SAN FRANCISCO -- When does warehousing of pharmaceuticals make sense? Which products should be warehoused and which can be purchased more economically from the wholesaler?
To answer those questions, the pharmacy operation first has to examine what it wants from a warehouse, said Dan Ramirez, director of pharmacy at Wakefern Food Corp., Elizabeth, N.J., in a presentation at the Food Marketing Institute Supermarket Pharmacy Conference here.
Indeed, Wakefern's investment three years ago in a 700,000-square-foot state-of-the-art facility in Jamesburg, N.J., "almost brought this corporation to its knees," said Ramirez. "We were on the bleeding edge of technology. It's just now starting to pay for itself."
Faced with declining price increases for pharmaceuticals, the company decided to re-evaluate its approach to drug wholesaling. It opted to keep its warehouse, but to do things differently.
Wakefern also faced some unique challenges. A cooperative wholesaler supplying ShopRite retailers, Wakefern has 38 different owners of its 167 stores. "We were having return problems, out-date problems that were causing us losses," recalled Ramirez.
Wakefern ranked its 2,300 pharmaceutical products on movement, and then determined how much penetration it could get if selection was limited to the top 850 items. "We found we could get 92% to 93% of our total cost of goods with these items," said Ramirez. "We took out $1.4 million in inventory and instead purchased those 1,500 items through [direct store delivery] with a wholesaler.
"We also reduced personnel costs by $250,000 and reassigned those people and the warehouse space to other parts of the business.
"We were turning our inventory about 16 times. By taking the stockkeeping units down to 850, we've taken our turns up to 21," said Ramirez. "By concentrating on those items, and committing ourselves to a tremendous in-stock position, we now have a 99% fill rate on those 850 items. At the same time, we have increased our sales by 7%."
Wakefern is constantly validating the number and selection of items stocked in its warehouse by reviewing wholesaler purchases to see if any stocked items are being outpaced by products from the wholesaler. Wakefern does not warehouse generic drugs, choosing to stock only the more expensive branded products. "The total overall cost of generics is so small compared to other products," said Ramirez. "We look at a cost per pick. I'd rather be pulling off a bottle that costs $200 than $1.50.
In its next phase to improve efficiency, Wakefern is moving to a one-pass order system to segregate its wholesaler and warehouse orders. "Our wholesaler is testing new software that's going to force all of the orders through the pharmacy computer system," said Ramirez. "The wholesaler orders will go to the wholesaler. Wakefern orders will go to our warehouse, and then we'll tie them up and allow our wholesaler to help us out if we have a problem filling a particular order." In evaluating the success of a warehouse operation, Ramirez stressed: "It's important that you pick the measurement that keeps your company whole. We are shipping out fewer units from our warehouse, but we're increasing turns. We decided we would give up the increase in units for the increase in dollars and better control of inventory at the warehouse and at store level."