SUN Rises from RANBAXY: Supply Chain Strategy of an Indian Pharmaceutical Company

Abstract

The case study critically examines the supply chain strategy of ‘SUN pharma’ company and its acquisition strategy of Ranbaxy. The case illustrates the story of the mergers and acquisition from a supply chain theory point of view and thereby states how SUN has moved forward from its regional presence to global expansion.

Appendices

Appendix 1: Mission, Vision, and Values of Sun Pharma

(Source Sun Pharma 2017)

Teaching Note

Synopsis of the Case

The case study critically examines the supply chain strategy of ‘SUN pharma’ company and its acquisition strategy of Ranbaxy. The case illustrates the story of the mergers and acquisition from a supply chain theory point of view and thereby states how SUN has moved forward from its regional presence to global expansion.

Teaching Purpose and Objectives

The case aims to aid teaching concepts and applications of subjects such as Supply Chain strategy, Operations strategy, and Strategic Management and to enrich concepts related but not limited to business Strategy, supply network expansion strategy, competitive analysis and omni-channel strategy.

Discussion Questions and Analysis

• 1. Assess the supply chain strategy development process for Sun Pharma and justify their alignment.

• 2. Propose an appropriate supply chain strategy that Sun Pharma should play for their products.

• 3. Should Sun Pharma focus more on a pull supply chain strategy rather than the current push strategy?

• 4. Should Sun Pharma have a cultural adaptation for the expansion of business for the new markets?

• 5. Using the theory of ‘Bottom of Pyramid’ by C.K Prahalad, Debate how should Sun Pharma target the Indian rural market by opening up company owned stores in the rural areas?

• 6. Did Dilip Shanghvi manage to turn around Ranbaxy after the take over?

• 7. What was Sun Pharma’s rationale for acquiring Ranbaxy, despite the troubles faced by Ranbaxy in foreign markets?

• 1. Assess the supply chain strategy development process for Sun Pharma and justify their alignment.

  Supply chain strategy of any company must be developed in consistency with an organizational strategy and its functional strategies. This process starts from developing the core vision and mission of a company and relate them with the operational implementation aspects. In theory, it consists of strategy formulation, strategy implementation, and strategy evaluation as exhibited in Fig. 7. The essence of strategy formulation is an assessment of whether an organization is doing the right things and how it can be more effective in what it does. Regular reappraisal of strategy helps management avoid complacency.

  Fig. 7

  

  (Source Authors)

  Supply chain strategy formulation and implementation framework

  Students are expected to apply the strategy development theoretical framework of Fig. 7 in the context of Sun Pharma. This can be assessed in terms of Sun Pharma vision, mission, and value proposition statement to be able to see how realistic they are. Once the organizational strategy is generated, this must be translated into its functional strategy in order to evaluate the performance outcomes of its generic and specialty medicines. For sun pharma, its ‘sunology’ idea fits very well to their core value and, therefore, can sustain their competitive advantage very much.

• 2. Propose an appropriate supply chain strategy that Sun Pharma should play for their products.

  Supply Chain strategy development process starts from identifying the nature of product through product uncertainty and then comparing with the supply chain capabilities as proposed by Chopra and Meindl (2017) framework. For pharmaceutical products, the uncertainty is somewhat moderate to high and, therefore, the recommended supply chain strategy is to play with a highly responsive supply chain together with little degree of efficiency embedded in the pharma supply chain processes as illustrated in Fig. 8.

  Fig. 8

  

  (Source Chopra and Meindl 2017 framework)

  Supply chain strategy alignment with product uncertainty

• 3. Should Sun Pharma focus more on pull supply chain strategy rather than the current push strategy?

  Theoretically, the push supply chain process involves supply delivery in anticipation to any customer order whereas the pull supply chain process is of reacting to the customer order. For pharma company industry in general, pull supply chain strategy ensures ‘just in time’ delivery and this mechanism require distribution capital investment and or 3PL outsourcing. In the case of Sun pharma, the stages are very much into pull from supplier to manufacturer and push from Manufacturer to retailer and pull again from retailer, pharmacies, and clinics to patients as end users. Since supplier orders the medicines to the production units based on raw materials or Active Pharmaceutical Ingredients (API) from various global vendors and local vendors with their ethical purchasing generic operating procedures, pull supply chain ensures more responsiveness and thus lead to a very high supply chain cost. However, for industry leader such as Sun Pharma cost pressures can offset supply chain speed.

