Term Report

Tools, Techniques & Methodology of Sales Forecasting In Pharmaceutical Industry

Date

24th April 2011

Submitted To

Mr. Saeed-ur-Rehman
Submitted By Afsheen Abbas(10084)

Ahsan Dahar(8683) Irfan Junejo(9063)

M. Ovais Budhani(10643)

Sajjad Sheikh(8748)
Sumbul Karadia(9870)

LETTER OF ACKNOWLEDGEMENT

We are thankful to Allah Almighty for giving us the capability and strength to complete this Term report on Sales Forecasting in Pharmaceutical Industry of the Course, Sales Management. We would also like to thank our course instructor Mr. Saeed ur Rehman whose utmost dedication and devotion provided us with the insight to analyze all the situations. It was due to her guidance and teachings that enabled us to finish this term report. We would also like to thank all the Sources who have cooperated with us and provided us with all the information that we required to complete this report. We express sincere gratitude to our parents for their continuous support throughout the preparation of this report.

Afsheen Abbas

Ahsan Dahar Irfan Junejo

M. Ovais Budhani

Sajjad Sheikh
Sumbul Karadia

LETTER OF TRANSMITTAL

Mr. Saeed ur Rehman, Course Instructor, Sales Management, Institute of Business Management, Korangi Creek, Karachi. Sir, Here is our term report on Sales Forecasting tools, which is to be submitted on 24th April `11. We greatly benefited from this report as our term report. It helped us to widen our vision, improve our quality of work, build self-reliance work and it gave a vital experience in order to improve our analytical skills. We hope it is up to your expectations and fulfils all the requirements given by you. Sincerely,

Afsheen Abbas

Ahsan Dahar Irfan Junejo

M. Ovais Budhani

Sajjad Sheikh
Sumbul Karadia

Table of Contents

EXECUTIVE SUMMARY
This report has been prepared with a vision to provide an understanding of the Sales Forecasting Process in GlaxoSmithKline Limited. GlaxoSmithKline adopts the bottom to top line procedure for estimating their future sales. The departments that are involved in the sales forecasting procedure are Sales, Marketing, Finance and Supply Chain. All these departments play a vital role in estimating the future sales. Conducting a sales forecast provides them business with an evaluation of past and current sales levels and annual growth, and allows them to compare the company to industry norms. It also helps them to establish their policies so that they easily can monitor their prices and operating costs to guarantee profits, and make them aware of minor problems before they become major problems. Sales Forecasting helps GSK in making the difference between just surviving and being highly successful in business. It is a vital cornerstone of a company's budget. The future direction of the company may rest on the accuracy of their sales forecasting. GSK implement accurate sales forecasting processes because they realizes the important benefits such as enhancing cash flow, knowing when and how much to buy, in-depth knowledge of customers and products, the ability to plan for production and capacity, the ability to identify the pattern or trend of sales, to determine the value of business above the value of its current assets and ability to determine the expected return on investment. The combination of these benefits may result in increased revenue, increased customer retention, decreased cost and increased efficiency. GSK normally uses the past sales pattern and trends for estimating the future sales of an existing product but in case of a new product they have to do a market research and on the basis of its result the sales for the new product is forecasted. In GSK the sales forecast performed, reviewed and compared with actual performance results on a regular basis. They think of it as a routine tune-up that keeps the gears of their business running smoothly so they can achieve a higher performance record. GSK faces many problems not only when forecasts are too high, but also when they are too low. When the forecasts are too high, cash is often tied up and profit margins are reduced due to wasted overhead. On the other hand if the forecasts are too low, the result is poor delivery performance, dissatisfied customers and shortfalls in revenue because of limited product availability. To overcome these problems trends between past forecasts and actual performance need to be established. The uncertainties in forecast can never be eliminated but they can be reduced to a manageable level.

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INTRODUCTION
History
GlaxoSmithKline plc, often abbreviated to GSK, is a global pharmaceutical, biologics, vaccines and consumer healthcare company headquartered in London, United Kingdom. It is the world's third largest pharmaceutical company measured by revenues (after Johnson & Johnson and Pfizer). It has a portfolio of products for major disease areas including asthma, cancer, virus control, infections, mental health, diabetes and digestive conditions. It also has a large consumer healthcare division which produces and markets oral healthcare products, nutritional drinks and over-the-counter medicines, including Sensodyne, Horlicks and Gaviscon. GSK was formed in 2000 by the merger of GlaxoWellcomeplc (formed from the acquisition of Wellcomeplc by Glaxoplc), and SmithKline Beecham plc (from the merger of Beecham plc, and SmithKlineBeckman Corporation).

