NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

A WalMart-type logistics system, tracking every sale of every item at every outlet? Surely that’s overkill for a base of the pyramid (BOP) business–or is it?

Last week Julia Tran–WRI’s BOP health sector specialist–and I visited Mi Farmacita, a franchise pharmacy that provides low cost, certified generic drugs and other essential services to many low income communities in Mexico. We’ve written previously about Mi Farmacita, which is also supported by WRI’s New Ventures/Mexico enterprise development activity.The visit was intended as part of a more in-depth investigation of the need and the business opportunity in serving BOP pharmaceutical markets in Latin America, an activity we are undertaking jointly with the Inter-American Development Bank and our partners in the Network for Inclusive Markets (Avina and Fundes.) The interest is motivated in part by our analysis in The Next 4 Billion: Market Size and Business Strategy for the Base of the Pyramid that showed both the extent of the unmet need and the fact that BOP households spend a very large share of their healthcare dollars on pharmaceuticals, yet often don’t have good access to high quality medicines at affordable prices.

For a distribution problem, think about distribution models, such as franchising. Ergo, we’re looking into whether the Mi Farmacita model could be “cloned” in other parts of the region and the world.

CEO Guillermo Krasovsky graciously showed us around and answered our questions. But the most fascinating aspect of the visit–and one the distinguishing features of the Mi Farmacita model–came when Guillermo demonstrated his computerized, web-based logistics system. With the click of a mouse, he could show us both the volume and the dollar value of every pharmaceutical sale, for hundreds of different products. The information was aggregated by month and year, for each of nearly 80 different outlets–and the system has the capacity to handle the 1000+ outlets that Mi Farmacita’s business plan calls for. The system captures sales on a daily basis, automatically, and also is the basis for reordering and distribution management. It shows clearly the seasonality of cold remedies, for example, and regional differences within Mexico of the prevalent disease burden.

A side benefit of having each franchise Internet-connected is that many also offer a small cybercafe for the benefit of their customers; it may also prove to be the basis for a remittance service. But probably the most significant benefits come in the form of efficiency and inventory management, quality control–Mi Farmacita knows exactly what its franchises are selling–and in the ability to spot and solve management/performance problems at individual franchises before they become serious.

The system is based around a commercially-available software tool, although Guillermo, who has a technical as well as a business background, has adapted the tool to better meet the needs of his enterprise. But even in a still relatively small business (turnover around $3 million a year), it provides a powerful competitive advantage–and it helps make sure that Mi Farmacita outlets will have on their shelves the medicines that their customers need.