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Value-added service provision through ICT by drug wholesalers in Japan

Tsutomu Nakamura
p. 63-78


Cet article analyse le rôle des grossistes en médicaments dans la fourniture de produits de santé au Japon. Ces derniers mobilisent les technologies de l’information et de la communication (TIC) pour offrir une plus-value à leurs clients. Les TIC leur permettent notamment de renforcer la relation logistique vis-à-vis des pharmacies comme des laboratoires pharmaceutiques. Ces pratiques logistiques ne se sont pas étendues à l’ensemble du territoire car les grossistes en médicaments doivent répondre aux besoins locaux de régions moins bien équipées. Les résultats de ce travail sur les grossistes en médicaments mettent en évidence le potentiel des téléactivités pour étendre la portée géographique de telles pratiques et la nécessité de continuer les anciennes méthodes pour les régions les plus isolées.

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1The geographical studies of Information and Communication Technology (ICT) have prompted discussions of relocation for the offices of large firms through ICT focused on the effects of time and space compression, and have illustrated different spatial impacts on industrial activity through ICT as changes in spatial systems (Hashimoto, 2001). In Japan, many geographers have focused on distributors’ functions of the adjustment of physical goods flow and information flow, and have demonstrated ways to exploit ICT for competitive advantage and the spatial impact it brings (Aoyama, 2001; Arai, 1989; Iida, 1993; Kawabata, 1990, 1995; Tsuchiya, 1998; Nakamura, 2003, 2005; Hashimoto, 2001, 2002, 2003a, 2003b).

2Existing approaches can be categorized as technological determinism (i.e., understanding the ways in which ICT has an impact on spatial factors) and social constructionism (i.e., understanding the ways in which social, institutional and political processes influence the development of ICT and its uses). The first approach is rejected for four reasons. First, it tends to reduce extremely complex interactions between cities and ICT to crude and homogeneous models of technologies and their urban impacts. Second, it tends to ignore the crucial social and political processes through which technologies are actually developed and applied within cities and society. Third, much futuristic and utopian material on cities and ICT must be discounted simply because it is fuelled by the vested interests of technology and service companies or policy-makers who stand to gain the most from ICT development in cities. Finally, there is an implicit assumption in determinist and futuristic work on cities and ICT that local social and political figures in contemporary urban areas have little or no scope to shape ICT development within cities (Graham and Marvin, 1996). In addition, technological determinism and social constructionism are little more than two sides of the same coin (Bingham, 1996). That is to say, they assume and reproduce a stable and matter-of-fact distinction between the material/technical and the social such that changes in one are supposed somehow to have an impact on the other. To argue the recursive relationship between cities and ICT, the shaping of urban places and electronic spaces must be read as a complex and changing spatial reflection of the dynamics of power in capitalist societies (Graham and Marvin, 1996: 120).

3Actor Network Theory (ANT) focuses on how to avoid social/technological dualism. The theory deals with social relations and technology equivalently, and emphasizes technological development dynamically from a relational perspective that takes a middle position between technological determinism and social constructionism (Fujigaki, 2005). This perspective can accurately highlight the fact that ICT is not introduced in all regions equally; rather, it is accepted in specific regions as a result of interaction with particular social relations. This requires geographical considerations such as the scale on which ICT is accepted. As the healthcare environment has experienced a number of dramatic changes recently, the development of ICT needs to be coordinated in consideration of the interests of those developing the technology and those using it. Healthcare is therefore a typical example of ICT’s interaction with social relations for stabilized healthcare service provision. This paper examines the processes of ICT acceptance from principles of action based on case studies in which ICT is accepted in specific regions. It examines two cases in which multiple parties have jointly accepted ICT in response to dramatic changes in the medical environment, and therefore serves to emphasize the importance of coordination processes in consideration of the interests of those developing ICT and those using it. Finally, the types of spatial form that interactions between ICT and social relations take are also examined.

Characteristics of healthcare distribution systems in Japan

4In Japan, prescription drugs have been distributed based on market principles since World War II. Within this structure, there are price negotiations among pharmaceutical manufacturers, drug wholesalers and suppliers such as medical institutions and pharmacies under the drug price system. As prescriptions were dispensed in hospitals at one time, the related drugs were delivered only to medical institutions, and pharmacies dispensed few such medicines. Drug wholesalers handled sales promotion and delivery services to clinics and smaller hospitals as agents of pharmaceutical manufacturers. Drug price margins became the main source of income for medical institutions because the pricing system allowed for large gaps between the supposed standard prices and the actual prices for hospitals. However, medical institutions could no longer depend on drug price margins after the supposed standard prices were reduced and the pricing system was improved to include a new invoice pricing system in the 1990s. The separation of the dispensary and prescription functions has placed pharmacies together with existing medical institutions as customers of drug wholesalers since the late 1990s. These changes have required such wholesalers to control their prices, increase their ability to negotiate prices with customers, and deliver pharmaceuticals more efficiently in consideration of the dispersion of their customer base (Fig. 1).

