Organizational diagnosis of small pharmacies in Argentina

When we talk about organization diagnosis we run the risk of getting lost between words without being able to clarify the scope, complexity of the task, much less its usefulness for managers. I will try to develop a fairly close case, the small pharmacy business in Argentina.

To facilitate understanding, I will provide certain explanations about each participant in this business.

When talking to pharmacy owners, I hear complaints about the sector, especially those related to late payments from some social medicine entities and some explanations about the low profitability of a small and / or medium-sized pharmacy. I very rarely hear the steps they are taking to resolve the conflicts they face.

To analyze this case, like that of any other organization, it is necessary to know how the business works. How is the context in which it interacts, who are its competitors and what are the variables on which the owner can act.

Participants in the medicine sector

The ANMAT (dependent on the Ministry of Health) is the entity that authorizes the production and marketing of medicines on the market; To do this, it defines the guidelines and controls that they must comply with before being offered to the public through the distribution chain.

The laboratories produce the medicines and bring them to the market through drug stores, which they sell to pharmacies. The laboratories do an intensive marketing of their products through the medical visitors who are in charge of promoting the specialties of their laboratories through free samples for the doctors to deliver to their patients.

The Secretary of Commerce, under the Ministry of Economy, regulates the sale prices of medicines (a product with high social sensitivity).

Prepaid medicine companies and social works offer their beneficiaries a discount when acquiring medicines prescribed by authorized doctors. These discounts can vary between 40% to 100%, depending on the plans and the illnesses of the patients (this, is also regulated by the State).

Pharmacies are under the orbit, as I already mentioned, of the Ministry of Health that establishes what can be sold in them (health and personal hygiene products) and certain requirements, technical and building, for their authorization.

They are grouped into provincial colleges (the authorities are chosen by the enrolled) that promote and regulate professional practice and fulfill union tasks in defense of their enrolled (each professional in activity pays a monthly fee).

In addition to technically directing or owning retail pharmacies, pharmacists run hospital pharmacies and medicinal laboratories and conduct research activities for the development of new drugs.

The provincial colleges, in turn, make up the Confederation of Argentine Pharmacies (COFA); Its authorities are chosen from among the different provincial colleges of the country.

The drugstores are in charge of the logistics so that the medicines arrive at the pharmacies in a timely manner. They sell to pharmacies and they make purchases in short-term checking accounts. The discounts to the pharmacies are established by the drugstores for the purchase volume of each pharmacy. This discount, in short, is the gross margin that the pharmacy will obtain in the sale. Also, drugstores serve as tax withholding agents.

Pharmacies, finally, sell the drugs at a set price to individuals and beneficiaries of prepaid medicine companies (health insurance) and social works. The average margin is around 30/32%, which can be increased when some medicine is offered with special discounts (you generally have to buy a minimum quantity).

Some large pharmacies and / or chains make direct purchases from laboratories, accessing higher discounts than usual. Some even have their own distribution structure to supply their branches.

Political / economic context of the sector

In the last 10 years some events occurred that strongly impacted the sector.

The number of beneficiaries of national social security (PAMI) that includes retirees and pensioners was increased. The government developed a policy of inclusion of new beneficiaries who were marginalized from public social security. It went from 7 to 10 million beneficiaries. It increased the life expectancy of the population. It increased formal work and with this enabled access for workers to medical services provided by social works or receive facilities to access business plans of prepaid medicine.

This context caused a decrease in sales to individuals and an increase in sales to beneficiaries of social services who acquire medicines with the aforementioned discounts.

Small Pharmacy Profitability Calculation

At the time of the biweekly or monthly presentation of the prescriptions dispensed, the pharmacies subsidize the health entities (public and private) with a 17% of their margin (on the sale price to the public), obtaining, in short, a margin close to 13% iv.

For this analysis, the calculation of the pharmacy sales mix is fundamental; how much it sells to individuals and how much to social works. The table shows the percentages of sales to beneficiaries of social works (for this calculation the beneficiary's plan is indistinct).

