Published by Computachem Services

P.O Box 297.
Alstonville. 2477
NSW Australia

Phone:
61 2 66285138

Trevor Bamford is a graduate of Biological Science from the University of Queensland and a student of Natural Medicine at the Australian College of Natural Medicine.
He has been involved in the Complementary Healthcare industry since 1985 through an involvement with his family health food business and through employment with a national distributor organisation.
More recently he has become known as a major proponent of broad industry supply chain reform through E-Commerce and Strategic Planning. He has spent considerable time canvassing the Complementary Medicine (CM) industry to address issues of standards for e-commerce in order to improve efficiency and value in the supply chain, from the retail level up.
Trevor also believes that there are potential alliances that can be forged between pharmacy and the CM Industry.
Perhaps there are alliance opportunities at the wholesaler end?
Read on with interest, and note some of the similarities between the two industries.

The History and the Now:

Over the last few years, complementary medicines (i.e. vitamin & mineral supplements or CM's) have become competitive business. CM's are seen as a major draw card for health retailers as consumers increasingly seek out a more balanced health, through a combination of preventative and treatment-based medicine.

Beginning as a cottage industry in the 1960's and 1970's, the manufacture of vitamin products became part of the wider federal regulatory framework in 1989 with the establishment of the Therapeutic Goods Administration (TGA). This step ensured that the manufacture of CM's, as with medicines in general, was done in accordance with stringent Good Manufacturing Practice (GMP) and regulatory guidelines to ensure consumer safety was protected.

In these early days "health shops" or "health food stores" were the major proponents and stockists of CM's The then national body, the Nutritional Foods Association (NFAA), founded in the late 1970's, developed and continuously reviewed the code of practice for the retailing of health foods including that of CM's

In 1999, the NFAA merged with the then Australian Council for Responsible Nutrition (ACRN) to form the Complementary Healthcare Council of Australia (CHC), the now peak body for the CM industry.
The CHC continues to review the Code of Practice for the retailing of CM's but also and importantly represents the interests of manufacturers of CM's at the federal regulatory level. This industry body has provisions for the interests of all retailers, suppliers, distributors, manufacturers, sponsors, raw material importers of CM's'.

To this day CM's are still found as the primary stock line for the seven hundred (700) health shops nationally and alongside pharmacy and supermarkets health shops, continue to retain a major percentage (identified as 35 percent) of the national CM retail market. Annual growth statistics for health shops have been identified at 10 percent per annum, with many of the major national franchise groups such as Healthy Life and Go-Vita posting even higher growth rates.

One characteristic that defines the supply chain servicing health shops, unlike pharmacy and grocery, is the extent to which the supply chain is fragmented. Unlike in pharmacy where single wholesalers may service as much as 90-95% of the stock needs of any one pharmacy, in the health food sector there may be as many as eighty (80) suppliers where four (4) to five (5) suppliers provide perhaps 80 percent of stock.

In terms of efficiency and the adoption of technology uptake this structure inherent to the health food sector poses a challenge.

Technology, B2B and CM Health Retailers:

On reflecting on the technology successes within competing sectors it has been noted that in pharmacy, perhaps by virtue of the centralised electronic management systems associated with the Pharmaceutical Benefits Scheme (PBS), technology and Point of Sale (POS) systems have been used for some time to varying, but generally acceptable, levels of success. What is not clear is the extent to which supply efficiency exists in the pharmacy retail sector of CM supply outside of the above-mentioned wholesaler-retailer relationship.

One of the most complex issues facing CM retailers, particularly within the health food sector where the usage of POS is at best ten (10) percent, is the engineering of effective and broad industry-based Business to Business (B2B) solutions. Given the fragmented nature of the supply chain, how can the CM industry as it relates to the health food sector achieve broad-based supply chain reform through B2B ? This issue and the more central issue of the establishment of national standards for technology uptake have been at the forefront of discussions at a national level for some three to four years.