GlaxoWellcome
In 1880, Burroughs Wellcome& Company was founded in London by American pharmacists Henry Wellcome and Silas Burroughs. The Wellcome Tropical Research Laboratories opened in 1902. In 1959 the Wellcome Company bought Cooper, McDougall & Robertson Inc. to become more active in animal health. The Wellcome Company production centre was moved from New York to North Carolina in 1970 and the following year another research centre was built. Glaxo was founded in Bunnythorpe, New Zealand in 1904. Originally Glaxo was a baby food manufacturer processing local milk into a baby food by the same name: the product was sold in the 1930s under the slogan "Glaxo builds bonny babies". Still visible on the main street of Bunnythorpe is a derelict dairy factory (factory for drying and processing cows' milk into powder) with the original Glaxo logo clearly visible, but nothing to indicate that this was the start of a major multinational company. Glaxo became Glaxo Laboratories, and opened new units in London in 1935. Glaxo Laboratories bought two companies, Joseph Nathan and Allen &Hanburys, in 1947 and 1958 respectively. After the Company bought Meyer Laboratories in 1978, it started to play an important role in the US market. In 1983 the American arm Glaxo Inc. moved to Research Triangle Park (US headquarters/research) and Zebulon (US manufacturing) in North Carolina. Burroughs Wellcome and Glaxo merged in 1995 to form GlaxoWellcome. In the same year, GlaxoWellcome opened its Medicine Research Centre in Stevenage. Three years later GlaxoWellcome bought Polfa Poznan Company in Poland.

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SmithKline Beecham
In 1843, Thomas Beecham launched his Beecham's Pills laxative in England giving birth to the Beecham Group. Beechams opened its first factory in St Helens, Lancashire, England for rapid production of medicines in 1859. By the 1960s it was extensively involved in pharmaceuticals.

The GSK Headquarters in Brentford

In 1830, John K. Smith opened its first pharmacy in Philadelphia. In 1865 Mahlon Kline joined the business which, 10 years later, became Smith, Kline & Co. Subsequently, in 1891, it merged with French, Richard and Company. It changed its name to Smith Kline & French Laboratories as it focused more on research in 1929. Years later, Smith Kline & French Laboratories opened a new laboratory in Philadelphia; it then bought Norden Laboratories, a business doing research into animal health. Smith Kline & French Laboratories bought Recherche et IndustrieThrapeutiques (Belgium) in 1963 to order to focus on vaccines. The Company started to expand globally buying seven laboratories in Canada and the US in 1969. In 1982, it bought Allergan, a manufacturer of eye and skincare products. The Company merged with Beckman Inc. later that year and then changed its name to SmithKline Beckman. In 1988, SmithKline Beckman bought its biggest competitor, International Clinical Laboratories, and in 1989 merged with Beecham to form SmithKline Beecham plc. The headquarters of the Company were then moved to England. To expand research & development in the US, SmithKline Beecham bought a new research center in 1995. Another new research centre at New Frontiers Science Park in Harlow was opened in 1997. In 2000, GlaxoWellcome and SmithKline Beecham merged to form GlaxoSmithKline.

Pakistan Overview
GlaxoSmithKline Pakistan Limited was created on January 1st 2002 through the merger of SmithKline and French of Pakistan Limited, Beecham Pakistan (Private) Limited and Glaxo Welcome (Pakistan) Limited- standing today as the largest pharmaceutical company in Pakistan As a leading international pharmaceutical company GSK makes a real difference to global healthcare and specifically to the developing world. We believe this is both an ethical imperative and key to business success. Companies that respond sensitively and with commitment by changing their

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business practices to address such challenges will be the leaders of the future. GSK Pakistan operates mainly in two industry segments: Pharmaceuticals (prescription drugs and vaccines) and consumer healthcare (over-the-countermedicines, oral care and nutritional care). GSK leads the industry in value, volume and prescription market shares. GSK is proud of consistency and stability in sales, profits and growth. Some of their key brands include Augmentin, Panadol, Seretide, Betnovate, Zantac and Calpol in medicine and renowned consumer healthcare brands include Horlicks, Aquafresh, Macleans and ENO. In addition, GSK are also deeply involved with communities and undertake various Corporate Social Responsibility initiatives including working with the National Commission for Human Development (NCHD) for whom GSK were one of the largest corporate donors. GSK consider it our responsibility to nurture the environment they operate in and persevere to extend our support to our community in every possible way. GSK participates in year round charitable activities which include organizing medical camps, supporting welfare organizations and donating to/sponsoring various developmental concerns and hospitals. Furthermore, GSK maintains strong partnerships with nongovernment organizations such as Concern for Children, which is also extremely involved in the design, implementation and replication of models for the sustainable development of children with specific emphasis on primary healthcare and education. On January 30, 2009, GSK acquired Bristol Myers Squibb Pakistan (Private) Limited. On March 31, 2009, it acquired from UCB S.A. On April 21, 2009, the Company acquired AZ Tika, a wholly owned subsidiary of Astra Zeneca plc. On July 22, 2009, the Company acquired Stiefel Laboratories, Inc. On October 30, 2009, GSK acquired Pfizer Inc.s HIV business and combined it with its own HIV business to form ViiV Healthcare Limited. On November 10, 2009, GSK acquired the Algerian pharmaceutical, manufacturing and distribution group, Laboratoire Pharmaceutique Algerien. On December 18, 2009, GSK acquired NovaMin Technology Inc. In June 2010, the Company acquired Laboratorios Phoenix S.A.C.yF.GlaxoSmithKline plc (GSK) Completed its acquisition of Stiefel Laboratories, Inc. GSK has acquired the total share capital of Stiefel for a cash consideration of $2.9 billion. GSK also assumed $0.4 billion of net debt. Under the terms of the agreement, GSK may be obligated to make additional cash payments of up to $0.3 billion depending on the future performance of the business. The new dermatology business unit within GSK will operate under the name Stiefel, a GSK company.