Sale to Social Work%			5 0	5 5	6 0	6 5	7 0	7 5	8 0

Sales				100	100	100	100	100	100	100

Individuals			fifty	fifty	Four. Five	40	35	30	25	twenty
O Soc		fifty		fifty	55	60	65	70	75	80
Bonus 17%	8.5	41.5	8 , 5	9 , 3 5	1 0 , 2	11 , 0 5	11 , 9	1 2 , 7 5	13 , 6

Net sales			91.5	90.65	89.8	88.95	88.1	87.25	86.4

Gross income 3%			2.75	2.72	2.69	2.67	2.64	2.62	2.59

Sales cost			70	70	70	70	70	70	70

Gross profit %			18 , 7 6	17 , 9 3	1 7 , 1 1	16 , 2 8	15 , 4 6	1 4 , 6 3	13 , 8 1

Now, to finish, there is an aspect that deserves to be considered. I mentioned that the price of medicines is agreed between the laboratories and the Secretary of Commerce. In recent years, inflation (another member of the analysis) was higher than the increases in authorized prices.

For renewals of rental contracts for premises, an annual update rate of 20% to 30% is used, services in general have registered annual increases of close to 30%. These types of increases are what I consider when I mention that inflation was higher than the adjustment in drug prices (approximately between 10% and 12% per year).

The payments of the liquidations of some social entities have registered delays. Given the low margin, the delay in collections increased the delicate situation of many small and medium pharmacies. The profit fails to amortize the financial costs that many have been forced to absorb. However, it is good to make clear that the origin of the delicate situation in the sector is not financial, but economic.

Transformation of authorized pharmacies

In the last decade, the transformation of the qualified retail sector has deepened, especially in the regions with the highest population density. Pharmacy chains with high economic and financial power were installed with special commercial agreements with laboratories and banks. These are shops with an expanded offer of products with the aim of reaching a sales mix with a higher margin than that provided by medicines. It is an adaptation of the model of pharmacies established in the United States that has been replicating in almost all Latin American countries.

For the client, it was a novelty and he found in these stores a variety of products that traditional (small) neighborhood pharmacies did not offer and even the ease of paying for purchases with credit and / or debit cards. While for a neighborhood pharmacy the bank cost of operating with cards ranges between 3% and 6%, for these large chains it is at most 1%.

In certain regions, this new modality of supply of medicines has gained strong momentum with the opening without restrictions of a large number of branches, strategically covering the areas with the highest population density and the highest purchasing power. In the City of Buenos Aires, economic groups have been displacing the traditional neighborhood pharmacy.

To avoid loss of sales, many small pharmacies began to accept card payments without measuring the impact on the profitability of their businesses.

The economic life of the pharmacy owner

The owner of the pharmacy, like any other person, pays for his home, family health insurance, food, clothing and taxes, his children go to schools or universities, make their social security contributions, take vacations, keep his car, etc..

To give a concrete example, in 24 months (2012/2013) the prepaid medicine service reached a cumulative increase of close to 80% while the prices of medicines increased approximately 35%.

The higher cost of living was accumulating and caused imbalances. Without feeling it, almost without realizing it, the owner of the small pharmacy began to go into debt to continue with the standard of living he maintained. These were small amounts that were accumulating.

Many owners of small pharmacies have resorted to financing their personal expenses through bank credit (credit cards and / or overdrafts in current accounts) with a very high rate (almost 100% per year) which, far from improving it, worsens the situation.

The economic activity of the pharmacy

In business, the imbalance was occurring in those fixed costs that accompanied inflation (wages and contributions, rental of premises, municipal taxes, public services, maintenance and cleaning, etc.). With a fixed margin on controlled prices, income began to be insufficient to meet the normal expenses of shops.

Generally, there was no indebtedness with the drugstores, at most some delay in the payment of the maturities of the current accounts began. If the delay is significant, it is normal for the account to be blocked and the pharmacy cannot make purchases, thereby seriously affecting its operations. The customer requests something that is not in stock and cannot be purchased, therefore, the sale is lost.

The pharmacy operates as the last link in the distribution process (called in business parlance: value chain). To increase genuine income you must increase your sales; sell to more clients (of social and / or private works) or sell other products / services (according to established regulations) or both alternatives. There are no more possibilities.

Demand is stable and choose who to buy

This process of attracting customers is slow and, in addition, it requires available working capital, since attracting more customers requires more purchases.

For example, if you decide to offer cosmetic products, you need to have money available, otherwise it may cause an increase in the debt with the suppliers.

In business, as in life, it's not all about blowing and making bottles.

