DRIVE REVENUE & MARGIN THROUGH INCENTIVE & CHARGEBACK PROGRAMS · DRIVE REVENUE & MARGIN THROUGH INCENTIVE & CHARGEBACK PROGRAMS . ... Vistex creates it own type of financial

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DRIVE REVENUE & MARGIN THROUGH INCENTIVE & CHARGEBACK PROGRAMS

July 17, 2014

Produced by:

Featuring: Neil Mundell, Paul Pretko, Dan Scheunemann & Jenel Stelton-Holtmeier

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Event Sponsor:

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Speakers

Download handouts (PDF) : www.mdm.com/slides or [email protected]

Event Sponsor:

Dan Scheunemann Sales Manager Vistex

Paul Pretko Senior Principal for Wholesale Distribution SAP America, Inc.

Neil Mundell Director, Procure to Pay Solutions AmerisourceBergen

Jenel Stelton-Holtmeier Editor Modern Distribution Management Moderating



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Agenda

• Introduction – Jenel Stelton-Holtmeier

• Sponsor Presentation – Paul Pretko & Dan Scheunemann

• Presentation – Neil Mundell

• Q&A

Fuel Profitable Growth in Wholesale Distributors

Opportunity to Cash

Service Process and Operations Excellence

Collaborative Quote to Cash

E-Commerce

Supply Chain Planning and Execution

Procure to Pay

Business Network for Supplier Collaboration

Strategic Sourcing and Supplier Management

Sales, Inventory, and Operations Planning

Warehouse Management

Transportation Management

Supply Chain Monitoring

Procure to Pay

Profitability Optimization

Procurement Insight

Customer Stratification and Cost-to-Serve

Supply Chain Optimization

Agile Marketing

Finance and Trading

Accounting and Financial Close

Financial Planning and Analysis

Treasury and Financial Risk Management

Enterprise Risk and Compliance Management

General Trading

Human Resources

Core Human Resources and Payroll Talent Management Time and Attendance

Management

Technology and Platform

Big Data Enterprise Information Management

Real-Time Enterprise

Real-Time Analytics

Enterprise Mobility

Information Technology

Application Lifecycle Management

IT Infrastructure Management

IT Portfolio and Project Management

IT Service Management

IT Strategy & Governance

WHOLESALE DISTRIBUTION VALUE MAP

Cost Recovery and Rebates

Collaborative Financial Operations

Application Integration Cloud Solutions

RECOVER functionality supports all the phases of vendor cost recovery, including rebate and chargeback management capabilities from establishing contracts to reconciliation and settlement

PROFITABILITY OPTIMIZATION COST RECOVERY AND REBATES

SOLUTION CAPABILITIES KEY BENEFITS

Agreement Management

Chargeback Management

Rebate Management

Accrual Management

Reconciliation Management

Settlement Management

Cost Recovery Analytics

Identify every vendor cost recovery opportunity that is due

Connect rebate and chargeback process with procure-to-pay, order-to-cash and finance processes, eliminating costly errors, disputes and delays

Increase worker productivity and overall financial performance and profitability

Reduces open vendor AR balances

CUSTOMER EXAMPLES

Summit: Increased chargeback claims 114% Border States: Cost recovery received within 1-3 days of filing

Profitability Optimization

Procurement Insight

Customer Stratification and Cost-to-Serve

Supply Chain Optimization

Cost Recovery and Rebates

65% Lower costs when chargeback and rebate claims are electronically submitted Source: SAP Performance Benchmarking

39% Lower days chargeback outstanding for wholesale distributors with access to real-time order, delivery, and billing information Source: SAP Performance Benchmarking

60% Lower head-count costs when system automatically reconciles claimed vs. accepted amounts and applies flexible tolerance rules Source: SAP Performance Benchmarking

54% Lower head-count costs as a percentage of revenue when organizations automate the tracking and processing of charge-backs and rebates Source: SAP Performance Benchmarking

58% Lower head-count costs when companies can automatically verify the eligibility of a customer sale based on the chargeback agreement Source: SAP Performance Benchmarking

38% Fewer days chargeback outstanding for distributors with more mature order fulfillment, delivery, and shipping Source: SAP Performance Benchmarking

PROFITABILITY OPTIMIZATION COST RECOVERY AND REBATES BENEFITS

2014 VISTEX 7

Bold Vision. Brilliant Execution.

