-perfect fill rates across its global service organization in "Managing a Global Supply Chain in a 'Flat' World," from the June/July 2006 issue of Supply & Demand Chain Executive.