Figure 1. Pricing system of prescription drug

Figure 1. Pricing system of prescription drug

Tsutomu Nakamura

5All these environmental changes have brought about the need to invest in ICT and expand in scale; accordingly, drug wholesalers have undergone a process of repeated mergers, reorganization and selection since the 1990s (Fig. 2, 3).

Figure 2. Change in number of employees of JPWA member companies

Figure 2. Change in number of employees of JPWA member companies

The Federation of Japan Pharmaceutical Wholesalers Association, 1998-2008

Figure 3. Market share of wholesalers in prescription drugs in fiscal 2007

Figure 3. Market share of wholesalers in prescription drugs in fiscal 2007

Company’s websites, Crecon Report

6The development of ordering systems using ICT and the pursuit of widespread regular delivery systems have resulted in a restructuring of the pharmaceutical distribution system; the wholesale business model has shifted from a focus on integrated sales promotion and delivery services to one that separates the two roles. In addition, wholesalers have managed to intensify their functions of information provision and distribution, as exemplified by the development of information support systems for potential customers and cooperative material distribution systems for pharmaceutical manufacturers (Table1, 2).

Table 1. Net sales by the segment of major drug wholesalers in fiscal 2008

Table 1. Net sales by the segment of major drug wholesalers in fiscal 2008

Left: Sales volume (100 million yen), Right: Composition ratio (%)

Source: Each company’s statement of accounts, 2008. Processed by Supply Chain Logistics Community

Table 2. Value-added services by drug wholesalers

Table 2. Value-added services by drug wholesalers

Source: Yasutaka (2007)

7An important issue in regard to the implementation of these services is their geographical scope. Such services are introduced in specific regions from a cost-effectiveness point of view because demand characteristics vary considerably by area, and provision requires huge initial investment. ICT is becoming increasingly likely to enable the provision of these services over wide areas using technology. However, ICT is accepted on a local scale since service provision needs to take differing interests into account. For the long-term business strategies of drug wholesalers, it is important to establish a business model that brings profits for new value-added services in specific regions. Case studies of such value-added service provision by wholesalers are reported below. This paper examines the geographical scale on which these services are developed and the factors that define this scale, with a focus on the vested interests of ICT users and related organizations.

Case studies

Information support system by Toho HD

8This section examines how ICT was adapted and developed by a drug wholesaler (Toho HD) with extramural dispensing in the case of Kawasaki City, Japan. In this development, there was a coordination process among the parties involved, including the pharmaceutical department of a hospital (the St. Marianna University School of Medicine Hospital), regional pharmaceutical associations and Toho HD. In Kawasaki City, when the hospital switched to extramural dispensing in 1997, an ICT-based pharmaceutical distribution system was developed through a coordination process among regional pharmaceutical associations and Toho HD. This instance of ICT involves a mobile terminal developed directly by the wholesaler. Pharmacies in Kawasaki City can reorder pharmaceutical drugs repackaged into smaller sizes online by simply scanning the bar code attached to the product.

9Before the system of extramural dispensing, drug wholesalers only needed to deliver prescription drugs to medical institutions because most such medicine was prescribed in hospitals. Toho HD had no business relationships with pharmacies; regional pharmaceutical associations had only limited roles for their members, and their area of coverage did not need to be taken into consideration.

10It was unusual for large hospitals with over 1,000 beds to dispense prescriptions in all medical departments. Since individual pharmacies are generally run on a very small scale, the inventory costs of specialty drugs that might need to be dispensed were a burden to their operations. These problems were common to pharmacies located in Kawasaki City. Then, regional pharmaceutical associations requested Toho HD to ensure a prescription drug delivery system including the repackaging of small quantities of drugs within their area of coverage in order to reduce the inventory risk of pharmacies. The hospital played the role of offering opportunities for coordination among the parties involved. The regional pharmaceutical associations, representing the interests of member pharmacies, cooperated with Toho HD. The reason for this coordination with the wholesaler in regard to the conditions for the delivery system was that part of their role was to solve problems shared by member pharmacies in Kawasaki City. The officers of regional pharmaceutical associations in four wards of Kawasaki City assumed that the catchment area of the hospital and the recipient area for prescriptions would almost fit into the northern area of Kawasaki City – the area covered by the regional pharmaceutical associations. That is, they dealt with the issue collectively because they recognized the difficulty of demand forecast as a common issue among their member pharmacies (Fig. 4).

