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The European e-Business Market Watch

EuropeanCommission

Enterprise & Industry Directorate General

Sector Report No. 04-I (July 2005)

ICT and Electronic Business in the

Pharmaceutical IndustryKey issues and case studies

The European e-Business Market Watch

Sector Report No. 04-I (July 2005)

ICT and Electronic Business in the

Pharmaceutical IndustryKey issues and case studies

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Pharmaceutical Industry

The e-Business W@tch

The European Commission, Enterprise & Industry Directorate General, launched the e-Business W@tchto moni-

tor the growing maturity of electronic business across different sectors of the economy in the enlarged European

Union, EEA and Accession countries. Since January 2002 thee-Business W@tch has analysed e-business de-

velopments and impacts in manufacturing, financial and service sectors. Results are continuously being publishedon the Internet and can be accessed or ordered via the Europa server or directly at the e-Business W@tchweb-

site (www.europa.eu.int/comm/enterprise/ict/policy/watch/index.htmor www.ebusiness-watch.org).

This report is the first Sector Impact Study on electronic business in the pharmaceutical industry published by the

e-Business W@tch in the 2005 period. It builds on previous e-business studies on the chemical sector from 2003

and 2004. This study focuses on specific issues that were found to be particularly relevant for the sector at stake.

It features case studies on how companies use ICT for conducting business in this industry.

Disclaimer

Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use

that might be made of the following information. The views expressed in this report are those of the authors and

do not necessarily reflect those of the European Commission. Nothing in this report implies or expresses a war-ranty of any kind. Results from this report should only be used as guidelines as part of an overall strategy. For

detailed advice on corporate planning, business processes and management, technology integration and legal or

tax issues, the services of a professional should be obtained.

Acknowledgements

This report was prepared by Berlecon Research on behalf of the European Commission, Enterprise & Industry

Directorate General. It is a deliverable in the context of the e-Business W@tch, which is implemented by a team

consisting of empirica GmbH (co-ordinating partner), Berlecon Research, Databank Consulting, DIW Berlin, Lios

Geal Consultants, RAMBLL Management and Salzburg Research, based on a service contract with the Euro-

pean Commission.

e-Business W@tch would like to thank Mr Dirk Krischenowski, Chiron, who is a member of the e-Business

W@tch Industry Advisory Board in 2005, for reviewing the draft report and providing valuable comments and

suggestions.

Contact

For further information about this Sector Study or about the e-Business W@tch, please contact:

Berlecon Research GmbH

Oranienburger Strae 32DE-10117 BerlinGermany

Fax: (49-30) 285296-29

[email protected]

e-Business W@tchc/o empirica GmbHOxfordstr. 2DE-53111 BonnGermany

Fax: (49-228) 98530-12

[email protected]

European CommissionEnterprise & Industry Directorate-GeneralTechnology for Innovation / ICTIndustries and e-Business

Fax: (32-2) 2967019

[email protected]

Rights Restrictions

Material from this report can be freely used and reproduced but not commercially resold and, if quoted, the exact

source must be clearly acknowledged.

Berlin / Brussels, 2005

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Pharmaceutical industry

Table of Contents

Introduction to the e -Bus i n e s s W@t c h............................................................4

Executive Summary.........................................................................................7

Electronic Business in the Pharmaceutical Industry in 2005: Main Issues

and Challenges ........................................................................................9

1 Introduction .............................................................................................9

1.1 Definit ion and scope of the study ................................................................... 9

1.2 Summary of previous sector studies ............................................................ 12

2 Key application areas of electronic business ......................................14

2.1 Use of B2B Internet trading platforms in the pharmaceutical sector ........ 16

2.1.1 From e-marketplaces to B2B trading platforms ......................................... 16

2.1.2 Current practices in the use of B2B Internet trading platforms .................. 17

Case Study: Marmosa Winning new customers via website & B2B portals ....... 18

Case Study: Pharma-mall: an integration platform initiated by pharmaceuticalcompanies.................................................................................................. 22

Case Study: Pharmaplace - a collective sourcing initiative by medium-sizedpharmaceutical companies ........................................................................ 26

2.1.3 Conclusions ............................................................................................... 29

2.2 The use of CRM systems and mobile solutions for sell-side activi ties ..... 30

2.2.1

The use of CRM systems in the pharmaceutical industry.......................... 30

Case Study: Deployment of a new CRM system at EGIS Poland......................... 31

2.2.2 Mobile solutions for sales force optimisation ............................................. 35

2.2.3 Conclusions ............................................................................................... 39

2.3 RFID-based solutions in the pharmaceutical industry ................................ 40

2.3.1

Basic concept and the role of RFID ........................................................... 40

2.3.2 Challenges in establishing RFID / Auto-ID solutions ................................. 43

2.3.3 Conclusions ............................................................................................... 47

3 Conclusions and business implications................................................48

3.1

Opportunit ies and risks for SMEs ................................................................. 48

3.2 Outlook on future developments................................................................... 50

4 Policy implications ................................................................................53

5 Background information on the sector .................................................56

5.1 Industry trends and challenges..................................................................... 56

5.1.1 Challenges due to specific characteristics of the sector ............................ 56

5.1.2 Current trends and developments.............................................................. 57

5.2 Industry statist ics ........................................................................................... 60

References.....................................................................................................64

Annex: Technical solutions and usage potentials .......................................66

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Introduction to the e-Business W@tch

e -Bus i n ess W@tc h observatory and intermediary since late 2001

The European Commissions e-Business W@tch monitors the adoption, development and impact of

electronic business practices in different sectors of the economy in the enlarged European Union. The

background of this initiative was the eEurope 2002 Action Plan, which provided the basis for targeted

actions to stimulate the use of the Internet for accelerating e-commerce, acknowledging that "elec-

tronic commerce is already developing dynamically in inter-business trading" and that "it is important

for SMEs not to be left behind in this process." The eEurope 2005 Action Plan confirmed and built

further upon these objectives with Action 3.1.2 "A dynamic e-business environment", which defined the

goal "to promote take-up of e-business with the aim of increasing the competitiveness of European

enterprises and raising productivity and growth through investment in information and communication

technologies, human resources (notably e-skills) and new business models".

It is against this background that the European Commission, Enterprise & Industry Directorate Gen-

eral, launched the e-Business W@tchin late 2001. The objective of this initiative is to provide sectoral

analysis based on empirical research, including representative enterprise surveys in countries of the

European Union, the EEA and Accession States, with special emphasis on the implications for small

and medium-sized enterprises (SMEs).

Since its launch, the e-Business W@tchhas published more than 50 e-Business Sector Studies on 17

different sectors of the European economy, three comprehensive synthesis reports about the status of

electronic business in the European Union, two statistical pocketbooks and various other resources

(newsletters, special issue reports, etc). These are all available on the website at www.ebusiness-

watch.org.

The quantitative analysis about the diffusion of ICT and e-business is based to a large extent on regu-lar representative surveys among decision-makers in European enterprises. The 2005 survey covers

more than 5000 enterprises from 10 different sectors across 7 EU member states. In addition, more

than 70 case studies on e-business activity in enterprises from all EU, EEA and Accession countries

are carried out, to complement the statistical picture by a more detailed analysis of current e-business

practices.

Survey results of the previous years have confirmed the initial assumption and rationale of the e-

Business W@tchthat the sector in which a firm operates and the size of a company, rather than its

location, are the main determinants of its e-business activity,. The large demand for the various publi-

cations and statistics provided by the e-Business W@tch, and their exploitation by other research

institutions (for example, in the EITO Yearbook 2003 and in the OECD Information Technology Out-

look 2004), document the demand for sectoral e-business analysis. Facilitated by positive responsesand the growing interest in its analysis, the e-Business W@tch is increasingly developing from an

observatory into a think-tank and intermediary, stimulating the debate about the economic and policy

implications of e-business among stakeholders at an international level.

The wide-angle perspective: e -Bus i n ess W@tc hprovides the "big picture" as a ba-

sis for further research

The mission of the e-Business W@tchis to present a "wide-angle" perspective on e-business devel-

opments and practices in the sectors covered. This has important implications regarding the level of

detail in which various issues can be explored, both in terms of the quantitative picture (survey) and in

terms of the qualitative assessment and background research.

