Vertical industry brief Pharmaceutical and healthcare

Transcription

1 Vertical industry brief Pharmaceutical and healthcare

2 Production and design: Global Sales and Marketing department IBS, ASW and IBS VIRTUAL ENTERPRISE are registered trademarks of IBS AB, in the European Union and in other countries. IBM, AS/400, iseries, Lotus Notes, and WebSphere are registered trademarks of International Business Machines Corporation. All other trademarks or registered trademarks mentioned herein are the property of their respective holders. The information contained in this document is summary in nature, subject to change and intended for general information only. The details pertaining to functionality and routines are based on IBS software, post release For updates of this information, please contact your local IBS representative. Copyright IBS 2003.

3 Content Introduction Market situation and trends 4 Pressures on total distribution margins Mass market channels for OTC and wellness products Growth of pharmacy chains Pharmacists have more bargaining power Consolidation vertically and horizontally Profits from generics Managing the supply chain Implications on pharmaceutical distribution IBS software - a competitive advantage 9 Tailored for the pharmaceutical industry 10 Introduction The global pharmaceutical distribution industry generated sales in excess of USD 400b in Wholesale distributors occupy an essential niche in the pharmaceutical supply chain. Some 2,000 companies develop, market and distribute tens of thousands of different pharmaceutical products to hospitals, pharmacies, and other healthcare institutions. Pharmaceutical wholesalers are the lifeline within the pharmaceutical industry, providing the continuity of supply and facilities for storage. They also offer a range of supporting services, such as information technology systems and product withdrawal notifications, which form an essential part of the total healthcare package. These companies and institutions all operate in an environment where speed and efficiency may mean the difference between life and death. 3

4 Pressure to: Maintain high customer service levels Provide product and price information Maintain low prices and constant availability Handle production tasks Manage supplier inventory Ensure fast distribution times Provide constant information on sales Maintain costs of medicine within guidelines Manage emergency stocks Adapt to new market regulations Stay ahead of the competition. Market situation and trends The pharmaceutical industry is highly competitive, regulated and in a permanent state of change. Customers demand instant attention, while suppliers require comprehensive leading-edge services with regard to their products. Regulatory authorities such as the U.S. Food and Drug Administration require that the industry keep up-to-date with regulations, following them to the letter. Competitors are always inventing new ways to gain market share, while e-business presents new opportunities and challenges. All the while the pressure to reduce prices and to shorten order cycles is high. The pharmaceutical industry has both the financial strength and the willingness to make the investment necessary to remain on the leading edge. However, the industry has a number of specific requirements that are critical for achieving success in the distribution sector. Pressures on total distribution margins Customers require outstanding service regardless of time and place. Information on products, prices and special offers is required to be available through first-class information services. Constant availability of products, low prices, additional services and frequent deliveries is taken for granted. Pharmaceutical distributors need to achieve extraordinarily high customer service levels in order to succeed Suppliers also demand excellent services for their products. These services range from taking over production tasks, marketing and national product certifications to handling direct supplier orders, labelling and storing products and delivery to end users. Information is essential and suppliers expect to receive daily product sales and stock balances online. Healthcare providers are under constant pressure to keep within government cost guidelines. They turn to the pharmaceutical distributors to help minimise their total procurement costs and to maintain contingency stocks of medical supplies and vaccines to help overcome medical emergencies. At the same time, distributors are expected to follow stringent and everchanging regulations for product storage and supply chain lot control, and to adapt to new market regulations such as those controlling Internet pharmacies. Companies constantly create new ideas to leverage their business over their competitors in the same marketplace. They will do everything possible to attract new customers and to retain exclusive distribution or pricing agreements with suppliers. Services can be extended to include new product lines while implementing new pricing schemes or even offering better financial incentives, such as extended credit, to customers. Pharmaceutical distributors must remain vigilant to prevent margin erosion and losing market share. 4

