Business Insights for the Demand-driven Enterprise

John McGrory on achieving channel control and becoming a demand-driven enterprise.

For pharmaceutical manufacturers, achieving channel control and becoming a demand-driven enterprise require unique business insight that can only be gained from real-time transaction analysis coupled with deep analysis of developing business trends.

In recent years, pharmaceutical manufacturers and wholesalers have increasingly struggled to gain control over the distribution channel. Without insight into demand fluctuations, manufacturers cannot determine appropriate inventory levels in the channel. Facing similar uncertainties, wholesalers often have no choice but to speculate on product supply, patient demand, and pricing changes. This issue of channel control, coupled with concerns around regulatory compliance and patient safety, has really emerged as the core challenge for the pharmaceutical industry today.

At the most basic level, the best way to achieve channel control is to have visibility into all channel activity, and the key to gaining visibility across the channel is having timely, consistent, and complete data. With fee-for-service agreements gaining acceptance in the pharmaceutical industry, wholesalers are delivering data to manufacturers and forcing them to make sense of it, a significant challenge without adequate enabling technology.

Multiple methods of analysis are required
Beneath this wave of available channel data, manufacturers are struggling to do even the most basic analyses. At any point in time, does a brand manager know if the amount of inventory in a particular region is sufficient to support a product launch? She probably doesn’t, but she will know with some certainty at the end of the month, after she has fielded all the phone calls and reviewed her management reports. At that point, however, the damage has been done, and all she can do is apply those painful lessons in the following month.

To truly take control of the channel, manufacturers must evaluate channel data and transactions upon arrival, analyze them in real-time, and optimize decisions on those transactions against key business policies. Manufacturers also need the ability to identify trends and to derive deep insight through ad-hoc analyses to anticipate changes in their business environment. The manufacturer that can do both types of analyses will gain a competitive advantage and will be well on the way to becoming a demand-driven enterprise.

Analysis method 1: In-line, real-time analysis of transaction streams
With the provision of data now part of more robust Fee-for-Service channel agreements, the manufacturer should have many of the puzzle pieces necessary to put together a clear snapshot of the channel. All the channel data from wholesalers simply needs to be quickly processed through a single system as it arrives. Each day a typical manufacturer may receive 30,000 documents from channel partners containing data such as inventory reports and downstream sales reports, in addition to thousands of business transactions such as orders, chargebacks and returns. To assemble a picture of last month may require the capture, validation, and analysis of millions of discrete data elements from these documents.

Other approaches using legacy technologies, including customized deployments of ERP, BI, or basic reporting tools, are simply not up to this challenge. While ERP systems have fine-tuned the order-to-cash process, they do not provide in-line, policy-based analysis, and any ERP customization could not approach real-time analysis of channel transactions. BI platforms and other reporting solutions simply lack transactional processing capability. Each of these existing approaches has managed, at best, to perform bland, incomplete analysis of channel data upon arrival or in backward-facing management reports, yet none has been designed to handle today’s volume, variety, and uneven quality. With industry standards for established practices and protocols in flux, the data that comes from the channel today requires considerable validation before real-time analysis can even begin. But with the right technology solution in place, even if basic channel data does not exist or is of poor quality, all is not lost, as sophisticated analytic algorithms designed specifically for the pharmaceutical channel can be applied to the existing dataset to fill in the missing pieces of the puzzle.

According to the Aberdeen Group, more than 50 percent of all supply chain problems originate with poor decision-making when orders are received. At the point of decision, the manufacturer must bring to bear all related contextual enterprise intelligence and business policies – all order history, near-term forecasts, regulatory conditions, and channel agreements, among other information. And when a single batch of orders can dramatically alter inventory levels in the channel, the optimal solution for channel control must capture, validate, and analyze channel data and orders at the line item level - in front of the point of decision and continuously in real-time.

A system of record for the channel
When updated in real-time, the comprehensive channel data and associated decisions integrate into the only true system of record for policies and channel data for the pharmaceutical manufacturer. Using a timely, consistent, and complete system of record for the channel, the manufacturer can deliver clear and accurate scorecards to each wholesaler for performance against these policies and for compensation for services. This system of record also provides a complete audit trail from the moment an order is placed to the shipment of product and, when RFID and EPC standards are in place, all the way to delivery to the consumer.

Clearly, the fee-for-service model conveys significant benefits to both manufacturers and wholesalers. In the case of wholesalers, FFS can help them to identify means of differentiating themselves with specialty services. And for both entities, channel goals can be aligned toward efficient delivery, and once-contentious relationships can become more rationalized, thanks to this new-found transparency.

Analysis method 2: pre-built and Ad-Hoc Trend Analyses
Management reporting and trend analysis are also important for channel control. While there are dozens of business intelligence (BI) solution choices available for manufacturers today, none of them delivers out-of-the-box the specific “business object” layer necessary for providing insight into channel behavior. By linking thousands of data elements into aggregate concepts such as Products, Customers, Orders, Shipments, and Forecasts, for example, business analysts can work with familiar business constructs to gain perspective on channel activity. This object layer frees the analyst from a reliance on IT to develop new reports as the business and channel evolve.

As an example, many pharmaceutical manufacturers want to understand the relationship and trends that develop between ex-factory shipments, wholesaler orders, wholesaler shipments, and retailer orders. This holistic view of the channel is necessary to determine wholesaler compensation, reveal secondary market activity, and assess overall channel performance. While in-line analytics can detect specific events and allow analysts to take action with individual order line items, management reporting can reveal insights and trends over time. For instance, reports can be developed that show secondary sourcing, sideways movement of products, excessive returns, and even the true cost of distributing product through the channel.

Toward a true channel performance measurement system
Fee-for-service and other channel initiatives are challenging the pharmaceutical manufacturer to take control of the distribution channel. In the interest of gaining visibility to inform better decisions, a case has been made for a solution that analyzes all channel transactions in real-time and, as a result, provides input to a sophisticated channel performance measurement system specifically designed for the pharmaceutical manufacturer. With timely, consistent, and accurate results from both in-line real-time analyses of transactions and from trend analysis, the manufacturer can extract previously unavailable business insights, apply corrective action immediately back into the transaction stream, close the loop between policies and transaction decisions, and anticipate changes in business conditions. After dozens of engagements with leading pharmaceutical manufacturers, Edge Dynamics continues to believe that these types of insights will ultimately enable the demand-driven enterprise.