Over the past 10 years, "electronic business" has increased from a very specific to a very broad topic

to be studied. The OECD proposes a definition of e-business as "automated business processes (both

intra-and inter-firm) over computer mediated networks". This definition is useful as it makes clear that

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gated) sectors analysed in 2002-2004. The rationale for "zooming in" on former sub-sectors is that the

broad picture for the whole sector is now available from previous sector studies, and that this seems to

be the right time within the prospective life-cycle of the e-Business W@tch to focus the analysis on

more specific business activities.

The 10 sectors covered in 2005 were selected on the basis of the following considerations: The current dynamics of electronic business in the sector and the impact of ICT and electronic

business, as derived from earliere-Business W@tchsector studies.

Interest articulated by the industry in previous years on studies of this type.

Policy relevance of the sector from the perspective of DG Enterprise & Industry.

Roll-out strategy of 2003: New sectors (not covered in 2002/03 and/or 2003/04) have been

added, as well as specific industries which have only been covered as part of a larger sector in

the past

In 2005, the e-Business W@tch will also deliver four cross-sector studies. These Special Reports will

focus on a particular e-business topic of interest across different sectors rather than on a single sector.

The 10 sectors analysed in 2005

The 10 sectors which are being monitored and studied in 2004/05 include seven manufacturing, con-

struction and two service sectors. Four of these sectors have been covered in the previous years of

implementation, while the other six were covered as well, but as part of (aggregated) sectors analysed

in 2002-2004.

Exhibit: Sectors and topics covered by e-Business W@tch in 2005

Sector Studies NACE Rev. 1 Publi cation date(s) *

1 Food and beverages 15 July 2005 Sep. 20052 Textile industry 17, 18 July 2005 ---

3 Publishing and printing 22 July 2005 Sep. 2005

4 Pharmaceutical industry 24.4 July 2005 Sep. 2005

5 Machinery and equipment 29 July 2005 Sep. 2005

6 Automotive industry 34 July 2005 ---

7 Aerospace 35.3 --- Sep. 2005

8 Construction 45 July 2005 Sep. 2005

9 Tourism 55, 62.1+3, 92.3+5 --- Sep. 2005

10 IT services 72 July 2005 Sep. 2005

Special Topic Reports

A A User's Guide to ICT Indicators: Defini-tions, sources, data collection

July 2005 ---

B International Outlook on E-Business De-velopments

July 2005 ---

C E-Business Standards and Interoperabil-ity Issues

--- Sep. 2005

D ICT Security and Electronic Payments --- Sep. 2005

* There will be 1 report (in 2005) on 4 of the 10 sectors, and 2 reports on the other six.

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Executive Summary

Sector definition

The sector study covers the following business activities:

NACE 24.4: Manufacture of pharmaceuticals, medicinal chemicals and botanicalproducts,

NACE 24.5: Manufacture of soap and detergents, cleaning and polishing prepara-tions, perfumes and toilet preparations.

The pharmaceutical industry is part of the chemical industry (NACE 24). However, it differsfrom most of the other sub-sectors of the chemical industry in two ways. First, its outputs aremostly produced for end use and not as inputs for other parts of the chemical industry. Sec-ond, the pharmaceutical sector is characterized by a high R&D intensity. Several similarcharacteristics can be found in the manufacture of soaps and detergents, cleaning and pol-ishing preparations (NACE 24.51) as well as in the cosmetics industry (NACE 24.52).

E-Business Activity

The key e-business issues analysed in this report, as well as the case studies presented,should be understood as representative examples of current ICT and e-business practicesand of related opportunities and challenges. The following topics have been selected foranalysis due to their importance for the pharmaceutical industry:

The use of B2B Internet trading platforms,

CRM systems and mobile solutions for the support of sales activities

RFID-based solutions.

The analysis and particularly the case studies discussed show that the concept of B2B Inter-net trading platforms is well suited to reflect the current reality of B2B e-business in thepharmaceutical industry. The cases studies demonstrate the use of different Internet tradingplatforms that do not always have much in common with the original idea of e-markets. Nev-ertheless these platforms meet the needs of companies for their B2B e-business activities.

IT and Internet-based solutions play a key role in supporting marketing and sales processesin the pharmaceutical industry. In fact, CRM systems and mobile solutions, as discussed inthis report, show quite some potential for streamlining company processes on the sell-sideand for facilitating the management and work of the pharmaceutical sales force. A key mes-

sage of the analysis and case studies, however, is that its realisation requires more than justthe plain implementation of a CRM system or the equipment of the sales force with wirelessdevices. Acceptance of the solution by users turned out to be a key success factor.

Combating counterfeiting activities currently appears to be a main driver for the deploymentof RFID/Auto-ID solutions in this sector. The role of the pharmaceutical industry as a fore-runner in this field is further accelerated by the large range of suitable applications, the fa-vourable ratio of tag prices to product values and by the enforced pedigree requirements ofsome regulation authorities. However, a widespread deployment of this technology within thissector brings many challenges with it. If worldwide cross-industry solutions are to be thegoal, the establishment of accepted standards is crucial. In addition the establishment ofRFID/Auto-ID networks requires the solution of business issues like who gets access to

which information and the consideration of privacy issues. Therefore, in the short term, thedeployment of small specialised projects may be more likely than a full roll-out of a uniqueRFID/Auto-ID concept along the entire supply chains of several industries and regions.

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Conclusions

The conclusions and policy implications discussed in this report are mainly based on qualita-tive analysis. The new statistical results of the e-Business Survey2005 will be published inthe forthcoming sector report (September 2005) leading to consolidated business implica-

tions and policy challenges based on qualitative as well as quantitative analysis.The conclusions extend the case study-based analysis by revisiting the specific opportunitiesand risks of ICT and e-business for SMEs in this sector and by providing an outlook intolikely future ICT developments that are of importance for this sector. SMEs have the oppor-tunity to use ICT and e-business tools as the basis for the development of niche markets, formaintaining customer relationships or for collaboration with business partners. Risky devel-opments for SMEs arise mainly from the insufficient exploitation of e-business tools, non-appropriate technical tools and the insufficient consideration of SME needs in new techno-logical developments.

A key area of application in the future is the usage of ICT and e-business in the field of R&D.There are several ways in which new technologies may help to increase research efficiency

and exploit the potentials of biopharmaceutical research. Under discussion, for example, arenew computing models, new models for knowledge management and Internet-based collabo-ration platforms.

Policy Implications

Policy implications made clear in this report highlight two issues, namely the need for betterIT-related business skills in SMEs and the ongoing development of an RFID infrastructure forthe pharmaceutical industry. ICT and the Internet have changed the way certain businessactivities can be conducted, and there is some evidence in this report that SMEs have not yetfully acquired the necessary business skills to make use of these changes. In this regard,there might be a role for European policy, at least on two levels: the e-Business Policy Sup-

port Network and the eMarket Services project.

Furthermore, it would probably be beneficial for the European pharmaceutical industry as awhole to get an independent assessment of the opportunities and challenges of RFID in thepharmaceutical supply chain. Such an assessment could be conducted by establishing anexpert group at the appropriate unit(s) and/or by commissioning an independent study.

Economic Background

The European manufacture of pharmaceuticals (NACE 24.4) is concentrated in a few coun-tries. In 2001, more than two thirds of the sectors production value was generated by phar-maceutical companies in the large EU countries of France, Germany, Italy, and the UK.

Large companies dominate production. Even though about 90% of the enterprises in thissector are SMEs, large companies account for more than 85% of production value and em-ploy nearly 80% of the sector workforce.1

The characteristics of the pharmaceutical sector imply specific challenges for companies. Ofparticular importance are the fulfilment of regulatory requirements, the management of risksin product development and the ability to deal with heterogeneous target groups in marketingand sales.Apart from sector-specific challenges, pharmaceutical companies have to managechange in their business environment. Increasing cost pressure, a changing industry struc-ture and the rising importance of biotechnological applications are important current trends.Cost pressure is driven by the so-called blockbuster or R&D innovation crisis, increasingcompetition due to a rising importance of generics, as well as cost-containment measures in

order to consolidate public health insurance systems.

1Source: Eurostat New Cronos / DIW Berlin, see section 5.2.

