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Enterprise Risk Services

DeloitteHaskins& Sells

Enterprise Risk ServicesDeloitte, India

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Pharma- Transform/readiness

Market Study

Legal ComplianceERP Case study

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Key Business Issues facing the Industry

Recruiting and retaining talented personnel Making newproduct launches successfulIntellectual property protection

Regulatory compliance for international marketingImplementing IT solutions including ERP Data warehousingCRMBenchmarking and adopting best practices

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Domestic Market Scenario

Most companies plan to focus on CVS, CNS, Antidiabetic andAnticancer which are the therapeutic segments that are expected tohave the highest growth rates

Brand building, faster time to market, relationships with doctorswere identified as the factors contributing to current competitiveadvantage.

Both MNCs and Indian companies expect to increase A&P spendsas the market gets increasingly competitive. 34% of MNCs

mentioned A&P spends in next 5 years to be >15%. 38% IRCs plan to spend 11-15% on A&P. Current A&P spends range from7-10%. 14 companies plan to spend 5-10% on Direct to consumer marketing.

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IT initiatives

Companies were asked to indicate their views on areas where

technology would be most useful to their firm. The areas were:-Enterprise Resource Planning-On-line sales to distributors-On-line purchasing-CRM /m-commerce with Field Force using PDAs-CRM/m-commerce with Field Force using cell-phones-Customer Relationship Management software-Doctor/Patient Portals-Data warehousing and Data mining-Laboratory Information Management Systems

IT initiatives

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IT initiatives

Technologyuseful in

Implemented Plantoimplement

Enterprise Resource Planning 23 7 7

On-line salestodistributors 16 3 6

On-l ine purchasing 10 2 7

CRM/m-commerce withFieldForceusingPDAs

17 2 6

CRM/m-commerce withFieldForceusingcell-phones

8 0 5

Customer RelationshipManagementsoftware

17 1 6

Doctor/Patient Portals 16 4 4

Data warehousingandData mining 20 5 6

LaboratoryInformationManagementSystems

16 1 2

No. of companies

ITsolution

ERP, Data warehousing / Data mining, CRM software & FFA were consideredimportant

IT initiatives

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IT spends

In last 3 years In next 12 months

Lessthan Rs.50 lakhs 33 22

Rs.50-100 lakhs 20 34

Rs. 100-200 lakhs 20 19

Rs. 200-300 lakhs 7 13

Rs. 300-500 lakhs 13 13

More than 500 lakhs 7 0

%of companiesIT Spends

The median expenditure on IT initiatives by companies in the past3 years has been about Rs. 50-100 lakhs p.a.

In the next 12 months also, the median IT spends p.a. will be aboutRs.50-100 lakhs.

Some of the larger companies have IT budgets of Rs. 300-500lakhs for the current year

IT initiatives

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Barriers to implementing IT initiatives

The top 3 barriers to implementing IT initiatives, as rated by thecompanies are:

- Need for cost/benefit analysis - Implementation costs

- Security issues

General IT controls System security New IT application Software licensing Virus concerns Controls over use of PCs

IT initiatives

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21 CFR Part 11/ HIPAA/SARBANES

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About 21 CFR Part 11

Effective from August 20, 1997 Objectives:

Designed to advance the use of emerging technologies by FDA regulatedcompanies

Increase FDAs ability to promote public health & protect customers

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About 21 CFR Part 11

Emphasis: Control requirements for electronic data records Electronic signature requirements for electronic records submitted under

FDA and Public Health Service Act

Data Access Accountability, the capability to determine and documentaudit trail for transactions

HIPAA Compliance

SOX Compliance

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ERP Benchmarking of 6 Major Pharmaceutical Companies

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New e-procurement technologyNew B2B business models

Pressure to Shift Cost Structure

Changing Customer DynamicsEffectively reaching customers, current and emergingEvaluating customer influence on product lifecycleDetermining the role of e

The Race for ScalePressure to develop blockbusters to sustain sales growthNeed for expense dollar to reinvest in R&D, marketing, and preservethe bottom line

Faster development processesFaster/higher revenue uptakeRole of genomics

Product Innovation and Introduction

The pharmaceutical industry continues toevolve.

E i Ri k S i

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Objective and Approach

E t i Ri k S i

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Objective and Approach

Our interviews focused on the following questions: What benefits were pharmaceutical companies seeking from their back-office systems,

and what benefits have they achieved? Are the pharmaceutical companies that have capitalized on ERP technology the most in

a position to change the competitive dynamics of the drug industry?

What competitive advantages does ERP give them in their supply chain, manufacturing,procurement, and financial operations, now and in the future?

