Enterprise Risk Services

Enterprise Risk Services Deloitte, India

Deloitte Haskins & Sells

Enterprise Risk Services

Pharma- Transform/readiness Market Study Legal Compliance ERP Case study

Deloitte Haskins & Sells

Enterprise Risk Services

Market Study

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Enterprise Risk Services

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

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Deloitte Haskins & Sells

Enterprise Risk Services

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 building, faster time to market, relationships with doctors were identified as the factors contributing to current competitive advantage. MNCs and Indian companies expect to increase A&P spends as 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 from 7-10%. 14 companies plan to spend 5-10% on Direct to consumer Deloitte marketing. Haskins
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& Sells

 Brand

 Both

Enterprise Risk IT initiatives Services

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

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Deloitte Haskins & Sells

Enterprise Risk IT initiatives Services

IT initiatives
ERP, Data warehousing / Data mining, CRM software & FFA were considered important
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Deloitte Haskins & Sells

Enterprise Risk IT initiatives Services

 The median expenditure on IT initiatives by companies in the past IT 50-100 lakhs 3 years has been about Rs. spends 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
%o c m a ie f o pn s

ITS e d pns
L s t a R .5 la h esh n s 0 k s R .5 - 0 la h s 01 0 k s R . 1 02 0la h s 0- 0 k s R . 2 03 0la h s 0- 0 k s R . 3 05 0la h s 0- 0 k s M r t a 5 0la h oe h n 0 k s

Inla t 3y a s s er
3 3 2 0 2 0 7 1 3 7

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2 2 3 4 1 9 1 3 1 3 0

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Deloitte Haskins & Sells

Enterprise Risk IT initiatives Services

Barriers to implementing 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

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Enterprise Risk Services

21 CFR Part 11/ HIPAA/SARBANES

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Enterprise Risk Services

About 21 CFR Part 11
• Effective from August 20, 1997 • Objectives:
– Designed to advance the use of emerging technologies by FDA regulated companies – Increase FDA’s ability to promote public health & protect customers

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Enterprise Risk Services

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

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Enterprise Risk Services

ERP Benchmarking of 6 Major Pharmaceutical Companies

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Deloitte Haskins & Sells

Enterprise Risk Services

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 R&D, 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
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Enterprise Risk Services

Objective and Approach

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Deloitte Haskins & Sells

Enterprise Risk Services

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?
Deloitte Haskins & Sells

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Enterprise Risk Services

Key Findings

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Deloitte Haskins & Sells

Enterprise Risk Services

Key findings
• Most senior executives have paid little attention to backoffice 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
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Deloitte Haskins & Sells

Enterprise Risk Services

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 R&D and marketing • They do not view supply chain/logistics/procurement operations as strategic
– This can be attributed in part to to the industry’s economics – Another possible explanation is that most pharmaceutical executives grew up in R&D or Marketing

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Deloitte Haskins & Sells

Enterprise Risk Services

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 largescale 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

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Deloitte Haskins & Sells

Enterprise Risk Services

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 vendor’s ERP product (e.g., only financial modules) is typically the worst of both worlds: ERP’s high cost without the ‘enterprise integration’ benefits
Deloitte Haskins & Sells

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Enterprise Risk Services

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
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Enterprise Risk Services

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 R’s 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.

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Deloitte Haskins & Sells

Enterprise Risk Services

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

Key Finding #5: These companies viewed and implemented ERP far differently from the rest
– 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.
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Deloitte Haskins & Sells

Enterprise Risk Services

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 company’s 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 crossfunctional 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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Enterprise Risk Services

Local Best of Breed

Financial System

Procurement System

Financial System

Procurement System

Financial System

Procurement System

Manufacturing System

Distribution System

Manufacturing System

Distribution System

Manufacturing System

Distribution System

Human Resource System

Human Resource System

Human Resource System

Financial System

Procurement System

Financial System

Procurement System

Manufacturing System

Distribution System

Manufacturing System

Distribution System

Human Resource System

Human Resource System

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Deloitte Haskins & Sells

Enterprise Risk Services

Global Best of Breed Approach

Financial System

Procurement System

Manufacturing System

Distribution System

Human Resource System

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Deloitte Haskins & Sells

Enterprise Risk Services

Local ERP Approach
Financial Module Financial Module Procurement Module Manufacturing Module Manufacturing Module Procurement Module

Master Database

Distribution Module Financial Module Procurement Module

Master Database

Distribution Module Human Resource Module

Human Resource Module Financial Module Financial Module Procurement Module

Manufacturing Module

Master Database

Distribution Module

Procurement Module

Human Resource Module

Manufacturing Module

Master Database

Distribution Module

Manufacturing Module

Master Database

Distribution Module

Human Resource Module

Human Resource Module

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Deloitte Haskins & Sells

Enterprise Risk Services

Global ERP Approach

Financial Module

Procurement Module

Manufacturing Module

Master Database

Distribution Module

Human Resource Module

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Enterprise Risk Services

Implications

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Deloitte Haskins & Sells

Enterprise Risk Services

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.

Implications

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
Deloitte Haskins & Sells

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Enterprise Risk Services

Recommendations

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Deloitte Haskins & Sells

Enterprise Risk Services

Mapping the journey
1

Define the Define the destinatio destinatio n n
What do we want to do that we can’t 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?

Know Know where you where you are now are now
2

3

t p ou Ma

ey journ the

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?

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

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Deloitte Haskins & Sells

Enterprise Risk Services

Mapping the journey: 1. Knowing where you’re going
• Absolute clarity and consensus on the capabilities required is a key starting point:
– – – – – – –

1

Define the Define the destination destination

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

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Mapping the journey: 2. What have2 you accomplished so far?

Know Know where where you are you are now now

Enterprise Risk Services

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 company’s 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?

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Deloitte Haskins & Sells

Enterprise Risk Services

3 Mapping the journey: 3. How do you e journey h out t move from where you are to where Map you want to be? Lines Integration Across Functional
Within a Business Function Across Business Functions

Global Best of Breed

Global ERP

Integration Across Geographic Lines

Across Countries

Local Best of Breed

Local ERP

Within a Country

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Deloitte Haskins & Sells

Enterprise Risk Services

Applying best practices to harvest the benefits
1 2 3 4 5 6

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

7 8 9 10 11 12

Build and leverage process expertise Extend capabilities beyond the ERP foundation Promote postimplementation commonality

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Deloitte Haskins & Sells

Enterprise Risk Services

Applying best practices to harvest the benefits
1 2 3 4 5 6

Apply planning and program management changes throughout the program life cycle Transition project roles to a way of life

7 8 9 10 11 12

Teach the organization to use the new capabilities Assign clear ownership of benefits Define metrics and manage them

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Enterprise Risk Services

Thank You

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