Can pharma play the ONDC curve ball?

India is attempting to create an Open Network for Digital Commerce (ONDC) to democratise digital commerce (e-commerce) in the country and provide alternatives to private e-commerce sites. Even though the pharma industry is still in the early stages of digitisation, the ONDC model may offer a chance to challenge its traditional supply chain distribution paradigm.

New industry regulations, the consumerisation of healthcare, and the persistent need to replace antiquated logistics approaches will push pharma companies to integrate more technology, automation and digitisation into their end-to-end supply chains.

Current contextual challenges

The pharma industry has multiple layers and the outbound supply chain is very complicated with various stakeholders such as C&F, CSA, super stockists, dealers, distributors, sub-stockists, etc.

Even among distributors, there are trade distributors, hospital stockists, generic pharma distributors, medical device suppliers and consignment agents, to name a few. Multiple vendors with varying requirements, lack of clear categorisation, lack of proximity to the manufacturer and differing degrees of quality standards are clear challenges.

Companies lose visibility and control of the product’s movement beyond the clearing and forwarding agents. Besides, many warehouses, distributors and far-flung retailers do not have the infrastructure to store the product. This results in damaged products, rejection from customers, and greater risk to patients. To overcome external infrastructure constraints, the pressure for timely and effective supply chain execution becomes paramount. Further, the non-visibility of inventory causes serious threats of counterfeits, loss of sale, challenges to trace products and unpredictable demand scenarios. Cold-chain maintenance for specialty products like Biologics (mab and vaccine) adds another challenge given the diverse environmental condition in India. Temp-controlled supply chain adds additional burden to the cost of distribution and profitability.

Pretty obvious, the negative implications are locked inventories at each level of distribution leading to reverse logistics, high rate of expiries, difficulty in exploiting short-term opportunities (e.g., shortage of supply of a competitor’s product), institutional supplies for state and national (tender business) and initiating product withdrawals at the time of any quality lapses (recent Gambia episode).

This differentiates the pharma supply chain to a large extent, and, hence, is one of the most complicated ones.

The Bullwhip effect of inventory which increases the demand variability in the supply chain as the stock moves from manufacturer to patient results in higher cost impacts for every stakeholder, thus, impacting negatively on performances and profitability.

Just expiries result in an overestimated loss in India

Tasked with manufacturing, selling, storing, handling, transporting, distributing and regulating products, the pharma supply chain is ripe for digitalisation and automation. Comparing pharma to e-commerce, the two industries share common ground when it comes to fulfilling a higher number of smaller orders and doing it faster than ever. Adding complex regulations, which outline product-tracing requirements for manufacturers and their supply chain partners, makes the task complex and complicated.

The new level of healthcare consumerisation is pushing pharma to rethink and rewire its fulfillment, shipping, distribution and delivery methods. The ONDC is designed to digitise the entire value chain, standardise operations, promote supplier participation, boost customer value, and improve logistics effectiveness. Discoverability, interoperability and inclusion would arrive, boosting both corporate hospital accounts and retail pharmacist accounts. Not only this might end the monopoly of big intermediaries (distributor/stockiest), but would also give suppliers and customers more power by enabling them to use advanced data analytics to drive innovation and change their business model. By disassembling a complex system into discrete operations, ONDC has the potential to rewire the existing pharma distribution system.

The benefits of ONDC include increased access to customers, better price and product discoverability, autonomy over payment terms due to several alternatives for being visible online, lower operating costs and more potential for value-chain services like shipping and fulfillment.

Both C2C and B2B transaction sectors will be targetted and managed with assistance from ONDC.
The ONDC can be a good alternative open market for pharma supplies that are sold directly to end users, such as retail pharmacies, corporate and independent hospitals, chains of pharmacies, dispensing physicians, online pharmacies and patients (for high-value drugs like oncology).

Buyers like neighbourhood chemist shops, in addition to access to a network of suppliers, and obtaining the best rates for products through ONDC, can also avail a plethora of digital tools, including digital inventory management, etc. Sellers can access marketplaces provided by various seller systems depending on their location, which includes consumer preferences, demand and supply data. Since it guarantees that both groups have access to a wide range of markets, both sellers and consumers have the opportunity to benefit and profit from ONDC.

Key participants

Pharma buyer-side applications: Buyer applications will handle the demand-side platform from where buyers can initiate the transaction. Buyer-side applications will be responsible for displaying search results, building carts and enabling order tracking and will be the first point of contact for consumer grievances. Buyer-side apps might also include banking apps/interfaces that can be followed up with an extended credit limit/quantity discount offer for purchases, etc.

Pharma seller-side applications: Seller applications will handle the supply side of any transaction. Seller apps will include those set up by individual pharma companies (e.g., Pfizer) or aggregate of local CFA’s creating smaller subnets (closed group of pharma companies) and registering as a single seller app (for example, ePharmaSamudaay seller app). These apps will manage ONDC registrations, respond to initial search queries such as product availability, handle dynamic pricing and manage settlements and logistics.

Pharma logistics: Logistics service providers would handle the logistics and fulfillment between sellers and buyers. Logistics providers could be players such as Biddano, GoApptiv, Bookmeds, etc. Sellers can either fulfill or deliver orders on their own or they can use logistics providers that are already onboarded on the ONDC network.

ONDC pharma benefits

Proposed work flow

Being a new perform, ONDC requires a lot to live up to the high standards set by its users and the government. The biggest hurdle with ONDC is balancing the platform’s technological viability with the rising volume of transactions and customers. It must contest with the likes of the best e-commerce apps in the world, including Uber, Flipkart and Amazon. Other barriers to ONDC expansion include UPI, digital linking and mobile network constraints, in addition to raising concerns about cyber security and online fraud.

A master plan execution advisory board, made up of business professionals, has been established by the Indian government for ONDC. It is unquestionably creating an e-commerce network built on a value chain with growth potential for all small, medium and large businesses through a distinctive design. We won’t fully grasp how things will work in the short- and long-term until the ONDC network is ready for the entire phase implementation. It is still under construction and undergoing several distinctive and novel adjustments.