5 Mass market channels for OTC and wellness products Traditional healthcare relies on the physician as the primary driving force for pharma-ceuticals. With the explosive growth of alternative medicines, such as natural products, health foods and vitamin supplements combined with Internet pharmacies, direct to consumer advertising, and the availability of over-the-counter (OTC) drugs, consumers are now playing a greater role in decisions regarding their health. The result is a more vibrant healthcare environment where the consumer takes centre stage. This trend has led to some retailers establishing wellness centres focused on helping the consumer maintain good levels of health. As a result, pharmaceutical wholesalers and distributors are expected to carry an even broader range of products including vitamins and natural products. Inventory levels increase and the already slim profit margins are threatened. Powerful logistics software is needed to manage the growing inventories in order to stay profitable. Functionality to: Manage a growing product range Provide increasingly complex packaging Combat lower profit margins for the distributors Allow back-office systems to communicate with multiple companies Handle credit checks Enable charge-backs Handle various pricing models. Growth of pharmacy chains A current trend in a number of markets has been the establishment of large pharmacy chains. Most retail chains carry their own pharmacybranded products. These products must be delivered in pre-determined packaging complete with labels. As these chains are large and operate across large geographic areas, they can demand strict operating practices and lower prices. Wholesalers and distributors see their value-added requirements increase as narrow margins reduce even further. To combat margin erosion, wholesalers have begun acquiring pharmacy chains. This creates the need for a back office system that is able to maintain contact with each of the pharmacies that comprise the chain. Pharmacists have more bargaining power Distribution customers in the pharmaceutical industry range from individual doctors running their own practices to large city hospitals and longterm care facilities. Operating budgets are tight, making the healthcare institutions very cost-conscious. At the same time, governments are under pressure to improve healthcare services without tax increases. All parties expect pharmaceutical distributors to help reduce the total procurement costs of medical supplies despite their already pressed margins. The price of drugs and medical supplies in the pharmaceutical industry is directly related to volume. Larger purchase volumes lead to lower prices. This phenomenon has led to small independent pharmacies banding together and to hospitals combining their purchasing power through group purchasing organisations (GPOs) to take advantage of volume discounts. The rise in GPOs has made it increasingly complex to manage contracts, rebates and charge-backs. Visibility and pricing traceability throughout the supply chain are prerequisites. This creates some very specific IT needs for distributors who require thorough credit checks on individual clients and must handle charge-backs between manufacturers and buyers in order to maintain narrow margins. Handling various pricing models such as contract pricing, multiple price lists, sales promotions, annual rebates and discounts is crucial. 5

6 Opportunities: Patent expirations over the horizon Larger profit margins on generics. Profits from generics A generic drug is a chemically equivalent, lower-cost version of a brandname drug. The generic version becomes available when the brand-name drug's patent protection expires. Generics contain the same active substance, comply with the same stringent rules of production and pharmacovigilance and show the same quality, safety and efficacy as the original branded products. As it is less expensive to make and sell generic drugs, these savings are reflected in lower prices. Unlike the manufacturers of brand-name drugs, the makers of generics do not have to spend as much money on research and development, marketing and advertising. In most countries, generics are sold at percent of the price of the original drug. This has led to exponential growth in the market for generics and created a battle for market share, leading to price erosion of the original brands. Significant patent expirations in the pipeline over the next few years means that more and more companies will try to benefit from this trend. This is good news for wholesalers and distributors. They can earn larger profits on generics than on brand-name medicines and still offer prices that are typically well below those of brand-name drugs. Consolidation vertically and horizontally Reducing time-to-market for new products and services is critical within the pharmaceutical industry. Companies are forming global alliances with research and development firms and growing through mergers and acquisitions to ensure faster product development cycles. In the 1990s, the world's top ten pharmaceutical players accounted for 28 percent of the global market. Just ten years later, we see an industry that is heavily consolidated both horizontally and vertically, with the top ten estimated to own percent of the market. Critical factors include: Compliance with government regulations Error minimisation Strict warehousing conditions Large transaction volumes Time constraints. These conditions create challenges for companies to find more rapid and less expensive ways of global knowledge transfer, while at the same time ensuring compliance with ever-changing government regulations. The immense costs involved in the research and development of new drugs and medical treatments generate numerous complicated business partnerships and virtual partnerships. Other critical factors are error minimisation (defects), strict warehousing conditions and the added challenges of incredibly large transaction volumes that are severely pressured by time constraints. 6

