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What Is Distribution Management?

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Distribution Management: Definition, How It Works, and Advantages

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Distribution management refers to the process of overseeing the movement of goods from supplier or manufacturer to point of sale. It is an overarching term that refers to numerous activities and processes such as packaging, inventory, warehousing , supply chain , and logistics .

Distribution management is an important part of the business cycle for distributors and wholesalers. The profit margins of businesses depend on how quickly they can turn over their goods. The more they sell, the more they earn, which means a better future for the business. Having a successful distribution management system is also important for businesses to remain competitive and to keep customers happy.

Key Takeaways

• Distribution management manages the supply chain for a firm, from vendors and suppliers to manufacturer to point of sale, including packaging, inventory, warehousing, and logistics.
• Adopting a distribution management strategy is important for a company's financial success and corporate longevity.
• Distribution management helps keep things organized and keeps customers satisfied.

Understanding Distribution Management

Distribution management is critical to a company's ability to successfully attract customers and operate profitably. Executing it successfully requires effective management of the entire distribution process. The larger a corporation, or the greater the number of supply points a company has, the more it will need to rely on automation to effectively manage the distribution process .

Modern distribution management encompasses more than just moving products from point A to point B. It also involves gathering and sharing relevant information that can be used to identify key opportunities for growth and competitiveness in the market. Most progressive companies now use their distribution forces to obtain market intelligence which is vital in assessing their competitive position.

There are basically two types of distribution: commercial distribution (commonly known as sales distribution) and physical distribution (better known as logistics). Distribution involves diverse functions such as customer service, shipping, warehousing, inventory control , private trucking-fleet operations, packaging, receiving, materials handling, along with plant, warehouse, store location planning, and the integration of information.

The goal is to achieve ultimate efficiency in delivering raw materials and parts, both partially and completely finished products to the right place and time in the proper condition. Physical distribution planning should align with the overall channel strategy.

Advantages of a Distribution Management Strategy

Aside from keeping profits up, there are many reasons a company may want to use a distribution management strategy. First, it keeps things organized. If there was no proper management system in place, retailers would be forced to hold stock in their own locations—a bad idea, especially if the seller lacks proper storage space.

A distribution management system also makes things easier for the consumer. It allows them to visit one location for a variety of different products. If the system didn't exist, consumers would have to visit multiple locations just to get what they need.

Putting a proper distribution management system in place also alleviates any potential for errors in delivery, as well as the times products need to be delivered.

Businesses can adopt distribution management strategies through electronic platforms, which can help simplify the process and boost product sales.

Distribution Management as a Marketing Function

The fundamental idea of distribution management as a marketing function is that the management of distribution happens in an ecosystem that also involves the consideration of the following:

• Product :   Not always a tangible object, product can also refer to an idea, music, or information.
• Price : This refers to the value of a good or service for both the seller and the buyer, which can involve both tangible and intangible factors, such as list price, discounts, financing, and likely response of customers and competitors.
• Promotion : This is any communication used by a seller to inform, persuade, and/or remind buyers and potential buyers about the seller’s goods, services, image, ideas, and the impact it has on society.
• Placement :   This refers to the process that ensures the availability, accessibility, and visibility of products to ultimate consumers or business users in the target channels or customers where they prefer to buy.

Effective distribution management involves selling your product while assuring sufficient stocks in channels while managing promotions in those channels and their varying requirements. It also involves making sure a supply chain is efficient enough that distribution costs are low enough to allow a product to be sold at the right price, thus supporting your marketing strategy and maximizing profit.

How Does Distribution Management Impact Business?

Distribution management is a key leg in the business cycle for both distributors and wholesalers, with company sales and ongoing profitability impacted by how quickly and efficiently a company can sell and distribute their products.

What Activities Occur During Distribution Management?

Distribution management involves moving finished goods from a manufacturer or supplier to the so-called end user. The process includes warehousing, inventory management, packing, shipping, and delivery.

What Are the Main Distribution Channels?

Distribution channels are the intermediaries through which goods or services pass on their way to the final buyer or consumer. The main channels include wholesalers, retailers, distributors, and in some cases, the internet.

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Distribution Management – Definition, Importance, Types and Factors

June 12, 2023 | By Hitesh Bhasin | Filed Under: Marketing

Table of Contents

What Is Distribution Management?