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Electronic Business in the Pharmaceutical Industry in2005: Main Issues and Challenges

1 Introduction

This study explores the development and implications of ICT and electronic business in thepharmaceutical industry. It builds on previous sector studies from 2003 and 2004, publishedby the e-Business W@tch on the chemical industry to which the manufacture of pharma-ceuticals belongs in official statistics. This report focuses on specific issues that were foundto be particularly relevant to the sector in question. The analysis is supported by case studiesof ICT and e-business activity in specific enterprises, drawn from expert interviews with se-lected companies. A second report, to be published later this year, will focus on quantitative

aspects.

The conclusions in this report highlight the main business implications of ICT and e-businessfor small and medium-sized firms in the sector. In addition, important drivers for the devel-opment of electronic business in this industry for the next 2-3 years are presented. Finally,the study indicates ICT-related policy challenges.

1.1 Definition and scope of the study

Sector definition

This report analyses IT and e-business issues in the pharmaceutical industry, defined for thepurposes of this report, by the following business activities:

Exhibit 1-1: Business activities covered by the pharmaceutical industry (NACE Rev. 1.1)

NACE Rev. 1.1 Business Activi ty

DE 24.4 Manufacture of pharmaceuticals, medicinal chemicals and botanical products

24.41 Manufacture of basic pharmaceutical products

24.42 Manufacture of pharmaceutical preparations

DE 24.5 Manufacture of soap and detergents, cleaning and polishing preparations, perfumesand toilet preparations.

24.51 Manufacture of soap and detergents, cleaning and polishing preparations, perfumesand toilet preparations.

24.52 Manufacture of perfumes and toilet preparations (cosmetics industry)

Activities subsumed under NACE2 24.4 constitute the core of the pharmaceutical industry.This report, however, also covers the activities of the cosmetics industry (NACE 24.51) andthe manufacture of soaps and detergents, cleaning and polishing preparations (NACE24.52). The latter two sub-sectors have several things in common with the core pharmaceuti-cal industry, which justifies their joint consideration.

2 NACE Rev. 1 is a 4-digit activity classification which was drawn up in 1990. It is a revision of the "General

Industrial Classification of Economic Activities within the European Communities", known by the acronymNACE and originally published by Eurostat in 1970.

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In contrast to most other parts of the chemical industry, subsumed under NACE 24 (manu-facture of chemicals, chemical products and man-made fibres), the outputs in the industryconsidered here are mostly produced for end-users and not for other parts of the chemicalindustry. In addition, most of the products come into contact with human bodies and thus canhave an immediate impact on human health. Therefore, the industry has to meet high safety

standards and is subject to many regulatory measures in order to ensure the consumerssafety. And finally, companies active in the analysed sub-sectors often use similar distribu-tion channels such as pharmacies and drugstores. For the remainder of this report, therefore,the term pharmaceutical industry, is intended to include the whole sector as defined in Ex-hibit 1-1. This industry differs in one more respect from the remainder of the chemical indus-try: it is characterised by an extraordinarily high R&D (Research and Development) intensity.According to EFPIA (The European Federation of Pharmaceutical Industries and Associa-tions), pharmaceutical companies in Europe spend about 20% of their sales volume on re-search and development. This R&D is not only laboratory research to discover new sub-stances or production processes, but a large amount of money and time is also invested inclinical trials and approval processes.

Close ties with related sectors

The sector definition chosen here is not the only possible definition. Others include, e.g. thefollowing sectors, which have close ties with the pharmaceutical industry:

Agrochemical industry :Just like the pharmaceutical industry, also the agrochemicalsector is characterised by a high R&D intensity. Both industries are often combinedinto the so-called life sciences industry.

Manufacturers of medical instruments and providers of healthcare services: Companies in these sectors face similar challenges as far as the supply side and re-lated regulation and policy issues are concerned. The three sectors together are oftenclassified as healthcare industry.

Wholesalers and retailers:Collaboration along the supply chain is a key issue in thepharmaceutical industry. For discussion of sales and marketing activities, for in-stance, specialised wholesalers and retailers of pharmaceuticals are often added tothe sector.

Even though the focus of this report is on the pharmaceutical industry as defined in Exhibit 1-1, many ICT and e-business issues also involve the aforementioned neighbour industries,because, for example, the issues affect a whole supply chain, or because companies areactive in the manufacture of pharmaceuticals as well as in a neighbour industry. The casestudies and business example provided in this report, therefore, also partially cover theseother industries.

Increasing importance of biotechnological developments

In addition, many new developments in the pharmaceutical sector are based on biotech-nological3inventions. In fact, the consulting company PricewaterhouseCoopers (PWC) foundout that in 2003, no less than 25 of the FDAs (U.S. Food and Drug Administration) 32 newproduct approvals originated from biotech companies. This dynamic would also explain alarge number of the acquisition activities in the pharmaceutical industry in the same year:The high level of acquisitive interest in biotechnology companies was a dominant feature inthe sector in 2003. Eight of the top ten targets were biotech companies. Moreover, PWC

3 The term biotechnology can be defined in different ways. Put in simple words, biotechnology describes tech-

nology based on biology, which provides new applications for agriculture, food science and medicine, seealso Wikipedia: www.wikipedia.org (February 2005).

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expected to see continued activity in the biotech arena in 2004. 4Although there is no spe-cific NACE classification for the manufacture of biopharmaceuticals yet5,developments andactivities in this field are also discussed in this report.

Segmentation of the pharmaceutical industry

Companies active in the pharmaceutical industry can be further segmented based on theirbusiness focus or the characteristics of their products. The manufacture of pharmaceuticalproducts, for instance, can be roughly divided into two parts: R&D and the production ofpharmaceuticals. The often-used expression research-based pharma refers to companiesthat spend significant efforts on research and development of new products. A specific sub-group in this area are Contract Research Organisations (CROs) that have specialised insupporting R&D activities, for instance, by organizing and executing clinical trials as an out-sourcing service for larger players.

In contrast to research-based pharmaceutical companies, a significant share of enterprises inthe sector concentrates almost exclusively on production and sales. These can be furtherdivided into companies that licence substances from patent holders and companies that copyoriginal products after the expiration of the patents. The latter are also known as producers ofgenerics.6 According to EFPIA, the market shares of generics in 2002 in the EU-memberstates were between 2% in Portugal and 27% in Germany.7

With respect to the products supplied by companies in the pharmaceutical industry, one candistinguish between suppliers of prescription pharmaceuticals and those of OTC (Over TheCounter) products. Whether a product has to be prescribed by a physician or can be soldover the counter has, for example, serious implications for the design and execution of mar-keting and sales activities. Advertising of prescription pharmaceuticals directly to the con-sumer (DTC), for instance, is prohibited in the EU, and sales channels are usually limited topharmacies. In contrast, OTC pharmaceuticals can be sold and promoted with far fewer re-strictions.

Background data

The European Commission concluded in its communication on A Stronger European-basedPharmaceutical Industry for the Benefit of the Patient, that the pharmaceutical industry inEurope generates wealth and high quality employment while playing a central role in the de-velopment of public health []8.In fact, the pharmaceutical industry in Europe shows eco-nomic strength. In 2001, in the EU-25 (of today) more than 550,000 persons were employedin pharmaceutical companies.9The production value in the same year was roughly 148 bil-lion euros, and the value added almost 55 billion euros. Moreover, due to the high R&D in-tensity, the sector plays a crucial role for the creation of jobs with high skill-levels.

4 PWC (2004): Pharmaceutical Sector - Annual Report 2003, Corporate Finance Insights Analysis & Opin-

ions on Merger & Acquisition activity, PricewaterhouseCoopers, 2004 (www.pwc.com/pharmainsights).5 According to the German Federal Statistical Office, biotechnology companies are currently attributed to NACE

classifications on a case-by-case bases.6 There is no consistent definition of generics yet. They are typically understood as pharmaceuticals produced

by a manufacturer different from the inventor of the original product and are market when intellectual propertyrights are exhausted, see also EPFIA (2004).

7 EFPIA (2004): The pharmaceutical industry in figures 2004 edition, Report, EFPIA 2004 (www.efpia.org)

8 EC (2003): A Stronger European-based Pharmaceutical Industry for the Benefit of the Patient A Call for

Action, COM (2003) 383 final, 1.7. 2003.9 The data presented on the economic background (Source: Eurostat New Cronos / DIW Berlin) refer to the

core of the pharmaceutical sector, i.e. activities under NACE 24.4; background statistics are presented inmore detail in chapter 5 of this report.

