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Logistics + Regulations in Indian Pharma Retails

December 9, 2008


As requested by one of the readers of our blog, we are covering the Logistics and Regulations involved in Pharma / Medicine Retailing in India.

Logistics:
Currently, manufacturers are not allowed to sell directly to retailers. However, in coming years regulations will change. Pharmacy chains will deal directly with the manufacturers or through distributors. Large distributors will then have more volumes and large margins. And if this happens, supply chain will shorten and help in reducing the high cost associated with supply chain. A cash and carry retailer would buys directly from producers and manufacturers and sells to clients. The following diagram shows how medicines reach from the manufacturer to the end consumer.
Pharma Logistics from manufacturer to Retailer in IndiaMost of the pharmacy retail players are approaching the third party logistics service providers to provide them with effective logistics solutions for the smooth functioning of operations.

Regulations:
Pharma / Drugs retailing is regulated. Manufacturers can only sell to a licensed wholesaler; wholesalers can only sell to licensed retailers. Like any other retail, 100% FDI in Pharma / Medicine retail is not permitted. However, they can make for a JV arrangement where the Indian partner will be the front end of the Retail chain and Foreign partner at the back end.

The sale of medicines is regulated by Foods and Drugs Act. It is really disappointing to know that the act is more in paper than in practice. For example, every store is requires to have a pharmacist for dispensing medicines in the store. However, most of the small medical shops don’t follow the guidelines. Most of the medical shops are selling several drugs without any prescription, which is against the act.

A part of the business transactions is done in cash to evade government taxes. In coming years, government may make it mandatory to keep the records of drug purchase as well as sales. This would lead to cashless payment making everything legal. The consolidation in organized retail chains will lead good pharmacy practices.

Does anybody know the outcome of this project in Maharashtra ?
We are aware that the Drugs & Chemist retail association of Maharashtra came together and built a central purchasing system directly from the manufacturer bypassing the layers in-between as shown in the figure above. They would then distribute the products amongst themselves for retailing, thus saving costs and stay competitive with organized retailers. It was a Pilot project, anybody aware of the outcome ? Kindly enlighten us.

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