Key Factors on Online Pharmacy Management Based on the Analytic Hierarchy Process in China

MENG Ling-quan, WU Zhi-ang, FU Shu-yong, ZHOU Ying

(School of Business Administration, Shenyang Pharmaceutical University, Shenyang 110016, China)

Key Factors on Online Pharmacy Management Based on the Analytic Hierarchy Process in China

MENG Ling-quan, WU Zhi-ang, FU Shu-yong, ZHOU Ying

(School of Business Administration, Shenyang Pharmaceutical University, Shenyang 110016, China)

Objective To explore the development path for online pharmacy in China. Methods Key factors were selected from the general management factors of online pharmacy on the basis of the analytic hierarchy process. Results and Conclusion There are eight key factors of the online pharmacy management in China, such as setting up the e-commerce transaction platform, maintaining the loyal consumer groups, building an e-commerce operation team, cultivating the enterprise honesty, setting up the medical insurance payment system and formulating the external policy for the online pharmacy development, etc.

the analytic hierarchy process; online pharmacy management; key factor

Online pharmacy management is influenced by many factors, the authors of this article studied the electronic commerce (B2C) general management factors from online pharmacies essential attribute with the method of literature research, ten general factors were extracted: (1) A new business enterprise with a conscious mode of operation; (2) A fully functional e-commerce market; (3) A loyal e-commerce consumer group; (4) A network supporting various functional department; (5) A compound model of e-commerce operations team; (6) A good credit evaluation for enterprises; (7) A smooth and open information transmission platform; (8) A safe and convenient online payment tool; (9) A timely delivery logistics distribution system; (10) A relatively loose external policy environment[1].

Online pharmacies is considered to be an (B2C) e-commerce applications within the pharmaceutical industry, its development follows the general law of online retail, namely, the electronic commerce (B2C) general management factors are the general factors of online pharmacy management. However, if we take the characteristics of online pharmacies into consideration, these 10 factors are different from general online shopping. The analytic hierarchy process (ahp) was used to study the 10 general factors in this article and the online pharmacy management key factors were sorted out, then we analyzed the causes so that we could provide references for follow-up study.

1 The introduction of analytic hierarchy process (AHP)

Analytic hierarchy process (AHP) refers to the use of system engineering to decompose complex problems into the component factors which are grouped into hierarchal structure according to dominance relations. The relative importance of various factors can be determined by means of comparing two levels. Then decision-makers can determine the relative importance of the overall order based on their judgments. The process embodies the basic characteristics of the decision making, namely, decomposition and comprehensive judgments. Analytic hierarchy process (ahp) is a combination of quantitative and qualitative and dealing with human judgment in the form of quantity expression. The application of AHP will improve the effectiveness, reliability and feasibility of decisionmaking[2].

It can be divided into four steps when we use AHP to make decisions[3]: (1) Analyzing the relationship between various factors in the system and building hierarchical structure; (2) Comparing various factors on the same level with the importance of a criterion in the hierarchy and constructing two comparative judgment matrix; (3) Judging the relative weights of the criteria based on matrix elements;(4) Evaluating each element at all levels of target system and sorting the results.

2 Online pharmacies key factors on the implementation of the analytic hierarchy process (AHP)

2.1 The main content of the questionnaire

We classified the following ten questions on the management of online pharmacies from the general factors to the key factors based on the experience, and the audiences can draw “√” in the corresponding spaces and sort within the same level of factors. Note: * in the table is the key factor, O is the important factor and △ is a general factor.

Table 1 Online pharmacy management key factors of investigation

2.2 The analysis of the questionnaire

We got 86 out of 100 questionnaires and the effective rate was 86%. We used the analytic hierarchy process (AHP) to control all the factors affecting the weight assignment. The important ones were the key factors and the less important ones were general factors.

2.2.1 Setting up the hierarchy model

We took factors that affect online pharmacy management as a hierarchical analysis of target layer (A) and other factors as hierarchical analysis resource layer (B).

2.2.2 Building judgment matrix and assigning a value

While constructing the judgment matrix, experts were asked repeatedly to confirm it: based on the judgment matrix criterion we compared two elements to see which was more important, and then we assigned a value according to scale of 1-9, as shown in Table 2.

