02.08.2013

The protracted crisis requires reviewing of business models, beginning from the refinement of the strategy and ending with the changes in sales organization. The ultimate consumer can not pay for the low efficiency of health services in Ukraine, and the growth trend of drugs leads to revision of pharmaceutical economic in favor of the budget decisions.

Analyzing the structure of production costs of medicines and their promotion, experts understand that the value determines by the costs of development and registration, costs of production and logistics, costs of promotion. 

Bain & Company experts have noted that many market players have changed their business strategy by changing the process of product development and sales model. Although, given the scale of the crisis manufacturers, buyers, service companies face the challenge of a significant reduction in the price structure. To change the price of drugs is possible by optimizing the cost method of budgeting, which is based on historical data. This approach is more conservative and is extended in time. For the industry of health care in the current environment is more suitable method of zero-based budgeting. This method is radically changes the structure of costs and gives an opportunity to reduce overhead costs and the costs of supply on about 25%, but in the same time the competitiveness and efficiency are increasing.¹

The method of zero-based budgeting is more labor intensive, relies on the expertise of the best managers of businesses and radical.
The main focus in this type of planning is on analysis, calculations, search for answers the questions:

1. What should be left in the business rather than what to think about what is clean?

2. Detailed review of the structure of cost in order to reduce their scale instead of local corrections.

3. Consideration of the whole value chain to identify business functions that create real value and should be abandoned. The remaining functions should be performed, instead of increasing the effectiveness of the current functions.

4. Development of a detailed and comprehensive plan of reorganization of business and its implementation, instead of planning and implementing small changes.

In 2012 marketing year, the pharmaceutical market had trend in reducing the shares (40%), direct mail (-10%), POS materials (-26%), visits by medical representatives (-0.4%). Analysis of comparison the number of visits and the sales results show that the number is not always turns to the adequate sales. Ukrainian market gives a clear request for budgetary decisions in the pharmaceutical industry. According to Igor Vovkodav, head of the company Farm-ROST: "Majority of the market operators have begun the process of revising the principles of budgeting and have already begun to take radical decisions in the system of promotion of pharmaceutical products.

Past 2012 year is characterized by the increasing of the number of outsourcing projects for promotion of medicines. I think that this service will be even more popular in the current 2013".

Analysis of successful outsourcing promotional projects in relation to the life cycle of pharmaceutical products shows that manufacturers, while retaining the key features in the value chain can successfully exploit the potential of independent marketing companies when dealing with intermediate buyers. Ivan Natalchenko, head of the "Pharmacy project" of company Farm-ROST, notes that: "for today the company Farm-ROST has sufficient expertise in the development and implementation of plans of promotion of medical products of clients. The effectiveness of sales on the budget spent higher by a flat organizational structure, the level of training and co-promotion of non-competing groups of drugs".

Basing on an analysis of the market, it can be noted that the zero-based budgeting is an increasingly popular method of planning in Health care sphere of Ukraine. Pharmaceutical market operators have the potential to reduce costs due to the transfer of the part of services and more active using of outsourcing services.

¹ Radical redesign through zero-based budgeting/Paul Cichocki, Molly Kerr, Gary Clare and Chris Koegel/

http://www.bain.com/publications/articles/radical

Analytical service of Farm-ROST