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The manufacture of pharmaceuticals is concentrated in only a few countries. In 2001, morethan two thirds of the sectors production value was generated by pharmaceutical companiesin the large EU countries of France, Germany, Italy, and the UK. Manufacturers of pharma-ceuticals in these countries employed nearly two thirds of the sectors workforce in todaysEU-25 countries. In addition, large companies dominate production. Even though about 90%

of the enterprises in this sector are SMEs, large companies account for more than 85% ofproduction value and employ nearly 80% of the sectors workforce. However, this does notmean that small companies are less important in this sector. Biopharmaceutical companies,for example, are responsible for a substantial share of innovations, although these compa-nies are typically small. Due to their innovative activities they are preferred acquisition targetsfor large companies.

1.2 Summary of previous sector studies

In previous sector studies by the e-Business W@tch the pharmaceutical industry was ana-

lysedas part of the combined chemical industries (chemical industry as well as manufactur-ing of rubber and plastics products). Therefore it seems natural to take survey results pub-lished in those studies as a starting point for the analysis in this report. However, as dis-cussed in section 1.1, the pharmaceutical industry differs in several aspects from most of theother chemical sub-sectors. This also was a motivation for restricting the 2005 analysis of thee-Business W@tch to the pharmaceutical industry to obtain results for a homogeneous sec-tor.

Exhibit 1-2: Sector scoreboard and assessment of e-business usage in the chemical industries 2004

Chemi cal i ndustries

-1,5

-0,5

0,5

1,5A

B

C

D

Max Average Chem icals

Max = maximum indexed value for one of the 9 sectorsAverage = mean value for the 9 sectors

Categories

A) Connectivity of enterprises

B) Internal business process automation

C) Procurement and supply chain integration

D) Marketing and sales

Assessment: Manufactur ing sector wi th a

cautious e-business approachChemical companies tend to be pragmatic andrather conservative users of information tech-nology. They are not a leading adopter of e-business. Other manufacturing sectors suchas electronics or the automotive industries aremore intensive users.

Still, in terms of business connectivity andinternal business process automation, compa-nies from the chemical industries are betterequipped than firms on average across all

sectors.

This does not hold true for customer facing e-commerce solutions, which are not yet widelyused.

Source: e-Business W@tch(2003/04)10

10

e-Business Sector Study on the Chemical Industry, May 2004. www.ebusiness-watch.org('resources').

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According to the e-Business Survey 2003/2004 (see Exhibit 1-2), the combined chemicalindustries turned out to be rather conservative users of information technology when com-pared with other manufacturing sectors such as automotive or electronics. Due to the specificcharacteristics of the pharmaceutical sector we expect companies from this sector to use ITCmore intensively. Differences are mainly expected in two areas.

Internal process automation:The high R&D intensity of this sector (see also chap-ter 5 for a discussion of this issue) makes those IT applications useful that help tomanage knowledge (e.g. knowledge management systems) and to deal with the largeamounts of data. As will be discussed in section 3.2 of this report, the IT requirementsof pharmaceutical research are further increasing (e.g. due to the raising relevance ofbiopharmaceutical research). This development is likely to further drive future invest-ments in knowledge management applications and new IT infrastructure,

Marketing and Sales:Pharmaceuticals are (other than chemicals) produced for theconsumer market, where marketing and sales activities are a key priority. In addition,pharmaceutical companies have to deal with different needs and target groups (e.g.

consumers, pharmacies, physicians and health insurance companies). These chal-lenges are likely to drive IT usage to increase the efficiency of sales force activitiesand marketing processes. The use of specific IT solutions for the support of market-ing and sales processes will be explained in more detail in section 2.2 of this report.

The upcoming statistical results of the e-Business Survey2005 will show, whether these pre-liminary assessments are also confirmed by the data. The survey results will be published inthe forthcoming report on e-business in the pharmaceutical industry (September 2005).

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2 Key application areas of electronic business

This chapter aims at providing some insights into current ICT and e-business practices spe-

cific to the pharmaceutical industries, as well as into the opportunities and challenges of us-ing these technologies. The chapter does not claim to provide a comprehensive overview, asthat would exceed the limits of this report. In fact, it would be difficult to realize, as ICT and e-business are relevant for nearly all core business areas of the pharmaceutical industry.Therefore, the key issues analysed in this chapter, as well as the case studies presented,should rather be understood as representative examples of current ICT and e-business prac-tices, as well as of related opportunities and challenges. The following issues as particularlyillustrative for pharmaceutical companies:

The use of B2B Internet trading platforms: Chapter 2.1 discusses the role playedby different types of B2B Internet trading platforms in the pharmaceutical industry to-day. This issue is particularly illustrative for developments in the field of e-

procurement and supply chain connectivity. The case studies presented in this chap-ter demonstrate that pharmaceutical companies of different sizes have differentneeds in the field of B2B e-business.

CRM systems and mobile solutions to support sales activities: Chapter 2.2 dis-cusses CRM systems and mobile solutions to support sales activities. Particularly inthis field we expect the pharmaceutical industry to be an advanced user of thesetechnologies due to peculiarities of its customer base. Based on case studies andbusiness examples, strategies for a successful deployment of such enterprise IT solu-tions will be discussed.

RFID-based solut ions: This issue stands for several future developments (see sec-tion 3.2) where the pharmaceutical industry is considered to be a forerunner. Chapter

2.3 analyses the various potentials of RFID for tracking and tracing products alongthe pharmaceutical supply chain. Moreover, the challenges and critical issues relatingto the design and development of RFID-based solutions will be discussed.

The case studies and business examples as summarized in Exhibit 2-1 together withanalyses of secondary literature build the basis for first conclusions and policy implicationsderived in the chapters 3 and 4 of this report. Together with the new statistical results to bepublished in the second part of the report, they will lead to consolidated conclusions and pol-icy challenges based on qualitative as well as quantitative analysis.

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Exhibit 2-1: Case studies and business examples to be presented in this chapter

Chapter Title and Purpose

Chapter 2.1:Use

of B2B Internettrading platforms

Case Study:Marmosa trying to win new customers via website and B2B portals

Insights into problems of SMEs when using e-business tools to support mar-keting and sales activities

Case Study:Pharma-mall an integration platform initiated by pharmaceuticalcompanies

Example of integration platforms that are initiated, financed and supervised byproducers of pharmaceuticals themselves.

Potentials for manufacturers of pharmaceutical products and their customersas well as challenges faced by platform provider and ways to overcome them

Case Study:Pharmaplace a collective sourcing platform initiated by medium-sized pharmaceutical companies

Insights into e-business related problems faced by medium-sized companiesin this sector

Business example:Diagdirect: a B2B Internet trading network for in-vitro diag-nosis

Example of user-driven trading platforms, Diagdirect aggregates online sup-plier catalogues to support laboratories ordering process

Chapter 2.2: Theuse of CRM sys-tems and MobileSolutions

Case Study:Deployment of a new CRM system at EGIS Poland

Discussion of strategies, challenges and success factors for planning, imple-menting and introducing a CRM system

Business example: E-business activities supporting marketing and sales atUCB Pharma Poland

E-business strategy and first experiences by a pharmaceutical company try-ing to improve the performance of sales and marketing activities

Business example:Sales force optimisation by a mobile solution at QueisserPharma

Example of pharmaceutical manufacturer deploying mobile solutions to streamlinethe work of its sales force.

Chapter 2.3:

RFID-based solu-tions

Business example:Authenticating pharmaceuticals at the point of dispensing an RFID/barcode pilot by Aegate (UK)

Example of practicable RFID-based solutions, which increase the safety of the pa-tients, are feasible today and suited to SMEs in the sector

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2.1 Use of B2B Internet trading platforms in the pharmaceu-tical sector

2.1.1 From e-marketplaces to B2B trading platforms

The pharmaceutical industry seems to be well suited to the use of e-business tools to sup-port B2B relationships on the buy- and sell-sides. First, many of the goods to be traded canbe easily described and show a high level of standardisation. In addition, pharmaceutical-specific challenges, such as the management of product recalls, are driving collaborationalong the value chain. These factors increase the usefulness of industry-wide trading andcommunication platforms. Finally, the global nature of the pharmaceutical industry requiresthat companies actively sell and/or produce in a variety of international markets.

