A Location Intelligent Tool for Finding an Optimal Location for a Retail Pharmacy using Geographic Information Systems

BG Premasudha¹ and Shivakumar Swamy²

¹Dr. MGR University, Chennai, India

²Mallige College of Pharmacy, Silvepura, Chikkabanavara Post Bangalore-90, India

ABSTRACT

The Pharmacy retail sector in India is witnessing unparalleled growth. Unmatched demographics, rising income levels, shifting lifestyles and changing aspirations of the burgeoning middle class has unleashed a pharmacy retail revolution in the country. Fresh Pharmacy retail geographic’s are emerging, innovative formats are being introduced and retailers are tapping into new customer segments with prolific product offerings. The pharmacy retail trade in India, which is highly fragmented and dominated by small chemists, is seeing entry of big industrial groups like Ranbaxy, Reliance Retail, etc. The Geographical Information System (GIS) is used today at retail planning application studies such as the analysis of business results, market potentials and new retail outlet location. GIS tool offer a strong support to this process. This paper presents the use of GIS as a tool in determining the optimal location to open a new retail pharmacy in Tumkur city in India.

Keywords: GIS, retail location, retail Pharmacy planning, Market zone.

INTRODUCTION

Pharmacy retail location is one of foremost key to the growth of organized retail in India. The value of location as a business measure is fast becoming an important consideration for organizations ^1. Making better site location decisions for the retail sector is about staying ahead of the competition, entering a new market, or just familiarizing oneself with the advancements in methods and technology ^2.The use of GIS is becoming more prevalent in both day-to-day and strategic decision-making by retailers ^3. It increases the retail analyst’s ability to quantify spatial attributes and to add these into the analytical mix alongside more traditional measures such as sales area and turnover ^4. GIS vary in terms of their scope and sophistication but it acts as a powerful technology in terms of data storage, analysis and visualization, with the ability to combine information and mapping systems as analytical and modeling tools ^5. GIS can be applied to many aspects of the Pharmacy Retail planners like constructing demography, sales and competitive analysis, finding the best location for new retail outlet, analysis of business results, market potentials, scheduling, route deliveries, providing better customer care and information ^1.

Though globally, GIS is emerging as a powerful location intelligence tool but retailers in India are still not using GIS much. Although, the usage of GIS-based technologies is currently nascent in India, it is picking up at a fast pace as more and more users realize its benefits. Due to current economic climate and increased competition, it is becoming ever more important for retailers to monitor their trade areas, assess the impact of competition, and choose new retail pharmacy location strategically ^6. This paper presents the use of GIS in pharmacy retailing to take a strategic decision in finding optimal location for setting up of new retail pharmacy by taking Tumkur city in India as an example.

METHOD:

There are two approaches to solve the pharmacy retail outlet location problem.

Non-system approach is one type where it relies on observing the environment or imitating local competitors’ solutions, the other is systems approach process which takes market zone size and potentials into consideration⁶. The general ”desirable” attributes of market zones will considered the following parameters like construction of new pharmacy retail shop, growth of business or of population gravitating towards these businesses^7. Taking all these factors into account, we have observed that it is always better to locate a retail outlet in an area under development or construction.

The characteristics of existing market zones do not depend exclusively on the business you are in; rather, they depend on competitors’ locations and characteristics. Thus we may consider the so-called saturation index, I, of a zone. This index expresses the ratio of business “space” planned for retail activities to the maximum value of this space achievable in any market zone. The Market zone modeling based on competitors’ locations analysis defines various approaches in estimating competitors’ influence, i.e., users’ gravitation to a particular market zone. According to one formulation, known in the literature as the Reilly law of retail gravitation, “The attraction of a consumer to a given retailer is directly proportional to the quality of retailer and inversely proportional to the distance to the retailer” ^8. This approach may be used, together with GIS, for generating polygons on a map in which a line of “demarcation” from competitors is shown clearly.

Estimating the number of customers on each potential location is a very important step in which we should forecast the number of potential customers according to any point in which a Pharmacy retail outlet exists. This step involves the following activities like

• Identifying ”the origin and gravitation” of retail service customers, this activity is intended to observe, estimate and map”the origin” of existing customers. It may be performed using a variety of sources like statistical data from an existing pharmacy outlet, the available databases of ward details are mapped and are also very useful for intra-zone analyses as well as for estimating market” penetration”.