Distribution management is a strategic business process that plans, implements, and controls the efficient movement of goods from point of origin to point of consumption to meet customers needs. It is the process of organizing and controlling the distribution of products and services to customers. It includes the distribution of physical goods, such as food and clothing, as well as the distribution of digital products, such as software and books.

Distribution management refers to the process of managing the transfer of items from a supplier to a manufacturer, then a wholesaler or retailer, and finally to an end-user. Raw good vendor management, packaging, warehousing, inventory, supply chain , logistics, and even blockchain are all involved in this complicated process.

Distribution management process is vital to any business that sells products or services, as it ensures that the right products are delivered to the right customers at the right time.

The distribution management process begins with the distribution planning stage, in which distribution managers decide which products or services to distribute, and how to distribute them. They then develop distribution strategies and plans and implement these plans through the use of effective distribution management.

Meaning of Distribution Management

Effective distribution management system is critical to a company’s ability to attract consumers and earn profits. Managing the entire distribution process effectively requires good distribution management. The more resources a business requires, the more important it is to automate distribution management.

The distribution management process is more comprehensive than moving goods from point A to point B. It also entails gathering and sharing data that can be utilized to identify key growth and competitive opportunities in the market. Most innovative businesses now employ their distribution resources to gather market knowledge, which is critical for evaluating their marketplace position.

There are two distinct types of distribution: commercial distribution (often referred to as sales distribution) and physical distribution (also known as logistics).

Customer support, shipping along with warehousing, inventory management, private trucking-fleet operations as well as packaging, receiving, and materials handling are just a few of the functions involved in distribution.

The objective is to achieve complete, on-time delivery of raw materials and components, as well as partially completed goods. The physical distribution strategy should be in line with the overall channel plan.

Why Is Distribution Management Important?

Some of the reasons behind the importance of distribution management systems are

1. Improved Customer Service

Offering goods and services to customers as per their requirements leads to improved customer service. This, in turn, helps to build a good relationship with the customers and enhances customer loyalty toward the company.

2. Enhanced Sales and Profits

An effective distribution strategy helps to reach the target audience quickly and efficiently. This results in increased sales and profits for the company.

3. Increased Efficiency

A well-managed distribution system ensures that goods are delivered to the customers on time and in good condition. This leads to increased efficiency and productivity of the company.

4. Reduced Costs

An efficient distribution system helps to reduce distribution costs by optimizing the use of resources. This leads to increased profits for the company.

5. Improved Image

A distribution system that is well-managed and efficient helps to improve the image of the company in the market. This leads to increased sales and profits for the company.

Thus, we see that distribution management is important for a company in order to survive and grow in today’s competitive market. An effective distribution strategy can help a company to gain a competitive advantage over its rivals.

So, it is essential for companies to focus on distribution management in order to stay ahead of the competition.

What Is a Distributor?

A distributor is a business that sells directly to consumers and distributes products to merchants who sell to them.

Consider, for example, a wholesaler of alcoholic beverages that provides alcohol to restaurants, grocery stores, and liquor shops.

The distribution company is the middleman between the alcohol producer and the retailer.

What Does a Distribution Manager Do?

The distribution manager is responsible for managing the distribution of products or services to customers. They develop distribution strategies and plans and implement these plans through the use of distribution channels.

A distribution manager’s duties may include:

• Planning and controlling the distribution of products or services to customers
• Developing distribution strategies and plans
• Implementing distribution plans through the use of a distribution network or different networks
• Monitoring customer demand and inventory levels to optimize customer satisfaction
• Coordinating with suppliers, manufacturers, and other stakeholders in the supply chains
• Negotiating contracts with distributors
• Managing staff and budgets
• What Is a Distribution Channel?

A distribution channel is a channel through which products or services are distributed to customers. These can be direct or indirect and may include wholesalers, retailers, distributors, and e-commerce platforms.

The distribution channel you use will depend on the type of product or service you are selling, and the needs of your customers.

For example, if you are selling a product that is perishable or has a short shelf life, you will likely use a direct distribution channel so that the product can be delivered to the customer quickly.

If you are selling a product that is not time-sensitive, you may use an indirect distribution channel, such as a retailer or e-commerce platform.

Distribution vs. Logistics

The term “logistics” refers to the thorough planning and processes involved in successfully delivering products.