Figure 4. Local distribution system by Toho HD

Figure 4. Local distribution system by Toho HD

Source : Website of each regional pharmaceutical association, 2007

11Toho HD offered to stock all the prescription drugs that the hospital specified and provide same-day delivery, including delivery on Saturdays, as a general service. This allowed pharmacies to order pharmaceuticals while leveraging the improved assortment and pharmaceutical delivery system provided by the wholesaler, which also offered to provide same-day delivery of pharmaceutical drugs repackaged into smaller sizes. Toho HD focused on long-term profitability despite unprofitable operation in the short-term, and built the new delivery system while absorbing the additional labor expenses and costs of ICT investment in order to start business with as many pharmacies as possible. In September 1996, a month before the start of partial extramural dispensing, Toho HD established a pharmacy near its headquarters for the purpose of repackaging pharmaceutical drugs into smaller sizes. The organization lent each pharmacy a self-developed mobile terminal to be used exclusively for ordering repackaged drugs. Such orders can be made not only by telephone from each drug wholesaler but also through the mobile terminal from more than one wholesaler. Order information is input by scanning the bar code attached to pharmaceutical drugs with the mobile terminal. When this information is sent to drug wholesalers other than Toho HD, it is automatically sorted and sent to the main computer of the wholesaler specified by each customer through the Value-Added Network (VAN) run by NTT Data in which pharmaceutical manufacturers and drug wholesalers participate (Fig. 5).

Figure 5. Ordering system by mobile terminal of Toho HD

Figure 5. Ordering system by mobile terminal of Toho HD

Source : Interview and website of Toho HD, 2007

12Toho HD’s shipping methods are express delivery by motorbike courier (from October 1996) and a two-month period of route sales using a vehicle carrying inventory (from March to April 1997). Rapid increases in orders over and above the level anticipated required the introduction of the motorbike courier service. This series of coordination efforts among the parties involved provided each pharmacy with a sense of security, enabling them to dispense prescription drugs immediately while simultaneously pursuing their own profits.

13The ICT-based delivery system for repackaged pharmaceuticals has now taken root in the area of coverage of these regional pharmaceutical associations. The launch of extramural dispensing prompted Toho HD to meet the needs of pharmacies and expand business steadily. The organization deepens relationships with pharmacies by using ICT as leverage to add the functions of inventory clearance and comparison of ingredient labeling. Without Toho HD’s ICT implementation, pharmacies would have to assume inventory risk individually. For this reason, ICT functions not only act as a way to deal with short-term fluctuations in demand but also as a tool to establish extramural dispensing for long periods.

14The combination of each party’s behavior, involving regional pharmaceutical associations coordinating among their member pharmacies and Toho HD behaving rationally to enable competitive advantage for long periods in line with demand from hospitals, led to the establishment of a system for the separation of dispensary and prescription functions in the region. This cooperation among the related parties to bring about a short-term and radical transformation of the business environment was a result of rational behavior on the part of each.

Cooperative material distribution system developed by a Suzuken-related company

15Recently, multiple pharmaceutical manufacturers have increasingly developed a cooperative material distribution system through the shared use of the same logistics functions. On the one hand, pharmaceutical manufacturers tend to invest in concentrated development of new drugs, while on the other they tend to outsource for cheap manufacture of medicinal chemicals. This trend is also common to more than one manufacturer, so firms that are entrusted with logistics are developing more efficient systems for the delivery of components and raw materials through cooperative distribution services. However, pharmaceutical drugs are subject to severe restrictions in terms of quality control and time because they are life-critical products. This condition also requires the consideration of safety and quick response for emergency delivery.

16However, pharmaceutical manufacturers have complex vested interests in this cooperation. The following case study shows how interest among corporations was adjusted by public institutions (such as the prefectural administration and the Household Medicine Makers Association) and the firm entrusted with logistics. The latter did not deal with logistics, but set up and ran a delivery system on the premise of an outsourcing arrangement with distributors. This section examines the process of the cooperative distribution system in Toyama Prefecture and the consequent geographical impact focusing on the vested interests of the parties involved.

