Enterprise Risk Services

1
Enterprise Risk Services Deloitte, India

2
Pharma- Transform/readinessMarket StudyLegal
ComplianceERP Case study
3
Market Study
4
Key Business Issues facing the Industry

• Recruiting and retaining talented personnel
  Making new product launches successful
• Intellectual property protection
• Regulatory compliance for international marketing
• Implementing IT solutions including ERP Data
  warehousing
• CRM
• Benchmarking and adopting best practices

5
Domestic Market Scenario

• Most companies plan to focus on CVS, CNS,
  Antidiabetic and Anticancer which are the
  therapeutic segments that are expected to have
  the highest growth rates
• Brand building, faster time to market,
  relationships with doctors were identified as the
  factors contributing to current competitive
  advantage.
• Both MNCs and Indian companies expect to increase
  AP spends as the market gets increasingly
  competitive. 34 of MNCs mentioned AP spends in
  next 5 years to be gt15. 38 IRCs plan to spend
  11-15 on AP. Current AP spends range from
  7-10. 14 companies plan to spend 5-10 on
  Direct to consumer marketing.

6
IT initiatives
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

7
IT initiatives
IT initiatives
ERP, Data warehousing / Data mining, CRM software
FFA were considered important
8
IT spends
IT initiatives

• The median expenditure on IT initiatives by
  companies in the past 3 years has been about
  Rs. 50-100 lakhs p.a.
• In the next 12 months also, the median IT spends
  p.a. will be about Rs.50-100 lakhs.
• Some of the larger companies have IT budgets of
  Rs. 300-500 lakhs for the current year

9
Barriers to implementing IT initiatives
IT initiatives

• The top 3 barriers to implementing IT
  initiatives, as rated by the companies 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

10
21 CFR Part 11/ HIPAA/SARBANES
11
About 21 CFR Part 11

• Effective from August 20, 1997
• Objectives
• Designed to advance the use of emerging
  technologies by FDA regulated companies
• Increase FDAs ability to promote public health
  protect customers

12
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 document audit trail for
  transactions
• HIPAA Compliance
• SOX Compliance

13
ERP Benchmarking of 6 Major Pharmaceutical
Companies
14
The pharmaceutical industry continues to evolve.
Product Innovation and Introduction

• Faster development processes
• Faster/higher revenue uptake
• Role of genomics

The Race for Scale

• Pressure to develop blockbusters to sustain sales
  growth
• Need for expense dollar to reinvest in RD,
  marketing, and preserve the bottom line

Changing Customer Dynamics

• Effectively reaching customers, current and
  emerging
• Evaluating customer influence on product
  lifecycle
• Determining the role of e

Pressure to Shift Cost Structure

• New e-procurement technology
• New B2B business models

15
Objective and Approach
16
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-office systems than other
  companies?
• What are the key differences between the
  companies with the biggest benefits and the ones
  with 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,
  industry consolidation, genomics and other forces
  of structural change take hold?
• Where will the next major IT investment be made?

17
Key Findings
18
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
  received a big payback from ERP
• However, a few companies are on the cusp of
  achieving blockbuster-size benefits from ERP
• These companies viewed and implemented ERP far
  differently from the rest

19
Key Finding 1 Most senior executives have paid
little attention to back-office systems

• Senior executives of most large pharmaceutical
  companies have not focused on ERP or the key
  business functions it supports (supply chain,
  manufacturing, procurement, finance) they are
  almost exclusively focused on the
  revenue-generating functions of RD and marketing
  
• They do not view supply chain/logistics/procuremen
  t 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 RD or
  Marketing

20
Key Finding 1 Most senior executives have paid
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 system implementation with other kinds of
  change programs like reengineering of business
  processes, organizational restructuring, or
  retraining people, even when those other efforts
  were already underway

21
Key Finding 2 Many senior executives are
harboring major misconceptions about ERP

• When systems have been purchased from a single
  vendor, such as S, there is a common perception
  that these systems will automatically integrate
  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 the enterprise
• 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 and interfaces built among them,
  it is believed that the result is still an ERP
• Installing subsets of a vendors ERP product
  (e.g., only financial modules) is typically the
  worst of both worlds ERPs high cost without
  the enterprise integration benefits

22
Key Finding 3 Despite big spending, most
companies have not received a big payback from ERP

• Spending within the industry has collectively
  been in the billions 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 been elusive

23
Key Finding 4 However, a few companies are on
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
  ERP software.
• 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 3 million
  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 accurate inventory control.

24
Key Finding 5 These companies viewed and
implemented 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 data definitions across
  countries or, more dramatically, to create global
  or regional business processes
• 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 ERP
  initiative was recognized as one of the top two
  or three strategic initiatives for the business
  in that period.

25
Key Finding 6 ERP implementations can be
categorized in four general ways

• The degree of enterprise integration a
  pharmaceutical company 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)

26
Local Best of Breed
27
Global Best of Breed Approach
Financial System
Procurement System
Distribution System
Manufacturing System
Human Resource System
28
Local ERP Approach
Financial Module
Procurement Module
Financial Module
Procurement Module
Manufacturing Module
Distribution Module
Master Database
Financial Module
Procurement Module
Manufacturing Module
Distribution Module
Master Database
HumanResource Module
Manufacturing Module
Distribution Module
Master Database
HumanResource Module
Financial Module
Procurement Module
HumanResource Module
Financial Module
Procurement Module
Manufacturing Module
Distribution Module
Master Database
Manufacturing Module
Distribution Module
Master Database
HumanResource Module
HumanResource Module
29
Global ERP Approach
Financial Module
Procurement Module
Manufacturing Module
Distribution Module
Master Database
HumanResource Module
30
Implications
31
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 in several
  countries will be able to work together if
  activities are not coordinated.
• Inconsistent definition of data among sites can
  quickly erode the degree of enterprise
  integration a company can achieve.
• The more customization, the less integration.
• The more authority for modifications country
  units or business functions are granted, the
  harder 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

32
Recommendations
33
Mapping the journey
Define the destination
Know where you are now
Map out the journey

• What do we want to do that we cant do now?
• What does the business need to support longer
  term operations?
• What would be the benefits of doing it? The risks
  of not doing it?

• What are scenarios to reach the 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
  foundation for the future?
• What did we do well in the first implementation?
  Not so well?
• What is the current cost of ownership?

34
Mapping the journey 1. Knowing whereyoure going
Define the destination
1

• Absolute clarity and consensus on the
  capabilities required 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

35
Mapping the journey 2. What have
youaccomplished so far?
Know where you are now

• Can your company provide the following
  information in less than one hour?
• 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 shared services model whereby all
  the country units in Europe consolidate, for
  example, accounts payable processing at one
  location?

36
Mapping the journey 3. How do you move from
where you are to where you want to be?
Map out the journey
Integration Across Functional Lines
Within a Business Function Across
Business Functions
Global Best of Breed
Global ERP
Across Countries
Integration Across Geographic Lines
Local ERP
Local Best of Breed
Within a Country
37
Applying best practices to harvest the benefits
Focus on capabilities and benefits, not just
going live Align the organization on the true
destination Achieve balanced people, process and
technology changes across all areas Use the
business case as a management tool
Build and leverage process expertise Extend
capabilities beyond the ERP foundation Promote
post-implementation commonality
38
Applying best practices to harvest the benefits
Apply planning and program management changes
throughout the program life cycle Transition
project roles to a way of life
Teach the organization to use the new
capabilities Assign clear ownership of
benefits Define metrics and manage them
39
Thank You