Question:  Why this analogy?

Answer:   A three-legged stool cannot stand up with only two legs.  It must have all three legs operating simultaneously to be a stable structure.  Demand management follows a similar logic.  It also has three legs.  The legs are different but highly related data streams of information.  If you use only one and/or two sources of information, you are not likely to make the “right“ demand management assessment.

Background

Let’s dig more into the three legs or data streams. I would like to use the term data streams interchangeably with information streams because this implies the data has been processed and the analytical “art” applied to make it into useable information (no small task!). This is the heavy lifting that is the critical building block phase to ensure the three “legs” have the integrity to be correlated with one another.

The three legs are categorized as; Leg #1 – Customer Demand, Leg #2 – Distributor Demand and Leg #3 – Inventory.  The two diagrams below illustrate 1) What the three legs are, and 2) the relationship in terms of product flow and the three legs.

The relative background information for the three legs is identified in Table – Demand Management Data “Legs”. The table below is not intended to be comprehensive, but provides a feel for the data to understand the top-level content in each demand leg.

The complexities in many demand management assessments are in the dynamics within and across the demand legs

Demand Management Analysis

Leg #1 – Customer Demand:

Many organization spend an extensive time is on understanding customer demand through many of the traditional data sets built from end customer demand data (e.g. TRxs, claims, DDD, etc.). These analyses provide excellent customer insights but not always the best demand assessments that are needed across many business areas in the organization from the various stakeholders. Due to a host of reasons around projection methodologies, non-reporters, timing, etc., these analyses can still seem incomplete. It can be frustrating considering the data expenses and exhaustive time spent analyzing these customer demand data sets.

Legs #2 – Distributor Demand:

An additional analysis overlaid on top of customer demand and/or looked at individually is distributor demand. This is tempting to use based on the direction connection to revenue sales. This also can be problematic when looked at in a vacuum because of business events (e.g. sales promotions, release of data, etc.), wholesaler system ordering characteristics (e.g. inertia), and product life cycle position (e.g. generic, launch, etc.) are all collectively influencing demand. These indirect demands (relative to the manufacturer) are dynamic variables that can confound the analytical distributor demand assessment. Not to worry, there is another leg to consider for shoring up the three legged demand assessment!

Leg #3 – Inventory:

With two “legs” of analysis done either individually or jointly, and still not as complete an answer as required delivered yet, this leads us to the third “leg” – inventory to factor in. I call this the “hidden” gem because it can provide relational answers to the first two legs and provide an enormous amount of analytical insights.
The relational aspect is the connection point between customer and distributor demand that is manifested as inventory. The drivers of inventory are directly related to customer and distributor demands. These demands are what establish the variation in inventory levels. The variations in inventory levels when combined with the other information embedded in the 852 and 867 transaction sets can be provide telling analytical insights across all three data legs.

The complexities in many demand management assessments are in the dynamics within and across the demand legs.  To comprehensively look at demand management, it requires all legs be assessed both individually and collectively

More About Inventory

The 852 and 867 data sets can provide a vector of insights for inventory, distributor demand, and end customer demand.  Like all data it does not come without some limitations (e.g. blinded 867 data, 852/867 reconciliation) but there are options to help “crack-the-code” on items like blinded data and to facilitate these reconciliations.  The real value in the inventory information is in its utilization.

Demand management correlations across all three legs help resolve what appear to be gaps in the individual analyses.  In my experiences with comprehensive demand management assessments, inventory data helps explain the discontinuities between the customer and distributor demands, while providing invaluable channel/customer level insights.  These insights were applied and proved to be complimentary/validated much of the customer analytical assessments and help explain variations in wholesaler demands.

These demand management assessments and insights were actually applied across a variety of business situations around managing multiple product shortages, performing mass flow product balancing and validating critical revenue forecasts in various business planning scenarios.

High confidence demand management assessments provide significant business benefits throughout the organization.  Some areas of benefit are revenue forecasting/investor relations, brand planning, targeting, production planning, financial accruals, etc.  With this much potential organizational benefits at stake, who can afford not to pursue the most effective and efficient approaches to demand management.

The growth in the specialty products has created a bonified call to action for comprehensive demand management.  The call to action is driven by the high costs associated with the specialty products, extensive support services, channel and regulatory complexities resulting in much needed rigorous demand assessments.

Attached is a link to a simple article that nicely discusses the differences (http://tinyurl.com/Strategic-Business-Planning).  One caveat to highlight is that I do not think an annual strategic plan is always necessary – the decision should be driven by business events not time.

Strategic Planning

Despite all the strategic and business planning articles, I have not seen many meaningful articles on operationalizing strategic and/or business plans. Planning in every company is different, but an integral part of any planning process should be operational planning. Operational planning is a critical translation step that enables strategic and/or business plans to be realized.

Strategic plans have their place in the overall process and are critical to an organization defining itself.  Once this has been established, and the organization’s identity and purpose are defined, then the business planning process can be used to drive the planning process.

Key point #1: Once you have defined yourself strategically, the business planning process becomes the primary vehicle unless business events dictate otherwise.

One might argue that the business plan is a step a logical step towards operationalizing the strategic plan. It is a step in the right direction, but not a large enough step to translating the strategy into actionable planning. The business plan moves the strategy in a meaningful way to many parts of the organization, but not to all parts and/or to the required depth. The business plan is focused on higher level strategic related items (both brand and managed markets), the revenue forecasts and marketing costs.

Business Planning

The business planning process needs structure to provide the foundational continuity to be meaningful. Continuity is the operative term, and a key success driver.  The required structure can vary based on the maturity and complexity of the organization. There is a direct relationship between number of products/therapeutic areas and complexity.  The relationship grows in complexity when therapeutic profitability is factored into the assessment.