It is interesting to note that except in some regions, the installed pharmacies have a long history in the “neighborhood”. It is quite common to find pharmacies 50 or more years old. Many chains have been acquiring installed pharmacies to transform them or to move them to commercial areas with high circulation of people.

In a neighborhood pharmacy, customers are usually treated by name and will always have the possibility of acquiring the medicine even if they do not have the money. It is a relationship of mutual trust.

Every new product and / or service offered must have a potential demand in the neighborhood, otherwise it is not worth the attempt. Having a neighborhood pharmacy is a beautiful social and human experience, but it has an important economic limit: the number of customers is finite (measurable).

What can a small pharmacy do in the face of this situation?

It is very common for the owner of a small business (this is not the case with pharmacies only) to confuse their economy with that of the business. This is a dangerous mistake. The business is the generator of the owner's income and the owner cannot demand more from the business than the business gives. When it is done, the future of the trade or company is usually mortgaged and ends up falling into a decapitalization and / or indebtedness that, when the margins are small, do not allow an easy reversal.

To adapt to this reality, the pharmacy owner must accept that his income has a lower purchasing power. You must spend less, since your business does not yield what it did years ago.

Failure to do this leads the pharmacy owner to attack the business that provides their income. The pharmacy loses operations as the stock decreases, shortages begin to occur (when the medication is not in stock) and customers begin to turn to other larger pharmacies (with greater economic and financial capacity).

The demand is and the supply is atomized. If it is not one, it will be someone else who provides the medicine. Laboratories, social works and prescription validation companies will meet their economic / social objectives even though there are fewer pharmacies in the distribution network. Even, and this is very important, the consumer would have no problem adapting his buying habit and changing pharmacies.

So, the demand is stable and the offer presents different competitive capacities. It would not be strange that this sector suffers, like so many others, the consequences of a runaway capitalism in which profitability is its most precious end and without certain limits (regulations) the big one ends up eating the boy.

Everything mentioned is what should be considered when diagnosing an organization, in this case: a small pharmacy. This is the context in which it operates, including the regulations of the State and / or union entities that affect the business.

Once this is clarified, only then is it possible to advance within the organization or business itself.

The owner of a small pharmacy must make decisions that allow him to adapt his own economy to the reality of his business. It is not possible to project your future with assumptions that are confused with your wishes. "Everything will settle…" This can become the chronicle of an announced death.

To project a business it is necessary to use realistic assumptions and to have a deep commitment to your own business; for this you have to learn to look inward and not so much outward. It is obvious that the outside exists, in fact it is exposed in this text.

In order to do business, it is necessary to adapt to the outside and that adaptation must be undertaken within.

Analyzing the business

The diagnosis advances towards the level of business operating expenses. Wages, rent, social charges, payment of fees and taxes, withholdings from the Pharmaceutical College and payment of tuition, services, professional fees, rental of the billing system, various technical services, provisions for prescriptions rejected without liquidate, fixed assets, etc.

It will be essential to define the sales mix with which the business operates. How much do you sell to individuals and how much to social security beneficiaries. How much do you sell of medicines and how much of perfumery and accessories. With this information it is possible to calculate the pharmacy's gross margin and arrive at an estimate of net profit.

You have to know what stock the business maintains. Inventory turnover is very important to maximize profitability with the use of minimal capital immobilization.

Some seek to expand the offer of products (even those not allowed by current regulations) believing that this will attract more customers. It must be borne in mind that increasing the supply of products produces a diversification of available capital that can undermine the stock necessary to meet the primary objective of the business (sale of medicines and personal hygiene products).

The latter is due to an attempt to "resemble" the large chains that offer a wide variety of products, which, as in hypermarkets, are purchased under very special conditions and even in many opportunities, laboratories pay for their location. in the gondolas.

It must be assumed that competition is uneven. It is as if a neighborhood high school basketball team competes against an NBA team. Each one has to play with what they have and do their best.

Let's see a little what happens with the analyzed model.