Much of the initial discussion has been centred on assessing the value of delivering guidelines to industry for the uptake of automated stock systems (or Point of Sale - POS). The key feature here that drove this focus is that overall supply chain efficiency is best achieved at the health food retail level where POS is endorsed with an aim of providing integrated management of inventory, profitability and customer marketing

However, as research progressed, it has become quite clear that the problem is far more complex and indeed is a broad industry one. The far more obvious question that has emerged is how can the applications of POS at the retail level be empowered by the supply chain ?

As a direct example, many suppliers channeling CM into the health food sector do so using proprietary or in-house coding systems. These in-house coding systems are separate from the universal product identifier (i.e. bar-code) given to the CM by its manufacturer. Then, in turn, the health food retailer must apply a further coding infrastructure to the CM for its own identification within their retail store. This multi-coding scenario is inefficient and could easily be avoided by using the same bar-code throughout the supply process. Further to this, many health food retailers who are POS-less, scribe these in-house codes as purchase orders and then fax these out to the relevant supply network.

For those readers who have taken interest in the writings of Pat Gallagher over past editions such a process might sound familiar amongst small and middle sized business in Australia..

However, the difficulties in implementing such an efficient (and obvious) scheme as a solution lie in two (2) main but challenging areas including :

1. The ability of the supply chain to cooperate, to determine the need and then plan for implementation - that is, the ability of big business to work with small business, and with government support, to engineer the process toward one of efficiency.

2. The complexities associated with engineering and then managing the single central "database" that would drive such a system.

An example of such a solution is in action and exists within the grocery industry. Efficient Consumer Response (ECR) as the peak e-business / supply chain reform management organisation within the grocery industry have delivered "replenishment" based supply-purchase models for the major grocery retailers. In summary every single transaction for the major retailers whether buying from supplier or selling to consumer (e.g. the same CM product sold in pharmacy or in health food) engages the central identifier as the basis for ordering, supply and inventory management.

Such an efficient model certainly makes the playing field extraordinarily "uneven" when comparing grocery to health food and perhaps also with pharmacy.

How do health food and pharmacy implement a system such that the playing field for the channeling of CM's is leveled ?

MCCA : The Single Central Model, Collaboration & Mutual Efficiency ?:

Readers might be familiar with the project currently known as the Medicines Coding Council of Australia (MCCA). The federal Department of Health and Ageing has commissioned the drafting of a Green Paper to identify the value of implementing a central coding infrastructure for all goods listed on the ARTG. This infrastructure is aimed at improving the inherent efficiency of the framework for the regulation of therapeutic goods in Australia inclusive of CM's

However, one of the indirect benefits associated with such an initiative might be the value it poses to supply chain reform projects that require a single central coding model in order for B2B processes to be standardised and thereby effectively managed.

If the MCCA does indeed offer a single coding infrastructure for, amongst other goods, CM's then the mechanism might well be made available through which the supply of CM's and effective supply chain reform processes may be achieved.

It is also conceivable that, as the CM's that are consistently being channeled through pharmacy and health food retail sectors, are manufactured in most cases, by the same companies, there might be mutual benefit for retailer interests in undertaking such reform simultaneously. This would ensure that retailers, the POS systems they adopt, the B2B standards they embrace and the coding infrastructures they use are equivalent from the point of regulation through to consumer purchase.

That is, that small to medium sized health retailers might strategically gain mutual benefit from aligning their visions as they relate to the channeling of CM's

By Trevor Bamford BSc

Editor's Note:
Opportunities for alliance may also occur at the retail end.
We have Priceline franchising its offering to pharmacists currently, and perhaps the more enterprising health food retailers might see a market opportunity here.
Or perhaps the reverse, where space is offered to a pharmacist in a health food outlet.
As the various Pharmacy Acts begin to liberate the business end of pharmacy, good alliance opportunities will become available for mutual development.