Logistics refers to all of the activities involved in moving things from one place to another. Activities include supply management, temperature controls, bulk and container packaging, security, delivery routing, fleet management, shipment tracking, as well as warehousing. Logistics is an excellent example of physical distribution.

Within the logistics sector, distribution is a management method that focuses on order fulfillment through several distribution management system. The chain of agents and organizations that a good or service travels via on its journey from source to the client is known as a distribution channel.

eCommerce websites, wholesalers, retailers, and 3rd-party or independent distributors are just a few examples of distribution channels. Distribution includes activities such as consumer or commercial packaging, order fulfillment, and delivery. In other words, distribution is the process of getting products from manufacturers to customers.

Distribution Channels

1. Wholesale distribution channels

These are distribution channels in which products travel from the manufacturer to the customer through a wholesaler.

2. Retail distribution channels

These are distribution channels in which products travel from the manufacturer to the customer through a retailer.

3. Direct-to-consumer channels

These are distribution channels in which products travel directly from the manufacturer to the consumer, without going through a middleman.

Direct and Indirect Distribution Channel

The type of distribution channel you use will depend on the type of product or service you are selling, and the needs of your customers.

The main difference between direct and indirect distribution channels is that, in a direct distribution channel, the manufacturer sells directly to the customer.

In an indirect distribution channel, there are one or more intermediaries, such as wholesalers or retailers, between the manufacturer and the customer.

Advantages of Direct Distribution Channels

• There are no middlemen, so the manufacturer can control the distribution of their products.
• The manufacturer has a direct relationship with the customer and can provide them with excellent customer service.
• The manufacturer can sell their products at a lower price because they don’t have to share profits with middlemen.

Disadvantages of Direct Distribution Channels

• The manufacturer has to invest more in distribution, as they will need to set up their own distribution channels and hire staff.
• The manufacturer may not have the reach or resources that middlemen have to get their products to customers.

Advantages of Indirect Distribution Channels

• Middlemen already have distribution channels set up, so the manufacturer doesn’t have to invest as much in distribution.
• Middlemen have the reach and resources to get the manufacturer’s products to customers that they may not have.
• Middlemen can provide valuable services to customers, such as assembly, installation, and repairs.

Disadvantages of Indirect Distribution Channels

• The manufacturer has less control over their products as they are sold through intermediaries.
• The manufacturer may have to share profits with middlemen, which can increase the price of their products.
• The manufacturer may not have a direct relationship with customers, so they may not be able to provide them with excellent customer service.

Factors of Distribution Management

1. buyer’s demands.

The distribution of products is affected by the demands of buyers. For example, if a buyer wants a product to be delivered quickly, the manufacturer will need to use a distribution channel that can provide fast delivery.

2. Shipping optimization

The distribution of products is also affected by shipping optimization. This is the process of ensuring that products are delivered to the customer the most efficiently and cost-effectively possible.

3. Other factors

Other factors that can affect distribution management include the size and location of the manufacturer, the type of product, and the regulations in the country where the product is being sold.

Distribution Management as a Marketing Function

Distribution management is a marketing function that is responsible for the distribution of products and services to customers.

The distribution manager oversees the distribution channels and ensures that products and services are delivered to customers in a timely and efficient manner.

They work with other marketing functions, such as product development, to ensure that products and services meet the needs of customers.

The distribution manager is also responsible for managing the distribution budget and ensuring that distribution costs are within the company’s budget.

What Is the Role of Distribution Management in Supply Chain Management?

The distribution manager is responsible for the distribution of products and services to customers.

The distribution manager works with the supply chain process to ensure that products and services are delivered to customers in a timely and efficient manner.

They also work with the logistics department to ensure that products and services are delivered to customers in a safe and secure manner.

Pros of a Distribution Management Strategy

There are several advantages of a distribution management strategy:

• It helps to ensure that products and services are delivered to customers in a timely and efficient manner.
• It helps to improve customer service by ensuring that products and services are delivered to customers in a safe and secure manner.
• It helps to reduce distribution costs by ensuring that distribution channels are used effectively.

Cons of a Distribution Management Strategy

There are several disadvantages of a distribution management strategy:

• It can be difficult to implement and manage.
• It can be costly to maintain.
• It can be time-consuming to monitor and update.
• It can be difficult to change distribution channels if they are not working effectively.

