Published by Computachem Services

P.O Box 297.
Alstonville. 2477
NSW Australia

Phone:
61 2 66285138

Business life back in 1953 was simple, no doubt about it.
Compared to 2003 everything was reasonably basic.
White coats, pencil behind the ear, telephone on the wall, typewriter on a desk or dispensing bench.
Brown papers bags and empty bottles, with lids, to fill.
Sticky labels and carbon paper.
A ubiquitous, very large, NCR cash register with lots of keys to transact pounds, shillings and pence - with staff that could do mental arithmetic and give correct change as a matter of course.
Perhaps a hand cranked adding machine, hand written prescription records and ledgers, beautifully recorded by people who could write legibly and knew how to spell.
Loyalty programs were conducted as 'put it on tick' - credit shopping between paydays.
The supply chain handled a lot of bulk goods that retailers, chemist or grocery dispensed and re-packed into paper bags and bottles.
Ah bliss. Life in the slow lane, no 24/7 and no email.

In 1953 profit margins in the industrial age were incredibly high compared to the information age today in 2003.
They had to be.
Fifty years ago very little was known about shrinkage in all its forms.
In the modern supply chain we know there are more than twenty ways to lose a dollar.
Not just theft, which probably has not altered much as a percentage anyway.
Beyond exercising thrifty and laborious instinct and blunt effort to control inefficiencies in real time, owners and managers in 1953 had to rely on nous and historical accounting results to avoid "Micawber" outcomes.

So margins were as high as the market would bear, up and down the relationship chain.
The lack of statistical knowledge was covered by fat margins.
Not just buying and selling goods but the banking system was oh so laboriously simple.
Banks had useful bank managers and plenty of staff to process your cash deposits.
There were fixed interest rates, no invisible global impacts of exchange rates - hence money was not the instant-trading commodity it has become in 2003.

Today money is managed globally on a minute by minute basis putting enormous emphasis on how everyone manages money, hence on margins - all margins.

Business trading partners 50-years ago communicated by posting an envelope, calling on the telephone or in person or by messenger.
A boy on a push bike.
Little of the information in the pool of business exchange was available in any useful manner, other than to eventually, at years end, to balance the books.

As this is not a history lesson, we can skip the bleeding obvious and accept that during the 1970s and 1980s a technology/communication tool changed it all for ever.
Computers became tools, information became a commodity and the smoke and mirrors disappeared.

As technolgy became more common and dynamically available the knowledge about monthly outcomes became more accurate and useful.
Far better than waiting for yearly results to be analysed and being far too late to react effectively.
This has gradually and inexorably put pressures on margins as more and more information allowed more and more to be done 'better'.
And this was all before the Internet entered the scene.
The Internet makes this worse/better, depending on whether your head is in or out of the sand.
What used to be confidential, privileged, secret information will, if anything, become more and more openly shared.

As more and more participants know more and more about actual outcomes, then the ability to gild the 'price' shrinks proportionally.

Is this bad?
Not necessarily, if you see bigger, faster, smarter methods as incentives and guidelines to grasp opportunities.
Is it good?
Not if it can be avoided - perhaps in Outer Mongolia.
Will margins continue to come under pressure?
Yes.
Just ask why did so many people lose so much money in the dot.com.bombs during 1999/2002.
They saw the future but were too greedy to wait for critical mass knowledge to become prevalent.
The future will wait and deliver riches for those who see the simple path of controlling interoperable information pools better than others control islands of information.
Look no further than OTC margins.
The mark-up on Nyal Decongestant in 1953 is now a fleeting memory.
Today, with the emerging Internet based data exchange platforms, the visibility of costs, from production line to patient/customer, will be in a constant electronic spotlight.
With nowhere to hide fat margins - nowhere!

The good old days are just that - gone, over, never coming back.
If the changes most of us mature people have seen in the past three or four decades was confronting, wait around for the next few years.
That is not to say that the coming years will not be the good new days for many people.

Just stop and look at the overly bleeding obvious.
Credit cards, POS, EFTpos and barcoding.
Dispensary PCs, GP desk top PCs, mobile data terminals broad band links and so on.
Adjust, do it right and win - vacillate, and lose.

