2. Supply Chains for Pharma Products. Time to Penetrate for 3PL-Operators? 1.Major Trends in European and Ukrainian Pharmaceutical Sectors (a 3PL-Operator’s viewpoint) 2.Pharmaceutical Market: Today and Tomorrow (a 3PL-Operator’s viewpoint) 3.What a ‘Classical’ 3PL-Operator Offers to Pharma-Sector? (case study) www.pharma.net.ua – 2 nd Press-Club: Kiev, 15-Apr-2009 Oleg Kalensky Director for Strategic Marketing & Sales UVK

3. www.pharma.net.ua – 2 nd Press-Club: Kiev, 15-Apr-2009 Major Trends in European and Ukrainian Pharmaceutical Sectors (a 3PL-Operator’s Viewpoint) European Pharma-MarketUkrainian Pharma-Market GlobalizationConsolidation (of retail) Diversification (with value-added services to increase their share) Coping with risks (currency exchange rate), crisis and state’s improper regulation Innovations and new productsRe-structuring of product portfolios (non- medicine categories to increase their share) Development of information-exchange platform to connect manufacturers and customers Setting-up of direct relations between manufacturers and retailers High cost of penetration in pharma retail market (crisis of development) System marketing to increase its role Objective: to impact on pharma- manufacturers, timely responding to customers’ changing demand Objective: to save business

4. www.pharma.net.ua – 2 nd Press-Club: Kiev, 15-Apr-2009 Pharmaceutical Market: Today and Tomorrow (a 3PL-Operator’s viewpoint) FMCG MarketPharmaceutical Market Turnover = UAH 150 bln (2008)Turnover = UAH 12 bln (2008) Structure of retail: modern trade (supermarkets), street retail, HoReCa Structure of retail: drugstore chains, wholesalers, hospitals # of stores (total) = 75,000# of stores (total) = 25,000 Consolidation = low level (30 biggest retailers hold 20% of the market) Consolidation = high level (5 biggest distributors hold over 50% of the market) Dynamics = +15%-30%, like-to-like (2000-2007) In crisis = -12%-60% (Q4 2008) Distribution (pref.) = direct (manufacturer -> retail, 60% share) Distribution (pref.) = indirect (thru distributors, 75% share) Decrease of customer’s purchasing capabilities, risks (exchange rates, customs duties), ‘manual’ procurement planning, optimization (incl. category management), outsourcing of non-core activities Decrease of cap rate of retailers, re-structuring of retail, financing problems, opportunities to acquire competitive advantages (thru M&A)

5. www.pharma.net.ua – 2 nd Press-Club: Kiev, 15-Apr-2009 Pharmaceutical Market: Today and Tomorrow (a 3PL-Operator’s viewpoint) CommonDifferent SCM conceptRight first time. Every time principle Operations in all temperature regimesSpecial regimes (gas, hazardous goods) Direct (FTL) and indirect (LTL) supplies(Often) small shipments per store Picking units = pallet, carton, items High level of IT integration Developed cross-docking & reverse logistics System of KPIs and tools to daily control (optimize) operational costs Necessity to have enhanced distribution logisitcs system Count by FIFO, FEFO, batch Pharma-logistics vs. FMCG-logisitcs:

6. www.pharma.net.ua – 2 nd Press-Club: Kiev, 15-Apr-2009 Pharmaceutical Market: Today and Tomorrow (a 3PL-Operator’s viewpoint) Flows in Pharmaceutical Market: Goods (logisitcs) Distributor ManufacturerDrugstore Customer Cash (finances) Distributor Customer ManufacturerDrugstore Deals (sales) Distributor ManufacturerDrugstore Customer Marketing Distributor ManufacturerDrugstore Customer Agency 3PL-Operator

7. www.pharma.net.ua – 2 nd Press-Club: Kiev, 15-Apr-2009 Pharmaceutical Market: Today and Tomorrow (a 3PL-Operator’s viewpoint) Scopes of Interests of Key Players in Pharmaceutical Market: Customer:Manufacturer: 1)Low price1) Guaranteed deliveries 2)Best quality2) Guaranteed CF 3)Availability 4)Consultations Distributor:Drugstore: 1)Maximal margin on trade1) Delay in payment 2)Minimal costs2) Assortment 3)Merchandising3) Customers’ loyalty 4) Timely supplies