Types of Distribution Management Strategies

The mass distribution strategy is used when a company wants to make its products available to as many people as possible. This strategy is often used for fast-moving consumer goods (FMCG) such as food and drinks, and for products that have a wide appeal. Its upside is that it is relatively simple to implement and it can reach a large number of people. while its downside is that it can be difficult to target specific groups of people.

2. Selective

The selective distribution strategy is used when a company wants to make its products available to a specific group of people. This strategy is generally used for products that are not suitable for mass distribution, such as high-end products. The main advantages of the selective distribution strategy are that it allows a company to target specific groups of people and it can build up a relationship with its distributors. Its disadvantage is that it can be costly to implement and maintain.

3. Exclusive

The exclusive distribution strategy is used when a company wants to make its products available only through a small number of distributors. This strategy is often used for products that are high-end or niche products. Its advantage is that it allows a company to build up a relationship with its distributors and it can control the distribution of its products. Its disadvantage is that it can be difficult to reach a wide audience.

Conclusion!

A distribution management strategy is a plan that a company uses to determine how its products will be distributed to customers. There are three main types of distribution management strategies: mass, selective, and exclusive.

The type of distribution management strategy that a company chooses should be based on its business goals and the products that it sells.

A distribution management system can have several advantages, such as improved customer service and reduced distribution costs. However, it can also have several disadvantages, such as being difficult to implement and manage.

Now, what are your thoughts on distribution management? Do you think it is something that your company should implement? Let us know in the comments below!

Liked this post? Check out the complete series on Distribution

Related posts:

• Distribution System: What it is and Types of Distribution Systems
• Distribution Definition – What is Distribution?
• Selective Distribution and its role in Channel Distribution
• Distribution Cost: Definition, Importance, Types & Examples
• Distribution Strategies: Definition, Types and Benefits
• Distribution Channel: Definition, Types & Intermediaries
• Exclusive Distribution: Definition, Strategy & Examples
• Distribution Network – Definition, Examples and Benefits
• What is Consumer Behavior? Definition, Example, Types & Factors
• Competitive Environment – Definition, Types, Factors and Examples

About Hitesh Bhasin

Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field. He is an accomplished author of thousands of insightful articles, including in-depth analyses of brands and companies. Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about.

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Distribution Channels (Place), Essay Example

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A distribution channel is a set of interdependent organization involved in a process of making a product or service available for use or consumption. A channel of distribution therefore moves goods and services from producers to consumers. It overcomes the major time, place and possession gaps that separate goods and services from those who would use them. the main functions of this channel is to gather important information required, being a point of communicate, promotion, packaging, negotiation, physical distribution, financing and risk taker.

Intermediaries are mostly used to improve efficiency in making goods available to the target market. A layer of intermediaries define a channel level which is later used to determine a distribution channel. These levels are: direct level marketing channel and indirect marketing channel. In direct level, there are no intermediaries while indirect incorporates one or more intermediaries. Marketing managers would best fall into the indirect marketing channel because it is connected by several types of flow like the promotion flow, payment flow or even the flow of the product.

While developing the place element of a marketing strategy, the marketing managers should consider matters concerning competition, type of location, availability of customers, level of product distribution, nature of the product, the best available channels of distribution to supply the products, accessibility of the product or service to the customers because the place element does not necessarily mean that the place has to be physical because it could also be online. The sales force should also be analyzed to determine the best marketing strategies to use. Among other factors, competition is quite vital in the sense that the company in question should manage to be unique in terms of how it offers its goods and services so that it can gain a competitive advantage. All the above factors are considered so as to design the best marketing strategy.

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Distribution Channel in Business Essay

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Introduction

Manufacturers, wholesalers.

Distribution channel describes the process through which goods pass from the manufacturer to the consumer. An organization can carry out thorough marketing but if the distribution channel is not working, it will be difficult for the goods to reach the consumer (Gorchels et al, 2004, p. 40). Some organizations have rolled out distribution channels that seek to eliminate the wholesaler and retailer in direct selling plans.

These companies have introduced direct selling mostly through multilevel marketing that involves the customers purchasing the products directly from the manufacturers and selling them to the consumers. Although the direct seller of these products helps move the products, there have been many instances of over pricing and uncontrolled selling, tax evasion and inefficiency in the distribution channel (Rosenbloom, 1993, p. 78).