In the past, particularly during the dot.com boom, e-marketplaces had often been discussedas the ultimate vehicle for implementing B2B e-business strategies. With the butterfly

model

11

in mind, they were usually defined as sites bringing together several buyers andseveral sellers and supporting their e-business transactions. In this way, companies couldenter e-markets, search for cheap supplies or new suppliers, accept the price or participatein a price negotiation and eventually fix the contract. The focus of e-marketplaces as per-ceived by the public was the conclusion of business transactions, and the main advantageswere increased market and price transparency. Based on this understanding, e-marketplaceswere typically defined as Internet sites run by an independent provider that contained atleast one trading function, for example the possibility to participate in auctions or to orderfrom catalogues.

However, in practice the concept did not fully meet the actual needs of companies. As a con-sequence, the use of e-marketplaces remained way behind initial expectations. Even in the

chemical industry of which the manufacture of pharmaceuticals is a part and which showsa similar suitability for the use of e-business tools the share of companies participating in e-marketplaces was negligible (at about 2%)12.Consequently, the number of e-marketplaces often start-ups originating from the e-business boom has decreased significantly. Thenumber of e-marketplaces in Germany, for example, fell from more than 180 in 2001 to lessthan 100 in 2005.13

However, it would be wrong to interpret these numbers as evidence that B2B e-business isfading away. A closer look shows that a large part of B2B e-business activities takes placeoutside e-marketplaces. Many of the current Internet trading platforms, for example, havespecialised in supporting very specific supply activities. In addition, several platform servicesare operated by user companies themselves. In order to clarify the concept of electronic B2B

transactions, an expert group of the European Commissions DG ENTRI proposed the termB2B Internet Trading Platform to include all Internet-based technical solutions that aim atfacilitating the establishment of new trading relationships between companies or at support-ing existing relationships.14

11

Illustrates the conventional view on e-marketplaces as websites bringing together a large number of suppliersoffering goods on the one site and buyers searching for goods on the other.

12 Results of the e-Business W@tch Survey 2003.

13 Source: databases by Berlecon Research (2001) and eMarketservices (2005), see www.emarketservices.com(February 2005).

14 Final Report of the Expert Group on B2B Internet trading platforms, July 2003,

http://europa.eu.int/comm/enterprise/ict/policy/b2b/.

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2.1.2 Current practices in the use of B2B Internet trading platforms

The current landscape of B2B e-business is characterized by three major types of Internettrading platforms: B2B portals, Trading Networks and Sourcing Services Providers.15

B2B Portals

B2B portals focus primarily on supporting the process of information gathering and on mak-ing supply and demand aware of each other. In this respect, B2B portals are closest to theoriginal idea of e-marketplaces. In the pharmaceutical industry, most B2B portals are supplierand product directories like Pharmaceuticalonline.com or Cossma Internet Suppliers Guide(www.cossma.com). They support development as well as production of drugs or cosmeticsby facilitating the search for suppliers or production inputs as well as the search for potentialoutsourcing partners.

Pharmaceutical companies can use the directories to search for manufacturers and distribu-tors in categories like laboratory materials and equipment, industry-specific software or

packaging. But also contract manufacturers and contract research organisations (e.g. forcarrying out clinical trials) offer their services via online directories. A specific service in thisarea is provided by Pharma-Transfer (www.pharma-transfer.com), which publishes man-agement summaries of research reports on new pharmacological compounds. Based onthese, the platform aims to support licensing and partnering processes across the world inthe field of pharmaceutical research.

Companies in the pharmaceutical industry may also go onto the B2B portals to advertisetheir own products. Particularly for small companies and niche vendors, who do not have alarge distribution network, portals promise to provide them with a larger reach. However, thecase study on B2B portal experiences made by Marmosa a small Spanish manufacturer ofnatural cosmetics and pharmaceuticals shows that the listing on B2B directories alone

does not automatically result in new customers. Problems revealed by this case study aremost likely representative for many other small companies in this sector, as well as in otherindustries.

15 See also e-Business W@tch/ European Commission (2004): The current state of B2B E-Markets, Special

Report, March 2004.

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CASE STUDY:MARMOSATRYING TO WIN NEW CUSTOMERS VIA

WEBSITE AND B2BPORTALS

Abstract

Marmosa is a small Spanish manufacturer of natural cosmetics and foodstuff based on

avocado oil.. A new company website as well as services from B2B portals are used to

win new customers and to internationalise the business. The company, for example,

has published their o ffers in several B2B directories. However, the company cou ld not

yet win new customers through these e-business activities. The case study discusses

problems Marmosa has faced when using Internet-based services for their purposes.

Case Characteristics

Location of the company Malaga, Spain

Company size (no. of employees) 4

Primary customers Distributors of foodstuff and cosmetics

E-Business Focus

Use of company websites

Use of B2B Internet trading platforms

Gathering information via the internet

= at implementation stage; = used in day-to-day business; = critical business function

Background and objectives

In order to avoid competing solely on price in the agriculture and food industry, manycompanies in these sectors are searching for additional niches. One such niche is therefinement of agricultural products (e.g. herbs, plant oils) into natural cosmetics. How-ever, as these are niche products, regional markets and conventional distribution net-works are often not the best channels through which to reach potential customers. TheInternet, at first sight, promises to overcome such problems, as potential customersfrom everywhere can conveniently find and order from web sites, even from specialisedones. This was the motivation of Marmosas CEO, Pepe Moreno, for putting a lot of ef-fort into intensifying his use of the Internet.

Marmosa, Soc. Coop. And. is a Spanish producer of avocado oil. The company was

founded in 1999 and employs three people. Based on the production of avocado oil,Marmosa offers foodstuff (e.g. sugar and oil) as well as natural cosmetics (e.g. creams,soaps or body oils). Today, the main customers of Marmosa are wholesalers all aroundSpain. However, the CEO, Pepe Moreno, wants to increase Marmosas business andwin new customers abroad. In order to do this, he is using the Internet in two mainways: by publishing a company website and by using services of B2B portals in theInternet.

Activities

Use of the company website

In 2002, Marmosas company website was published under the domainwww.marmosa.com. The website contains a small introduction to the company, de-tailed information about the food and cosmetics products offered, opportunities for visi-

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tors to register as clients or distributors, as well as an online form for registered clients.The information is published in four different languages: English, French, German andSpanish. Photos next to the text illustrate the companys offers.

Pepe Moreno estimates the costs for the technical implementation of the website to

have been around 4300 euros. He contributed content and photos, while a specialisedcompany overtook technical implementation and maintenance. 80% of the costs havebeen financed by participation in the project Pipe 2000, initiated and organised byvarious Spanish trade promotion organisations and co-financed by the European Un-ion. The projects aim is the promotion of foreign trade activities by SMEs in Spain. Par-ticipating companies receive support from an external expert, who helps them to iden-tify potential markets and to plan and execute foreign trade activities. In addition, in-vestments supporting these activities such as the design and implementation of Mar-mosas website are subsidized.

The website is mainly used to support the sales activities of Marmosa by facilitatingcustomers access to information about the company and its products. Mr. Moreno

considers the website as an enhanced business card: With the information providedon our website we want to provide our customers with an image of the company . If Mr.Moreno, for example, makes new business contacts, he presents them with an infor-mation sheet with basic contact details and a reference to the company website to gainfurther information. As far as this goes, the company website supports the establish-ment and maintenance of customer relationships.

However, the website itself has not succeeded so far when it comes to attracting newcustomers. About nine visitors had registered as clients, but did not respond to Mar-mosas offers. This, according to Mr. Morenos view is the downside of the lack of per-sonal contact. During a face-to-face negotiation he could react promptly to the wishesor objections of his clients, whereas Internet customers leave immediately if the first of-

fer provided doesnt match their needs.This is not the only reason, however, for the unsatisfactory outcome. During the e-business boom, websites were sold to SMEs as a tool which would attract new cus-tomers easily. What they were not told was that doing this successfully often requiressignificant changes to the companys sales and marketing approach. This is typically alengthy and expensive learning process going far beyond investing in IT equipment andin acquiring IT skills. In Marmosas case it would mean at least partially becoming an e-retailer, whereas their previous sales experience had mainly been with wholesalers anddistributors.