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GSK`s leading products include:

Augmentin

Amoxil Ventolin Betnovate Zantac

Panadol Ampiclox Calpol Septran

And vaccines include: Engerix Infanrix Fluarix Varilrix Tritanrix Typherix Mencevax Havrix Hiberix Priorix

MISSION STATEMENT
Excited by the constant search for innovation, we at GSK undertake our quest with the enthusiasm of entrepreneurs. GSK value performance achieved withintegrity. We will attain success as a world class global leader with each and every one of our people contributing with passion and an unmatched sense of urgency. Our mission is to improve the quality of human life by enabling people to do more, feel better and live longer. Quality is at the heart of everything we do- from the discovery of a molecule to the development of a medicine.

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SALES FORECASTING AT GSK

Dimensions of Sales Forecasting:
Sales variability Sales Value Sales Volume Formulation Type Manufacturing Arrangement New/ Re-launched and existing products Seasonality Therapeutic Segments Promotion

The process of Sales Forecasting at GSK is divided into several steps.

1. Data Collection, Analysis and product segmentation

The data is collected and analyzed for building matrices of segmentation. At the end of this phase there will be some clear well defined product segments.

2. Managerial participation for segment validation

Managers from the client organization participates in building and reorienting the segments based upon more company specific insights

3. Generation of time horizons and set of forecasting policies

Defining the time buckets in which the forecasting is required for each segment of products. At this stage all segments will be segregated into two blocks - One, where stocking or other policies may serve the purpose and second, where sophisticated mathematical model needs to be developed.

4. Identification of set of suitable sales forecasting algorithms

There are 2 main factors that help determine the type of forecasting method that will be used. They are: a) Time Frame b) Behavior and the possible existence of patterns A suitable method will be chosen in consultation with modeling experts.

5. Development of User interface for algorithms

Users need to use the forecasting method rather than understanding the complex mathematical model. This needs development of front end, back end, database design and other upload download procedures and utilities.

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6. Solution Testing and roll out plan

The developed solution is tested with historical data and improvement in forecasts is measured before starting the roll out. The roll out plan is prepared in consultation with the client and their preparedness for handling change.

7. Implementation
This includes documentation and user training for introducing the forecasting models to them.

To complete a thorough Sales Forecast, GSK takes into consideration all the internal and external elements that can affect sales:

Large number of SKUs (Stock Keeping Units)

Generally, the number of SKUs is large anywhere ranging from 80 to 300. Each product has its own unique characteristics. For a manager, it becomes complex to focus on the sales behavior of each SKU and define some set of general rules for forecasting.

Geographic Diversity
Most of the pharmaceutical companies are catering to the needs of geographically spread customers. The therapy used by doctors, distribution of specialist doctors, proportion of dispensing doctors, patients profile etc. vary from region to region. This contributes to variations in regional/ locational demands.

Diverse therapeutic segments

The sales effort is organized around therapeutic segments. The sale of each brand depends upon the overall size of the therapeutic segment, competitive pressures within the therapeutic group among other things. The growth and trend that exist in one therapeutic segment may widely differ from that of other therapeutic segment.

Campaign Period
The sales activity is generally carried out in well worked out campaigns. The briefing to doctors, samples distribution, doctors conference and other marketing activities are generally carried out around the campaign products during campaign period. These stimuli also change the demand pattern.

Differential Brand promotion

Pharmaceutical companies also launch schemes and offer gifts for brand promotion. The sale in scheme period may sometime go up by 3-4 times (at times much more) than the usual monthly sale. It precedes and succeeds by a much lower sale due to drying up and over filling of the stock pipeline.

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New Products
The sale of new products is generally very unpredictable. Right communication, availability, medical reps training goes a long way in making or breaking a brand. The initial sale is used for filling up the pipeline and is not a true representative of consumer off take.

