Insight | Case Study
About Apotek Hjärtat Apotek Hjärtat has more than 2300 employees and had a turnover of approximately SEK
7 billion in 2011. Their mission is to help customers achieve better health and well-being.
The company acquired 206 pharmacies in the deregulation in February 2010 and has since
April 2010 opened more than 65 new pharmacies. Apotek Hjärtat is owned by Altor Fund III
and operates through-out Sweden, from Tomelilla to Kiruna.
Staying profitable in a new competitive landscapeIn 2009, before the deregulation of the pharmacy market, Sweden had about 929
government-run pharmacies. After the decision to deregulate, two-thirds of these were sold
to private actors. The result was a competitive landscape with about 10 chains and several
individual players, many of them pure greenfield ventures. The largest actor is now
government-owned Apoteket AB (36 percent market share), followed by Apotek Hjärtat (21
percent) and Kronans Droghandel (14 percent).
Since the deregulation, the number of pharmacies in Sweden has risen by 34 percent1 .
While the higher pharmacy density has been positive for consumers, it has become highly
challenging for the companies involved. By the end of 2011, overall market growth had
Retail | Store Operations
Increased profitability, sales and efficiency by transforming store operations
Apotek Hjärtat, the second-
largest actor on Sweden’s
recently deregulated pharmacy
market, sought to improve
customer service and efficiency in
stores to increase customer
satisfaction and profitability. They
engaged BearingPoint to develop
and implement a store operations
program for all of its more than
270 pharmacies.
“The analysis phase gave us several new
insights to how our operations
functioned –for example, before, we
could never had imagine that almost
25% of our pharmacy personnel’s time
was spent on goods receiving/picking”
Jacob Calmvik,
Head of Business Development
stagnated. In that year, legacy stores (meaning those that had existed since before
deregulation) experienced an average sales decline of about 11 percent compared with
2010, having lost that business to newly opened pharmacies2.
In addition, statistics show that in 2011, general retailers captured almost 20 percent of
the Swedish market for non-prescription drugs. This represents a substantial risk to
pharmacies’ profitability, given that sales of non-prescription drugs generate higher
margins than sales of prescription drugs1.
During this market turbulence, Apotek Hjärtat also implemented a new IT system which
resulted in heavier workloads and a need for efficiency solutions.
Hence, the challenge for Apotek Hjärtat as a newly established company was two-fold.
First of all, they realized that they had to establish their own way of working; all routines
and processes were originated from Apoteket AB, the previous state monopoly. Second,
to manage profitability on this new, highly competitive market, they understood that
they had to achieve the following objectives:
• decreasecostsandworkmoreefficiently
• improvecustomerinteractioninstoretofitwiththenewmarketsituation
• increasesalesmarginsbysellingmorenon-prescriptiondrugsandtradedgoods
• openadditionalstorestostrengthenmarketposition
Apotek Hjärtat realized that a total transformation of their store operations was
necessary. The strategy was to implement a change program that would provide their
employees with standardized processes and tools to help them in their daily work.
Apotek Hjärtat knew that they were undertaking a tough journey, but that they had to
take control of their operations if they were to outperform competition.
Store operations improvement program through a three-phased approachIn cooperation with BearingPoint, Apotek Hjärtat began a store operations program that
featured three phases: analysis, design and implementation. The approach was to use
pilot stores to identify symptoms and root causes for poor performance; define industry-
leading practices; and test and validate new solutions.
Key findings from the analysis phase resulted in an extensive list of areas and specific
required improvements:
• Organization:createanorganizationalstructurethatmoreeffectivelysupportsthe
company’s operations
• Managementsystem:settheconditionsforeffectiveoperationscharacterizedby
improved efficiency and a businesslike mindset
• Staffplanning:staffingrequirements(schedulingintermsoftotalnumberof
employees and their roles at specific times of the day and week) should primarily be
determined by customer demand
• Processes:streamlineprocessesandredistributeemployeetimefromnon-value-
adding activities to value-creating ones
• Sales:implementabehavioralandculturalchangeamongemployeestodrive
increased sales and better margins
• Inventory:adaptinventorylevelstoimproveservicelevelsandreduceamountsof
tied-up capital
• Backroomorganization:reducedisruptivefactorsandcreateastructurethat
facilitates greater efficiency
The outcome of this list was a rollout package comprising training material including
tools, exercises and new store standards to be met by each pharmacy, and a rollout plan.