Use of B2B Portals

Mr. Moreno began in 2004 to use the services provided by B2B portals. He registeredat several B2B industry directories in order to search for potential clients and to publishthe company offer. Currently, Marmosa is listed on roughly 10-15 B2B portals. Its prod-ucts can be found, for example, on B2B platforms like Worldtradeaa.com or B2BTradeholding.com. It is usually described as follows: Natural cosmetics of avocado oil

We are producers of avocado oil in Spain, and we manufacture natural cosmetics ofavocado oil: Creams for the skin Mask for the face Creams for the lips Soap Aromatic bath oil Massage oil Corporal oil Hair conditioner. Visitors of the onlinedirectories who are interested in these offers either receive company contact informa-tion after registration (which might involve payment of a fee) or can request more in-formation by sending an email forwarded through the platform.

According to Mr. Moreno, the yearly costs for using these B2B portals vary between 60and nearly 200 Euro per platform. Several directories demand registration fees; othersbill their clients for the number of successful contacts, typically in the form of emailsreceived. While Mr. Moreno has received hundreds of new contacts through these plat-

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forms, only about 20% of them were really useful and serious. A large number of con-tacts, for example, were ads or requests for invitations by migrants trying to enter theEuropean Union. None of the contacts has so far turned out to be a success.

Mr. Moreno points out two main problems related to the use of online directories. First,

many of these services work only in English. Therefore, it often is difficult for him to un-derstand what kind of information is required. In order to solve this problem, he haslearned some English. In addition, he uses an online dictionary for translating the in-formation to be provided into English. A larger problem, however, for him is the inferiorquality of business contacts provided by many of the online directories. Moreover, hereceives many identical business contacts via different platforms possibly becausesome of them are operated by the same company and differ only in name. Therefore,he considers his main challenge when using B2B portals as to figure out, which of themarketplaces are good and which are bad.

Despite these problems, Mr. Moreno is still optimistic that his efforts in using the Inter-net will benefit his company in the long run. He considers having a website as essential

for any company today. Even though it has not yet provided him with new customers, ithas helped in maintaining the relationship with existing customers and improving thecompany image. In order to make more people aware of the website, he is currentlyplanning activities to improve its position within search engines. He would also like tooptimise the choice and use of Internet trading platforms for his purposes. However, heis not aware of any services that could help him to solve the selection problem.

Lessons learned

The case study has illustrated the difficulties faced by small companies when trying toset up e-business via the Internet. Despite Marmosas efforts in setting up their owncompany website and publishing the company offers on B2B trading platforms, thecompany has not yet succeeded in winning new customers. The Marmosa case indi-cates that technical implementation and access to Internet-based services are not themain e-business related problems for SMEs today. Many technical tools have becomecommodities and are affordable even for small companies.

The main challenge, however, seems to be the efficient use of Internet tools and ser-vices. In this regard, various challenges have been identified:

Promotion of websites:The pure existence of a website does not automati-cally mean that new customers will be gained. First, visitors have to be attractedto the website. In fact, as many web sites by SMEs, also Marmosas site is notoptimized for search engines and therefore difficult to find when people searchonly for the product on offer in search engines. Secondly, strategies are needed

to convert visitors into customers. Being able to do so requires Internet-relatedsales and marketing know-how, not technical expertise. E.g, the website has tobe far more professionally designed than necessary for a simple informativewebsite. Workshops allowing for the exchange of experiences by similar com-panies active in this field (e.g. carried out by regional trade promotion organisa-tions) could be an efficient tool to achieve this knowledge. The e-Business Pol-icy Support Network (www.e-bsn.org) might be a helpful framework for carryingout such business events (see also chapter 4 of this report).

Language skills:Without understanding the language required often English many opportunities offered by Internet services cannot be exploited. Particu-larly SMEs face this problem. since their resources for improving capabilities in

this area either by attending language courses or by hiring additional employ-ees with the needed skills are typically limited.

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Evaluating the quality of Internet-based services:Mr. Moreno considers theselection of serious services as a major challenge for the usage of Internet trad-ing platforms. In fact, there is a large number of industry directories available onthe Internet. The quality of services, however, varies significantly. A Europeanportal on Internet trading platforms like the eMarket Services project

(www.emarketservices.com) might be a good starting point to help SMEs to dis-tinguish between good and not so good platforms (see also chapter 4).

Sources and references

This case study was conducted by Berlecon Research GmbH ([email protected]) on behalf of

the e-Business W@tch.

References:

Interview with Pepe Moreno, CEO of Marmosa Soc. Coop. And., 01.02.2005

Company website:www.marmosa.com

Trading Networks

Compared to B2B portals, trading networks follow a completely different logic by focusing onthe reduction of process costs rather than on information gathering. They interconnect theordering and purchasing systems of buyers and suppliers and thus help to make the orderingprocess cheaper, faster and less error-prone. Trading networks for the pharmaceutical indus-try exist in the form of catalogue aggregators and integration hubs.

Catalogue aggregators, like cc-chemplorer, integrate different product catalogues from anumber of suppliers into one large catalogue for buyers. Products listed in aggregated cata-logues are often MRO (Maintainence, Repair and Operation) goods or office equipment, i.e.goods used across different industries.

Integration hubs, like GHX (Global Healthcare Exchange), usually interconnect the ERPsystems of trading partners within a certain industry. Compared to the large variety of B2Bportals, the number of integration hubs is rather small. Likewise they seldom feature in publicdiscussion. Apart from their rather technical nature, this can also be explained by the exis-tence of network effects. Such effects characterise a situation where the benefits from par-ticipating for each individual company are larger, the greater the number of other companiesconnected. This effect favours the biggest provider and drives the number of platforms down

in the long run. The case study on pharma-mall and the business example on Diagdirectshow that trading networks controlled by the companies that are using them is not an un-usual business model in the pharmaceutical industry. As main advantage in comparison tostart-up e-markets, many of the industry-sponsored marketplaces seem to have a better un-derstanding of their clients needs. This is a logical consequence from their closeness to theindustry. In addition, they also show the financial means to survive the time period needed tofully understand the specific requirements by the clients.

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CASE STUDY:PHARMA-MALL:AN INTEGRATION PLATFORM INITI-

ATED BY PHARMACEUTICAL COMPANIES

Abstract

Pharma-mall is an integration hub ini tiated by a joint venture of the pharmaceutical

companies Boehringer Ingelheim, GlaxoSmithKline, Merck, Novartis and Schering. The

platform in terconnects ERP systems of the associated pharmaceutical companies with

those of their customers. In contrast to independent trading platforms, Pharma-mall is

initiated, financed and supervised by producers of pharmaceuticals themselves. Phar-

macies and hospitals as customers of the associated pharmaceutical companies can

use the integration services free of charge. Both pharmaceutical companies and their

customers benefit from savings in process costs and the reduction of errors in the or-

dering process.


Location of the company St. Augustin. Germany

Company size 15 employees

Primary customers Large pharmaceutical companies, pharmacy and hospital clients

E-Business Focus

B2B Internet Trading Networks

Integration

Procuring online

= at implementation stage; = used in day-to-day business; = critical business function


The collaboration of research-based pharmaceutical companies in non-core businessareas is not unusual. In order to manage the high risk involved in developing newproducts, for example, R&D co-operation is common in this sector. In addition, produc-ers of pharmaceuticals are also collaborating in sales logistics. By operating a joint dis-tribution centre, for example, the distribution of products can be made more efficient forthe benefit of producers and customers alike. This was the starting point for the founda-tion of the Pharmlog Pharma Logistic GmbH a joint venture of six German research-based pharmaceutical companies in the field of logistics in 1993.

Confronted with the e-business boom in 2000 and 2001, and inspired by good experi-ences with collaboration at Pharmlog, Boehringer Ingelheim, GlaxoSmithKline, Merck,Novartis and Schering agreed to extend their co-operation into the field of electronicbusiness. Mr. Windel, CEO at pharma-mall, explains that at that time the pharmaceuti-cal companies were looking for a way to integrate e-business opportunities withoutgiving established relationships to their clients away. The wish to keep the ownershipof the last mile to the customers turned out to be a strong argument against the par-ticipation in public e-marketplaces or trading networks.

