Drug Chains and Suppliers Seeking Grand, New Alliances; Pharmacy and Third Parties - the More Fragile Alliances

Article excerpt

Retailers and manufacturers are in the same boat, but sometimes you'd never know it. Often, they seem to be rowing in opposite directions.

"While this sometimes adversarial relationship may not have hindered individual success in the past, the realities of today's marketplace compel a change in our tactics," Philip Beekman, Hook-SupeRx chairman/CEO, told drug chain and supplier executives gathered in Florida for the National Association of Chain Drug Stores annual meeting. Beekman was speaking in his capacity as NACDS chairman, a post he will continue to hold until 1992 when CVS president Harvey Rosenthal, newly elected vice chairman of NACDS, is expected to take the helm.

"I truly believe," Beekman told the first of three general business sessions, "that in the future there will be only two types of retailer: those who ally with their manufacturers, suppliers, and distributors to serve their customers and those who lose to their competitors who do!"

Beekman's comments underscored the theme of the recent convention, "Alliance and progress," and set the tone for the rest of the five-day meeting that was attended by 2,300 people. (For other convention news, see pages 84 and 85.)

What they do: The reason strategic alliances are essential was explained at a panel session moderated by Rosabeth Moss Kanter, editor of Harvard Business Review. Increasingly, she pointed out, companies are realizing that "whatever you do, you must compete on service." At the same time, they are looking to reduce costs and simplify distribution channels. Alliances can help achieve those goals.

The problem is, many companies -- especially retailers -- are not prepared for such alliances. Preliminary findings of an NACDS study being conducted by Management Horizons, released during the panel session, show that manufacturers are generally ready to enter into information technology-based alliances. However, citing the short-term expenses and the organization changes needed to set up information systems, retailers are more reluctant to establish alliances with suppliers.

But, as some of the NACDS panelists pointed out, alliances need not occur all at once and under the guise of elaborate, electronic exchange systems. They can start with something as simple as paper purchase orders and fax transmissions before moving on to EDI (electronic data interchange) or the electronic exchange of business documents.

"We'll work with you the way you want to work with us," Malcolm Jozoff, group v.p. at Procter & Gamble, told the retailers. "You get what you want and what you're willing to support," he said, noting that the "glue" that holds these alliances together is "the philosophy of mutual self-interest."

Trust and commitment: In their most advanced form, alliances involve the exchange of information through technology. Such collaborations hold "tremendous opportunities for all of us and will make a major difference in the way we do business," observed Rick Routhier, senior v.p. of Pepsi-Cola Co.

Alliances also require trust on both sides, so that "accurate, pertinent, and noncensored" information can be exchanged, noted Robert Hannan, president of the Thrift Drug chain. The commitment of senior management is critical, added Vernon Brunner, executive v.p.-marketing at Walgreen Co., but each level of management "must understand where it's at in this collaboration."

As Kanter pointed out, alliances let others outside your company do what you never would have them do before, freeing you up to focus on the things you do best. Such unbundling, Brunner continued, can also help defray the costs of setting up managing information systems. Those costs are prohibitive. On the supplier's side, budgets for management information systems are getting "greater and greater and greater," said Harold Chappelear, executive v.p. of The Upjohn Co.

So, as Brunner suggested, why should a retailer develop and spend money for something a supplier already has? …