7 Managing the supply chain The continuity of supply and guaranteed availability of medicines are crucial to the unique dynamics of the pharmaceutical market. Classic rules of supply and demand only apply in a limited sense to pharmaceuticals, as it is doctors and physicians, through prescribing choices, who are the key influencers of demand. Moreover, the classic model of the supply chain does not apply to the pharmaceutical industry. Physicians can procure their supplies from pharmacies, wholesalers, or suppliers, leading to a complex supply chain model. Distributors must: Keep order and delivery cycle times short Comply with government regulations Respond rapidly to emergency situations. While firmly established in other industries, the use of third-party logistics (3PL) services for distribution and product tracking is a relatively new trend in the pharmaceutical industry. It offers companies an attractive way of reducing their supply chain costs while focusing on their core business. These logistics providers help wholesalers reduce capital spending by eliminating such assets as warehouses and delivery vehicles, reducing working capital tied to inventory, saving on personnel costs and complying with government regulations. Logistics specialists also typically take ownership of the inventory to further finance their customers' activities. The significance of speedy availability of drugs and medical supplies has a heightened importance in today's world, where events such as natural disasters, bio-terrorism attacks or sudden viral disease outbreaks require a rapid response. Pharmaceutical companies must maintain stocks to keep their order and delivery cycle times as low as possible. Furthermore, efficient cycle times can help boost sales, as producers are able to respond to market trends more quickly, reducing stock-out costs. Such services demand the use of sophisticated information systems to optimise planning and the flow of information through the supply chain. With IBS' high-performing software and industry-specific competence we see an opportunity to take the advantage over our competitors. Roger Cavillier, General Manager, Alloga 7

8 Implications on pharmaceutical distribution The pharmaceutical market is in a constant state of change and the demand to continuously adapt expansive supporting systems is extreme. As companies grow through mergers, acquisitions and alliances, it becomes increasingly important to have a system that is easy to maintain and integrate - across multiple facilities, locations, platforms, regions and languages. Pharmaceutical distribution places a heavy burden on the operational and logistics resources of any company. Industry-specific regulations and institutional requirements - together with forecasting, procurement, customer service, picking, dispatch and physical inventory - all require special treatment. Exceptionally powerful software is required to handle the extremely large transaction volumes created in day-to-day business. These are all important factors for any pharmaceutical company to consider when looking for a software solution which will provide a competitive advantage. This solution must provide the ability to meet individual customer's expectations and service levels while protecting and optimising profits. Many wholesale distribution companies are experiencing difficult times when confronted with low profit margins, increased government regulation, pressure from pricing controls and fierce competition. The increasing use of the Internet to access new and existing channel partners and changes in pharmaceutical product procurement has left the industry in a state of flux. A change is required in the approach taken for pharmaceutical product distribution. 8

9 IBS software - a competitive advantage The pharmaceutical industry is one of IBS' priority target markets. The company works with major pharmaceutical companies to distribute some of the most carefully controlled substances in the world. Based on ASW - IBS' integrated business software solution - IBS PHARMA is designed to address the critical requirements of pharmaceutical distribution. The software solution supports the tracking and distribution of drugs (narcotics), biotechnology products, medical supplies and extremely hazardous materials. Uncompromising lot control and quality assurance make the pharmaceutical industry process model one of the most demanding challenges within distribution and supply chain management. ASW is a world-leading business software suite for distribution and supply chain management. It is designed to fulfil the requirements of worldwide business-to-business trading. According to studies conducted by AMR Research and Frost & Sullivan in 2001, IBS is the market leader for supply chain execution software. IBS is also ranked among the top three globally active SCM suppliers. IBS solution for pharmaceutical distribution Solution: Software: ASW Modules: ASW BUSINESS PARTNER REQUEST ASW DISTRIBUTION ASW INVENTORY CONTROL ASW MULTI DISTRIBUTION CENTRE ASW NETSTORE ASW WAREHOUSE MANAGEMENT IBS PHARMA Hardware: IBM iseries eservers The industry focus puts IBS at the forefront of fully integrated products that are tailored to fit the needs of the industry - pharmaceutical applications designed to address critical issues in order to achieve excellent business performance. IBS PHARMA will enable distributors to: Handle high order volumes during peak hours Achieve improved control of inventory Abide by the rules and regulations connected with pharmaceutical distribution Achieve required service levels Achieve required quality levels Increase profit margins. IBS provides the pharmaceutical distribution sector with a complete solution spanning hardware, software and service. The company can take full responsibility for the entire customer installation as a one-stopshop supplier. The systems and services have a high level of security and are extremely reliable. Our goal is to base our distribution, between manufacturing and retail sales, on the most reliable foundation possible. Prof. Michel Troyon, CIO and Board Member, Galenica AG ASW is designed to increase return on investment, efficiency, profitability, productivity and to keep expenses down. At the same time, it enhances customer service and growth. IBS industry experts and the Global Competence Centre in Germany provide an unmatched level of expertise for the pharmaceutical distribution industry. Our experts work closely with customers to fully understand the business processes, anticipate future requirements and to configure the best solutions. IBS' service portfolio offers a broad range of professional services, including the mapping of business processes, technical know-how and implementation, training, project management and pure business consulting. The services are characterised by quality and competence. IBS' consultants have profound knowledge about the customers' business operations and provide continuous service after the implementation. This long-term partnership generates major benefits for our customers in terms of time and money and is one of the reasons why IBS repeatedly ranks very high in customer satisfaction ratings. 9

