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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.
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.
Contract negotiation Manufacturer with GPO
Bid Award Notification to Wholesaler
Receive Contract Award Notification
Receive Purchase Order
Ship drug products to buyer
Submit Chargeback request
Buyer submits Purchase Order
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 2010