• 4. Should Sun Pharma have a cultural adaptation for the expansion of business into any new markets?

  Yes, very much likely Sun should have a cultural adaptation for any new market such as Africa, Middle East, and South America where cultural requirement place very dominant role for any business’s success. Students, therefore, should be able to relate the cultural differences of these countries or any new markets while proposing recommendations.

• 5. Using the theory of ‘Bottom of Pyramid’ by C.K Prahalad, Debate how should Sun Pharma target the Indian rural market by opening up company owned stores in the rural areas?

  Students can be suggested to research about the ‘Bottom of Pyramid’ population through BMI Research, World bank data and Sun Pharma industry performance. According to BMR Research (2017), Fig. 9 below details the population pyramid of Indian in 2017 and the change in the structure of the population between 2017 and 2050. Table below shows the key metrics such as population ratios, the urban/rural split and life expectancy between 1990 and 2025, which needs to be considered to target tapping the bottom of the pyramid demand. Since the purchasing power of the rural segment is less as compared to Urban population, Sun should devise a more Integrated health care services while opening up stores in the urban areas. Perhaps, partnerships with Government, Medical Colleges, Educational Institutions, association of Indian Industry, and other like agencies, Sun Pharma could reach out to the bottom of the pyramid (see Table 2).

  Fig. 9

  

  Source World Bank (2017) and BMI (2017)

  India population pyramid, 2017 (LHS) versus 2050 (RHS).

Table 2 India’s Urban and Rural population and Life expectancy

• 6. Did Dilip Shanghvi manage to turn around Ranbaxy after the take over?

  Yes, very much successful through the takeover. For example, before merge, Ranbaxy used Aqua Logistics services to track and trace the shipments in order to avoid distribution centers at various overseas and domestic locations by keeping track of the current position of the shipment dispatched by it. Since customer is the King or the key success of Ranbaxy in which thousands of Ranbaxy customers from more than 104 countries served more than 4000 Stock Keeping Units (SKUs) manufactured either at Ranbaxy’s manufacturing facilities or at various other outsourced, but coordination found to be difficult among their supply chain stages. After the acquisition, Sun pharma introduced, supply chain integration system provided by SAP, which acts as the digital backbone of the chain providing on line information to the customers and the organization. To enhance global supply chain capability Sun Pharma, used Radio Frequency Identification (RFID) technology replacing their bar coding system in order to track the stocks automatically (Rossetti et al. 2011).

• 7. What was Sun Pharma’s rationale for acquiring Ranbaxy, despite the troubles faced by Ranbaxy in foreign markets?

  The prime factor behind the acquisition was to gain more control on the Indian pharma manufacturing market and thus to become an industry leader in this segment. Other factors for the takeover include impact of low levels of patent protection, price cuts, a preference for generic medicines and low per capita pharmaceutical and healthcare spending will pose headwinds to innovative drug maker like Sun Pharma to capture opportunities in India. While there is an increased prevalence of chronic diseases, the focus on cost-efficiency within the healthcare sector has aided the acquiring process of Ranbaxy. On the other hand, Ranbaxy had faced tough regulatory challenges due to export ban, very low pricing strategy and stringent regulatory requirements moved the company to ‘bearish’ market performance (Cook and Hagey 2003). Ranbaxy’s idea of ‘Putting people first’ approach did not work very well. As said, In order to sustain its success and renew its products, Ranbaxy focused on the people behind its products and not on the products. Ranbaxy’s strength was the people, i.e. both employees and customers. The strategy was to recruit locally in host countries who are culturally adopted within the short time in creating multicultural portfolio of human resource skills. As a result, the company had a challenging working environment and tall organizational structure. These are the trouble faced by Ranbaxy which are the rationale for selling the company to Sun pharma to be able to lead the company’s future.

Suggested Websites:

The following websites are good places for students to get on overall understanding of the context.

Websites:

https://markets.ft.com/data/equities/tearsheet/forecasts?s=RANBAXY:NSI.

http://businessworld.in/article/Sun-Pharma-Acquiring-Growth/16-03-2016-91995/.

http://www.thehindubusinessline.com/specials/pulse/case-study-sun-sets-on-ranbaxy/article7065610.ece.

http://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/ranbaxy-integration-sun-pharma-may-drop-some-non-strategic-units/articleshow/49615336.cms.

http://www.sunpharma.com/investors/annualreports.

https://www.rankingthebrands.com/Brand-detail.aspx?brandID=5455.

https://www.bmiresearch.com/india.