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Those operating in highly fragmented distribution sectors see the concept of fee-for-service taking root in the near future somewhere in the neighborhood of a Chicago Cubs World Series victory. Yet every company today wants to get smarter about quantifying and getting paid for services that have been bundled with the product delivered.
As rebates and sales incentives come under fire, there's a lot of soul searching to fix "dysfunctional discounts." The article on Cardinal Health offers insight into the accounting, legal and competitive pressures pharmaceutical distribution faces. Competitor McKesson is pursuing a similar model change.
This is perhaps the most consolidated, most squeezed, most competitive and efficient channel, with the lowest margins. A distributor ﾖ albeit one of the big three in the industry who together handle 90 percent of drug sales at the wholesale level ﾖ is going to manufacturers with a different plan. This program is not optional in 2005. The company is betting the pharm that this alternate path yields value and competitive advantage to everyone. At least on paper.
Incremental competitive gains in this channel have been honed to a razor's edge. While distributors in many channels have raised the bar in setting higher performance levels for themselves through documented savings and value verification programs at the customer, this turns the mirror in the other direction. It ratchets performance accountability to much higher levels. The winners presumably will be those distributors who are most in touch with customer needs, with the capabilities to identify, deliver and document high-value services at a cost structure that gives manufacturers the most competitive advantage. Different game, different rules.