17From the Edo era, a unique pharmaceutical distribution system known in Japanese as oki-gusuri was developed. This involved pharmaceutical manufacturers delivering drugs to individual households and charging fees depending on the amount of usage. This historical process resulted in the agglomeration of pharmaceutical manufacturers in Toyama Prefecture. In addition, the revised Pharmaceutical Affairs Act of April 2005 allowed overall contracted manufacture of pharmaceutical drugs. Faced with a reduction in the sale of drugs for household delivery, manufacturers in Toyama Prefecture aggressively invested in new plant to ensure that contracted manufacture would be a source of profit for them.

18The cooperative distribution of manufacturers means that producers in Toyama Prefecture jointly deal with logistics associated with the shipment and backhaul of raw materials. In the project, Collabo-Create (a company established by wholesaler Suzuken to specialize in the planning and control of cooperative distribution) manages the cooperative distribution of 13 manufacturers. This company is a non-asset-based third-party logistics (3PL) organization that designs optimum logistics programs to minimize overall shipping costs and outsource shipment to carriers or warehouse owners. It opened a new branch office in Toyama City, Toyama Prefecture and attempted to expand cooperative distribution by visiting the participating manufacturers regularly. This distribution includes the development of a cooperative delivery system with the carriers, the maintenance of procedure for transportation operations, the creation of a fee structure, the standardization of billing services, and the introduction of a delivery management system. Shipment through more than one production facility has led to an increase in transport efficiency and a decrease in the number of trucks by improving load efficiency.

19Assistance from public institutions also helps to promote cooperative distribution. Toyama Prefecture is presented as Kusuri no Toyama (a name indicating that pharmaceutical manufacture is the local industry in Toyama Prefecture) with the aim of making the region a center for the pharmaceutical industry. As a result, Toyama Prefecture’s administration is willing to help develop the industry, and advises the company on the Pharmaceutical Affairs Act. The Toyama Household Medicine Makers Association also plays a lead role in public utilities as an extra-governmental organization of Toyama Prefecture. As a result, it facilitates the participation of member pharmaceutical manufacturers through awareness campaigns to promote cooperative distribution (Fig. 6).

Figure 6. Broadband subscribers in selected countries of OECD (2008)

Figure 6. Broadband subscribers in selected countries of OECD (2008)

Document of Collabo-Create, 2008

20Raw materials are sourced jointly from individual manufacturers in the Tokyo metropolitan area, the Kansai region and the Tokai region, and products are shipped cooperatively on the same trucks (Fig. 7). The number of parent carriers is 16, and the number including sub-subcontractors is about 100. Collabo-Create is careful to secure orders for carriers in Toyama Prefecture in recognition of help from the local administration to stimulate the pharmaceutical industry in the region.

Figure 7. Cooperative distribution system

Figure 7. Cooperative distribution system

Source : Document of Collabo-Create, 2008

21Toyama Prefecture is midway between the Kansai region and the Tokyo metropolitan area in terms of distance, so offers great benefits associated with delivery. Trucks depart at 9 a.m., go through 73 centers over a period of 7 hours, and complete shipments from 8 a.m. to 10 a.m. the next morning (Fig. 8). Products are delivered using general roads in principle, as there is no pressure to shorten the lead time. It is also useful to develop cooperative distribution in this prefecture because of its concentration of printing offices and material manufacturers such as packaging material producers.

Figure 8. Location of customers

Figure 8. Location of customers

Source : Document of Collabo-Create, 2008

22Collabo-Create, which organizes the system of cooperative distribution, plays a role in adjusting interests among corporations as well as influencing demand and supply. In its daily ordering, the company connects order information from manufacturers and arranges mixed vehicles efficiently. For safety reasons, it practices quality control measures such as checking for odors or dirt and stabilizing products with cushioning materials. Participating manufacturers are therefore able to reduce uncertainty regarding sales while remaining unburdened by the costs associated with establishing distribution centers. Collabo-Create takes care of pharmaceutical delivery by balancing between exposure to risk in emergency delivery and ensuring security through quality control efforts, despite low profitability. The organization promotes its own position as a third-party body in support of specific companies. As a result, it can enlist help from pharmaceutical manufacturers by collaborating with public institutions. This cooperative distribution system was developed in Toyama Prefecture not only because the area is a center for pharmaceutical manufacturers located midway between the Kansai region and the Tokyo metropolitan area in terms of distance, but also because the company needs to cater for the coverage area of the prefecture and the parties concerned.

Factors related to local acceptance of ICT

23Drug wholesalers divert surplus funds to capital equipment and personnel expenditure to create new value-added services for their own profit-making motives in the restructuring of pharmaceutical distribution systems. They position these services as trial undertakings, and focus on the establishment of a business model that can act as a core enterprise within their long-term corporate strategies rather than aiming for short-term profitability. They hold the convenience of their customers as being more important than the profitability of the services they provide. As covering a specific area is a precondition for service provision, the geographical scope of such services is limited to the coverage area of the parties concerned based on the interests they hold. Although drug wholesalers can technically introduce ICT anywhere, in reality it is accepted within specific areas because of financial burdens such as the costs of ICT development and the promotion of a delivery system associated with ICT and the vested interests of those involved.