PROPRIETARY AND CONFIDENTIAL

SOURCE Manage procurement efficiently to identify, realize, and sustain cost savings for all spend categories.

PLAN Better forecasting and planning optimizes inventory and increases ability to sense and respond to demand and supply variations.

SELL Superior service and reliability leads to customer loyalty and lower DSO.

STORE Standardization and automation drives higher productivity, and lower operating expenses.

ANALYZE Availability of relevant real-time information gives management insight to make prompt decisions.

RECOVER Identify and claim every cost recovery opportunity. Eliminate costly errors, disputes and delays.

Key Wholesale Distribution Objectives

2014 VISTEX 8



SAP Solution Extensions Enable Key Processes in Wholesale Distribution

Customer Incentives •Based upon Sales •Based upon volume, product, growth,

time-period, etc… •Tiered Incentives •Financial Accruals

Sales Incentives •Commissions, Bonuses, SPIFFs •Territory Management •Financial Accruals

Chargebacks •“Pass Through” Incentives from

Vendors •Claim Management •Recover cost from vendor •Financial accruals

Purchasing Incentives (Earned Income) • Based upon Purchase Orders • Based upon Sales Orders • Tiered Incentives • Product/Customer Exclusions • Alerts • Financial Accruals

Marketing Funds •Define and manage fund calculations •Track spending against fund •Generate Claim/Proof of Performance •Balance reporting •Financial Accruals

Pricing & Master Data •Load Vendor Pricing •Margin Analysis •Define & Maintain Master Data Attributes

2014 VISTEX 9



Vistex Solutions are inside SAP ERP

Utilizes same “core” as SAP ERP: Master & Transaction Data

Native Integration to SAP FI & SAP HR

Configuration & Development Tools

Integration Tools

Security & Authorizations

Workflow & Approvals

Output

Audit Trail

System Management/Monitoring

Reporting & Analysis Tools

Vistex solutions install like a delivered SAP Component:

Leverage existing SAP ERP hardware & environments

Leverage scalability and performance of SAP ERP

Vistex development done in separate “Name Space” to simplify upgrades

2014 VISTEX 10



Key Benefits

Seamless integration with other SAP enabled processes

One system & source for all supplier and customer incentives

Offers administrators & participants proactive visibility to performance

Improves accuracy of incentive calculations Decreases disputes Reduces multiple manual processes Provides automation & line of sight to key

reporting

OUR VISTEX IMPLEMENTATION

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AGENDA

• Who are AmerisourceBergen?

• Functional Challenges & Benefits

• What do we use Vistex for?

• Supplier Incentives

• Technical Challenges & Benefits

• Functional Challenges & Benefits

• Chargebacks

• Technical Challenges & Benefits

• Q&A and Close

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WHO ARE AMERISOURCEBERGEN

• A leading pharmaceutical services provider for the hospital systems/acute care market, alternative care facilities, and independent community pharmacies.

• Focus primarily on the distribution of pharmaceuticals and related professional services to physicians, and biotech and specialty pharmaceutical manufacturers.

• Fortune 30 Company - Our Stock Ticker Symbol is ABC

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WHAT DO AMERISOURCEBERGEN USE VISTEX FOR?

Supplier Incentives Chargebacks Customer

Rebates Contracts

Management

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IMPLEMENTATION TIMELINE

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Maintenance & Support

Maintenance & Support

Customer Facing Functions Build and Test

SAP & Vistex 6.0e Upgrade Build & Test

2014

Tool Selection & Validation

Blueprint & Reqts

GatheringBlueprint Detailed Design

Build & Test

2008 2009 2010 2011 2012 2013

Vistex Go-Live and SAP Back- Office Go-Live

Vistex 6.0c Upgrade & SAP Customer Go-Lives

Upgrade Go-Live

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WHY DID WE CHOOSE VISTEX

Include some high-level details relating to the selection of Vistex as the tool for contracts and incentives processes. Key integration partner with SAP Fully integrated solution Able to handle the transaction volumes

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SUPPLIER INCENTIVES WHAT IS SUPPLIER INCENTIVES?