The intermediaries in the distribution channel that include whole sellers and retailers tend to add efficiency to the system leading to effective reach of consumers. These intermediaries increase specialization on the channel because of the flexibility and convenience they offer to customers.

This paper will concentrate on the distribution channel of different kinds of shoes for both men and women. The distribution channel of these shoes follows the regular distribution channel apart from a few instances that involves direct buying and selling.

Manufacturers are at the top of the distribution chain of the company’s products (McCalley, 1996, p. 168). The company is one of the manufacturers of the products in the diverse economy. The manufacturer of shoes specializes in producing shoes that fit to many customers descriptions and preferences. To some extent, the manufacturers have specialized in handling different distribution phases.

Wholesalers of these shoes have specialized in moving large qualities of the products from the manufacturers to the different retailers (Dent, 2008, p. 96). They are at the second level of the channel of distribution. Some of these wholesalers stores are owned by the company while the bulk of them are owned by other parties.

These whole sellers distribute shoes at a slightly higher price than the manufacturers. They move large qualities of shoes that only suits large retailers like super markets and shoes stores.

The retailers are at the end of the chain next to the consumers (Sheth, 1986, p. 267). They buy the shoes from wholesalers and stock them in retail prices. The retailers

Despite the existence of the above traditional chain on the manufacture of shoes by the company, there are a few instances that the chain has been broken and is not strictly followed. Some retailers prefer to buy the goods directly from the manufactures. They do so to reduce costs associated with procuring shoes that have already been procured by wholesalers.

The role of the wholesaler has been questions especially on the backdrop of increasingly large retailers who easily compete with whole sellers. Similarly, there is the element of online markets that is the main characteristic of e- commerce. Many retailers offer online portals of selling their goods (Dent, 2008, p. 100).

However, the traditional chain of selling the company’s shoes is severally broken through intermediaries who buy the shoes directly from the company and sell them directly to the consumer through online markets.

There are many modifications in the distribution channel especially those that are ICT related that have cast doubt if the traditional channel will last. However, for the distribution of the company’s shoes, all the three levels are necessary because they help in breaking the bulk, consolidation, and distribution.

Dent, J. (2008). Distribution Channels : Understanding and Managing Channels to Market. London: Thomson Learning.

Gorchels et al (2004). The managers guide to distribution channels: New York: Thomson learning.

McCalley, W.R. (1996). Marketing channel management: people, products, programs, and markets. New York: Sage Publishers.

Rosenbloom, B. (1993). Wholesale distribution channels: new insights and perspectives . Philadelphia: Cengage Learning.

Sheth, N. J. (1986 ). Distribution channels . London: JAI Press

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Journal of Materials Chemistry A

Advanced janus coatings for thermal management and synergistic flame retardancy in textiles.

In the context of low-carbon and energy conservation initiatives, smart thermal management textiles for the human body, which operate without energy consumption and pollution, are gaining increased attention. However, conformal to human skin, ensuring the fire safety of these textiles remains a critical challenge for their practical application. Meanwhile, complicated and changed environments demand a high self-adaptation for designed textiles. This study introduces a dual-mode textile designed for freely switching radiative cooling (RC) and solar heating (SH). The textile is created by applying a high-white flame retardant and black phosphorus to both sides using a convenient scrape coating method. The combination of the cooling layer (90.0% solar reflectance and 95.9% infrared emissivity) and the heating layer (80% solar absorptivity) provides a comfortable thermal environment for the human body. Furthermore, the Janus coating, consisting of advanced flame retardants, synergistically enhances the textile's fire safety, confirmed by a limiting oxygen index of 28.0%, a reduction of 40.1% in peak value of heat release, and self-extinguishing properties. This research presents a simple and available approach to creating dual-mode smart textiles for maintaining a comfortable micro-environment towards changed seasons and weather, significantly contributing to the development of fire-safe personal thermal management technology.

• This article is part of the themed collection: Journal of Materials Chemistry A HOT Papers

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L. Qi, W. Cai, J. Li, T. Cui, L. Chen, J. Gao, B. Fei, Y. Hu, L. Song, Z. Gui and W. Xing, J. Mater. Chem. A , 2024, Accepted Manuscript , DOI: 10.1039/D4TA04320K

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Guest Essay

I Have Been Studying Poker for Years. Kamala Harris Isn’t Bluffing.