Table 2 Scale of importance

If the judgment matrix was A = (aij) n * n, judgment matrix had the following properties: (1) aij＞ 0; (2) aji=1/aij;

(3) aii= 1. When all elements were true in the judgment matrix, it was called the consistency matrix. After investigation, we got ten kinds of judgment matrix value, as shown in Table 3:

Table 3 10 kinds of consistency matrix value

2.2.3 Level single sequencing (weight vector) and inspection

Hierarchical single sequencing refers to every relative weight of each factor in judgment matrix based on the criteria, so essentially it is to calculate the weight vector. We should use weight vector method to calculate each factor. We must follow the following principle, for consistent judgment matrix, each column is the corresponding weights after normalization. For inconsistent judgment matrix, each column is the approximate corresponding weights after normalization. In the n column vector, we take the average value as the final weight. The specific formula is:

Through calculation, the weights of these factors were shown in Table 4:

Table 4 10 factors weights value

It is important to check the consistency of judgment matrix. In special cases, the judgment matrix can have the characteristic of delivery and consistency. In general, the judgment matrix does not meet the demand of this property. But according to human knowledge, a correct judgment matrix should have a law of logic. For example, if A is more important than B, and B is more important than C, then logically, A should be more important than C. If only compared two factors and the result is that A is more important than C, then the judgment matrix is in violation of the consistency rule which is not logical. So in practice, the consistency of judgment matrix must be satisfied and a consistency check is needed. Only through the test, we can get the conclusion that the judgment matrix is logical and we can continue to analyze the results. Consistency check index is ci:

Thus, the judgment matrix satisfies with consistency check.

2.2.4 Sequencing online pharmacies key factors

As shown in Table 5. Through the analytic hierarchy process (AHP) method, we got the sorting table for online pharmacies key factors.

Table 5 10 factors weights from high to low ranking

2.2.5 Analysis of key factors

In conclusion, the external policy for online pharmacy management, online pharmacies integrity, electronic market platform, the e-commerce awareness for enterprises, loyal consumer groups, online pharmacies operating team and pharmaceutical logistics distribution system are the key factors. Online payment tool is less important. Information exchange platform and network management system are the general factors.

3 Analysis of the causes of the key factors for online pharmacy management

3.1 Policy circumscribed online pharmacies, hard to access

In view of the Interim Provisions on Internet for Examination and Approval of Drug Transaction Services (hereinafter referred to as the Regulations) to online pharmacies, experts, scholars and pharmaceutical companies gave different opinions which focused on the following items: (1) Applicants should not be restricted to be the pharmaceutical retail chain enterprises, this regulation should allow some national famous pharmaceutical retail pharmacies, such as Shanghai First Medical Stores[4](2006, 2006 sales of varieties of 12000) have the opportunity to apply for online pharmacies qualification; (2) Sales of the drug variety should be limited to the non-prescription drugs. For larger profits prescription drugs, they should be banned from sales network; (3) Electronic trading platform and drug distribution system should not have the self-built limitation for the non-core business investment such as people, goods and money makes it hard for pharmaceutical enterprise to focus on handling drugs.

3.2 The importance of integrity of online pharmacies

While maintaining the website and logistics for legitimate online pharmacies, the expenses are expensive and only non-prescription drugs can be sold. However, illegal online pharmacies can make big profits for they can sell all kinds of drugs with low operating costs[5]. Inevitably some legitimate online pharmacies have certain degree of“crossing the line” and sell some prescription drugs for profits[6]. Cracking down online pharmacies “black” is a double-edged sword which means both the legal and illegal enterprises get hurt[7], and the overall online pharmacies reputation is poor. Due to the online pharmacies integrity, consumers become more cautious about online pharmacies and they would like to look for the legitimate online pharmacies with good faith management. At this moment the integrity signal for legitimate online pharmacies is very important, and legitimate online pharmacies should displayed their integrity management to the consumer continuously.

3.3 It is not economic for online pharmacies to have self-built electronic trading platform

At present, the online pharmacies usually use the pharmaceutical retail chain enterprises self-built e-commerce platform mode. The core business for pharmaceutical retail chain enterprises is the drug business, rather than IT which means the construction and operation of e-commerce platform. This platform construction need capital input[8]: (1) Setting up an independent cyberspace, buying a server, domain name and all kinds of software.(2) Organizing a new team for web site construction, operation and maintenance. The infrastructure investment for first year will be about 3.8 million[9]. Except for all these expenses, how to let consumers know the website and make it convenient for customers to implement online trading is another problem which requires the online and offline promotion. Therefore, online pharmacies platform construction and maintenance cost is high and the self-built platform is not economic.

3.4 Enterprises are not interested in online pharmacy

After the introduction of the Regulations, some pharmaceutical retail chain enterprises in the developed regions such as Beijing, Shanghai and Guangdong applied for online pharmacy positively, but many other pharmaceutical retail chain enterprises attitudes were cold[8]. One reason was that it was not easy to get online pharmacies qualifications. Another one was that consumers cared about Internet security and they feared to do online shopping. Many enterprises thought the network consumption was not popular and they were unwilling to venture into this industry. At the same time, many pharmacy customers were mainly the elderly who were not accustomed to using the Internet and they were more likely to go to a traditional pharmacy to buy medicines. Therefore, these enterprises did not consider online pharmacy as a profitable way, but an additional service to consumers and a platform for the image of enterprise[10]. In addition, drug sales was done mainly through hospitals and pharmacies and the market share of online pharmacies each years could be negligible (2011, China’s online pharmacy sales accounted for only 0.0424% of the total amount of drug circulation throughout the year[11]), enterprises were not optimistic about online pharmacy prospects. As a CEO from Beijing famous pharmaceutical retail chain enterprise said[12], our company had nearly one hundred of chain drug stores in the domestic major cities, in the future the company’s business will be developed by traditional stores. What is more, some enterprises did not know the regulations had come on stage.