Supplier

Incentives

Revenue earned by AmerisourceBergen (ABC) from suppliers based on contractual agreements between ABC and suppliers Fee-for-Service (FFS) Rebate Agreements

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SUPPLIER INCENTIVES SUPPLIER INCENTIVES PROCESS OVERVIEW

Maintain Supplier Incentive Agreements

Generate Supplier Incentive Data

Track Agreement Performance

Perform Supplier Incentive Accounting

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SUPPLIER INCENTIVES MAINTAIN SUPPLIER INCENTIVE AGREEMENTS

Fee for Service Agreements (FFS)

FFS revenue is typically determined by the calculation of anywhere from 5 to 10 metrics per vendor contract, but may be determined by up to 25+ measurement factors

Each metric typically consists of a three step calculation to determine fees earned:

1. Calculate performance metric 2. Determine metric compliance to contractual standards/tiers 3. Apply compliance level to base volume metric

Typically calculated on purchases from vendors


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SUPPLIER INCENTIVES MAINTAIN SUPPLIER INCENTIVE AGREEMENTS

Supplier Rebate Agreements

Less complexity than FFS as these rebates do not involve performance metric calculations

These rebates/fees are “straight” calculations (e.g. sales x rebate %)

Rebates/fees may consist of various components (marketing/admin fee, financial mgmt fee, distribution fee, item level rebates, etc)

Typically calculated on customer sale of vendors’ products

Calculation can occur at the agreement level or at the material level


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SUPPLIER INCENTIVES GENERATE SUPPLIER INCENTIVE DATA

Vistex creates it own type of financial documents called Incentives & Payback (IP) documents These documents represent the data for the basis metric (i.e. sales or

purchases) on which the fees & rebates will ultimately be calculated within Vistex

Each IP document is created from a source document

Purchased-based fees and rebates use the Goods Receipt (GR) document in Purchasing as the source document for calculation

Sales-based fees and rebates use the Billing Document in Sales & Distribution as the source document for calculation

This process occurs automatically on a daily basis via batch processing

Generate Supplier Incentive Data

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SUPPLIER INCENTIVES PERFORM SUPPLIER INCENTIVE ACCOUNTING

Accruals Accruals are calculated and posted at month-end Calculation run functionality is used to estimate and assess accruals before

posting Since Vistex is fully integrated with SAP, accrual journal entries will automatically

post to the FI module Settlement

Settlement represents the process of actually transferring the funds from the vendor’s account and creating the actual receivable (contra-payable) from the vendor

Settlement can be initiated either manually or automatically according to the settlement calendar established during agreement setup

Typically settlement is manually entered when the actual payment is received from the vendor and reflects the actual amount received from the vendor

Perform Supplier Incentive Accounting

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SUPPLIER INCENTIVES TRACK AGREEMENT PERFORMANCE

Individual Tracking for Agreements At any point in time, the business user can go into the Individual Tracking

transaction to monitor the performance of an individual agreement It displays each component/condition of the agreement and associated fees

earned and the basis amount on which these were calculated (i.e. sales or purchases)

It also provides a summary view of all the metrics/conditions that comprise the fee/rebate amount

Collective Tracking for Agreements

At any point in time, the business user can also go into the Collective Tracking transaction to monitor a range of agreements at one time

This transaction can also be used to retrieve historical accruals by vendor agreement

Once the data is retrieved in this transaction it can then easily be downloaded to Excel for analytical purposes