Retail | Store Operations
2 Insight | Case Study
Figure 1. Number of pharmacies for main
actors on the Swedish market 1
Figure 2. 41% do not welcome the
customer
Figure 3. Results from observations
41% 59%
Welcomes the customerDo not welcome the customer
Apotek Hjärtat, 270
Apoteket AB, 365
KronansDroghandel,
209
40%
11%
24%
10%
9%6%
Sales non-prescription drugs and traded goodsSales prescription drugsHandling goodsOtherAdministrationNon-value creating
Figure 4. The scheduling is not based on
customer demand.
The rollout was implemented using a train-the-trainer approach. BearingPoint provided
the regional managers with training sessions focusing on the methodology and rollout
package. The regional managers then trained their pharmacy managers, who in turn
trained their employees. The regional managers developed their own individual rollout
plans, gradually increasing the number of pharmacies involved in the training.
During the implementation phase, the regional managers held weekly meetings with
the pharmacy managers to track implementation status and decide on corrective
actions. A standardized follow-up tool was utilized for this purpose so that all
pharmacies were evaluated using the same criteria.
Throughout the project, Apotek Hjärtat and BearingPoint representatives worked
hand-in-hand, and a critical factor for the implementation’s success was that the
regional managers led the initiatives taken in their own pharmacies. In addition,
communication and a change of mindset among employees were two key factors for
success.
Sustainable results and value createdToday, Apotek Hjärtat is realizing the benefits from the store operations project.
Key financial results include:
• Morethan30percentofEBITAeffectswererealizedin2011,andatanannualrun
rate, total effects will be captured in 2014.
• Workingcapitalwasreducedby15percentwhileoverallcustomer-servicelevelswere
retained.
• Improvedworkprocessesandanewwayofworkingwithstaffplanningresultedin
greater productivity (weighted volume/number of work hours).
In addition, because personnel costs have been reduced, customers’ overall waiting
times have been cut – thanks to a combination of the standardized sales process and
improved usage of the new IT system. Waiting times are a critical KPI for pharmacies,
and the fierce competitive landscape has resulted in further pressure to serve customers
quickly.
However, the improvements encompassed more than just financial results. Apotek
Hjärtat has also benefited in the following ways:
• Newstore-managementsystemimplementedinallpharmacies,involvingtheuseof
new store standards; KPIs; roles and responsibilities; a daily checklist and so on
• Improvedworkclimateaftera5Sexercise(sort;setinorder;shine;standardize;
systematize) in accordance with Lean Six Sigma principles was performed in all
pharmacies as part of the rollout
• Moreeffectiveandstandardizedprocessesforordering,goodsreceiving,andgoods
flow
• Clearerorganizationalstructure
Looking aheadApotek Hjärtat’s transformation journey has just started. Although the initial change is
complete, continuous improvements are necessary to stay ahead of the competition.
Therefore, as a final step in the project, Apotek Hjärtat has appointed a store
development manager whose main responsibility is to monitor the quality of ongoing
efforts to improve store operations. As a complement to this, audits are performed on a
regular basis to help the company’s pharmacies remain compliant with the new store
standards of work that were implemented.
Insight | Case Study 3
“The effect of the project has been
significantly improved results, mainly
due to increased productivity, improved
processes and a thorough store
management system. The fourth quarter
of 2011 showed the best result since
Apotek Hjärtat was founded.”
Anders Nyberg
CEO
1) Sveriges Apoteksförening, branschrapport 2011, http://www.sverigesapoteksforening.se/apoteksbranschens-arsrapport-2011/2) Årsredovisning, ApoPharm Holding AB 2011
Figure 5. Effect on main KPI:s from
implementation
15 17 19 21 23 25 27 29 31 33 35 37 39 41 43
15 17 19 21 23 25 27 29 31 33 35 37 39 41 43
Productivity
Customer service rate
02468
101214
7 8 9 10 11 12 13 14 15 16 17 18
Staffing need based on customer demandActual staffing of pharmacy
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Insight | Case Study
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