On public platforms, the pharmaceutical companies expected conflicts between theirown interests and those of the platform operators. Mr. Koenig, sales and logistics man-ager at Merck, points out that at that time platform operators often demanded informa-tion the company wasnt willing to reveal. Many operators, for example, intended to im-plement a revenue model, where fees were based on the transaction value. Compa-nies in the pharmaceutical industry as well as in other industries, however, are often re-

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luctant to reveal their revenue streams to third parties. In addition many platforms didnot offer enough value for the fees demanded. Particularly during the dot-com boom,the public discussion and perception of e-marketplaces as ultimate vehicle for e-business led to exaggerated price expectations by platform operators. Hospitals andpharmacies, which also wanted to benefit from more efficient procurement processes

enabled by e-business, faced similar problems. Consequently, in 2002 the pharma-mallGesellschaft fr e-commerce mbH was founded as a joint venture between the fiveGerman pharmaceutical companies and the logistical services provider Pharmlog.

Activities

Today, pharma-mall provides an integration hubthat interconnects the sales systemsof associated pharmaceutical companies with the manifold ERP or procurement sys-tems of hospitals and pharmacies. By integrating the various backend systems,pharma-mall supports the entire supply process, including ordering, confirmation andaccounting. A pharmacy, for instance, is able to choose the article needed in its ERPsystem and directly transfer an order to the manufacturers sales system. When the or-

der passes through pharma-mall, a confirmation is generated automatically.Judged by the usage of this platform, pharma-mall does meet some of the needs ofpharmaceutical companies and their customers. According to Mr. Windel, about 220customer systems have been linked to pharma-mall so far. Today, around one third ofthe purchases by hospital clients connected are channelled through the platform.

Connecting to pharma-mall enables both pharmaceutical producers and their custom-ers to optimize processes. For hospitals and pharmacies it is even free of charge. Mr.Windel points out different ways in which processes may be optimised:

Time savings and error reduction: In conventional procurement processes,orders have to pass through several systems, which are often not even con-

nected electronically. By connecting ERP systems via pharma-mall, orders canbe transferred digitally without media breaks, which makes the entire orderprocess faster and safer.

Planning reliability:If an order reaches pharma-mall, a confirmation is gener-ated and delivered automatically. Compared to conventional processes, whereoften a telephone call was required to check the order status, the transparencyof the order process is improved.

Optimization of logistical processes: The system is directly connected toPharmlog, the joint distribution centre of the pharmaceutical manufacturers. Ifcustomers demand it, orders can be collected by pharma-mall and delivered to-gether to reduce logistical costs.

However, whether and how these potential gains are realised, adds Mr. Windel, de-pends on the companies individual process management and organisation.

Pharmaceutical producers may profit in two ways: by streamlining processes and byimproving customer loyalty. At Merck, e.g. the sales and logistics department proc-esses around 1,500 order positions per day, Mr. Knig knows. Around 37% of salesvolume within pharmacies and hospitals are processed via pharma-mall. At this level,the company needed about half a full-time employee less after automating order ac-ceptance. In addition, there was a significant reduction in complaints, since the error-prone manual transfer of orders from the order to the sales system became obsolete.

Mr. Knig estimates the savings potential at Merck for a full implementation of the pro-ject, i.e. for processing the entire direct sales volume via pharma-mall at about 1.5full-time employees. To get closer to these savings, it is necessary to connect as manycustomers as possible. In order to integrate also e-business averse clients who still

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order via fax, pharma-mall has started to implement a text-scanning system. This sys-tem scans faxes, recognizes the order data and forwards it in digital form to the phar-maceutical companies.

In general, Mr. Knig considers a main success factor for pharma-mall to be the fre-

quent reassessment of the e-business goals, current practices and necessities of bothpharmaceutical companies and their customers. In this way, the business activities ofpharma-mall can be continuously adjusted to changing requirements. For example,pharma-mall had originally concentrated on providing a webshop system similar to ashopping mall in real life. However, it turned out that customers had a greater need forthe connection of ERP systems, while the webshop system was not used very much.

According to Mr. Windel, there are three main factors behind the success of the project:

Business approach of pharma-mall: The needs of the customers are centralin the pharma-mall model and this focus is not diluted by other business inter-ests. Services have to be provided at minimal costs, explained Mr. Windel. Inthis regard, we are a cost - not a profit center. Moreover, the close ties with

manufacturers help pharma-mall both to understand the needs of the pharma-ceutical companies and to be considered as a serious partner.

Technical approach as data clearing center: Customers connected topharma-mall can continue to use their own systems. Therefore, processes andtechnical systems do not have to change significantly. Data remains in the own-ership of buyers. This facilitates the adoption of e-business technologies.

Provision of added services: Pharma-mall understands itself as an e-business enabler that offers technical services as well as consulting and trainingin order to promote procurement activities over the platform. In addition pharma-mall also offers services for buying from suppliers not connected to the platform.

This helps to intensify customer relationships and further sharpen the profile asa competent partner.

Lessons learned

B2B Internet trading platforms, which provide process support by interconnecting ERPsystems have often been neglected in discussions about e-marketplaces in the past.Such systems do not provide an increase in price transparency often discussed as amain advantage of e-marketplaces. Rather, they decrease processing costs, so thatboth pharmaceutical manufacturers and their customers can profit.

In general, the case study demonstrates that the continuous adjustment of e-businessstrategies to the changing needs of clients is an important success factor for the estab-

lishment of B2B platform services. Furthermore, to exploit the full potential of such ser-vices, the integration of e-business-averse clients is important. The provision of addedservices, such as fax-scanning or consulting services, which help customers to over-come e-business barriers, seems to be a promising strategy.


This case study was conducted by Berlecon Research GmbH ([email protected]) on behalf of

the e-Business W@tch.

References:

Interview with Mr. Christoph Windel, CEO of pharma-mall GmbH, 19.01.2005.

Interview with Dr. Rolf Knig, Sales and Logistics Manger at Merck Pharma GmbH,13.02.2005.

Website:www.pharma-mall.de

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A further example for a user-driven B2B trading network is shown in the following businessexample on Diagdirect. With this trading network the suppliers of research-based pharma-ceutical companies have initiated an Internet service that supports the ordering process oftheir consumers by providing them with an interface to a single aggregated catalogue.

Bu s i n e s s e x am p l e :

D i a g d i re c t : a B2B I n t e r n e t t r a d i n g n e t w o r k f o r i n -v i t r o d i a g n o s i s

The Internet platform Diagdirect (www.diagdirect.com) has been initiated, fi-nanced and managed by suppliers of laboratories active in the field of in-vitrodiagnostics (e.g. ABX, Abbott and Sebia). The central purpose of Diagdirect isthe aggregation of online supplier catalogues to support the laboratories order-ing process. In this way, suppliers can improve customer loyalty by facilitatingtheir ordering process and at the same benefit from savings in process costs.

Laboratories can use Diagdirect free of charge. They may benefit from the plat-form offer in several ways. The ordering process is simplified by the aggregation

of supplier offers on one single Internet platform. However, a comparison ofprices is not supported by Diagdirect, as the aim is not to provide buyers withthe cheapest possible product but to facilitate the ordering process. Added func-tions like order tracking or contract management further facilitate the manage-ment of many orders. Finally, as orders are transmitted electronically, the ship-ment can take place sooner, which again increases customer satisfaction.

In 2004, the platform processed around 1,200 orders per month from about 800suppliers. That accounts for about 5% of the sales volume by private laborato-ries in this field.

Source: Case study SFRL: Diagdirect supply chain management for in-vitro di-agnosis conducted by Marc Sahraoui (Devise) on behalf of the e-BusinessW@tch, January 2005.

Sourcing service providers

The focus of sourcing service providers is the support of the sourcing processes using tech-nical tools as well as related services. This includes supporting the selection and qualificationof new suppliers, the negotiation of sourcing contracts or the analysis of sourcing processes.In their role as suppliers of IT solutions they can also be regarded as ASPs (Application Ser-vice Providers), who operate the software and provide applications to associated users ondemand.

Sourcing services do not differ much across industries. Therefore, specialised offers for thepharmaceutical sector are hard to find. However, pharmaceutical companies like Merck,Aventis, GlaxoSmithKline or Bayer frequently appear on reference lists of well-known sourc-ing services providers like Portum or Freemarkets (today Ariba). Merck, for example, is areference client of Portum and in this capacity claims to have realised savings of up to 25-35% by using Portums auctioning tools and services in negotiating framework contracts.16

While large companies like Merck might be able to achieve such savings due to their consid-erable purchasing power, this is different for SMEs, which are in a weaker position. This wasthe starting point of pharmaplace, a collective sourcing initiative aiming to increase the pur-chasing power of medium-sized manufacturers of pharmaceuticals in Germany.

