Social and business media was abuzz last week with reports and speculation regarding a move by Amazon to supposedly make a move into the highly lucrative pharmaceutical and drug market space.  Then again, any news that equates Amazon in attacking a different market will obviously draw all sorts of attention given the online retailer’s ongoing role as a disruptor and juggernaut of technology. The question for industry participants is whether to dismiss or prepare.CVS Pharmacy bag

What obviously fueled added speculation was an announcement from drug retailer CVS Pharmacy on intent to acquire insurance carrier Aetna for a nosebleed sum of $66 billion. That effort alone, if successful, is an example of changed industry thinking.

Supply Chain Matters advises our pharmaceutical and drug ecosystem industry readers to take a pause on the speculation and instead focus on intent and direction signals from Amazon. The following is why.

There is little question that the pharmaceutical and drug retail sector is ripe for a changed retail distribution business model. There is far too much distribution influence concentrated in few participants with added layering and inefficiencies not to mention the need for greater transparency in sales transactions. Pharmaceuticals and drug retail models for the most part include payments and/or reimbursements from third-party insurance and benefits providers. Certain drugs are also subject to governmental regulation and controls. Consider a moment the current opioids addiction crisis impacting large portions of the United States.

Prior attempts in filling prescriptions online have proven to provide little benefits for consumers, principally because the motivations stemmed from health insurance and medical benefits providers seeking greater savings and efficiencies from rather high drug prices, rather than a more simplified buying model for consumers.

Instead, focus on what Amazon observers really focus on, early step efforts to prepare for a more innovative and simpler method for consumers and businesses to purchase items.

It turns out that Amazon has, at this point, applied for a pharmaceutical wholesaler license in at least a dozen U.S. states.  Some industry observers, as well as The Wall Street Journal, believe that this move is part of the Amazon Business B2B marketplace thrust in selling medical, dental devices and disposables to industrial, office and healthcare provider businesses at a lower cost and higher service, the typical Amazon market penetration strategy. Reports further indicate that on various applications, Amazon specified intent to distribute medical devices on some state applications, with the addition of pharmaceuticals on other state applications. Some of this may have to do with varying U.S. state applications relative to a wholesaler’s license, others may be related to opportunity.

Supply Chain Matters is of the belief that Amazon’s merchandising teams are more focused on methods to transition into new, more complex business and retail market sectors. Medical devices and over-the-counter drugs distribution and retailing are an obvious first-step towards larger opportunities. The Amazon adage has always been experimentation first, learn, and move to the next iteration.

The takeaway is two-fold.

No industry today is immune from the threat of disruptors who leverage online and digital technologies that provides a more innovative business model. At the same time, industries that have existing complex or regulated business practices may also be subject to disruption, but the pace, scope and overall penetration of the disruption obviously takes more time. Uber and Lyft on-demand drive services models are classic examples. Transformation moved swiftly in some regions, not so in others. Transformation came from changed thinking, building and scaling a digital platform while breaking through existing barriers without triggering blowback from existing stakeholders. Aggressiveness in culture served as a positive, and then a detractor when too much change and disruption became evident and threatening.

Amazon or another disruptor at some point will find the answer for disrupting the pharmaceutical and drug business model. It will take added time along with finding innovative and non-obtrusive methods to facilitate changed thinking in practices while assuring proper safeguards. That would apply even to highly regulated business models. When all of this occurs is of-course, anyone’s educated guess.

The point is to not context last week’s announcement as: “Not on my watch or in my lifetime” but rather what do we need to do as an organization to be continually prepared to make necessary people, process and technology investments that prepare for digital transformation changes that will occur in the industry. If your firm is not prepared, some other firm or industry disruptor will.

Bob Ferrari

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