Home' Australian Pharmacist : Australian Pharmacist June 2014 Contents Australian Pharmacist June 2014 I ©Pharmaceutical Society of Australia Ltd.
CONTINUING PROFESSIONAL DEVELOPMENT
SUPPORTING PHARMACY PRACTICE
Pharmacy is facing a challenging financial outlook. Efforts by government
to mitigate the rapid growth in the cost of delivering PBS medicines are
starting to have an impact on dispensing revenue.
Statistically in the past five years,
the profession has grown at a rate of 1.6%
a year and, with the dampening effects
of PBS reform, this is expected to slow
to 1.2%. In the 18 months to June 2015,
it is estimated there will be a gross profit
loss of around $110,000 per pharmacy
per year. Adding to this, increasing
price competition from discounters,
supermarket threats and changes in
consumer spending trends means that
community pharmacy is facing a turbulent
and changing outlook. In the midst of this
downturn, cost management becomes an
imperative consideration to prepare and
withstand the turbulence.
Successful cost management does not
simply focus on reducing the biggest
cost drivers as this can create a strategic
misalignment that may cause customer
and employee dissatisfaction and
contribute to a poorer financial outcome.
For example, a wage reduction (reducing
staff levels) may lead to an increased
demand in efficiency from remaining
staff which could result in a reduction
of quality in outputs, such as customer
service, inventory management and
merchandising. This in turn creates
customer dissatisfaction, which leads to
Cost reduction by simply using
industry benchmarking and internal
key performance indicators (KPIs) can
sometimes become misleading and
inaccurate as not all pharmacies, even
though they operate within the same
industry and in the Australian environment,
have the same financial arrangements and
requirements. Thus, an across-the-board
cut of operating expenses can lead to an
unexpected and undesirable weakening
of a business’s competitive advantage.
In comparison, strategic cost management
(SCM) holds that costs must not be reduced
at the expense of the business strategy and
that costs must be managed for economic
1–3 Costs should not be managed
in isolation, but always in relation to the
value generated from the costs spent.
Managing costs must specifically focus
on strengthening the strategic position of
Traditional cost management is based on
the internally-oriented concept of value
added, which hinders businesses from
taking advantage of the opportunities to
coordinate interdependence in the value
chain. Traditional cost management does
not take into account the competitor’s
value chain, and does not focus on the
strategic positioning of the business.
views costs from the strategic perspective,
seeking value creation rather than value
1,2 SCM focuses externally seeking to
capitalise on opportunities, even in times
Peter is a pharmacy owner and has:
• implemented professional services,
PPIs and MedsChecks
– a strategic
BY ROBIN TANG
Brisbane-based Robin Tang has completed an MBA
in leadership and is a full time community pharmacy
manager and Director of a pharmacy consulting service.
After reading this article, pharmacists should be
• Describe general trends occurring in pharmacy
that impact revenue
• Analyse opportunities to manage costs in pharmacy
• Identify strategies that have shown success in the
management of costs.
Competency standards (2010) addressed: 3.1,
Accreditation number: CAP140606C
• achieved a revenue growth of 10%
in the last financial year, with the GP
maintained at 35%
• won several awards.
However, Peter now faces several
• MedsChecks are capped at
10 per month.
• A large discount pharmacy has opened
close by – creating extra competition
as a low cost driver and Peter is feeling
pressured to lower retail prices to stay
In response, Peter is considering
questions such as:
1. How do we better manage our costs?
2. Do we consider a new staff roster and
reduce staffing levels?
3. Should we change our opening hours?
4. Do we reduce marketing and
5. Should we remove staff incentives,
bonuses, renegotiate pay agreements?
6. Should we reduce stock levels such as
stop holding expensive dispensary items?
7. Should we cancel our planned IT upgrade?
Strategic cost management
First set out in 1985, Michael Porter, a
leading authority on competitive strategy,
identified the generic cost management
strategies of cost leadership (no frills),
differentiation (creating uniquely
desirable products and services) and focus
(offering specialised service in a niche
market).8 Porter then subdivided the focus
strategy into two parts: cost focus and
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