By Nate Silver

Mr. Silver is the author of the book “On the Edge: The Art of Risking Everything.”

In recent years, for a new book , I have spent time in a community of like-minded thinkers who take calculated risks for a living. These people, from poker players to venture capitalists — I call them the River, and they are from Silicon Valley, Wall Street, sports betting, crypto — make decisions based not on what they know at the moment but on expected value. For them, when it is time to make a decision, the question is: Do the risks outweigh the rewards?

The River is the rival of the group of academics, journalists and policy wonks that I call the Village. This term might be more familiar: It’s the East Coast expert class. Harvard and Yale. The New York Times and The Washington Post. Together, these communities make up only a small percent of the population — in short, they are elites.

The Village tends toward risk aversion, as evident in its Covid caution and its increasing wariness about free speech (which very much can have sticks-and-stones consequences ). It tends to make decisions by consensus, with dissenters punished by ostracization — or if you prefer, cancellation.

The River has been on a winning streak in terms of its impact on society and our economy: Its core industries, tech and finance, continually grow as fractions of the economy, and Las Vegas is bringing in record revenues. Not just baseball but pretty much everything has been “Moneyball”-ized, which is to say quantified and then monetized in some way.

Looking at politics through the lens of the River and Village communities, and their approaches to risk, can offer some interesting insight — and surprise.

The groups don’t map equally clearly onto our political institutions. In Trumpian times, with voting highly polarized along educational lines, the Village is overwhelmingly Democratic. The River’s politics aren’t quite as straightforward. Aloof and analytical, preoccupied with pursuits such as poker, not everyone in the River is a G.O.P. partisan. In fact, if you surveyed people I consider part of the River about their preferred presidential candidates, my guess is that Kamala Harris would get more votes than Donald Trump — although with an outsize third-party vote.

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Fundamentals of the Pharmaceutical Supply Chain

The complex pharmaceutical supply chain poses challenges requiring efficient solutions to deliver vital medications..

• Alivia Kaylor, MSc

The pharmaceutical supply chain poses risks and challenges to both providers and consumers. But in the context of a health-conscious society, managing pharmaceutical supply chains presents several complexities because it involves many key components and stakeholders to efficiently deliver life-saving medicines that are vital to patients.

The pharmaceutical supply chain involves the process of sourcing raw materials, manufacturing, distributing, and delivering medications to patients. Because the pharma supply chain network comprises various stakeholders, it requires careful coordination and adherence to regulatory guidelines at every stage to ensure patients receive safe and effective medications.

The following Avalere diagram depicts the general path a prescription drug usually takes through the drug supply chain in a standard retail pharmacy distribution. It is important to note that this chart does not consider the nuances of physician-administered drugs or specific products or entities.

Who Are Pharma Supply Chain Stakeholders?

The key stakeholders in the pharmaceutical industry supply chain include raw material suppliers, drug manufacturers, regulatory agencies, wholesale distributors, pharmacies and pharmacy benefit managers (PBMs), healthcare providers, and patients. Each stakeholder plays a crucial role and proper coordination between them is essential.

In such a complex process, the stakes are high for pharmaceutical companies. Incorrectly distributed drugs can harm their reputation, customer satisfaction, and potential profits. According to a Kaiser Family Foundation  report , an ineffective supply chain can also disrupt patients' healing processes and have adverse effects on public health.

The pharmaceutical supply chain faces several challenges, including supply chain visibility, drug counterfeiting, cold-chain shipping, and rising prescription drug prices , which can significantly increase out-of-pocket patient costs.

In this article,  PharmaNewsIntelligence  breaks down the fundamentals of the pharmaceutical supply chain to uncover strategies for overcoming the most common challenges and ways to get patients consistent access to current and new drugs .

How Does the Pharmaceutical Supply Chain Work?

As noted in a 2005 Kaiser Family Foundation  report , the following five pharmaceutical supply chain strategies ensure that drug inventory is readily available for distribution to providers and patients:

• Drugs are manufactured at production sites.
• They are then transferred to wholesale distributors.
• The pharmaceuticals are stocked at various types of pharmacies, including retail and mail-order.
• Pharmacy benefit management companies negotiate prices and process drugs through quality and utilization management checks.
• Finally, pharmacies dispense the drugs to patients, who take them as prescribed.