Track Agreement Performance

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SUPPLIER INCENTIVES CHALLENGES OVERCOME

Pre-Implementation

Pain Points

Supplier Incentives process was handled in multiple home-grown systems that had limited capabilities & reliability issues Legacy systems & processes were not

integrated with other existing core ABC systems Lack of integration amongst incentive

processes for various product categories (Brand, Generic, Consumer) Data reliability & accuracy issues caused

variances between actual vendor incentive payments and ABC’s anticipated payments Lack of visibility to contract performance prior

to month-end accounting activities resulted in reactive processes

Post-Implementation Vistex Solution

Vistex is a fully integrated and embedded

solution One comprehensive system to calculate

contractual fees & rebates for all categories with minimal manual intervention Systematic maintenance of contracts for all

categories controlled within one organization Seamless integration with other SAP-

enabled processes at the transactional level significantly reduces data reliability & accuracy issues Ability to track contract performance on a

continual basis allowing for proactive performance monitoring

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SUPPLIER INCENTIVES VISTEX 6.0C TO 6.0E UPGRADE

Vistex 6.0C Pain Points

Lack of flexibility to add new types of

fee/rebates along with other technical constraints (i.e. LIS subtotals concept) Month-end IP “sweeps” required manual

tracking of agreement changes and multiple executions of long-running jobs Claims functionality not oriented toward

manufacturer incentive process – required manipulation of customer facing functionality Unnecessary financial postings due to

period-to-date accounting methodology

Vistex 6.0E Solution

Implementation of “Buckets” functionality to

eliminate reliance on LIS/subtotals and allow new rebates/fees to more easily be added to configuration Implementation of “ADM” (Automated Data

Maintenance) to eliminate manual tracking of agreement changes for month-end sweeps Claims process is still customer facing but

has improved functionality related to supplier incentive process Implementation of Delta Accrual functionality

to eliminate unnecessary accrual reversal postings during month-end close process

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SUPPLIER INCENTIVES TECHNICAL CHALLENGES & SOLUTIONS

Standard Vistex Features

Parallel Processing for Reprice and Create jobs is not possible in standard Mass Processing No standard Vistex Transaction/Screen

within Standard that Shows Actual Month-End Accruals Posted

ABC/Vistex Proposed Solution

Developed Custom programs to handle

voluminous data using parallel processing technique. Developed custom transaction for Month-

End Accruals posted

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SUPPLIER INCENTIVES CONTINUED CHALLENGES TO OVERCOME

Lack of standards will continue to exist in contract development process

Lack of consistency amongst contracts & associated performance metrics will continue to result in significant variation from one contract to the next

Significant system customizations required for future state to handle lack of consistency & standards across contracts

Customizations based on existing agreement base create the potential for more complex enhancements in future if new contracts are signed and/or existing contracts change

Performance of month-end IP jobs and detailed reporting transactions

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SUPPLIER INCENTIVES UPGRADE CHALLENGES TO OVERCOME

Implementation of ADM functionality has been postponed until after

upgrade go-live due to many issues encountered throughout multiple testing phases ABC currently has a custom-built program that exceeds ADM standard delivered

capabilities Most issues were technical in nature for which many OSS notes were provided and

custom enhancements implemented Vistex will be making advance corrections to the functionality as a result of ABC’s issues

and releasing with SP2 Issues when using Calculation run functionality and Collective Tracker for

delta accrual postings Vistex no longer supporting Collective Tracker but functionality still available for use –

creates conflicts with Calc Run functionality Buckets functionality – need to implement “hybrid” using LIS and Buckets

simultaneously due to existing incentives structure and BOBJ reporting constraints

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SUPPLIER INCENTIVES KEY BENEFITS

One system/source for all Supplier & Customer Incentives Identifies, calculates and settles all types of incentives and paybacks related to business

processes

Seamless integration with other SAP processes & transaction A fully-integrated, embedded SAP add-on that aims towards elimination of spreadsheets

and manual estimation of incentives and paybacks

Proactive contract performance monitoring

Improved accuracy & consistent application of incentive calculations Streamlines the incentive processes, reduces errors, validates claims, and

reduces disputes

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CHARGEBACKS WHAT ARE CHARGEBACKS?