Estimated sales	100000		50/ 5 0	55 / 4 5	6 0/ 4 0	65 /3 5	70 / 3 0	7 5/ 2 5	80 / 2 5

U t i l id a d b r u t a			187 5 5	17930 , 5	1 7 10 6	1628 1 , 5	1545 7	14 6 32 , 5	1380 8

Local rent plus taxes			4500	4500	4500	4500	4500	4500	4500

Telephone, gas and electricity		700	700	700	700	700	700	700

Accountant				2000	2000	2000	2000	2000	2000	2000

College and cafar			2000	2000	2000	2000	2000	2000	2000

Internet and billing system		600	600	600	600	600	600	600

Cleaning				500	500	500	500	500	500	500

T or such g to hese				103 0 0	1030 0	1 0 30 0	103 0 0	1030 0	1 0 30 0	1030 0

U t i l i d a d n e t a			84 5 5	7630 , 5	6 80 6	5981 , 5	515 7	4 3 32 , 5	350 8

A monthly sale of 100 thousand pesos is estimated and each column shows the gross profit of each sale mix (O / S and individuals). In this table, the sale of perfumery and accessories has not been considered because the amount is irrelevant in a neighborhood pharmacy (5% to 10% of the total sale) and would be included in the sale to individuals.

To offer new product lines, in a small pharmacy, genuine capital is required, otherwise it will be impossible. You end up undressing a saint to dress another.

With all this information it is possible to delineate the state of the business and from where the decisions of the owner of the pharmacy should start. The equilibrium point (does not win or lose), with the level of expenses considered, is around 60/70 thousand pesos per month. The rent of the premises is the fixed cost of greater weight and the one that presents more complications for its reduction.

The pharmacy is generally established for many years in the neighborhood. Negotiating the rent amount with the owner of the premises is complex since it is not simple to move a pharmacy to another premises in the same neighborhood. The legal, technical and even building requirements (minimum measures required) are many and, in addition, conditioning and moving is very expensive. This is not a variable with which much can be done.

A small or medium pharmacy should be an expert in rationalizing your expenses since it is practically the only variable that is available to you. Once this is achieved, if you are looking to increase profit, you can start the slow journey of attracting new customers.

I reiterate that it is possible to take advantage of certain special sales from some laboratories that allow us to increase the sales margin of those medicines that have good turnover.

Assumptions about the action of the sector participants

When making decisions, some assumptions must be considered for the coming years. What can happen to each of the participants in the sector that influence the small pharmacy business? It is from this answer that the owners of the pharmacies will make their decisions.

I will give some that start from my vision and that I consider them to make decisions in my own small pharmacy:

The number of PAMI beneficiaries and the granting of free medicines (100% discount) will be increased at least until the end of 2015. Small pharmacies will not be able to stop working with PAMI since it has created an economic unit that is difficult to abandon, although some will decrease the number of prescriptions they will dispense. The laboratories will continue to negotiate improvements in sales prices that will not exceed official inflation rates. Therefore, they will continue to modify the presentations of their products. Their economy would not be harmed if the number of pharmacies decreased. The current Cofa authorities will not be able to eliminate the bonuses.They do not have sufficient negotiating power to confront the pharmaceutical industry that currently administers the trust fund to finance the medicines of PAMI beneficiaries. It is unlikely that a direct relationship with PAMI will be achieved. Good intentions may end up being functional so that time continues to pass without changing the status quo. There is no clear awareness of the opportunity cost of the actions to be taken. Prepaid medicine companies could work without problems with the large chains and continue offering current discounts to their associates and will continue to achieve increases in the quotas of their plans. Pharmacies will continue to move towards high-density regions and will consolidate their agreements with laboratories, banks and provincial government authorities.They will seek their independence from the controls of trade union entities. They could capture more prescriptions from PAMI due to the impossibility of being served by small pharmacies. Drugstores will continue with the trend of concentration of supply and must work, as they have been doing, to improve their operational efficiency (cut of some distribution, not printing of vouchers, simplify your administrative processes) that allows you to lower your costs. His focus will be to negotiate with the laboratories to make their participation in the chain more profitable. They could adjust their discounts to those pharmacies that do not meet certain minimum purchasing guidelines and suspend deliveries in some regions. The State will not change its current position (the situation of pharmacies will have to be resolved by the same sector).It will continue to participate in price control according to the increased production costs of each product. For small and medium pharmacies, the only ally that could be of help to improve the situation is the National Government.

Some possible decisions of small pharmacies

Each pharmacy owner will make their own decisions from their own vision, both in the context and in their own business. The diagnosis does not include corrective actions. It is only a photograph of the situation of the business or organization and with it, managers will decide according to their own objectives.

As an example I will give some that I consider appropriate from my own vision.