Why have some pharmaceutical companies generated more benefits from back-officesystems than other companies?

What are the key differences between the companies with the biggest benefits and the oneswith the least?

What obstacles prevent pharmaceutical companies from fully leveraging their systems? Are companies planning to further leverage their system investments?

What role will ERP play in the future as e-commerce, pricing pressure, globalization, industryconsolidation, genomics and other forces of structural change take hold? Where will the next major IT investment be made?


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Key Findings


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Key findings

Most senior executives have paid little attention to back-office systems

Many senior executives are harboring major

misconceptions about ERP Despite big spending, most companies have not receiveda big payback from ERP

However, a few companies are on the cusp of achievingblockbuster-size benefits from ERP

These companies viewed and implemented ERP far differently from the rest


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Key Finding #1: Most senior executives havepaid little attention to back-office systems

Senior executives of most large pharmaceutical companies havenot focused on ERP or the key business functions it supports(supply chain, manufacturing, procurement, finance); they arealmost exclusively focused on the revenue-generating functions

of R&D and marketing They do not view supply chain/logistics/procurement operations

as strategic This can be attributed in part to to the industrys economics Another possible explanation is that most pharmaceutical executives grew up in

R&D or Marketing


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Key Finding #1: Most senior executives havepaid little attention to back-office systems

Most senior executives have viewed ERP systems as

technology fixes rather than as enablers of fundamental

operational changes ERP projects were generally viewed as simply the installation of a large-scale information system and was thus led and funded by IT

Few large pharmaceutical companies coordinated ERP systemimplementation with other kinds of change programs like reengineering of business processes, organizational restructuring, or retraining people,

even when those other efforts were already underway


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p


Key Finding #2: Many senior executives areharboring major misconceptions about ERP

When systems have been purchased from a single vendor, such asS, there is a common perception that these systems will automaticallyintegrate with one another Just because every country implemented S ERP, for example, does not mean that

those systems will share data or support a consolidated global view of theenterprise

In reality, ERP systems are often implemented in ways that provide little, if any,integration of business processes or information on a global level

When ERP systems have been purchased from multiple vendors andinterfaces built among them, it is believed that the result is still anERP Installing subsets of a vendors ERP product (e.g., only financial modules) is

typically the worst of both worlds: ERPs high cost without the enterpriseintegration benefits


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Key Finding #3: Despite big spending, mostcompanies have not received a big payback

from ERP

Spending within the industry has collectively been in thebillions of dollars, and typically reaches $50-100M per company when all country initiatives are accounted for.

Typically, ERP has helped companies with: Y2K fixes and Euro 2000 conversions Abandonment of aging/failing application platforms Some reductions in IT maintenance spending A reduction in the number of fragile and cumbersome interfaces Faster financial closing times

Larger scale and more strategic-level benefits have beenelusive


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Key Finding #4: However, a few companies areon the cusp of achieving blockbuster-size

benefits from ERP G sees benefits on the order of $550 million a year by 2005 from an

overhaul of its manufacturing and supply chains and the use of ERPsoftware. G also expects that ERP, in conjunction with reengineering, will reduce supply chain and

manufacturing costs by more than 30% over the next four to five years.

Another company has reported that capacity costs (salaries and wages)have been reduced by 20% and distribution costs were reduced by $3million between 1998 to 1999. Executives report that these savings alone cover the costs of the ERP implementation.

Company Rs ERP technology has helped it reduce inventory by 10% per year, as well as leading to better information on production costs, higher service levels, faster shipments, lower IT costs, and more accurateinventory control.


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Key Finding #5: These companies viewed andimplemented ERP far differently from the rest

In the companies on the threshold of reaping benefits from their ERP

systems: Senior Executives understood the enormous business potential of ERP systems and

thus supported the initiative Senior Executives did not view ERP as merely a technology project but rather as an

integral part of a larger initiative to improve supply chain and other business operations Implementations were streamlined by coordinating process redesign and ERP projects

Operational synergies were reaped by designing systems to standardize datadefinitions across countries or, more dramatically, to create global or regional businessprocesses

ERP systems were configured with minimal differences between countries or geographic regions

Companies linked employee retraining to the ERP initiative

In short, successful companies consistently had visible, sustained,meaningful executive level commitment, beyond just the CIO. The ERPinitiative was recognized as one of the top two or three strategicinitiatives for the business in that period.