10 Tailored for the pharmaceutical industry IBS PHARMA - IBS' integrated IT solution - is tailored for the pharmaceutical distribution industry and addresses the needs of wholesalers, pre-wholesalers, manufacturers and logistics and warehousing companies. IBS PHARMA has a +90 percent functional product fit for the pharmaceutical distribution industry. The solution focuses on all key areas of pharmaceutical distribution: sales order management, e-business, inventory control, procurement, warehousing, logistics, financials and business intelligence and control. Integrated tools for business analysis can enable you to maximise profits and control critical success factors such as: Periodical improvements in Key Performance Indicators (KPI) and subsequent ROI Fill rates and on-time deliveries Business partner performance overviews based on item and customer profitability Operational costs Procurement Optimised supply chains and collaboration Automated business processes Automated decision support. We found in IBS the best partnership to support and develop our business with security, commitment, functionality and lower costs. Celso Pereira, Financial Manager, Audifar The IT solution combines the use of secure, reliable servers, operational models and pharmaceutical application software. IBS PHARMA provides up-to-the minute status of all processes in the supply chain processing in excess of 2.0 million order lines per hour with enquiry response time of 0.04 seconds. With advanced customer-oriented functionality that focuses on performance and service, IBS PHARMA is built to address your needs. The software solution has been designed to address a number of issues arising from the highly specific needs of the pharmaceutical distribution industry and fully supports: Enhanced sales features Call and contact planning - Call plans define daily work schedules for your sales operatives and provide such information as time to call, customer information, contact names and telephone numbers. Sales orders can be placed directly from the contact plan. You can gain a unique advantage over your competitors. Electronic order entry - For your company to process a large volume of daily orders, it may be necessary to receive orders electronically. IBS PHARMA allows orders to be received via EDI, XML, web services, direct communication lines, PC or PDA devices. A stock availability request is performed automatically, and an immediate availability response is returned together with shipping details and timing. Electronic communication can shorten lead-times and result in increased customer satisfaction, as errors are minimised. 10

11 Sales restrictions - In accordance with varying legal requirements, you may not be allowed to sell all items to all customers. You must be able to limit certain items, such as narcotics, to specific customer groups. Furthermore, functionality for dangerous goods handling and exception item storage is imperative. This ensures security and accuracy throughout the supply chain. Functionality also includes dangerous goods handling and exception item storage. Order line pricing - Pricing in the pharmaceutical distribution industry needs to be flexible, allowing for various pricing models. Your software solution must be able to handle contract pricing, multiple price lists, sales promotions, rebates and discounting. Automatic order line pricing results in faster invoicing, improved accuracy and reduced days outstanding. Phonetic searching - A source of costly errors is the mispronunciation and consequent misspelling of pharmacological terms, products names and medical expressions. Phonetic correction allows you to easily look up the correct product name. For example, if you enter the letter 'F', the system will automatically include 'PH' in the search function and correct the product name and description spelling in the order line. This 'fuzzy matching' reduces human error and saves valuable time. Returns handling - Returns must be handled quickly and efficiently. A range of return codes can be configured to reflect any scenario - from wrong delivery to damaged goods. IBS PHARMA allows you to work with mandatory return reason codes at the order line level to enhance the quality control process and avoid re-occurring defects. Wake-up call - Sometimes it is necessary to remind your customers that it is time to place a sales order to ensure an afternoon delivery. IBS PHARMA can inititiate an automatic wake-up call to remind customers to place sales orders before the route plan is started. This can result in increased customer satisfaction and shorter lead-times. Alert capability - IBS PHARMA allows you to configure any number of events, based on an infinite combination of parameters, to automatically monitor your entire system and create alerts that notify you of adverse occurrences. Business partner requests can be monitored by the system's alert management tools, resulting in immediate messaging of exception based events to your staff. If a change in an order is observed by the system, immediate notification is possible by , system message, mobile phone text message, or other means. This is helpful for late orders, quantity differences, price differences, re-planning notification, or anything affecting the customer's order. You can rest assured that your processes are always running at optimum performance, and that action can be taken to avoid costly delays and errors. 11

