Owing to the price differentials, leakages obviously take place, resulting in the creation of an underground market, the 'runner's' market. The community of pharmacies, angered by the unfair treatment by the manufacturers, react by turning to the runners in order to stay competitive since runners can offer lower prices.
Khurshid Mohamed entered the healthcare industry 15 years ago because he saw an opportunity in the supplychain of pharmaceuticals. “There were too many procurementsources and prices werenot favourable to the independent general practitioners (GPs). A group purchasing organisation was developedwith the objectives of buyingin bulk at discounted rates and servingas a one-stop centre for theseGPs,” he says.
But, of course, it was not as easyas that. Being a newcomer to the industry,Khurshid had to fight hard to establish Mayflax Sdn Bhd and gain the trust and respect of the doctors and manufacturers. But he succeeded,thanks to the key traits that underpin the success of most entrepreneurs. “It was through sheer hardwork, a strong belief that the GPswould eventually see the value I wastrying to create, persistence, formingsmart partnerships and believing inmyself,” he says.
Khurshid notes that the healthcareindustry is a sunrise industry with the pharmaceutical industry beingan important component. The powerfulcombination of an ageing population and increasing affluence will drive the healthcare industry. Malaysiaspends less than 5% of GDP on healthcare compared with the developed nations which spend between 8% and 14% of their GDP.
In the following Q&A, Khurshid shares his experience and also why he brought his family into the business.
The Edge: How tough was it to break into the sector and who did you partner?Khurshid: The entry barrier into the sector is rather low. In fact, many have jumped in, but very few have succeeded. To succeed, it is imperative to have the right business model,be financially strong and have a good knowledge of the industry. We were fortunate to have some key and important players like Pharmaniaga Bhd and Zuellig Pharma Sdn Bhd, which believed and supported us, especially in view of the many suppliers, including the multinationals and local manufacturers, who have the perception that doing it wholesale is irrelevant and they should not play any part in the supply chain. It is really surprising to realise how ignorant most of the suppliers were of the distribution process. If there is no need for our service in a completely market-driven environment,we would have failed even before we could get started. Perhaps the many business failures, now and in the past, have reinforced the beliefthat doing it wholesale is a non-viable business concern. In our case, we have proven them wrong.
What are the unique aspects of the industry?The biggest challenge is to convince the suppliers that we have a role to play. Since almost all manufacturers employ the services of distribution companies, a wholesaler is perceivedas an unnecessary layer in the supply chain. Unfortunately, the functional roles of a distributor and a wholesaler are not clearly understood. A distributor acts on behalf of the manufacturers, the seller, and a wholesaler protects the interests of the customers, the buyers. A distributor cannot act as a wholesaler and vice versa because a conflict of interest will arise.
The second biggest challenge is the blatant discriminatory pricing practices of most manufacturers. In general, four pricing levels depending on the type of practice are used:• Government tender supplies;• Hospitals and medical centres;• GPs; and• Pharmacies and wholesalers.
The government tender prices are the best and lowest, meaning they get the best prices, while prices to the pharmacies and wholesalers are the worst and the highest. Obviously,the price difference in favour of doctors is purely discriminatory and has angered the community of pharmacies and wholesalers. There is no justification to fix a price based on the type of practice. The manufacturers justify better prices for the doctors and hospitals, because:
• The doctors initiate the use of the medicine, and with better pricing the doctors are rewarded with a better profit. In fact, using monetary incentives to induce the doctors to prescribe a product is against the code of ethics of the manufacturers. Yet this unethical practice has been around for decades.
• The pharmacies give huge discounts to the patients to such an extent that the patients complain the doctors are charging high prices and even stop going to the doctors for the prescription refills. It is universally recognised and accepted that the patient’s interest comes first, and yet when pharmacies offer discounted prices they get punished by the drug companies in order to protect the doctor’s interest.
Owing to the price differentials,leakages obviously take place, resulting in the creation of an underground market, the “runner’s” market. The community pharmacies, angered by the unfair treatment of the manufacturers,react by turning to the runners in order to stay competitive since runners can offer lower prices.
When did you decide to focus on the GPs and what model did you settle on?Actually, we decided to focus on the GP segment since the very formation of Mayflax, the first Group Purchasing Organisation (GPO) for the private sector in the country. After 15years, our focus is still on GPs. The reason for this is clear — our business model is unique, one of its kind in Malaysia. There are many wholesalers but they all belong to the typical conventional wholesalers, lacking focus, with trading (buy and sell) as their core business activity. Since we focus on the GP segment,we can develop products and services for the GPs. For example, our trademark protected Product Price List is painstakingly developed andresearched, incorporating the following features:
• What GPs use, we try to stock. Ourvision is to become a one-stop shop for the GPs. As such, the products we stock are the most extensive and comprehensive.
• Prices are important, but more important is the quality of the products.Our mission is to offer qualityp roducts at the lowest possible prices. The supplier will tell you that quality has a price and should command a price premium. The smart thing to do is to seek out those manufacturers who do not have such an old mindset.
• Any product we sell, shall comply with the above two criteria.
Do you use IT to improve efficiency?Definitely, we are heavy users of IT. While we rely on good and dedicated staff to manage the bulk of our business, we are moving towards automating some of the business functions. Like many other businesses, we use IT to promote our organisation and products through our website and improve our customer relationship. Mayflax also has a subsidiary company, Global Medical Alliance Sdn Bhd, which is a MSC-status company which focuses on providing IT solutions in healthcare that offer an innovative and integrated healthcare solution for the corporate sector.
Since you have an MSC-status IT arm, are you also planning to allow doctors to pay online for the products they buy from you?This is definitely a challenge. I believe this is the way to go but there is a need to upskill our current customers in order to achieve business efficiency. However, we needto adapt to our customers’ ways of doing things and capitalise on that by utilising technology where we can while not imposing too many restrictions on doctors with the way they conduct their business. We just need to ensure that the new way of doing business will be helping the doctorssave time and money.
What have you learnt about managinga business and people over the years? I’ve learnt a lot from my over 30 years of experience dealing with different types of people and managing them too. We need to listen to what our customers are saying to us and see how you fit in making a contribution. We have to remember not to attempt too much at one go. It’s best to have manageable goals and move on to the next project when you achieved them.
Your children are getting into the business now. How are you grooming them? I am a firm believer that everyone should learn the whole business process flow before they can achieve greatness. This applies to my family as well. I am sharing my vast experience with my children so that they can be better leaders in managing business obstacles and to make good decisions. While I try to coach them as much as I can, I try to get them to understand the basic operations of any business and manage our suppliers, customers and internal staff with little supervision. I do offer them my advice from time to time when approached and we discuss business opportunities all the time.
This article appeared in SMEs, the Special focus pullout of The Edge Malaysia, Issue 778, Oct 26-Nov 1, 2009