Merck SA has become one of the first local pharmaceutical and chemical groups to outsource its pharmaceutical logistics, warehouse management and distribution functions to a third-party organisation. As a consequence it has enjoyed significant cost savings and seen an improvement in its business process within its pharmaceutical division.
The business/technology enabler for this change, initially deployed in Merck`s Pharmaceutical division, was the implementation of a data warehouse running against a third-party system, with both the data warehouse and Merck`s ACS-EMBRACE ERP system drawing data from the external systems to balance debtors and inventory on a daily basis.
An outsourced relationship such as that between Merck and a third-party distributor depends largely on the ability to ensure a daily balancing of sales, inventory and debtors, says Paul Palm, IT manager at Merck SA. "The integration we have created between ACS-EMBRACE, SAP R/3 and COGNOS is a first, in my experience."
Associated Computer Solutions (ACS), a company in the JSE Securities Exchange-listed Global Technology group, is the developer of the ACS-EMBRACE ERP suite. ACS was also responsible for designing and implementing the overall architecture.
Merck installed ACS-EMBRACE as its core financial and business system in 1993 and has become one of ACS`s key customers. The company has grown dramatically since then, through acquisition and diversification. Where it was previously a distribution operation, it is today a major producer of generic pharmaceuticals.
It is a reference site and a major beta site for ACS, providing input into future versions for enhanced functionality.
Merck in SA is unique in that all other subsidiaries globally run either on SAP R/3, SSA`s BPCS or Scala. After severe pressure in 1998 for the local operation to adopt one of these standards, Merck SA was given permission by head office in Darmstadt to continue with ACS-EMBRACE. "It was clear that we were running smoothly and there were no compelling business reasons to change," recalls Palm. "We have created interfaces to all corporate reporting systems and we comply with generally accepted accounting principles for both Germany and SA."
Merck`s operations are widely distributed. Apart from its head office in Edenvale, it has a factory, warehouse and national customer service centre in Wadeville. Sales offices are located in Johannesburg, Cape Town and Durban.
Previously, Merck`s Pharmaceutical division sold to 90 pharmaceutical wholesalers and customers, which made the issue of stock availability a relatively easy task. Today its proprietary products are also sold to over 10 000 pharmacies, hospitals and medical practitioners. Where it previously fulfilled a few hundred large orders a month, it now supplies thousands of smaller orders per day through its third-party distributor.
How it works
"Through this mechanism we have created a closed-loop system which allows Merck`s Pharmaceutical division to outsource its management of stock and debtors without loss of control," says ACS customer services account director Marcel Kitay.
Ascential DataStage acts as the ETL (extraction, transformation and loading) tool, receiving transactional data from the third-party`s system and loading it simultaneously into Merck`s SQL Server data warehouse, and into the ACS-EMBRACE ERP system. Cognos`s business intelligence tools, PowerPlay and Impromptu, are used to deliver highly complex and sophisticated reporting and statistical analysis of the data out of the data warehouse. The summarised data in ACS-EMBRACE is used to drive the production and procurement systems and all of Merck`s financial requirements.
"This process gives us a good view of our financial controls," says Palm. "Importantly, it means we don`t over-burden the EMBRACE production system with unnecessary data."
Pivotal relationship
The relationship between Merck and ACS has been pivotal, with ACS meeting all corporate requirements. For instance, when Merck head office mandated a June 1998 Year 2000 compliance deadline, ACS was able to fulfil.
A major factor behind ACS`s success has been its understanding of how to marry the classic mainframe-type, host-centric model of computing to today`s requirement for decentralised computing. As such it has created and implemented a thin client model, which ensures that Merck reduces its cost of computing and boosts total cost of ownership.
"Embrace has always been highly scalable, able to execute equally easily on a notebook or high-end server," comments Kitay. "Its thin client architecture means it uses less bandwidth than traditional client-server systems, reducing the overall cost to Merck, an important aspect given its widely distributed operations."
Based on the success of the initiative, Merck has also moved its Generic Pharmaceuticals division to the new, outsourced business model.
ACS-EMBRACE is also used by the Merck Chemicals division, which will continue trading using the traditional model of distribution.
The future
Merck`s Chemical Division is also implementing a data warehouse based on the same architecture to fulfil its sales reporting requirements. Projects are also underway to deliver financial and logistic solutions in the next 12 months.
"This project proved the benefits of the Cognos and DataStage products," says ACS Business Intelligence director Samantha Blignaut. "We pushed the envelope and used each product to the full, enabling us to provide Merck with an elegant, streamlined solution."
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