Drastically restrict the personal expenses of the holders to adapt to the profitability of their businesses. Achieve excellence in customer service. Nothing is too much for the client to feel "at home". This can be THE big difference between the small and medium pharmacy with the large pharmacies and chains where the attention is impersonal. Take advantage of drug offers in drugstores and / or laboratories to improve average margin of sales, fundamentally of those products of an important sales volume (hypertension, cholesterol, antibiotics, epoc treatments, etc. Substitute medications according to the margin provided by each brand. Suspend the use of credit and / or debit cards, except when the cost for their use is very low.Carefully evaluate the hygiene and cosmetic products that can be attached according to the business clientele taking into account the cost-benefit equation (the neighborhood does not buy everything).Suspend the acceptance of discount coupons (PAP) for certain drugs that end up threatening the final profitability of the businessxi.Evaluate the number of employees essential for the operation of the business. Calculate the amount to be billed monthly to justify each employee (for example: an employee's break-even point is around 100,000 pesos of monthly billing). There is always time for adjustments for growth. Hold meetings with your neighborhood peers in order to share ideas to contribute, in writing, to the branches of the Provincial Colleges. Go from verbal, and lonely complaints,to the contribution of possible solutions related to profitability. There is no one who knows the business, and the neighborhood, like the pharmacists themselves.Request that the authorities of the Provincial Schools report on the situation of the installed pharmacies (number, employees, segmentation by social works attended, number of prescriptions processed, evolution of the number of pharmacies installed, etc.) Start negotiations with some laboratories to achieve improvements in sales margins, especially those products with the highest turnover and a high sale price. Accept that what there is is what there is and maintain a strict differentiation between the economy of the business and that of the owner of the pharmacy.Each economic decision should have an analysis of the objective sought. How much will it contribute to the business economy?How much will it contribute to the business economy?

With a correct diagnosis, decisions can be made to correct the course of business. When what is being done is done by inertia, it is difficult to improve the results.

Each of the participants in the sector will make their own diagnosis and their managers will make the decisions that bring their organizations closer to the goals they have chosen.

I would like to add a few comments that emerge from the above. They are absolutely personal and devoid of critical intent.

Some personal comments about the sector

1. The State should pay greater attention to the high concentration of supply in few economic groups in the regions with the highest population density. It is the State that has to decide the type of medicine distribution chain it chooses for the future; protect and stimulate the atomization of supply or let the trend continue to affect small pharmacies. This is a task that entities representing the sector should work on independently (without the participation of the pharmaceutical industry).

Surely, if the current distribution chain begins to suffer, in the future it will be heard that this has happened as a consequence of modernity. It will not be so, if this happens it will be the inaction of the representatives of the pharmacies in the face of the decisions taken by state officials.

The concentration in the supply of medicines is a strategic error since it is a segment of high social sensitivity so that it is left in few hands. The State would be placed at a disadvantage vis-à-vis private economic interests. When the trend settles it becomes very difficult to reverse it. I do not imagine that in the future the State may be forced to nationalize the distribution of medicines for PAMI beneficiaries.

2. Pharmaceutical Colleges should, given the current situation, project their measurable goals for the immediate and immediate future. It would be appropriate for them to consider that future income could be affected since large chains do not require their participation to make presentations to social security agencies. It is quite possible that they will have to reduce their administrative structures to even make small and medium-sized pharmacies more viable (less contribution). I believe that the primary objective is to achieve an alliance with the State to achieve a substantial improvement in the profitability of small pharmacies.

This task would be possible if and only if a work plan is designed prioritizing the viability objective of the economic activity of the authorized small and medium pharmacies. The strategies must be novel and aimed at achieving a direct channel of negotiation with the National and / or Provincial Government. Keeping trying the same thing and expecting different results is not advisable, especially when you represent thousands of small professionals who see their businesses at risk. It would not be unreasonable, while establishing a new model, to apply staggered bonuses according to the billing or number of prescriptions presented by each pharmacy.

Union entities should be structured as efficient and effective private companies and not as government bureaucratic entities. A deep reconciliation of the sector leadership is necessary. In addition to a political vocation, there must be business management.