Researchers note there are many variations on this basic structure of the pharmaceutical supply chain, mainly due to the constantly evolving players. The vital players of the pharmaceutical supply chain network allow it to run smoothly and efficiently. Those players include manufacturers, wholesale distributors, pharmacies, and PBMs.

What Are Pharmaceutical Manufacturers?

Pharmaceutical manufacturers aim to supply a number of finished products that match the demand from the pharmaceutical sector. These manufacturers are responsible for distributing drugs from their facilities to drug wholesalers or directly to various types of pharmacies, including retail chains, mail-order and specialty pharmacies , hospital chains, and certain health plans.

Notably, pharmaceutical manufacturers have the most influence over pharmaceutical prices, assessing expected demand, future competition, and projected marketing cost to establish the wholesale acquisition cost (WAC), according to researchers. 

What Are Pharmaceutical Wholesale Distributors?

Wholesale distributors purchase pharmaceutical products from manufacturers and distribute them to various customers, including pharmacies. While some wholesalers cater to a wide range of clients, others specialize in the sales of specific products like biologics or cater to particular types of customers. Common pharmaceutical wholesale distributors include McKesson, Cardinal Health, and AmerisourceBergen Corp., among others.

What Are PBMs?

Although not a direct link in the physical supply chain for pharmaceutical products, PBMs are intermediaries that work with health insurers, employers, and government programs to manage prescription drug benefits for patients. PBMs negotiate drug prices with drug manufacturers, determine which drugs are covered by a patient's insurance plan, and manage formularies (lists of covered drugs).

They also negotiate drug prices with pharmacies, process claims, and provide medication therapy management services to patients. Ultimately, PBMs play a critical role in controlling prescription drug costs and ensuring patients have access to safe and effective medications. In the United States, roughly two-thirds of all prescriptions written are processed by a PBM .

What Are Pharmacies?

Pharmacies are the final step in the supply chain before drugs reach the patient — arguably the most vital step because they serve as the information link between PBMs, drug manufacturers, and wholesale distributors. Pharmacies purchase drugs from wholesalers or directly from manufacturers. After purchasing products, pharmacies must maintain an ample stock of drug products and provide information to consumers about the safe and effective use of prescription drugs.

Prescription Drug Costs

The pharmaceutical supply chain plays a significant role in determining drug costs. Without good partnerships, oversight, and supply chain management, consumers face higher out-of-pocket expenses and health plans deal with higher drug spending.

A  report  from the Pharmaceutical Research and Manufacturers of America (PhRMA) found that the complexity and number of players involved in the drug supply chain may be one of the main reasons prescription drug costs are making headlines.

According to the report, prescription drugs greatly depend on several negotiations and procurement strategies between wholesalers, pharmacies, PBMs, and insurers. The authors also noted that rebates have increased over the past few years, but out-of-pocket patient costs are soaring.

Another factor that can impact drug costs is the cost of production. Because manufacturers must cover the costs of research and development, clinical trials, and regulatory approval before they can bring a drug to market, those costs are often passed on to consumers in the form of higher drug prices.

The supply and demand of the drug are also other factors that control drug pricing. If a drug is in high demand and there is a limited supply, the price may be higher. If there are few competitors producing a particular drug, this can lead to higher prices as well.

A Time article suggests that the cost an individual incurs for a brand-name medication is contingent upon several factors, including their insurance policy, the drugs included in its coverage, the deductible amount, and the agreement reached between the insurance company and the manufacturer of the drug.

Researchers note that a rise in high-deductible or coinsurance health plans has resulted in an increased number of patients facing higher out-of-pocket expenses. Consequently, these patients may not benefit from negotiated prices, as their co-payment is based on the listed price of the medication rather than the negotiated cost.

The study highlighted several instances where intricate supply chain operations can lead to higher costs for patients. For instance, the study cited an example where a patient was prescribed an HIV medication with a listed price of $3,000. Despite receiving a 20% rebate, the patient had to pay a coinsurance amount based on the listed price, which amounted to $612. In this case, the patient had to pay an additional $100 than they would have if the coinsurance had been based on the negotiated price.

