UBC Phar400-business of pharmacy-14sept2012

UBC – Phar400 | Pharmacy Management
retailSOS.ca | Gerry Spitzner
September 14, 2012

 Objective; High level view of the Pharmacy business
 Thoughtstarters
 People and moving parts of retail Pharmacy
 Types of Community Pharmacy practice
 Retail Pharmacy main differences
 Logistics and the Supply Chain
 4 key controllable areas
 Customer Experience
 Future Developments, Issues and Opportunities

retailSOS.ca | Gerry Spitzner 2

A few basic acronyms and
frequently used jargon in retail
Pharmacy


 AR/AP = Accounts Receivable/Payable
 P&L = Profit and Loss statement
 POS = point of sale
 POP = point of purchase
 WMS = warehouse mgmt system
 SKU = stock keeping unit
 MOM = minimum order multiple
 CPG = consumer package good
 IND = independent retailer
 RDA = Retail Display Allowance


 UPC = universal product code
 QR = quick response code
 PO = purchase order
 GMROI = Gross Margin Return On Investment
 CRM = Customer Relationship Management
 DSD = Direct Store Distribution
 EDI = Electronic Data Interchange
 EDLP = Everyday Low Pricing
 OTB = Open-to-Buy
 POG = Plan-o-gram


 HHC = Home Health Care
 DME = Durable Medical Equipment
 OTC = Over The Counter
 NHP = Natural Health Products
 HBA = Health & Beauty Aids
 LTC = Long Term Care
 AAC = Actual Acquisition Cost
 MALP = Maximum Allowable List Price
 U&C = Usual and customary ( refers to fee )


The key to business survival.


 Healthcare is a business and always will
be; but Pharmacy is an art.
◦ In today’s world, business is built on relationships.
◦ People do business with people they know, like and trust.
◦ Put relationships first – then reap the long term high quality
growth that follows.
◦ Consider the life time value of a customer rather than just as a
one-time transaction.


Why should the business come to
you... rather than someone else?


 What problem does my service solve?
 What am I solution for?
 Why does it matter?
◦ Your job is not to sell something; rather it is to fulfill an
intention.
◦ Fulfilling an intention is a motivator to buying.
◦ The applied benefit of the benefit.
◦ Never about what you can get; always about what you can give.


A function of the bundle of
perceived benefits offered at a
given price.


 Confidence is the #1 factor
◦ in determining what, from who and where customers buy...

 quality is #2, service is #3

 selection is #4

 and price is #5


 How can you?...

 Help them save money
 Save them time
 Make them feel safe
 Make them feel special


High Level Overview


 Staff  Canada Revenue Agency
 Nurses  Provincial Government
 Doctor’s Receptionists  Loss Prevention services
 PharmaCare & PharmaNet  Employee Relations & HR
 College of Pharmacy  Payroll services
 Municipal  WorkSafe BC
 Landlord  Technology providers
 Banker  Retail Insurance providers
 Accountant  3rd Party providers
 Bookkeeper  Wholesaler
 Lawyer  Manufacturer Suppliers
 Contractors  Other Suppliers
 Head Office  Delivery Services
 Neighbouring tenants  Competitors

Doctors Patients and Customers


 There are three broad areas to every business;
 Finance
◦ Monitoring, analysis, cash flow, P&L
 Marketing
◦ Ideal audience and services communication
 Operations
◦ Delivering the promise and customer experience


 Health Authority Associated Pharmacy
 ambulatory care pharmacy, cancer drug pharmacy, HIV drug
pharmacy, hospital pharmacy, corrections facility pharmacy,
addiction
 Community Pharmacy
 “full mix” retail pharmacy, Health Centre, simply a pharmacy,
consulting pharmacy, compounding pharmacy, veterinary
pharmacy, central fill pharmacy, mail order pharmacy
 Other Pharmacy
 nuclear pharmacy, military pharmacy


What are the main types of
Community Pharmacy and the
details of how they work?


 Alternative medicines (NHP’s)  Consultations
 Vitamins/OTC’s  Private Consultations
 Orthotics and mobility aids  Medication Management
 Wound Care  Blister Packaging
 Medication Reviews
 HBA
 Patient Education seminars
 Cosmetics  Disease state screening
 Electronics  Chronic Disease Mgmt
 Food and Groceries  Immunization
 Post Office  Refill services
 Greeting cards  Delivery services
 Books and Magazines  LTC and Group homes

Departments and Products Professional Services


 4 Main types of Retail Pharmacy

 Corporate Pharmacy
 Franchise Pharmacy
 Banner Pharmacy
 Independent Pharmacy


 Wholly owned by a large company
 Manager is an employee of a chain Pharmacy
 Pharmacy is a department managed by a Pharmacist
 Managers are paid a salary and compensated with
performance incentives
 Grocery stores fall into this category
 Rexall, Wal-Mart and London Drugs