Another issue that should be in the plans for the immediate future would be to achieve flexibility in the building requirements of the Ministry of Health for the authorization of new premises. It is necessary to facilitate the relocations to nearby premises if in the renovations of the rentals it is difficult to negotiate with the owners (also reached by inflation). If the pharmacy does not offer master preparations, it could be exempted from having a laboratory (12 m2), the tank could be a few square meters less and even the vaccination room could be smaller. In the neighborhoods there are few premises of 63 square meters.

3. There may be a good opportunity for some laboratories with an efficient structure to increase their market share, offering their products to small and medium-sized pharmacies that need to increase their sales margins, helping to generate small stocks of medicines with a good volume of sale.

After six (6) months of the diagnostic work of a small pharmacy, it is necessary to review how things have been going. This allows, for example, to correct certain decisions based on assumptions that have not been fulfilled. It will also serve to make new decisions based on new assumptions. Without this review, diagnostic and planning work is of little use.

Let's see the assumptions considered:

Assumptions about the action of the sector participants

1- The number of PAMI beneficiaries and the granting of free medicines (100% discount) will be increased at least until the end of 2015.

It has been systematically complying with a significant increase in plans of 100% discount.

2- Small pharmacies will not be able to stop working with PAMI since an economic dependency has been created that is difficult to abandon, although some will decrease the number of prescriptions they will dispense.

For a practical matter, it is not possible to cut the service, but it is possible to cut the number of prescriptions issued. It is happening. In our case (own pharmacy) we have applied it to 100% prescription care. In many cases, if a neighborhood pharmacy stopped accepting all of Pami's prescriptions, it would stop "justifying the existence of the business." THIS IS A POINT THAT WOULD APPEAR NOT TO BE TAKEN INTO ACCOUNT BY ANY MANAGER (POLITICAL AND / OR PROFESSIONAL).

3- The laboratories will continue to negotiate improvements in sales prices that will not exceed the official inflation rates. Therefore, they will continue to modify the presentations of their products. Their economy would not be harmed if the number of pharmacies decreased.

The assumption does not change. The bid with the Government to increase prices has not been working and so far the increase in drug prices reaches 12% while inflation exceeds 30%.

4- The current Cofa authorities will not be able to eliminate the bonuses. They do not have sufficient negotiating power to confront the pharmaceutical industry that currently administers the trust fund to finance the medicines of PAMI beneficiaries.

The assumption does not vary and this will merit consideration later in this work.

5- It is unlikely that a direct relationship with PAMI will be achieved. Good intentions may end up being functional so that time continues to pass without changing the status quo. There is no clear awareness of the opportunity cost of the actions to be taken.

The assumption does not change and will be discussed later.

6 - The prepaid medicine companies could work without problem with the big chains and continue offering the current discounts to their associates and will continue to achieve increases in the quotas of their plans.

The assumption does not change.

7- The large pharmacy chains will continue to move towards high-density regions and will consolidate their agreements with laboratories, banks and provincial government authorities. They will seek their independence from the controls of trade union entities. They could capture more PAMI prescriptions due to the impossibility of being served by small pharmacies.

The assumption does not change. The most important national pharmacy chain has announced investments to expand the number of its points of sale.

8- Drugstores will continue with the trend of concentration of supply and must work, as they have been doing, to improve their operational efficiency (cutting some distribution, not printing receipts, simplifying their administrative processes) that allows them to lower their costs. His focus will be to negotiate with the laboratories to make their participation in the chain more profitable. They could adjust their discounts to those pharmacies that do not meet certain minimum purchasing guidelines and suspend deliveries in some regions.

The assumption does not change.

9- The State will not modify its current position (the situation of the pharmacies must be resolved by the same sector). It will continue to participate in price control according to the increase in production costs of each product.

The assumption does not change and will be discussed later.

10- For small and medium pharmacies, the only ally that could be of help to improve the situation is the National Government.

The assumption does not change, that in reality it is a strategic point of view.

The situation of medium-sized pharmacies

Being and staying in the middle is not easy. This sector is, from my point of view, the most affected by the situation of the sector. These are many months of low profitability in an inflationary context. This is compounded by the financial lags of business. If they did not react in time, the current situation is likely to be somewhat worse than six months ago.

Generally, these (medium) businesses are staffed and the reduction in fixed costs inevitably points to the dismissal of staff who in many cases have been working in the business for years.

Let's see what happens with the calculation of the gross profit of the business with the variations that have been occurring in fixed expenses.