A simple complexity reference matrix is provided below:

The size of an organization and number of products in the portfolio define the complexity of the business planning process. For the more complex organizations, portfolio planning becomes an integral part to the business planning process. The key deliverables from the business planning process revenue forecasts, strategies and associated budgets are the foundational elements for the operational plan.

Operational Planning

The operational plan is a translation of the business plan and product strategies to a level that all parts of the organization can use to develop their own operational plans. Operational planning is generally two steps for the more complex organizations. Step one – brand strategies prioritized and crystallized for all areas in the organization. Step two – brand operational plans are utilized to develop functional area operational plans (e.g. managed markets, field force, finance, operations, etc.).  The operational plans form the basis from which the functional areas execute from.

Key Point #2: The interim step of prioritizing and crystalizing business/brand plans builds the foundation for the operational plans.

This may sound like a lot of planning, but it is not. The efficiencies attained by the right structure and ground rules can streamline the business planning process to allow for more value-added back-end operational planning time.  Execution will be heavily dependent on the operational plan, not the business plan.  Hence, the focus should shift to that aspect of the planning process.

Key Point #3: The planning process should work for you not you for the process. Operational planning provides an execution roadmap inclusive of tactical planning and implementation/performance dashboards. Plan to Execute!

Here is an appropriate quote to summarize the discussion:

Strategy is wasted without “operational effectiveness” – Michael Porter

My take is that it moves channel management from a supply chain/distribution continuum into a business continuum. The “morphing” along into the business continuum relates brand needs to channel needs to contracting needs. The segmentation of the channel into its core components; a) channel strategy, b) channel contracting and c) channel execution can develop a holistic approach to specialty channel management.

The core components of the Specialty Channel Management Model are defined in a broad enough way to impart flexibility in the approach. The interrelationships of these components create multiple “sweet spots” of opportunities. The opportunities borne out a good strategy can bear much fruit. The careful alignment of the contracting strategy with the brand needs is essential to designing an appropriate contract designed to deliver performance.

Underlying the effective management and execution of specialty channel management is data. Data needs to be defined along the component parts of the continuum to ultimately be meaningful. The challenge is defining what data is truly needed and by whom. This easier said than done. Unfortunately data “creep” usually seeps in. If it permeates too deep, it has a tendency to undermine the simple data needs with complex data requirements. My advice, go simple and make sure you have the base elements for managing the channel. Save the long pass for those that have thought through all the details and have truly mapped out a comprehensive data strategy. It can work, but requires a disciplined commitment.

The utilization of the specialty channels and value created should be viewed as a means to an end. When done right through the appropriate channel segmentation, the specialty channels do the heavy lifting and work for you. Not the opposite, like you working for the channels arguing over contracts, chasing data and not knowing if the channel is performing (performance – saved for a subsequent discussion!!!).

Class of Trade (COT) is simple to identify in a general way, but complicated in its use in contracts, marketing programs and—most significantly—how pricing data are reported to the federal government. The simple sense is the various channels by which pharmaceuticals and other healthcare products flow into the market: retail pharmacies, hospitals, clinics, mail order and the like. In their contracts, some pharma companies have a handful or so of definitions; others have dozens or more.

In a legal sense, COT is a “term of art”—a phrase used in legal documents that has a defined meaning; outside of contracts, everyday people don’t usually walk around talking about COTs. But when contracts are written—and when data-collection systems are set up—COT becomes an important factor. This is especially true for Government Pricing (GP) systems. A critical point consistently raised is the utilization of COT to determine which transactions will be included and/or excluded in the GP calculations to support government reporting requirements.

Expanding the discussion to include stakeholder perspectives and distribution channels provides additional insight into the complexities. It helps understand the impacts, appreciate the complexities, and expand the COT discussion.

Continue reading at Pharmaceutical Commerce »

The “trial by fire” approach to further evolve your contracting expertise can be very effective under the right circumstances. That means having access to the contract “institutional knowledge” (implication: “and… Why did we do that?”) and having the appropriate data to quantitatively assess the contract. I was fortunate to have access to some of both.

Designing the most appropriate assessment of the current contract proved to be the most crucial step in the process! The fact that it was not easily done clued me into the fact I was on to something. The contract appeared relatively straight forward with some complexity. It required both an analytical assessment internally on the “numbers” and external assessment of the external environment including customers and the therapeutic area to get to underlying performance drivers.

What I found from the internal and external analyses was that the contracts were not aligned internally with the other managed market segments, and not aligned with customer needs and also difficult to implement and measure. The misalignment had a compounding effect that compromised the ability of the contract to perform.

This takes me to my first contracting 101 lesson:

Contracting strategies need to be aligned with brand needs, channel dynamics, customer business models and other managed market strategies to design a contract that can perform

I know you are saying to yourself, “no kidding – let’s just state the obvious”. Well, I argue that it is not so obvious. Particularly when you look internally, externally and both ways before you cross the street.

Here’s Why

Confounding internal managed market segment goals and objectives and overlapping customer business models can create the perfect storm.
What to do: Take the time to engage the brand, understand the competition and the therapeutic area, understand the channel dynamics and embrace your colleagues from contract management! With a comprehensive assessment structure, the right contract terms and performance measures, you can understand if your contracts are performing.

If you want to design the contracts right, take note of contracting lesson 201:

Contracts are best developed with the end in mind. Looking at the contract objectives, quantifying them and designing the performance measures and working them into the design of the contract will go a long way in the execution and implementation of the contract strategy (and embrace your colleagues from Contract Management!).