Re-launched products
A brand that is repositioned in the market may see a quantum change in sales. The sales may dip because of change of focus or may grow significantly due to more effective communication or other initiatives.

Seasonal products
The disease pattern and the requirement of certain drugs show seasonal variations. The effect of seasonality is very high on certain products and very low on certain other products.

New Stockist or Credit Limit

Opening of new stockist or enhancement of credit limits gives an artificial flip to primary sales. It is important to identify such instances while forecasting. At times this is also done to achieve current budgets through push sales.

Manufacturing arrangement
Improvement in sales forecast is generally viewed as a tool to reduce the overall cost of making the product available in time at the right place with lower inventories. On supply side, manufacturing arrangement (Own, Loan License, third party) plays a major role in determining sales forecast horizon. In case of own manufacturing, next month forecast accuracy may be relevant and in case of Loan License it may be important to improve the sales forecast accuracy of next+1 month.

Formulation type
Sometimes, there are dedicated facilities for certain products or formulation types like soft gel, ointments etc. And if the capacity utilization is less, higher sales forecast inaccuracy can be handled though at a cost. However, if the facilities are common the challenge of having a more accurate forecast gains much more significance.

CORPORATE PLANNING
After the collection of information from all the internal and external sources, a corporate plan is being made. The important steps that are taken into account while making a corporate plan are

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Feasibility of the Product

A detailed cost benefit analysis should be done, including all the monetary and non-monetary costs to conclude the suitability of the product as to whether it is feasible for launch or not. If it is then it will proceed to the next step, if not then the analysis is reviewed.

Trends of Existing Products

Existing market competitors are identified of the product are recognized and their sales trends and responses are scrutinized according to which the sales strategy is devised. To follow up that strategy tactical approaches are conferred which are strategically aligned with the firms vision and goals to make up a corporate plan.

Sales Structure
Once all forecasts are in place, a structure of sales is developed which is consistent with the budgets of the firm. It is eventually communicated to the sales department who formally divide their goals and territories with specific targets to be achieved.

Personnel & Resources to be Inducted

Henceforth to achieve the overall goals, after the tactics and strategies have been devised, a training and need analysis is carried out of which the basics lie in the personnel and resource structure. If for promotion more men are needed to be recruited? If more finance is needed? If more production units are needed, the fulfillment of all of these questions leads the firm to move on to the launching step. If there is any lack of resources in any way then the firm rolls over to the previous step, and again the whole step is scrutinized.

CHALLENGES
Forecasting in a pharmaceutical company is a very involved consulting process. It is not a off the shelf software implementation assignment. It poses its own challenges for which the project team should be prepared Forecast what is possible. Forecasting every product may end up in misdirected effort. Forecasting models mature with time and give better results as the experience of working with the model grows and models are modified for better performance. A model that gives 10-15% better forecast over a period of time is considered to be a good forecasting model.

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Focus on those product segments where maximum gain lies for the organization. Every forecast comes with a forecasting error. The endeavor is to reduce the forecasting error but in no way it can be eliminated altogether. Development of forecasting model has greater chances of success when the business users are involved from the beginning of the project. The domain knowledge and identification of key drivers of demand are the most crucial factors where client plays a very important role.

FACTORS AFFECTING SALES FORECAST

There are certain external factors that heavily affect the Sales of the company. GSK takes all the factors into account before starting the forecasting process. Some of those important factors are as follows.

1. Economic Factor
Economic influences can make market potential greater or smaller.

2. Technological Factor
New technology can create substitute products, lowering demand for the original product; change price structure, making products more affordable and increasing demand; create new uses, expanding market demand.

3. Legal and Regulatory

Laws can make products illegal; increase the cost associated with the product. Due to some of the legal reasons if the taxes or tariffs are added to their products than this will automatically decrease its demand. Some other factors like strikes, act of terrorism or these kinds of activities can also affect the sales.

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CONCLUSION
Sales Forecasting helps GSK in making the difference between just surviving and being highly successful in business. It is a vital cornerstone of a company's budget. The future direction of the company may rest on the accuracy of their sales forecasting. GSK implements accurate sales forecasting processes because they realizes the important benefits such as enhancing cash flow, knowing when and how much to buy, in-depth knowledge of customers and products, the ability to plan for production and capacity, the ability to identify the pattern or trend of sales, to determine the value of business above the value of its current assets and ability to determine the expected return on investment. The combination of these benefits may result in increased revenue, increased customer retention, decreased cost and increased efficiency.

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References:www.gsk.com.pk www.pharmacueticalsinsights.com

Faisal Bin Suleman, Human Resources Manager, Direct: 92-21-5202299 Faisal.b.suleman@gsk.com Tel: 111-GSK-PAK

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