16 See case studies presented on the Portum website: www.portum.com(February 2005).

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CASE STUDY:PHARMAPLACE -A COLLECTIVE SOURCING INITIA-

TIVE BY MEDIUM-SIZED PHARMACEUTICAL COMPANIES

Abstract

Pharmaplace is a sourc ing and procurement services provider that focuses on the sup-

port of collective sourc ing activit ies by medium-sized pharmaceutical companies. As

an outsourcing partner, pharmaplace takes over the negotiation of framework con-

tracts. And by supplying technical tools, the platform supports the ordering, sourcing

and negotiation processes. This enables companies to order articles f rom a catalogue

platform and to use tendering and auctioning tools in their negotiation process. The

case study demonstrates challenges related to the adoption of e-business tool s by

SMEs in the pharmaceutical industry .


Location of the company Cologne. Germany

Company size (no. of employees) 6

Primary customers Medium-sized companies in the pharmaceutical in-dustry and their suppliers

E-Business Focus

B2B Internet trading platforms

E-Procurement

E-Sourcing

= in implementation stage; = used in day-to-day business; = critical business function


Companies in the pharmaceutical industry are challenged by an increasing cost pres-sure. Small and medium-sized companies have the additional problem that they do nothave the market power to pass down the cost pressure to sub-contractors. This situa-tion may worsen their competitiveness compared to larger players. In addition, me-dium-sized pharmaceutical companies usually do not have the same resources aslarge ones to exploit the opportunities of e-business.

This was the motivation for a collective sourcing project initiated by the German phar-maceutical industry organisation BPI (Bundesverband der Pharmazeutischen Industriee.V.) in 1999. The aim of the project was the establishment of a co-operation of 30 me-dium-sized manufacturers of pharmaceuticals in the field of sourcing and procurement.By aggregating the sourcing volumes of several companies the co-operation was sup-posed to provide better terms and conditions. Furthermore, it wanted to facilitate theuse of e-business technologies to intensify collaboration among medium-sized compa-nies in this sector. By these means, the idea was that the competitiveness of medium-sized enterprises in the pharmaceutical industry should be improved.

After a successful testing of this business approach, the pharmaplace AG was foundedin 2000. Owners of pharmaplace are the BPI Service GmbH a subsidiary of BPI ,nine manufacturers of pharmaceuticals and two technology providers. Pharmaplacehas a central position within the sourcing co-operation by providing both services andtechnical tools to support the sourcing and procurement processes of the associatedcompanies. According to the Purchasing and Sales Director at pharmaplace, Mr. Walk-ling, more than 50 medium-sized pharmaceutical companies employing between 20and 1000 people are associated with pharmaplace.

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Activities

Pharmaplaces core business is the management of collective sourcing activities.Based on the pooled purchasing power of the associated companies, pharmaplace ne-gotiates framework contracts. In addition, pharmaplace offers added services such as

conducting benchmark studies. These enable companies to evaluate their procurementand sales activities in comparison with enterprises of similar size and focus.

In addition to these services, pharmaplace provides a technical platform with several e-business tools:

Online Catalogues:Companies can order indirect goods, e.g. MRO (Mainte-nance, Repair and Operation) goods or office equipment, directly from one ag-gregated catalogue on the platform. Today, more than 20 suppliers for whichusually framework contracts exist have their product catalogues integratedinto pharmaplace.

E-sourcing tools:Pharmaplace offers tools that help to run and analyse ten-

ders and online auctions. These tools are also appropriate for supporting collec-tive sourcing decisions. An advantage of software solutions being installed cen-trally is that the associated companies have to pay pharmaplace only for the ac-tual use but do not have to spend money for the deployment of the solutions.

While the technical tools make pharmaplace an Internet trading platform, the main rea-son for companies to participate in pharmaplace are the services provided. Accordingto Mr. Walkling, the pharmaplace customers first of all want to achieve better prices asa result of pharmaplaces sourcing activities. This is also confirmed by Mr. Reeg, pro-curement manager at Engelhard Arzneimittel, a German manufacturer of pharmaceuti-cals with about 200 employees. For him, the main benefits of pharmaplace are betterpurchasing conditions resulting from the negotiated framework contracts. He regards

the exchange of knowledge with other companies using the platform, and the bench-mark studies provided, as further benefits.

In contrast to the pharmaplace services, the technical tools provided on the platformturned out to be less popular than expected. According to Mr. Walkling, there is virtuallyno demand for the sourcing tools. Only online catalogues are frequently used by thepharmaplace members. Mr. Walkling explains this outcome by reference to the specificcharacteristics of medium-sized companies, particularly their limited size and low pro-curement volume. This is also confirmed by Mr. Reeg: At Engelhard Arzneimittel thereare three people responsible for sourcing and procurement. Thus, the saving potentialsfrom using e-business tools to streamline procurement processes are much smallerthan for large players that have to manage complex procurement processes. This

does not, however, mean that there are no savings possible at all. In fact, significantcost savings could be achieved by outsourcing contract negotiation and managementof indirect goods to pharmaplace.

As an additional barrier for the use of online sourcing tools it turned out that streamlin-ing processes with the help of e-business tools usually requires a reorganisation ofconventional processes and, thus, places additional challenges on the company man-agement. Mr Walkling explains this in the case of desktop purchasing: whereas inconventional procurement processes the ordering of goods is centrally organised,online catalogues allow individual departments to order directly from their desktops.Desktop purchasing, therefore, requires the reassignment of responsibilities from theprocurement management to individual company departments and, consequently, new

workflows and control mechanisms have to be defined. This necessary reorganisationof processes often needs more effort and time than expected.

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An additional reason for the reluctance to use online auctions is the small buying vol-umes of SMEs in the pharmaceutical industry. A collective buying tool currently underdevelopment by pharmaplace seems to be more promising. The software system willsupport collective buying processes in order to obtain volume discounts from suppliers.Mr Walkling adds, however: it is still challenging to achieve enough synergies that

make this offer economic.

Lessons learned

The case study provides insights into the current use of e-business tools by medium-sized companies in the pharmaceutical industry today. It emerges, that their e-businessstrategies are more influenced by cost and benefit considerations than by visionaryideas. The experiences of pharmaplace confirm that e-business technologies that areefficient tools in the hands of large players need not be suited for the specific charac-teristics of small and medium-sized enterprises. Many e-business solutions either ex-ploit the economic advantages of large companies (e.g. sourcing tools to utilize thepurchasing power) or help to overcome their disadvantages (e.g. electronic tools to

speed up purchasing processes).A further factor inhibiting the use of e-business tools is the necessary reorganisation ofcompany processes. Change management needs time and requires considerable effortto redesign workflows, establish new control mechanisms and for convincing the em-ployees involved.

Despite these obstacles, online catalogues as a complement to the contract servicesprovided are widely used by pharmaplace users. This shows that e-business aversionby SMEs is not a sufficient explanation for differences in e-business tool use betweensmall and large companies.


This case study was conducted by Berlecon Research GmbH ([email protected]) onbehalf of the e-Business W@tch.

References:

Interview with Georg Walkling, Purchasing and Sales Director at pharmaplace, 20.01.05

Interview with Mr. Reeg, Procurement manager at Engelhard Arzneimittel, 20.01.2005

Website:www.pharmaplace.de

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2.1.3 Conclusions

The analysis and particularly the case studies discussed in this chapter have shown that theconcept of B2B Internet trading platforms is well suited to reflect the current reality of B2B e-

business. The cases studies demonstrate the use of different Internet trading platforms thatdo not always have much in common with the original idea of e-markets. Nevertheless theseplatforms meet the needs of companies for their B2B e-business activities.

Online directories, for example, do not provide a trading function and have therefore beendiscussed mainly as a side-product of e-marketplaces, if at all. However, as the Marmosacase has shown, there is demand for industry directories to help in the establishment of newbusiness contacts and to enhance the companies reach to customers. This holds particularlyfor SMEs, which do not have a large distribution network or own subsidiaries in different re-gions. In contrast to conventional e-mark

pharma 2005 i

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