Worth noting, for example, that the unique numbering and barcoding of pharmaceutical's will have the power of the Australian card in reverse.
Do you see it?
Think about MediConnect.
Consider HealthConnect.
Observe the awful Dr Right, PBS, TV campaign.
Contemporary debate about all things Medicare related.
GPs with prescribing systems - who would have seen that 5-years ago?
Smart cards - somewhere, someone soon will, like the Wallabies, put it all together.
The question is will it be a pharmacy entity that leads rather than follows?

The editor of this publication is trying very hard and commendably to put the spectre and the debate of all things new and threatening to pharmacy.
Notably the renewed interest recently from the grocery cousins.
What are their corporate retail strengths and weaknesses?
They are weak in certain aspects as long as pharmacy can unite to expose the thinner links.
Who will do that?

Where lies the major threat to pharmacy from corporate operators, regardless whether they are grocery or other traders?
Is it size - yes - but it is more to do with about ten years of constant technological change on an industry wide platform.

Look above - margins, knowledge and technology/communications.
'They' have been taking the small steady steps to adapt - pharmacy has not.

Benchmark pharmacy against grocery.
In 1953 a chemist shop was a far better business to own and run than a Four Square store.
In 1973, things started to change.
Supermarkets became a different trading model.
Then we saw a smaller world in communication links; TV, convenience and consolidation made retailers even more macro.
By 1993, independent grocers were quaint backblock operations.

Let's not even go to margins.
Enough said and understood to allow the reader to join the dots and colour the space red.
Let's look at knowledge.

Grocery executives have macro knowledge capabilities.
Industry wide, nation wide, oceans of data.
Whereas pharmacy tends to be cottages on individual islands in dark and unseen oceans of invisible data.
Pharmacy has only micro operators in comparison to the grocery sector.
Corporate executives control data, exchange data and own data, horizontally and vertically in reasonably interoperable systems.
No one entity truly, yet, controls pharmacy data.
Data is exchanged usually in a separate one way path, up or down and usually therefore not interoperable across systems.

And, who owns the data in pharmacy?
Everyone and no one.
Each 'partner' holds it close to their chests like they have always done.
Retail data is not tracked back to wholesale and onto supply or shock, real time forecasts for manufacturing, make-and-pack.
Each trading level protects margins to prop up this structure.
In itself that's a right and proper thing to do, after all we are in business to make a profit.
Trouble is the capability of the other information platforms is changing rapidly.
All levels of customers are aware of this.
Tick, tick, and tick.
Hear a clock ticking somewhere?
Time's a coming.

Five years ago the Pharmaceutical Extranet Gateway was launched.
Seven hundred people attended the Sydney and Melbourne events.
Remember PEG?
It was all about putting in place the first steps to achieve e.knowledge in the supply chain and to ramp up the use of e.technology in trading platforms.
PEG was starved of oxygen by the good old timers and stalled in its tracks. .
What did they achieve, these handbrake harries?
Delaying the inevitable is all they did.
Now as the clock ticks louder and louder perhaps they may come to see the next five years will present confrontation and adversarial battles that could have been largely avoided.
Or, at worst, better managed as collaborative industry collateral to share growth rather than potentially suffering lonely and individual pain.

The most compelling thing that happened during the launch of PEG was one atypical, disbelieving, negative question that came up over and over again.
It went something like this;
"Why would we/you do this?
"Why would we share?"
" What's in it for me?"
" Why are you guys on the government's side?"
" We don't want a playing field that lets 'them' know our business?"
And so on.
Well, that was 1998, I wonder would they ask those questions today and what answer would they hear?

In 1998 the answer they heard was right then and is right today.
The CEO of one of the major three wholesalers said it very well in one of the question and answer sessions.
It is not too pithy of me to mention that he was shortly after lost to the industry and we lost an effective visionary and leader.
He was someone, who I believe, would have made things better had he stayed around.
What he said was along these lines.