24In particular, a short-term and radical transformation of the business environment requires cooperative action to maintain a stable supply of prescribed drugs in specific areas. Past studies have noted that formerly trust-based business transactions in inter-firm relations would increasingly shift to competitive governance with the use of new ICT. However, this paper outlines how cooperative-oriented relationships have been given priority over competitive relationships with the aim of maximizing ICT utilization. This tendency is particularly applicable in that ICT is capable of relieving existing bottlenecks in the industry through coordination among the relevant parties. The logic that governs the behavior of these parties is the smooth transition to a stable system rather than short-term cost optimization. Of course, service is confined to certain parts of cities and set periods of time because of the immeasurable additional costs involved in the development of the provision system. In these case studies, the need to transfer products physically for exchanging information on distribution contributed to the local acceptance of ICT.


25ANT outlines theoretical considerations for interaction between ICT and social relations. This paper points out the geographical consequence that the actual scale of such interaction is limited to specific areas on the one hand, while on the other hand, ICT-based delivery systems for stable demand that need no coordination among the parties involved can spread over wide areas. Consequently, geographical scale is defined based on the presence or absence of the need for coordination. Such a need will be present when demand within a specific area is expected to become unstable in the short term.

26ICT is accepted at the national level when providing essential value-added services for stable demand on the one hand, and on the other is accepted at the local level when providing optional value-added services for unstable demand. These two types of ICT network are interwoven within the same region.

27Discussion of the spatiality of these relational networks means focusing on the relationships themselves. Accordingly, spatiality stemming from interaction between ICT and social relations cannot be grasped using existing spatiality-related dualistic concepts such as micro/macro or global/local approaches. It is also difficult to ascertain the spatiality of such networks by regarding cities as network nodes (Castells, 1996, 1997, 1998, 1999) or as places forming intersections in a network consisting of a bundle of social relations (Massey, 1991). These networks in developing cities or regions take various spatial scales and forms resulting from the endless fluidization of ICT for stability. It is necessary for networks of cities to be considered not only as economic networks but also as structures that intricately interweave cultural, social, political and institutional networks.

28Further geographical studies on ICT are needed to examine the geographical scopes within which ICT is accepted or rejected to enable consideration of the relationships among the relevant parties while focusing on the struggle for power in terms of the definition of spatial scale.

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Table des illustrations

Titre Figure 1. Pricing system of prescription drug
Crédits Tsutomu Nakamura
Fichier image/jpeg, 156k
Titre Figure 2. Change in number of employees of JPWA member companies
Crédits The Federation of Japan Pharmaceutical Wholesalers Association, 1998-2008
Fichier image/jpeg, 156k
Titre Figure 3. Market share of wholesalers in prescription drugs in fiscal 2007
Crédits Company’s websites, Crecon Report
Fichier image/jpeg, 148k
Titre Table 1. Net sales by the segment of major drug wholesalers in fiscal 2008
Légende Left: Sales volume (100 million yen), Right: Composition ratio (%)
Crédits Source: Each company’s statement of accounts, 2008. Processed by Supply Chain Logistics Community
Fichier image/jpeg, 304k
Titre Table 2. Value-added services by drug wholesalers
Crédits Source: Yasutaka (2007)
Fichier image/jpeg, 248k
Titre Figure 4. Local distribution system by Toho HD
Crédits Source : Website of each regional pharmaceutical association, 2007
Fichier image/jpeg, 216k
Titre Figure 5. Ordering system by mobile terminal of Toho HD
Crédits Source : Interview and website of Toho HD, 2007
Fichier image/jpeg, 224k
Titre Figure 6. Broadband subscribers in selected countries of OECD (2008)
Crédits Document of Collabo-Create, 2008
Fichier image/jpeg, 176k
Titre Figure 7. Cooperative distribution system
Crédits Source : Document of Collabo-Create, 2008
Fichier image/jpeg, 128k
Titre Figure 8. Location of customers
Crédits Source : Document of Collabo-Create, 2008
Fichier image/jpeg, 273k
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Tsutomu Nakamura

The Postdoctoral Fellow, the University of Tokyo, Department of Human Geography, the University of Tokyo, 3-8-1, Komaba, Meguro-ku, Tokyo, 153-8902, Japan, e-mail:

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