As per a study by the National Community Pharmacists Association (NCPA), elevated prices of generic drugs have had negative consequences for almost all stakeholders in the pharmaceutical supply chain. Consumers are experiencing a surge in co-pays and prices, while health plans are grappling with escalated drug spending. Physicians are compelled to prescribe alternative drug therapies, and in some cases, consumers are refusing medication due to the soaring prices.

TOP 10 PHARMACEUTICAL SUPPLY CHAIN CHALLENGES

By conducting numerous interviews and surveys with professionals in the global health supply chain, researchers from Operations Research for Health Care have outlined the 10 most significant challenges faced by the pharmaceutical supply chain, including (1) coordination issues, (2) inventory management, (3) inadequate demand information, (4) reliance on human resources, (5) order management, (6) avoiding drug shortages, (7) drug expiration, (8) warehouse management, (9) temperature control, and (10) shipment visibility.

The pharmaceutical supply chain encounters multiple other challenges that may result in delays, shortages, and wastage if not efficiently handled. Efficiently managing all challenges necessitates effective communication, collaboration, and meticulous inventory and resource management throughout the supply chain.

What Is the Forrester Effect?

The “ Forrester Effect ” or the “ Bullwhip Effect ” is a vital business analysis technique that shows the relationship between the increase of the variability of the client demand and the length of the supply chain. This supply chain phenomenon refers to the demand variability amplification that can occur as orders move up the supply chain from the end customer to the manufacturer.

However, because this effect is most often seen at the primary manufacturing site, which is the least responsive part of the supply chain, it can result in significant inefficiencies — including excess inventory, stockouts, and higher costs. This makes it difficult for businesses to adequately address healthcare system challenges such as supply shortages , tenders for national supplies, and epidemics.

Researchers from Northeastern University and MIT Sloan School of Management also recently noted ways to tackle drug shortages . The  research article  published in  Complexity  stated that one common solution was to keep more inventory to ensure that more products are available to treat patients in the event that products are recalled .

According to a  report  from researchers at the Imperial College of Science, Technology, and Medicine, all businesses with an efficient supply chain strategy follow a four-step process:

1.     Demand management

2.     Inventory management and distribution

3.     Secondary production planning and scheduling

4.     Primary manufacturing

Additionally, the researchers noted some tactics for eliminating the effects of disruptions, including financial mitigation, operation mitigation, and operational contingencies.

“Mitigation tactics are those in which the firm takes an action in advance of a disruption and correspondingly incurs the cost of the action regardless of a disruption’s occurrence. Operational tactics, such as inventory management, multiple sourcing, and flexibility in production, are also studied in the literature on supply chain disruptions,” researchers said.

More specific challenges reported by researchers at the Imperial College of Science, Technology, and Medicine included uncertainty in the pipeline of drug development and new products — specifically, which drugs will be successful in clinical trials and what sort of drug administration and dosages are optimal.

Digitizing the Supply Chain

The utilization of technology in supply chains has become increasingly crucial due to the combination of a more digitalized world and ongoing operational disruptions. Using digital tools helps reduce costs, enhance efficiency, and strengthen resilience but also aids in managing risks and tackling environmental, social, and governance (ESG) concerns.

In PwC's 2023 survey on Digital Trends in the Supply Chain, over 300 industry leaders recognized the benefits of digitizing their supply chains. However, 83% noted that their supply chain technology investments haven’t fully delivered the expected results. This indicates that there are still many obstacles to overcome, and businesses must do more to upgrade their supply chain operations in the increasingly digital era.

In the past, PwC also noted that — to meet the growing marketplace's demands — the pharmaceutical supply chain must undergo a “radical overhaul.” The radical overhaul, according to researchers, includes more diverse product types and therapies with shorter lifecycles, new ways for assessing, approving, and monitoring medicines through the FDA , increasing emphasis on outcomes, new models of delivering healthcare, and various other changes.

Overall, the pharma industry and its supply chain are vital for patients to receive the medications they need without dealing with stress or roadblocks. Although the supply chain faces various challenges, companies can take the necessary steps to ensure a smooth process from the manufacturing of products to the delivery to patients.

• FDA Adds Two Eye Drops to Its Recall List Due to Supply Chain Issues
• Adderall Withdrawal Exacerbated by Pharmaceutical Supply Chain Issues
• FDA Proposes Rule to Strengthen Pharmaceutical Supply Chain

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