Using integrated IT solutions, manufacturers can perform simultaneous S&OP across multiple distribution and manufacturing
facilities, and across various lines of business—including planning, marketing, finance, and manufacturing—within a single
planning run, while at the same time accounting for the latest consensus forecast, sales orders, production status, purchase
orders, and inventory-policy recommendations. Some systems, for example, allow a direct linkage between sales orders and production
batches, enabling users to create a batch reservation for a sales order. When the batch is completed, the reservation for
the order line is converted into an inventory allocation and can then be confirmed and shipped. Alternatively, if there are
no existing batches planned or in process for the required product, a user can initiate a request to create a batch specifically
for that order. Automated workflow notifications apprise order-entry personnel of any changes to the production schedule that
may impact their order.
Accurate Demand-Signal Collection
But where does the data come from to enable this sort of forecasting?
Historically, demand-signal-collection models have focused on analysis of distributor orders. But manufacturers have learned
through painful experience that these orders provide limited visibility into actual consumer demand. Critically, manufacturers
must understand where inventory is in the distribution channel at any given time so they can make accurate, timely adjustments
to projections and/or production.
This means that the manufacturer/distributor relationship must be reframed. Progressive manufacturers are pursuing this goal
through several means, including pay-for-performance contracts—which place requirements on both manufacturer and distributor.
Some manufacturers are forming bonds with their distributors to capture and share electronic data interchange (EDI) information.
Through the efforts of the X12 Committee as well as the Healthcare Distribution Management Association's Electronic Commerce
Task Force, several key EDI standards have been developed. These include EDI 852 files (which document product-activity data,
including product sold, quantity on hand, and orders) and EDI 867 files (which document product transfer and resale data)
to improve demand-signal collection. This gives the manufacturer a better, though not perfect, picture of what the distributor
actually has on hand at any given time. It also helps reduce both manufacturer and distributor inventories without having
a negative impact on customer order-fill rates.
Other manufacturers are going to the pharmacy level to collect data on the number of prescriptions filled for their drugs.
With a significant number of drugs expected to go off patent in the next few years, many pharmaceutical companies are awakening
to the reality that they may have to play (at least to some extent) in the generic space, where pharmacy store-level inventory
information is crucial.
Collecting prescription-fill data can be complicated; prescription information comes in multiple formats, and not all retailers
make it available to manufacturers. However, suitable approximation models are being devised that improve the utility of this
In addition, another possible source of demand-signal data could be gleaned from electronic drug pedigrees, which California
plans to mandate by 2009. A drug pedigree is a certified record that contains information about each distribution and transfer
of ownership of a prescription drug. It records the sale of an item by a pharmaceutical manufacturer, any acquisitions and
sales by wholesalers or repackagers, and final sale to a pharmacy or other entity administering or dispensing the drug.
As pharmaceutical manufacturers transform their relationships with distributors, it becomes increasingly essential to have
access to IT applications that facilitate trade and partner management and enable advanced analytics. Manufacturers need to
effectively capture, analyze, and make decisions based on demand-signal data that is growing in volume and complexity. Spreadsheet-based
management cannot fulfill these objectives.
The demand-driven supply chain does not end with the creation of a more accurate forecast. After securing and analyzing information
from the distribution channel and using it to develop a more accurate forecast, manufacturers must go back to their distribution
partners to determine collective success—a key factor in performance-based contracts. IT systems that enable sophisticated
business intelligence and analysis are essential here. For example, manufacturers entering into pay-for-performance contracts
with their distributors must be able to set key performance indicators for both parties and to track and analyze performance
to determine outcomes and areas for improvement.