Organizational diagnosis. Case of small pharmacies in Argentina

The 30% increase in fixed expenses had an impact on the gross profit of the business.

I reiterate that this analysis refers to small neighborhood pharmacies without staff in charge, the one-person calls.

Adaptations are easy to promise and difficult to implement

The changes are complex. What we think and do is conditioned by what we do not realize that we do not realize, and until we manage to realize these constraints the situation will continue, even uncomfortable. Some of this happens in this sector.

The most common thing is to put the cause of our discomfort on the outside, in this case: union entities, social works, government, etc. Ortega y Gasset said: "It's me and the circumstances", I like to add:… and what I do in such circumstances.

Undoubtedly, if the diagnosed business has not modified certain expenses, its utility will be reduced. As we can see there is not much to cut and what remains will be to work on the analysis of purchases and the sales mix.

Financial carryover mismatches are very difficult to reverse. By obtaining a low profitability, the financial cost will surely be higher and there is a danger of entering a non-virtuous circuit that worsens over time. It is likely that many small and medium-sized pharmacy business owners have taken personal loans to cover the financial gaps (late payments on checking accounts of the drugstores they operate with).

Some considerations on certain assumptions adopted

The current Cofa authorities will not be able to eliminate the bonuses. They do not have sufficient negotiating power to confront the pharmaceutical industry that currently administers the trust fund to finance the medicines of PAMI beneficiaries.

The union action of Cofa, obviously, is outweighed by the situation. It would give the impression that it has lost sight of its primary objective and that it is not reflected in its management plans so that they can be reviewed from time to time.

Here is something very common in private non-profit associations, they end up becoming entities in which the political takes the economic. During this time elapsed since the diagnosis in May until today, the Cofa did not issue any statement presenting the situation table of the sector and the actions implemented (and their results) to achieve improvement. It ended up becoming a news reporter, very far, this, from the function for which it was created.

It is to be hoped that there will be a public presentation in which we are explicitly here and wish to be there and to achieve this we will do this and this and this other on such and such a date.

This position, it should be noted, has been a great achievement on the part of those who negotiate with Cofa, both from the State and from the Pharmaceutical Industry (Laboratories), since it took away the prominence from the pharmacy sector to install it on a plane of absolute negotiating disadvantage. It would give the impression that pharmacies do not negotiate, but rather play a role in the medicine distribution chain. Take it or leave it, here there is no space for you to put a spoon. Now, without a crude acknowledgment of what really happens, certain bulky statements end up generating confusion in those supposedly represented.

When an organization loses its way, in the consulting jargon we talk about the need for a re-foundation of it. It is necessary to justify its existence, basing it on tangible facts, prepare a work plan and carry out a neat management control. Also many would say: shuffle and give again.

The sector shows a large number of "wounded" and a few casualties. A major problem when carrying out an analysis is that the data on the number of pharmacies enabled by province and their classification by billing amount is unknown. They speak of percentages but not of concrete figures and thus the credibility of the union authorities is even more blurred and the dismemberment of the segment is favored with a large number of professionals absorbed in their actions without a feeling of belonging to any sheltering entity.

On the other hand, there are many pharmacies that are waiting for the situation to change due to the action that may be taken by one of the union entities that represent them. This is a big mistake, it is betting in favor of another and not one. It is necessary to change the paradigm used until today and start with a new one in which each one, from their own pharmacy desk, is the main actor and the owner of their decisions. If the authorities chosen to represent them are right with their management, it will be fantastic, but just in case you don't have to put a lot of chips on this.

When I speak of a tidy planning of actions I am referring to having indices that allow us to measure successes and deviations. It is common to listen to friends who tell us: look I have it clear, what I am looking for is to live happy, calm… It is also common for us to listen to this and realize that our friend is sharing a desire, a desire intention to be more precise. It would be different if he tells us: in March I am going to change the car and I am going to finance the balance in 12 months paying a fee of X $. Something similar to this I feel when Cofa talks about the “sustainability of pharmacies”.

If you start from an amount X of small pharmacies in such a geographical point that serve 75% of the prescriptions (it is only an example), you will have to review what has happened over time. Did the number of pharmacies decrease? Did the percentage of prescriptions served increase? This could be an adequate index to evaluate the actions of trade union associations representing independent professional activity. It would also be very healthy to review the actions that were taken to ensure that the number of pharmacies did not decrease and the percentage of prescriptions served by them increased. Remote control in organizations is a reflection of the lack of management.

