Despite thirty straight years of increased revenues and profits, Walgreens found itself facing intense competition from Costco, Wal-Mart, and CVS. However, the biggest and newest threat to Walgreens’ business was mail-order prescription sales managed by pharmacy benefit managers (PBMs), who work closely with companies, insurers, and health maintenance organizations to reduce pharmaceutical costs, which have been increasing an average of 13% per year. With Costco’s rock bottom prices, Wal-Mart’s incredible volume-based purchasing power, and PBMs, according to a government study, able to sell brand-name drugs and generic drugs 27% and 53% cheaper than traditional drug stores, Walgreens is going to have to tightly control its expenses to continue to be competitive. In terms of efficiency, it costs Walgreens less to fill a prescription order (i.e., fulfillment costs) than any other retailer in the business. PBMs, however, can still fill a prescription for half as much as Walgreens. To get its fulfillment costs down, Walgreens reduced its pharmaceutical inventory supply from 68 days (that is, if Walgreens quit ordering pharmaceuticals, it would be able to fill prescriptions for 68 days before running out) to 41 days. This reduction saves the company nearly $2 billion a year. Other steps to reduce expenses include no longer accepting American Express cards at Walgreens stores. Every time a customer uses an American Express card to make a payment, the store pays American Express a fee of 2.05%. By contrast, Visa and MasterCard charge 1.55%. While the difference seems small, the savings amount to $50,000 on every $10 million of sales, which can add up quickly given Walgreens’ $40 billion in annual sales. Finally, Walgreens keeps costs low in its stores with one of the best employee retention rates in the industry. Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm, says, “Their pharmacists don't turn over, which increases consumer trust in the pharmacist. The retention rate of store and district managers is also high. This is such an advantage.” Walgreens is also using technicians who are paid $16 an hour to fill more prescriptions. While pharmacists, who are paid $42 an hour, still review all filled prescriptions, using technicians who are paid $16 an hour to fill more prescriptions clearly reduces expenses. Walgreens started its “Advantage 90” program, which it now offers through its mail-order system and its stores. Walgreens believes that Advantage 90 will help it take sales away from other PBMs AND from other retail pharmacies, which have higher fulfillment costs. Advantage 90 is now used by 150 companies, including Southwest Airlines, and Walgreen’s CEO maintains that it is cheaper than mail-order PBMs. Advantage 90 will most likely have an impact on which quadrant of Walgreens’ balanced scorecard? A. innovation and learning B. all of the quadrants C. Advantage 90 represents a new business, so will have no impact on Walgreens’ balanced scorecard. D. internal E. customer
Despite thirty straight years of increased revenues and profits, Walgreens found itself facing intense competition from Costco, Wal-Mart, and CVS. However, the biggest and newest threat to Walgreens’ business was mail-order prescription sales managed by pharmacy benefit managers (PBMs), who work closely with companies, insurers, and health maintenance organizations to reduce pharmaceutical costs, which have been increasing an average of 13% per year. With Costco’s rock bottom prices, Wal-Mart’s incredible volume-based purchasing power , and PBMs, according to a government study, able to sell brand-name drugs and generic drugs 27% and 53% cheaper than traditional drug stores, Walgreens is going to have to tightly control its expenses to continue to be competitive.
In terms of efficiency, it costs Walgreens less to fill a prescription order (i.e., fulfillment costs) than any other retailer in the business. PBMs, however, can still fill a prescription for half as much as Walgreens. To get its fulfillment costs down, Walgreens reduced its pharmaceutical inventory supply from 68 days (that is, if Walgreens quit ordering pharmaceuticals, it would be able to fill prescriptions for 68 days before running out) to 41 days. This reduction saves the company nearly $2 billion a year.
Other steps to reduce expenses include no longer accepting American Express cards at Walgreens stores. Every time a customer uses an American Express card to make a payment, the store pays American Express a fee of 2.05%. By contrast, Visa and MasterCard charge 1.55%. While the difference seems small, the savings amount to $50,000 on every $10 million of sales, which can add up quickly given Walgreens’ $40 billion in annual sales. Finally, Walgreens keeps costs low in its stores with one of the best employee retention rates in the industry. Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm, says, “Their pharmacists don't turn over, which increases consumer trust in the pharmacist. The retention rate of store and district managers is also high. This is such an advantage.” Walgreens is also using technicians who are paid $16 an hour to fill more prescriptions. While pharmacists, who are paid $42 an hour, still review all filled prescriptions, using technicians who are paid $16 an hour to fill more prescriptions clearly reduces expenses.
Walgreens started its “Advantage 90” program, which it now offers through its mail-order system and its stores. Walgreens believes that Advantage 90 will help it take sales away from other PBMs AND from other retail pharmacies, which have higher fulfillment costs. Advantage 90 is now used by 150 companies, including Southwest Airlines, and Walgreen’s CEO maintains that it is cheaper than mail-order PBMs.
Advantage 90 will most likely have an impact on which quadrant of Walgreens’ balanced scorecard?
| A. |
innovation and learning |
|
| B. |
all of the quadrants |
|
| C. |
Advantage 90 represents a new business, so will have no impact on Walgreens’ balanced scorecard. |
|
| D. |
internal |
|
| E. |
customer |
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