 “SDM | Associate” concept
 Own the business but not the physical assets
 No capital investment or capital risk
 Guaranteed minimum annual income and Benefits
 “Share” in profitability
 Support services in all areas of Operations
 Many “masters”
 Associate agreement is a renewable 3 year deal
 Retained equity requirements
 Franchise agreement restricts or outlaws certain activity
 All inventory comes from own warehouse


 “Medicine Shoppe” concept
 Own the business and the physical assets
 Franchise fees
 Trademark rules
 Required program participation
 Full Pharmacy ownership
 Capital investment required
 Ongoing Sales and Biz Dev support
 Custom marketing strategy
 Training and Professional Development
 Preferred Supplier agreements


 What is a banner Pharmacy?
◦ Key features include:
 Looks like a chain
 Independently owned and operated
 Working together
 Sales/promotions, contracts
 Buying group
 Menu of services
 Fees or membership dues
 Own profit and loss centre
 Owners often have more than one store
 Sometimes shareholder in wholesale
 Pharmasave, Peoples Drug Mart, IDA, Remedy’sRx
 Guardian, Pharmachoice, Medicine Centre


 Main differences from franchise and banner
◦ Key features include:
 No name affiliation
 Independently owned and operated
 Often belong to a wholesalers IND program
 Entrepreneur
 Self-management
 Creative freedom
 Not having to answer to others (especially regarding the
pharmacy focus)
 Financial independence and high risk


There are 3 main Logistics
channels... or ways to get products
to the door of the store.


 Wholesalers
◦ In BC; 3 national & 1 regional that distribute Rx and front shop
◦ McKesson, ABCC, K&F, and uniPHARM
◦ Primary suppliers to Banners and IND’s
◦ Secondary suppliers to Chain
 DSD; ( Direct Store Delivery )
◦ Select Generic/Brand suppliers, some Front Shop categories
 Self Distributors; Chain
◦ SDM, London Drugs, Save-On, Safeway
◦ Note: also draw from local wholesalers


 How wholesaler upcharges work in BC...
◦ There are differences in every province
◦ For Rx; MALP (AAC) cost plus 8%, 5% for high cost drugs
◦ MALP for Generics is 35% of the equivalent Brand
◦ Prompt payment (cash discount) of 2%
◦ Loyalty allowances range between 3% to 5.5%
◦ Net net upcharges range between ½% and 3%
◦ Depends on volume and loyalty
◦ 11 deliveries per week for Rx and 1 or 2 for Front Shop
◦ OTC and Front Shop upcharges vary greatly and usually
rebates are provided for achieving agreed to volumes


There are a lot of moving parts to
retail and they are all crucial to
customer experience .

There are 4 key ones.


 Inventory management  Policies & Procedures
 Pricing  Computer software
 Merchandising  Cash flow
 Staff  Sales Revenue
 Receiving  Sundry Revenue
 Loss Prevention  General Expenses
 Wages and Benefits
 Fixtures
 Staff Schedules
 Repairs and Maintenance
 Training
 Occupancy costs & Utilities
 Supplies
 Information Technology  Advertising
 Computer hardware  Marketing

Patient/Customer Experience Profitability


 Inventory
◦ It is all about flow - keep goods flowing
 Pricing
◦ Setting competitive pricing is an art form
 Merchandising
◦ Any practice which contributes to the sale of products
 Staff
◦ The quality of an employee's work experience has a direct
impact on the quality of the customer's experience.


It is all about flow - keep goods
flowing.


 Choosing An Effective Inventory Management Strategy
◦ aware of the state of stocked inventory at any time
◦ system to easily monitor the coming and going of product
 Spatial Needs
◦ specific items and the type of storage location in which the
product is kept
 Maximize Profit
◦ items in inventory may sit for long periods of time due to lack
of demand. This is not only a wasted expense; it also takes up
valuable room in your stock room that could be filled with
faster selling items which would draw more profit.


 Software Systems
◦ complete inventory checks and keep track of every item that
comes in and out of your warehouse to identify errors, thefts,
losses, and any other discrepancies.
◦ use auto-replenishment features in the technology to re-order
 Labeling and Identification
◦ make sure that all items are properly labeled. Incorrect or
incomplete labeling can lead to several problems, including
wrong identification by your software, misplacement when
restocking the inventory, loss of the item, or inability to find it
for shipment or shelving later.


Competitive pricing in the Front
Shop is an informed art form.


 What’s the difference between mark up and margin?
◦ Markup is % of profit on cost
◦ Margin is % of profit on selling price

 Frequently used terms
◦ Gross profit percent; GP%
◦ Gross profit dollars; GP$
◦ Gross margin percent; GM%
◦ Gross margin dollars; GM$


 Pharmacare sets a maximum price for brand & generic
 Maximum price applied during PharmaNet
adjudication
 MALP (AAC includes upcharge) plus fee; $10.00
 The professional fee is the entire gross profit
 Reimbursement for clinical services
 Med Reviews, Immunization, Rx renewals, adapting
Rx’s, therapeutic substitution, Plan B capitation fees,
rural incentive program


Merchandising is any practice
which contributes to the sale of
products to a retail consumer


 Closely related to inventory
 Plan-O-Grams
 Service Levels
 What is a facing?
 Keep merchandise fresh and clean
 Search for outdates
 Signs and promotional shelf talkers
 Pricing labels
 Promotional merchandising
 Cross merchandising for profit


The quality of an employee's work
experience has a direct impact on
the quality of the customer's
experience.