•Statistical analyses are mainly referred to systematic monitoring of demand and costs for each outlet in order to achieve the best possible business result. The sale expectations at a point”j” with customers at a point ”i” may be increased through higher outlet attractivity.

• Geodemographic marketing approach assumes that some pharmacy retail markets are highly fragmented in a geographical sense. It helps to make conclusions based on data collected in” the neighborhood”. Activities mentioned in this are represented as the guidelines in solving these complicated multidisciplinary problems are addressed in the following sections.

3. RESULTS:

The main advantage of GIS is the possibility of integrating spatial and alphanumeric data has made it widely applicable to a variety of fields. Some of the fields in which GIS is applied successfully include location analysis, route and timetable scheduling, market analysis, urban construction planning, cost analyses, cadastral data and resource allocation ^{9 .}GIS is by no means a system that will give a final solution to a user, but it will provide the possibilities for a better and more organized analysis of information, which is a prerequisite for making quality decisions. Our analysis of pharmacy retail outlet locations is supported by MapInfo software package for Desktop Mapping ^10. We also created vector maps of the Tumkur city,

Karnataka, India and the required databases like demographic data, business demography, portions of urban infrastructure databases as well as databases of existing Pharmacy retail outlets.

3.1. Databases:

Geographical information systems can be developed successfully only with today’s database management systems. Database management is described as linking topology data and attributes to geographical elements (a point, line, and polygon). In location analysis and pharmacy retail outlet capacity design, we used databases like demographical data and data bases on existing pharmacy.

Demographical data:

To form a demographical database, initial data’s are collected from the Tumkur city corporation office, Tumkur District Health office and Assistant Drug controller office. A demographic database is created with the following attributes: a street code, house and existing pharmacy numbers, population density in an area, number of hospitals and private practitioners and road details.

Database on existing pharmacy retail outlets:

To analyze the position of an existing pharmacy outlet and to find new locations, we have collected the data on type of services, average turnover, average expenses, the number of employees, and ownership of existing retail pharmacies in the area of Tumkur city. These data are used to estimate retail outlet profitability.

3.2. Vector maps:

A vector map for Tumkur city has been made on the basis of geodesic survey data sets and positioning of points using a GPS receiver. The position of the existing retail outlets on a city map has been marked by a geocoding procedure. Pharmacy retail outlets have been positioned on a city map by connecting the coordinates and addresses of objects on a vector map. On the other hand, information on the number of inhabitants living in a zone has been associated to each object. Data from the above mentioned databases are represented on a map in the form of a number of layers:

• City street network – on selecting a street on a map, information like street name, number of hospitals and existing pharmacies are displayed.

• Positions of residential objects – on selecting any building, information on a street, and the number of inhabitants (household members) are displayed.

• Positions of business objects – on selecting a firm, information on its name, business activity code, address and the assigned weight are displayed.

• Locations of existing retail outlets – on selecting a retail outlet, information with its name, volume of services, income, expenses and ownership are displayed.

• Public transport stations and routes – on selecting a station, all lines passing through it are displayed.

The stated layers represent a basis for forming additional layers that will be used in the analysis.

3.3. Market zones:

The population certainly does not gravitate towards the center every day in order to carry out some everyday activities. The aim is to divide the city area into zones that contain some local center towards which the population gravitates every day [8]. For the purposes of this research we assumed a criterion stating that at least one retail outlet should be positioned in each market zone. In determining the market zones the boundaries of housing units have been used a parameter. A housing unit is the basic functional unit of urban structure whose size depends on the following factors:

• Spatial-functional structure and arrangement of objects – Depends on the type of construction and objects we can define the number of inhabitants as an important factor in defining a market zone.

• Social organization concept – As far as this aspect is concerned, the smallest unit for which accompanying facilities are constructed consists of 5-6 thousand inhabitants. For which 3-4 of pharmacy retail shops are assumed as optimal.

• Functional concept of distance –Centrally placed accompanying functions would permit distances shorter than 0.75 km between existing two retail outlets with in the ward or from the neighboring wards is assumed as optimal.

