Pharmaceuticals: Contracts & Chargebacks (Collaborative)

This Business Scenario Map is designed for the pharmaceutical industry. It shows you how different companies - a manufacturer, a wholesaler, a group purchasing organization (GPO)/buyer - use the business Internet to negotiate the best contract prices and settle the resulting chargebacks. The map illustrates the benefits of collaboration. The result is increased processing accuracy which saves times and money.

Show Document Flow

Value Potentials	Business Benefits
Up to 80%*	Minimization of discrepancies in chargeback requests reduces the need for manual investigations
	Automated exception-based management to lower costs and save time

Contracting Organization

Manufacturer

Wholesaler

End Customers

Contract negotiation Manufacturer with GPO

Bid Award Notification to Wholesaler

Chargeback reconciliation

Financial settlement

Receive Contract Award Notification

Receive Purchase Order

Ship drug products to buyer

Submit Chargeback request

Chargeback receipt

Buyer submits Purchase Order

Goods Receipt

Source:
* Customers, Industry Experts

The value potentials shown in this table have been reported by selected SAP customers or independent third parties as referenced herein. However, there is no guarantee that such value potentials can be realized in any particular customer-specific business processes, and SAP does not make any representations and disclaims any liability as to the appropriateness of the referenced value potentials for any specific customer situation.
©SAP AG 2008

Business Benefits	Value Potentials
Provides distributors with up-to-date membership and contract information using SAP.com and/or EDI	Up to 35%*
Reduction in time and costs for processing discrepancies, and quicker resolution of disputes	Up to 70%*
Future increased accuracy in cash forecasting to help financial planning	Up to 20%*
Future analysis of buyer performance to help optimize pricing strategy	Up to 25%*
Improved agility and better customer service together with proactive communication with distributors who are able to get the information they want in an accurate and timely manner
Better forecasts allow wholesalers and MFG to reduce inventories	Up to 35%*


Pharmaceuticals: Contracts & Chargebacks (Collaborative) There is a process in the pharmaceutical industry called the chargeback process. The parties involved in this are the manufacturer, the wholesaler, a group purchasing organization (also known as a buying group), and the buyer. The buyer, such as a hospital or a drugstore, may join a group purchasing organization (GPO) to negotiate a better price for purchasing large volumes of drug products. The GPO negotiates with manufacturers to obtain the best contract prices for its members. A typical drug manufacturer may have to negotiate thousands of contracts per year with hundreds of different GPOs. These GPOs may contain over 100,000 individual members. To simplify the distribution of their drug products, manufacturers also negotiate selling drug products in large quantities to wholesalers at specified catalog prices. The wholesalers then stock their multiple distribution centers with the drug products. Buyers purchase the drug products from wholesalers at the agreed GPO contract prices. The chargebacks occur when the wholesaler sells the drug product at a contract price lower than what he/she paid. The chargeback is the difference between the manufacturer's price to the wholesaler and the contract price to the customer. The wholesaler will submit a chargeback request to the manufacturer on a regular basis (daily or weekly). Each chargeback request may contain thousands of line items for review. A typical drug manufacturer will process millions of chargeback requests per year and transfer hundreds of millions of dollars per year in chargeback payments. There are frequent discrepancies in the requested chargeback amount. One of the main reasons for the discrepancies is buying group membership. In the pharmaceutical industry, a customer may belong to one or more buying groups that have contracts with the manufacturer. The buying group to be in effect for purchasing from the manufacturer is chosen annually by each customer, and then notification is sent by EDI or via the Web as a bid award to wholesalers. When a customer orders from a wholesaler, it is charged the contracted price and the wholesaler submits a chargeback for any price difference to manufacturer by EDI or through the Web. The manufacturer replies by EDI or through the Web with the amount of credit and any reason for discrepancy.