Chargebacks

Sales are made to Customers at pricing below Acquisition cost under Wholesale Agreements. Chargebacks are the requests to the Vendors for the differences. Calculate and Submit claims for the differences Manage and Reconcile discrepancies Interface with AP for deductions and payments Manage collections and Vendor interactions

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CHARGEBACKS AMERISOURCEBERGEN CHARGEBACK STATISTICS

Over $1.5B in Chargebacks

generated daily

Approximately 85% of

Chargeback lines submitted within 8

hours of sale

Over 15M Chargeback lines created monthly

Average 100 K Discrepancy lines monthly • Approximately 35% Coded by Chargeback

Analysts • Remaining Auto-Coded by Vistex

Approximately 95% (300 Vendors) receiving

Chargeback submissions daily (EDI 844)

Chargebacks generated 6 days

per week Approximately 94% Chargeback lines received

via electronic response (849) from Suppliers

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CHARGEBACKS THE IMPLEMENTATION JOURNEY

Legacy Chargebacks Process Challenges

Vistex Chargebacks Solution

Vistex Chargebacks Implementation Challenges

Chargebacks Solution Benefits

Current and Future Implementation Plans

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CHARGEBACKS LEGACY CHARGEBACKS PROCESS CHALLENGES

Multi-platform corporate system (decentralized and centralized areas on different systems and databases) with some based on east coast time and others on west coast time Chargeback creation in one system and reconciliation in another Reconciliation processes varied based on Vendor response type /

format Order data not visible to the Chargebacks department and a day’s

delay to receive invoices to create claims and details of transactions not visible to users No ability to perform ad-hoc reports Chargeback Claim Creation process handled only ordinary

transactions Many manual processes which were difficult to control/improve

Legacy Chargebacks Process Challenges

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CHARGEBACKS VISTEX CHARGEBACKS SOLUTION

Transactional Chargebacks Contract Pricing established at Billing

Daily batch processing for Creation

Reconciliation with SAP workflow

844 and 849 functionality

Combination of ECC and BI reporting

Vistex Chargebacks Solution

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CHARGEBACKS VISTEX CHARGEBACKS IMPLEMENTATION CHALLENGES

Initially two billing document streams due to overall conversion plan Overlapping Build activities

Implementing Chargebacks along with other processes - not all

details of predecessor processes known Steep learning curve for Super Users


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CHARGEBACKS TECHNICAL CHALLENGES & SOLUTIONS

Implementation Pain Points

Automated approval process CB Vendor

response Large volume of:

Vendor Response everyday Work flow triggers for approval

process (at times in small intervals)

Post-Implementation ABC-Vistex Solution

Complex workflows built over custom BOR

object To handle large volumes:

Rationed WF triggers by enabling event queue technique Fine tuned the rate of release of

events from queue to optimally consume system resources


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CHARGEBACKS WORKFLOW – 2012 STATISTICS

April May June July AugPer Day Avg 6366 5138 21920 12161 4690Per Day Peak 22934 17694 96272 68230 8693

0

20000

40000

60000

80000

100000

120000

Monthly Peak & Average Workflow Triggers

April May June July AugTotal 190965 154164 657604 376998 145388

190965 154164

657604

376998

145388

0

100000

200000

300000

400000

500000

600000

700000

Monthly CB Workflow Triggers

Chargebacks Workflow

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CHARGEBACKS WORKFLOW – 2012 VS 214 COMPARISON

2012 - Monthly

2014 - Monthly

2012 Daily Avg

2012 Dailly Peak

2014 Daily Avg 2014 Dailly Peak

April 190,965 176,852 6,366 22,934 5,895 19,458

May 154,164 134,955 5,138 17,694 4,353 16,628

June 657,604 114,353 21,920 96,272 3,811 18,950

Chargebacks: Workflow Comparison

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CHARGEBACKS WORKFLOW – 2012 VS 2014 – Q2 COMPARISON

April May June2012 - Monthly 190,965 154,164 657,6042014 - Monthly 176,852 134,955 114,353

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Monthly CB WF Trigger Comparison (2012 Vs 2014)

2012 - Monthly 2014 - Monthly


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0

5,000

10,000

15,000

20,000

25,000

April May June2012 Daily Avg 6,366 5,138 21,9202014 Daily Avg 5,895 4,353 3,811

Daily Average - CB WF Trigger (2012 vs 2014)

2012 Daily Avg 2014 Daily Avg


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0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