12 Enhanced procurement features Purchase order creation - Due to the sheer number of products that are held at multiple distribution centres, and the need to achieve a high customer service level, automating procurement is crucial. The IBS solution provides several options to simplify the order creation procedure. These options can enable you to reduce errors associated with data entry and speed up delivery times. These alternatives include: - Manual purchase order entry - Copy an existing purchase order - Create a purchase order from a requisition - Create a purchase order from a supplier quotation - Create a purchase order from purchase suggestion - Automatic creation of purchase order from sales orders (back to back orders). Emergency procurement - When the system detects a sudden change in customer buying patterns, an emergency procurement suggestion is triggered outside of the usual purchase plans. This reduces the risk of unexpected stock-out scenarios for you. 12

13 Enhanced logistics and distribution features Consolidated pick and ship - Picking in a warehouse must be quick and efficient, and it is vital to consolidate morning orders. In practice, this means that a collection of individual picking lists is grouped together under one consolidation number. Multiple orders from each of your customers also require consolidation so that all products are picked at the same time. In order to facilitate the loading of vans, IBS PHARMA includes information about total weight and volume, route and preferred vehicle on the pick lists. Interface with warehouse automation systems - Warehouses are typically large and may contain in excess of 100,000 different products. Most large distribution centres will have automated picking systems, such as Peem or Knapp, to cope with the large order volumes and the extensive range of products. The system interfaces with these warehouse automation systems and supports such functions as 'container routing', 'send pick instructions' and 'receive pick confirmation'. Interfacing results in shorter lead-times, reduced delivery errors and, ultimately, increased customer satisfaction. Narcotics control - Most countries have legal restrictions on the handling of narcotics. You are expected to report storage, stock movements, transportation, procurement and sales to the appropriate legal authority. IBS PHARMA reports all of this information for you, in the format required by the local authority in question. You can spend more time concentrating on your core business. Route planning - A route is defined to cover a sequence of customers in a specific region where products are to be delivered. Route planning enhances the delivery process and lessens the delivery time to the customer, resulting in increased customer satisfaction. Furthermore, all applications are multi-language, multi-currency and multi-company and, where appropriate, equipped to handle all major international and national regulations for VAT, taxes and reporting. These are essential functionalities for any company operating in the pharmaceutical distribution industry. We expect that the IBS system will generate very substantial annual savings. It's a win-win situation.' Phillippe Milliet, Board Member, Galenica AG 13

14 Modular software solution You can select the software components you need from a broad range of fully integrated options. IBS software is designed to incorporate new release upgrades and functional enhancements with the least possible impact on operation time and costs. You can step up to new e-business and supply chain opportunities at a pace that suits your company. The flexible nature of IBS PHARMA, and its ease of configuration, enables it to encompass new business models as they arise. This ease of configuration allows for a fast and successful implementation. Your operations will function at an optimum level very quickly. IBS has a unique position with its software solution for the pharmaceutical distribution market and will continue the research and development to keep ahead of the competition. With a global network of subsidiaries and business partners - software and services available in local languages - IBS offers you fast, easy-to-use and highly cost-efficient systems that help to achieve success in the rapidly changing pharmaceutical market. IBS has the right software for you, and the experience of worldwide installations. Are you interested in finding out more? Contact IBS today - pharma@ibs.net or visit 14

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16 IBS is a world leading provider of supply chain management solutions for distribution, demand-driven manufacturing, financials and business intelligence. IBS delivers measurable value through software solutions, services, hardware, outsourcing and financing. IBS offers industry solutions for pharmaceuticals, healthcare products and medical equipment with Alloga, Amerisource Bergen, Clarins, Galexis and Oriola among its 5,000 customers in 40 countries. IBS corporate headquarters: pharma@ibs.net