There is no data, everything is a mystery. Furthermore, it is a mystery whether or not there is a current agreement between Cofa and the pharmaceutical industry. Something like that should be public and not an object of mystery. It should not even be requested by an associate, it should be exposed on the entity's page.

These professional organizations end up becoming a state within the State itself and getting out of that attitude is, at least, very difficult. The current leadership will have to face a raw wound of their ego. Without this there will be no changes.

The absence of the State is striking

Faced with this situation of deterioration in the small and medium-sized pharmacy sector, the State continues to maintain the position of inaction, which ends up favoring the concentration of supply in large economic groups (chains). In this case, inaction has a formidable destructive power, since it is clearly marking what the future drug distribution chain will be like in the country.

Undoubtedly, I think, this inaction is a huge strategic mistake since there will come a time when the distribution of medicines will be in the hands of very few who will have enormous power in any type of negotiation with the State itself. "If you don't give me this, there are no medications."

Of course, today's officials will not be tomorrow's and they will use the phrase: "we inherited a bomb and we have not been able to deactivate it." We all know something about this, don't we?

It will be then when some official will speak of hegemonic groups and will seek hasty and sloppy patches to resolve the deterioration of an atomized distribution channel. When an economic group is consolidated, it is not easy to “take away” the land that has been won, in addition, this would be framed as a crime.

Generous social plans, irresponsibly executed

It is great that the most vulnerable population has the backing of the State and access free medicines. It is irresponsible to grant this type of plan without considering the situation of the retired and / or pensioner's family group.

It is also somewhat irresponsible to delegate the operation of such a sensitive plan to the hands of third parties and not to have a plan to support the decision made. As the number of beneficiaries grows, it is obvious that they will demand more money and this should be supported by the origin of the necessary funds.

When you talk about planning, you are saying that you have a map that you will be able to review to see if what you are doing is achieving the objective set. If this is not there, everything does not matter and improvisations begin to accumulate until, generally, the system breaks down.

"The girl from Pami told me to ask for everything and if I do not use it it does not matter, because if I stop asking for something they take it away from me and then I have to do the procedure again." This was told by a lady who had a free plan and urged her not to take what she did not consume. I think there is no need to add a single word.

From saying to doing… in the “ethical” market

The other day, a medical visitor from a well-known laboratory visited our business. We asked him what had happened to an order we had made a few months ago, and he replied that the laboratory had suspended special discounts for small pharmacies and was only maintaining them for the big ones (chains). I reminded him that the quantities requested were important, to which he replied that it was a laboratory policy. To be more relaxed, I invited him to come in and once, under the protection of the clients, he told me: "We were already with Dr. Fulano and we arranged that from now on he will prescribe our products as-and-such." A little annoyed by such impudence (although one knows how the hand comes, it is preferable not to remember it so crudely) I replied, notice that there is nothing of you,here we replace all your products. Given this confession, he promised me that he would speak to his boss to review the discount policy on transfers and products included in our small pharmacy.

This is the daily life that a small pharmacy lives, fighting for its profitability while the big ones make their agreements thinking that the small pharmacy will end up being functional with its silence and lack of negotiating power.

The great ones generally do not know the boy and get used to dealing with the great ones. If you let this happen without trying to get into the advantages circuit, you end up being pulverized by blindness in big business strategies. It is a lonely road and being very aware of the opportunities that usually appear to increase the profitability of the business.

An APM had gotten into the habit of picking up the order over the phone. Sure, it represents one of the most important laboratories. One day, tired of this practice, I told him that there would be no orders without a visit and that we would begin to suggest changing the brand to our clients.

It is not easy for a small pharmacy to survive in this market in which there are many vested interests and a permanent power bid. Each one must attend her game.

I remain convinced that each one makes a difference. As an old Hindu saying goes: "Nothing has changed, only I have changed, everything has changed."

For many years I used this type of phrase so that leaders of all kinds of organizations (public and private, national and international) could visualize themselves in a mission that transcended the merely economic. Something simple, we are all human, not eternal. Life is a mystery that cannot be reduced to mere economic quantification and the accumulation of ephemeral power.

It is good to work because we feel that with it we are contributing to make our neighborhood more livable.

Good 2015 for everyone.