April May June2012 Dailly Peak 22,934 17,694 96,2722014 Dailly Peak 19,458 16,628 18,950

Daily Peak - CB WF Trigger (2012 vs 2014)

2012 Dailly Peak 2014 Dailly Peak


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VISTEX – TABLE VOLUMES

Table Name Table Description 2012 2013 2,014

/IRM/IPCBPTR CB Partner Data 1,752,644,000 2,741,763,000 2,584,603,144

/IRM/IPBKPFINDX Accounting Document Items – Addl. Data 1,620,902,000 2,734,029,000 922,331,543

/IRM/IPCRITM Sales Rebate Item Data 1,129,411,000 1,930,218,000 771,610,531

/IRM/IPCRPTR Sales Rebate Partner Data 1,059,764,000 1,712,887,000 1,593,805,198

/IRM/IPCBDFL CB Document Flow 1,046,219,000 1,840,290,000 1,990,824,341

/IRM/IPCBITM CB Item Data 504,604,333 794,295,667 771,610.531 /IRM/IPBKPF Accounting Documents 372,480,667 601,105,000 569,434,162

/IRM/IPCBHDR CB Header 322,101,000 491,144,148 478,704,898 /IRM/IPPCCON Partner Comm. Conditions 148,771,667 319,338,667 457,786,612 /IRM/IPPCITM CB Item 111,659,333 215,414,333 298,859,680 /IRM/IPCRHDR Sales Rebate Header Data 180,165,850 176,947,039

Vistex: Table Volumes

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VISTEX ARCHIVING APPROACH

The eligibility criteria for the document to be archived is Posting date and Change date (if, applicable) both should be 2 years earlier to the date of archiving.

Only the below two areas are being archived, as they together make up the largest chunk of data. The two Archive Objects in VISTEX area are /IRM/IPCB---- Archiving Object for Charge Backs Module /IRM/IPCR --- Archiving Object for Customer Rebates Module. Since Vistex is fully integrated with SAP,

accrual journal entries will automatically post to the FI module If a document is archived then its corresponding entries from the tables also get archived. Corresponding Records from the following Tables get archived under Chargeback’s

/IRM/IPBKPF --- Accounting Documents /IRM/IPCBDFL --- Chargeback Document Flow /IRM/IPCBHDR --- Chargeback Header /IRM/IPCBITM --- Chargeback Item Data /IRM/IPCBPTR --- Chargeback Partner Data KONV --- Conditions (Transaction Data)

Corresponding Records from the following Tables get archived under Sales rebates /IRM/IPBKPF --- Accounting Documents /IRM/IPCRDFL --- Sales Rebate Document Flow /IRM/IPCRHDR --- Sales Rebate Header Data /IRM/IPCRITM --- Sales Rebate Item Data /IRM/IPCRPSC --- Sales Rebate Payment Schedule /IRM/IPCRPTR --- Sales Rebate Partner Data KONV --- Conditions (Transaction Data)

Vistex: Archiving Approach

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VISTEX ARCHIVING

Chargeback

Tables No of Records Archived

/IRM/IPBKPF 171,354,723

/IRM/IPCBDFL 477,120,104

/IRM/IPCBHDR 174,594,902

/IRM/IPCBITM 267,525,597

/IRM/IPCBPTR 934,518,224

CDHDR 625,432,934

CDKEYTAB 173,726,417

CDPOS 4,182,518,918

KONV 2,008,511,795

Grand Total 9,015,303,614

Sales Rebates

Tables No of Records Archived

/IRM/IPCRHDR 47,310,481

/IRM/IPCRITM 571,630,983

/IRM/IPCRPTR 556,685,850

/IRM/IPCRDFL 32,170,078

KONV 5,498,494,092 CDHDR 117,356,871 CDPOS 1,199,761,812

Grand Total 8,023,410,167

Vistex: Archiving Stats

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Q&A AND CLOSE

Thank You!

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DRIVE REVENUE & MARGIN THROUGH INCENTIVE & CHARGEBACK PROGRAMS

Produced by:

Questions?

Download handouts (PDF) : www.mdm.com/slides or [email protected]

Event Sponsor:

