The relationships that exist between medication makers, distributors, and end customers are complicated, and when combined with some of the physical aspects of the pharmaceutical value chain, they present a number of issues for enterprise resource planning software.
Distribution and wholesale pharmaceutical warehousing are critical links in the chain connecting medication producers with healthcare providers such as doctors’ offices, hospitals, pharmacies, and other healthcare facilities. It is difficult for ERP systems to manage the complex relationships that exist between drug manufacturers (also known as Principals), distributors, and end customers. This, combined with the physical characteristics of the pharmaceutical value chain, creates a number of difficulties for ERP systems to manage.
Some of these difficulties are as follows:
- Pricing models that are difficult to understand. It is highly difficult to price pharmaceutical products throughout the pharmaceutical distribution value chain, especially when the same organization serves as both a wholesaler and a distributor. There will almost certainly be a demand for numerous price lists and contract pricing with a diverse range of discounting schemes, including support for rebates, promotional discounts, and bonuses, among other things.
- Claims that are made in the past. The provision of discounts by pharmaceutical distributors on behalf of Principals is common, and these discounts must be reclaimed. Furthermore, services other than physical goods storage and delivery are frequently provided to Principals, such as sales order processing, invoicing, and payment collection. In certain cases, service billing is based on a percentage of sales; however, Activity Based Costing is frequently required in order to ensure that charging is more closely connected to the work involved in service delivery.
- Principal reporting responsibilities. To meet the needs of their Principals, pharmaceutical distributors must give thorough data on all elements of their business, including sales, inventory management, and services provision. Web-based reporting must be available, with strong security management, and must be easily accessible. Typically, the reporting requirements for each Principal will be different from one another.
- Inventory on a physical level. There may be extremely rigorous storage and handling conditions associated with the inventory, depending on the type of pharmaceuticals that are being supplied. For example, handling some bio-pharmaceuticals necessitates the precise monitoring and reporting of cold chain data in accordance with industry standards. Additionally, some items may be harmful by nature or require special handling and storage. In the majority of circumstances, each warehouse will include a mixture of consignment stock and distributor-owned stock.
- Picking and delivering items. At peak times, the volume of picks might be exceedingly large – especially in cases when wholesale distribution is being done.
- Most warehouses will have automated picking systems for high-volume commodities, and these systems will need to be integrated with the ERP system in order to function properly. Because high-volume and low-volume items will be kept and picked in different ways, it will frequently be necessary to create numerous pick lists for a single order. Items at the pallet, case, and sub-case levels may be included in a single order.
- Regulations governing licensing. Regulations must be followed by distributors who operate in numerous countries, and this is especially true for international distributors. Pharmaceutical products, for example, must be licensed in each country in which they are sold.
- In addition to the aforementioned characteristics, the pharmaceutical distribution value chain is characterized by a necessity for system flexibility, which arises from the need to satisfy constantly changing Principal requirements, among other things.
In summary, the pharmaceutical distribution industry poses considerable hurdles to enterprise resource planning systems, with many of them failing to meet critical business needs without extensive customization. To determine which systems offer the best level of functional fit, given the pace of change in the industry, it is critical to do a thorough analysis of the system’s entire Total Cost of Ownership (TCO) prior to making a decision.
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