3.5 Dislocation of online pharmacy group

Online pharmacy has faced the situation that net surfers don’t buy medicine and people who buy medicine don’t surf the Internet although China has more than three hundred million net surfers[7]. Young people are the main force of Internet users who are enthusiasts for online shopping. However, these people do not often take medicine. The main consumers are the senior citizens who seldom surf the Internet and cannot obtain online pharmacy information. Therefore, it is hard for them to buy drugs through online pharmacy. Although online pharmacy can provide some drugs which can not be found in local markets and it can keep secret for buyers, duo to the influence of consumers’ psychology and habits, drug quality and its sources, delivery problems and the dense distribution of drug stores, consumers prefer to buy medicine at drug stores instead of placing an order online and waiting for delivery at home. What’s more, the third-party medical logistics in China is still not developed, and it saves time to buy medicine at drug stores rather than to order online. Therefore, the size of the online pharmacies consumer groups is small now. Consumers prefer traditional pharmacy to online pharmacy. Consumer groups for online pharmacies should be cultivated gradually.

3.6 Online pharmacies needs more supporting personnel

According to attachment one from the Regulations (Internet Drug Transaction Services Acceptance Standard 2), article 2 of Chapter three stated that enterprises that provide Internet drug trading service should set up a department for data management, maintenance, customer service, trade inspection and other special functions. Article 5 of Chapter three requested enterprises should establish a department responsible for the management of data, and the full-time staff corresponding to the scale of work. Data management personnel must be familiar with related drug laws and regulations with common knowledge of clinical medicine, and they should be responsible for the data managements as well. The personnel for data management should have the bachelor’s degree or above majored in pharmacy and the proportion shall not be less than 50% of the total number. The proportion of licensed pharmacists (including professional herbalists) in retail chain enterprises shall not be less than 20% of data management, and the total number of licensed pharmacists who provide online consultation shall not be less than two.

Compared with traditional retail, online pharmacies need some compound talents who have the common knowledge of clinical medicine. They are also familiar with computer networks, business skills, marketing skills, business operation process, business law and electronic business as well as related drug quality laws and regulations. At present, the lack of this talented person hinders the development of online pharmacies.

3.7 Self-built logistics distribution system for online pharmacies is not economic

Online pharmacy drug price is lower than drug stores, but when consumers purchase a single bottle or single box of medicine they have to pay 10 Yuan of freight. The advantage of online pharmacies is not obvious. Take pharmacy network as an example, the online price is 10-30% lower than the entity shop which can attract customers attention. However, in terms of distribution, the pharmacy network offered free delivery in Beijing downtown within 8 hours. If the customers are beyond the downtown, they must order more than 100 Yuan of medicine and then they can have the free shipping. Otherwise they must pay an extra fee for the delivery which increases the cost of the medicine. As a result, the enterprises can not make big profit from online pharmacy. When conventional drugs wholesale and retail model is transformed into distribution mode, the logistics costs will become very expensive[13]. At present, the general online stores usually deliver goods by post or Courier service (such as Crossing One[14]: Shentong express, Yuantong express, Zhongtong express, Huitong express and Yun Da express etc). But this does not apply to the distribution of the drug. According to Drug Administration law, as a special commodity, drug is related to people's life safety, which is not allowed to mail. If entrusted a third party distribution, it must have the GSP certification. The development of online pharmacies calls for professional third-party medical logistics.

3.8 Medical insurance does not cover online drugstore

Online sales and online payment for drug is medical e-commerce. With the development of online payment technology, in a sense, medical e-commerce will account for the mainstream.

Currently, online pharmacies accept online banking and third-party payment such as PayPal for online payment. However, the health care system can’t cover the online pharmacies payment. Customers cannot enjoy the convenience of buying drugs with medical insurance card online. If medical insurance card can become a personal online payment tool for buying medicine online, more people will learn to use the online payment which will increase the number of online customers and online retail market share will increase accordingly. We can foresee that the Medicare card payment is the mainstream of future online pharmacies and it will be a new bright spot in online pharmacy development and economic growth.

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* Shenyang pharmaceutical university Bayer science projects;

Author’s information: WU Zhi-ang, Professor. Major research area: Pharmaceutical technology evaluation and drug risk management, et al. Tel: 024-23986542, E-mail: wuerla501@126.com