4. DISCUSSIONS:

A wide variety of results are obtained by applying the procedure described. A part of these results refers to locations (optimal and alternative) and a part to market zones in which optimal locations are positioned. As it has been stated, the problem of finding an optimal retail outlet location is multidisciplinary in nature, i.e., in addition to finding the best solutions in the sense of a minimum distance covered it is also necessary to resolve dilemmas regarding optimal market potentials (demand for services) and make decisions on alternative locations within a market zone. The project “Location Analysis” is also intended to provide support to “Franchising in any Pharmacy retail outlet” Program, which represents a strategic approach to a retail network reengineering process. The following requirements are needed in location analysis for Pharmacy retail outlets in Tumkur city:

• Accessibility criterion – a pharmacy retail outlet should be accessible to users within a distance shorter than 0.75 km

• In each market zone it is necessary to determine the location of at least one pharmacy retail outlet. The analyses may also be grouped into two categories:

• Reports relating to layers formed on a vector map

• Reports relating to market zones

4.1. Reports relating to layers formed on a vector map:

Using MapInfo a GIS tool to design this analysis, the following thematic layers have been formed on the vector map of Tumkur

• Street network with the existing Pharmacy retail outlets and market zones

• positions of Pharmacies and population density

• ideal and potential retail pharmacy outlet locations

• market zones are partitioned by each ward boundary lines circumscribing with pharmacy retail outlets (accessibility criterion)

• forecasted population gravitation towards ideal locations.

It may be seen from the presented map that nearly the entire Tumkur city is divided in to 35 zones and covered by the specified accessibility criterion. The parts of city that are not covered with pharmacies are areas with minimum population densities, new extension zones, lake area , parks and some areas away from main roads.

The described analyses and reports lead to the following conclusions:

• 175 Pharmacy retail outlet locations have been analyzed.

• There are 4 market zones without a Pharmacy retail outlet.

• 28 Pharmacy retail outlets are not situated on optimal locations.

• 39 retail outlets are “overloaded”, which results in a poorer quality of service

• 20 of retail outlets do not achieve satisfactory profitability.

• 128 pharmacy retail outlets are in rented buildings and 47 are in own buildings.

• 95 pharmacy retail shops have appointed qualified pharmacists and remaining were owner cum qualified pharmacists.

• 14 pharmacies are attached to hospital or nursing homes.

• 78 pharmacies are neighbors of private practitioners (Doctors).

• 6 wards have less than 3 numbers of pharmacies and population of each ward is more than 6000.

• There are 6 wards where we can result with saturation index in which we cannot propose any new shops and these zones are located at the central part of the city.

4.2. Reports relating to market zones:

We have designed a user inter face to visualize the following market zone analysis

• Hospital and Private practitioners attached pharmacies

• Zones where no pharmacies are present with the display of current population profiles

• Distributions and display of existing Pharmacies on all roads

• Population and existing pharmacies business details in zone wise

In addition, we have created individual reports for all 35 market zones with the following data like the name, address of proposed location, the number of inhabitants and existing pharmacies and their road networks.

We have taken Hanumantapura market zone to study and propose a suitable location for setting up of new retail pharmacy. This market zone is newly constructed area with the 7030 inhabitants. There are two existing Pharmacy retail outlets and two private practitioners in this zone definitely create good business for new Pharmacy retail shop. Through high-quality capacity design one with considerably higher profitability could substitute two retail outlets. The proposal for new Pharmacy retail shop is visualized and analyzed by calculating the distance between two existing nearest pharmacies is 0.88 km as shown in figure 2.On application of our strategy using GIS tool we proposed setting up of one new retail pharmacy at the junction of 4 main roads in Hanumanthapura market zone as shown in Figure.3.

5. CONCLUSIONS:

Pharmacy Retail location decisions are said to be the most fundamental decisions because it facilitates getting the merchandise to the ultimate consumer at the right place, right time and right quantities. For the problem addressed in this paper, finding optimal Pharmacy retail outlet location, criteria to be considered will include: profitability, quality of service, urban construction criteria. Location decisions are strategically important for the pharmacy retailer because they help in developing sustainable competitive advantage over the competitors that cannot be copied at any cost. Given a bright growth picture of Indian pharmacy retail sector, retailers need to use information technology more intelligently to manage their retail businesses. It can be concluded that GIS helps retailers to make strategic business plans with an exclusive set of planning services which helps them to make decisions in various competitive retail business segments. Thus, pharmacy retailers can go beyond standard data analysis by using GIS tools to integrate, view, and analyze data using geography.

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