"You talk about our industry"
"Asking why would we let 'others' share information about our industry"?
"It is not an industry".
"It is a subsided, cost to government."
"Sooner or later (tick, tick and tick) someone in government will say - 'this costs too much' (margins) and exert power (knowledge) to bring about change (based on technology/communication) to use information to their own end."
" What we should do", he said, "is be pro-active, look to the future as best we can, learn from others (grocery) and adopt and adapt to change"

How right he was.

I certainly do not want to convey the impression that everything big and bad in terms of competitors and threats to pharmacy is necessarily going to win over the coming five years.

Margins, knowledge and technolgy are peripheral supporting attributes to the importance of customers. The single factor in retail success methodology was, is and will always be the customer niche, customer satisfaction, customer service, customer traffic and customer loyalty.
In that order.
If you are planning on customer niche and loyalty being the saving factors between now and 2008, then planning your retirement maybe a better option.

Customers want satisfaction, which involves a great deal of convenience, based on their perception of 'service'.
For example, people will grudgingly queue at a supermarket check out - would they queue for a prescription 'service'?
Unlike say the banks; customers still can maintain a relationship with their local pharmacy owner or manager.
It is one factor in a complicated, overlapping situation of history, location and human values - up to a point.

That point being where retail community pharmacy sits, in terms of margins, knowledge and technolgy capability in the minds of pharmacists themselves, suppliers, competitors, customers and most of all, the government of the day.
How the government evolves the conduct of macro clinical data reticulation programs will impact in ways yet to be understood.
But, impact it will for all the contemporary reasons we hear involving our 1953 baby boomers being accommodated in a 2003/08 Internet driven world.

Although it is not the intention to close on yet another matter of doom and gloom the fact is that looking backwards often tells us what will happen down the track.
Trouble is it happens just faster than we thought possible.

In 1953 we can estimate that there were approximately 8000 pharmacies in Australia. In 1973 there were around 6000 businesses.
By 1993 this had became about 5000.
Today it is I think closer to 4400.
There is a trend here.
One fact in this trend is that it is highly unlikely to be reversed.
How many pharmacies will there be in 2008 - a short 5-years from now?
Two thousand? Three? Or, four thousand, three hundred and ninety nine?

Will they be exactly as they are today?
Very unlikely would be the safe answer.
Those left will survive and prosper on margins they can manage with knowledge they have as tools and that is exchanged by technolgy and communication regimes that are instant and ubiquitous.

Pharmacy leaders need to rise to the situation and do a visionary.
I mean a realistically gauged vision not a dreamy protectionist cant, SWOT (strengths, weaknesses, opportunities and threats) campaign on everything and anything relevant to community pharmacy's future.

In the last issue of this publication the editor printed the extremely valuable statistical, benchmarking data complied by Con Berbatis. Titled "Pharmacy Research Perspective" it contains jewels of indicators and observations that offer the foundation for ongoing validation purposes.

Not just inside the ranks of community pharmacy - but those of suppliers, governments and competitors as well.
And there are no better terms of reference for this activity than to use customer growth factors as a base line against - what will be the likely situation in 2008 with margins?
With knowledge management?
With interoperable technology and communication platforms?

Or, the 4,400 campers can just sit back and let it happen.

Which, by 2010, will certainly ensure a strategic win for the outside barbarians.
They have the e.capabilities to meet the change aspirations and resources of governments (taxpayers) to maintain our health system.

Today, Australia has the best health system we can afford and happily it is one of the world's best.
The trick is to ensure that community pharmacy remains a viable part of the holistic health system - a system that will increasingly be driven by constantly evolving, Internet based, changes to clinical and supply functionality.

There was an excellent article in the Financial Review recently on these very issues.
Headed ironically as " Health system suffers from a lack of leadership".
The opening paragraphs contained these words.

"predication is always hazardous, but particularly when it is about the future (of healthcare)"

'the future health system will contain two unknowns"

1. technology, and
2. the influence on events by what we want as a government representing the taxpayer.

The article goes on to give various scenarios all based around costs, knowledge (clinical data) and technolgy options that may be in place by 2020.
Nothing is expected to be as it is in 2003!
Nothing.

Hope you have a good 2004.
Pat