 Hire for attitude and train for skill
 One of the key drivers of the employee experience is
how the staff feels about their colleagues.
 That's why teamwork at the store level is such a vital
component of a store's success.
 The key to effective teamwork is leadership.
 There are four actions that will create a more effective
team.


 1. Stop drama in its place.
◦ Nothing tears apart a team more quickly - or more quietly - than
drama.
 2. Regularly communicate your assessment of your team's
teamwork.
◦ Share what you see are the strengths and areas of improvement
needed in teamwork.
 3. Don't enable poor performance and unacceptable
behavior.
◦ Teams begin to splinter when the majority feels that one or more
individuals aren't contributing to the team.
 4. Recognize and celebrate effective teamwork, behaviors,
and results.


 Why maintaining trust is a marathon; not a sprint.
◦ In today's world, whether you are talking about marathon
times, or ingredients on a label, or a product's health benefits,
or whether something is organic or not, or what an item's
environmental profile happens to be, you have to get it right.

◦ The big stuff, and the little stuff. In part, because if you get it
wrong people are going to find out. But most of all, because
getting it right is what people expect. Get it wrong, and you
risk eroding people's trust.


What makes a positive customer
experience in healthcare?


 How did you make the customer feel?
◦ Service has more impact on customer loyalty than any other
function of a company.
 Customer loyalty is not a tactic but a way of doing
business.
◦ Never let your business processes dictate your customer
experience.
 Ask; don’t tell. Listen; don’t talk.
◦ How can you hear your customer when you are busy telling
them something?


 Serve customers, don’t just provide customer service
◦ Customer service is what the organization wants to supply to
the customer; it is governed by policies and rules intended to
serve the business.
◦ Serving customers, on the other hand, is driven by what the
customer wants. The control position is in the customer’s
hands; the organization is in the responsive position.

 Customer service is an attitude not a department


For Retail Community Pharmacy –
Chains, Banners and Independents


 Supermarkets, mass merchandisers, mail order and
Pharmacy chains are likely to keep competition keen
for the independent Pharmacist.
 The Government's plans for pharmacy include an
enhanced role for Pharmacists.
 The aging population and ongoing shortage of
physicians will strengthen the demand for Pharmacy
services.
◦ Community Pharmacy will be the centre of health care and
Pharmacists will focus more and more on disease
management.


 Government Drug Reforms
 Drug Shortages
 Costs are escalating faster than increases in revenue
 3rd Parties looking for ways to control Rx drug costs
 Plans more complex; patients don’t understand them.
 Reimbursement Rates
◦ In Canada – more than 50% of prescriptions are paid by
Government; most of the rest is covered by an insurer like
Blue Cross, GWL, Assure and NIHB; very little “cash pay”.


 Key Industry Stat
◦ Per capita usage of prescriptions is climbing among all age
groups, ranging from 4.21Rx/year among those aged 0-39
years up to 41.82/year for 60 years and up.
 Fee for Service Patient Care
◦ Medication Reviews, Home delivery, home consultation,
patient charge accounts, disease management programs
(diabetes, asthma), LTC, Group Homes, Workplace health,
immunization, medication adherence, Hearing centres, home
health care


 Want a copy an electronic copy of this of
this presentation with bonus slides?

 To your business and professional
success, thank you for your attention.

 Questions?

retailSOS.ca Gerry Spitzner 51

 Follow Twitter: @passion4retail
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 Email: gerry@retailsos.ca
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 retailSOS.ca is a Vancouver-based retail consultancy guiding
Pharmacy owners to create, engage and retain great customers
by doing the right thing extraordinarily well.
 Gerry Spitzner works as a management consultant supporting
community Pharmacy owners to achieve results by aligning
their vision and implementing marketing strategy with
operational execution.
 Drawing on 35+ years experience in drug store multi-site retail
operations, Pharmacy ownership and Pharmaceutical
wholesale supply-chain; Gerry brings the leadership, knowledge
and market awareness of ownership and business development
to Pharmacy owners to achieve growth objectives.


How do you start a movement of
change?

It starts with leadership.

retailSOS.ca Gerry Spitzner 54

 Are you ready to start a movement?
 Are you ready to charge for the time it took for you to
get your education and the time it’s going to take you
to keep it up?
 Are you ready to make the public aware of the great
things Pharmacists do?
 Are you ready to create, engage and retain great
customers?


UBC Phar400-business of pharmacy-14sept2012

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UBC Phar400-business of pharmacy-14sept2012