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Key Finding #6: ERP implementations can becategorized in four general ways

The degree of enterprise integration a pharmaceuticalcompany obtains from ERP technology can be seen: Across or within geographic lines (whether the software links operations

across a companys country operating units)

Local: Within a country unit (e.g., in the U.S. only) Global: Across country units (e.g., across Europe or the world)

Across or within business functions (whether the software creates cross-functional integration)

Best of Breed: Within a business function (e.g., procurement only) ERP: Across business functions (e.g., integrating manufacturing, procurement

and supply chain)

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Global Best of Breed Approach

DistributionSystem

FinancialSystem

ProcurementSystem

ManufacturingSystem

HumanResourceSystem


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Master Master DatabaseDatabase

HumanHumanResourceResource

ModuleModule

ManufacturingManufacturingModuleModule

FinancialFinancialModuleModule

ProcurementProcurementModuleModule

DistributionDistributionModuleModule

Local ERP Approach



ModuleModule







ModuleModule






HumanHuman

ResourceResourceModuleModule





Master Master

DatabaseDatabase


ModuleModule






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Global ERP Approach

Master Master

DatabaseDatabase


ModuleModule

ManufacturingManufacturing

ModuleModule



DistributionDistribution

ModuleModule


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Implications


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Implications Business process changes should drive systems changes. Big benefits from back-office automation come only when business processes that span

functions, countries, and continents are dealt with first. Without reengineering, the benefits of ERP are limited. Without an ERP system, the benefits

of reengineering are limited. Installing ERP software will not yield instant global integration.

Purchasing ERP software, even from the same vendor, does not mean systems deployed inseveral countries will be able to work together if activities are not coordinated.

Inconsistent definition of data among sites can quickly erode the degree of enterpriseintegration a company can achieve. The more customization, the less integration.

The more authority for modifications country units or business functions are granted, theharder it will be to achieve high levels of enterprise integration.

Although ERP implementation requires some level of configuration to tailor it to the needs of the business, the degree and type of customization can be centrally advised.

The essential success ingredient is possessing a vision for the future. Often multiple, small scale initiatives which build toward that ultimate goal are a more

effective and digestible approach to ERP


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Recommendations


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Define thedestinatio

n

Define thedestinatio

n

1

M a p o u t t h e

j o u r n e y

M a p o u t t h e

j o u r n e y

Knowwhere you

are now

Knowwhere you

are now What are scenarios to reachthe destination?

- Approaches- Cost and benefit

Can we get there?- Energy- Commitment- Funding

What is the best approach?

- Workplan- Resources- Metrics

What has been achieved?Is it the right foundationfor the future?What did we do well in thefirst implementation? Notso well?What is the current cost of ownership?

What do we want to dothat we cant do now?What does the businessneed to support longer

term operations?What would be thebenefits of doing it? Therisks of not doing it?

23

Mapping the journey


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Mapping the journey: 1. Knowing whereyoure going

Absolute clarity and consensus on the capabilitiesrequired is a key starting point: Offering availability to promise to customers Leveraging global buying power

Having integrated supply chains Having consistent interaction with customers Furnishing corporate management with decision-support information Smoothing operational integration in mergers and acquisitions Having IT economies of scale and expertise

Define thedestination

Define thedestination

1


Know

Know

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Mapping the journey: 2. What have youaccomplished so far?

Can your company provide the following information in less than onehour? Who are your top ten customers on a worldwide basis? What are the companys three most profitable products? Do you have adequate capacity for a major global product launch? How much did the company buy last year from its ten largest suppliers? Which customers and products would be affected if your largest plant caught fire? What is your total spend on consulting services?

Could your system as implemented support the creation of a sharedservices model whereby all the country units in Europe consolidate,

for example, accounts payable processing at one location?

Knowwhere

you arenow

whereyou are

now2


Mapping the journey: 3 How do you

ey

ey3

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IntegrationAcrossGeographic Lines

Within a Country

Integration Across Functional Lines

Within a Business Function Across Business Functions

Across Countries

Global Best of Breed Global ERP

Local ERPLocal Best of Breed

Mapping the journey: 3. How do youmove from where you are to where

you want to be? M a p o

u t t h e j o u r n e

y

M a p o u t t h e

j o u r n e y3


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Focus on capabilities andbenefits , not just going live

Align the organization onthe true destination

Achieve balanced people,process and technology changes across all areas

Use the business case as a

management tool

Build and leverageprocess expertise

Extend capabilities beyond the ERPfoundation

Promote post-implementationcommonality

1

2

3

4

5

6

7

8

9

10

11

12

Applying best practices to harvest the benefits


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Apply planning andprogram management changes throughout theprogram life cycle

Transition project roles to away of life

Teach the organization touse the new capabilities

Assign clear ownership of benefits

Define metrics andmanage them

1

2

3

4

5

6

7

8

9

10

11

12

Applying best practices to harvest the benefits


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Thank You

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