8. www.pharma.net.ua – 2 nd Press-Club: Kiev, 15-Apr-2009 Pharmaceutical Market: Today and Tomorrow (a 3PL-Operator’s viewpoint) Distributor’s Risks: 1)Own costs2) Credits 3)Regional Distribution4) ‘Landed’ prices 5)Innovations6) Exclusivity 7)Product’s Quality8) Accounts payable 9)Merchandizing10) Currency rate 11)Customs duties12) Logistics Distributor’s Tasks: InternalExternal 1)Optimization of sales channels1) CF effective management 2)Revision of development plans2) Price and market control 3)Strategy correction3) Strengthening of market advantages 4)Crediting solutions4) Control of primary / secondary 5)Risk management distribution 5) Innovative marketing 6) Development / extra revenues

9. www.pharma.net.ua – 2 nd Press-Club: Kiev, 15-Apr-2009 Pharmaceutical Market: Today and Tomorrow (a 3PL-Operator’s viewpoint) ‘In crisis the one who is not changing is the one who’s going to die’ (Ichak Adizes, public lecture, March 31 st, 2009, Kiev) Analysis and decision-making regarding change – from a Client: Customer -> Agency Customer -> Drugstore Agency -> Manufacturer Manufacturer -> Distributor Change in demands (Customer) -> Change in the structure of activities by adapting and strengthening competitive advantages (Manufacturer, Distributor, Drugstore) -> Change of the format and essence of relations (Manufacturer, Distributor, Drugstore, ?) -> Timely satisfaction of demands (Manufacturer, Customer)

10. www.pharma.net.ua – 2 nd Press-Club: Kiev, 15-Apr-2009 Pharmaceutical Market: Today and Tomorrow (a 3PL-Operator’s viewpoint) There are too many open questions, but… 1)Will economy be forecastible on a macro-level? 2)To which extent will the state regulate the market? 3)How fast will Ukraine integrate in the global economic society? 4)… 5)How come will distribution transform? (vertical integration vs. disintegration; consolidation of allied merchandize categories vs. specialization by products, regions, functions, niche) 6)How swiftly will new forces (players) penetrate the market (traders, 3PL-operators, consultants)?

11. www.pharma.net.ua – 2 nd Press-Club: Kiev, 15-Apr-2009 What a ‘Classical’ 3PL-Operator Offers to Pharma-Sector? (case study) To ManufacturerTo DistributorTo Retailer Professional stock management Provision of single information platform Customization of logisitcs services Sharing of business risks Platform for expansionConsolidation of stock Guaranteed availability in retail Discounts from manufacturers due to direct supplies to DC Centralized quality control Developed network of regional warehouses Cutting of logisitcs costsBalanced trade channels for deliveries to FMCG-retail Increase of turnover Optimization of stock at stores Focus on core business

12. Ops inputs: 1)1 cont. HC (30 plm), 1 plm = 60 cartons, 1 carton = 40 packages, price (1 package) = $2, gross margin = 50%) 2)Inbound = 50% by mono-plm (15 plm), 50% by cartons (900 cartons) 3)Storage & warehousing = turnover 1:1, 50% picking by item + stickering (Ukrainian labels), 50% picking by cartons 4)Outbound = w/h-door delivery system, 50% by mono-plm, 50% by cartons Pre-quotation: 1)… 2)Unloading & acceptance = 15 UAH / 1 plm (mono), 1.5 UAH / carton 3)Storage & warehousing: i.Storage = 2 UAH / 1 plm / day ii.Picking by item = 0.25 UAH / 1 package; picking by carton = 1.5 UAH / 1 carton iii.Stickering = 0.15 UAH / sticker 4)Loading = 15 UAH / 1 plm (consolidated) 5)D2D delivery = 300 UAH / 1 plm, 40 plm / 1 carton (average for Ukraine) 6)+ extra services (returns, documents return, insurance, FEFO, crediting etc.) Total (invoice idea) = 56,000 UAH, or Inbound-Ukraine logistics costs = 4.04% of on-shelf price www.pharma.net.ua – 2 nd Press-Club: Kiev, 15-Apr-2009 What a ‘Classical’ 3PL-Operator Offers to Pharma-Sector? (case study)