CASE STUDY 2

GENEXIS AND THE BRAZILIAN PHARMACEUTICAL INDUSTRY

Question 1

From the “for” side, becoming a VAN provider can enhance Genexis’ core

competency by integrating all the resources into one network and sharing the

information within different channels to improve the supply chain management,

lowering their logistic costs and generating profits for the whole industry. In Brazil, it

is also the right decision to implement such a project for Genexis. As the government

has released the policy of generic drugs, which caused a substantial reduction in the

profit margins of drugs, more and more pharmaceutical participants have great urges

to lower the costs of the products and develop the right products for the market. Such

needs are the pushing forces for Genexis to launch this project at this moment.

From the “against” side, it is a risky project and right now it might be too early to see

the positive results. Establishing VAN requires a lot of money to construct the

infrastructure such as hardware equipment purchases, network maintenance etc. Also

it requires abundant capable human resources to collect information, process

information and render the right reports for the clients etc. If the information is wrong,

the report might mislead the clients to the wrong decision.

We admit that at the beginning period, the initial costs are comparatively high for

getting the latest hardware and promoting the services among the clients, etc.

According to our knowledge, in pharmaceutical industry in Brazil, an average of 25

percent of the revenues has been spent for promotional activities and salesforce costs.

Such input can be greatly deduced after the completion of VAN to a great extent, as

all the participant can get access to all the information they need such as sales

feedbacks, storage situation at a certain sales point, etc. Via the help of VAN on a real

time basis, all the participants linked into the system can find the useful information

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they need.

At the same time, by virtue of VAN services, all the supply chain participants can

adjust their production schedules based on the drug consumptions as well as the

realistic drug needs, which can sharply lower the logistics costs on one hand, on the

other hand, can speed up the sales of the products for more profits. The VAN platform

is also a good way to promote their products among the wider environment than ever.

With more and more people using Internet, network sales are becoming a new power

for the product marketing. With the least expenditure, all the participants can get the

most returns.

Another reason for accepting VAN services is that it is convenient for the relevant

partners such as distributors, manufacturers, material suppliers etc. to plan their

schedule and arrange their orders based on shared information and quick response

from other parties within the system. If sticking to the traditional way, it will take a lot

of extra money and consume much longer time to get information before finding the

correct measurement to solve the problems. It also helps a lot on partnership

cooperation between partners with information sharing.

Right now, it is just about the right time to implement the project. As mentioned

before, the government has launched generic drug policy lately, which caused a lot of

profit deduction and allowed narrower space for the manufacturer, distributors etc. on

pricing for the whole industry. If there is no extra measurement to deal with the cost

reduction, the whole pharmaceutical industry will be in difficulty of survival and

further development. Pushed by such policy, if Genexis works on the VAN project

now, it will be a good opportunity to get other parties in the pharmaceutical industry

to accept Genexis’ service immediately. Plus, the present situation in Brazil provides

the right time for the launching of VAN. In Brazil, the whole marketing channels in

the country are dispersed. There are approximately 55,000 drugstores and 450

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wholesales, which are independent and nonexclusive. It shows that it is very difficult

to get the compete data without one integrated system. Imagine that without VAN

platform, the laboratories need to visit all those channels or consult with all the

physicians in the country for detailed information before any change. It is obvious

consuming a lot of money and wasting considerable time. After the establishment of

VAN, it will be finished by just clicking the button to look for answers on the Internet

at home. Every one will see the obvious advantage of VAN.

Some one might still worry about the information accuracy or effectiveness at the

beginning. Pharmaceutical industry involves many components. If we still adopt the

old way, each one is trying to maximize its individual performances regardless of the

benefits of other partners and the whole industry, at the end, it will harm the

individual company as well. As long as all the participants realized that sharing

information and providing accurate information with others can benefit themselves, it

will be easy for the system work well and last long.

In a word, adopting VAN services can help promote the competiveness of all the

participants within the system and lower the costs in many ways for them in the long

run.

Thus I see no reason why Genexis should not start this project immediately. Those

who worry about the initial infrastructure costs and doubt on its function will soon

realize the usefulness by the above-mentioned comparisons.

In order to get all the participants involved and support this excellent project, Genexis

should put more efforts on promotion of the services to make all the participants

understand it is the most economic and fastest way to get information they need and

everyone can benefit from such a good project by decreasing the logistic costs etc.

Besides wide publicity, the most important point is to collect the right information

based on the real needs of the participants. Only in this way, Genexis can guarantee to

develop the right VAN services for the clients. From drug stores to hospitals, from

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laboratories to sales points, from physicians to patients, only if all the parties can be

incorporated, the system can be powerful enough with adequate and accurate

information for those relative parties.

VAN development is the trend for future business model. If Genexis can be successful

in this development, it will open new space for the company profits and can place it

the leader in this development for the pharmaceutical sector in Brazil.

Question 2

By definition, supply chain management is the integration of all activities associated

with the flow and transformation of goods from raw materials through to end user, as

well as information flows, through improved supply chain relationships, to achieve a

sustainable competitive advantage.

It encompasses the planning and management of the whole industry procedure. Most

importantly it also includes coordination and collaboration with channel partners,

which can be suppliers, intermediaries, third-party management within and across

companies. Supply chain management is an integrating function with primary

responsibility for linking major business function and business processes within and

across companies into a cohesive and high-performing business model.

After careful review, I am pretty confident that Genexis will be able to launch

successful initiatives in pharmaceutical industry as it has been in the industry for more

than 17 years. With its long and rich experiences in the sector as well as good

knowledge about the whole supply chain management from the starting point to the

end users, there is no doubt on Genexis’ success of being a VAN provider in

pharmaceutical industry in Brazil, but if it plans to expand the expertise to other

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market segments such as confectionary industry or others, I will deeply doubt its

ability right now.

Using the confectionary industry for example; even though it bears lots of similarities

with pharmaceutical industry, the differences between these two fields have to be

considered and studied before making any decision.

One difference is the distribution channels. Confectionary goods are sold through

many channels such as supermarkets, grocery stores, mass merchandisers, drugstores,

convenience stores, gourmet/specialty store etc., where usually are filled with various

types of products instead of only confectionary goods. The main distribution channels

Genexis is dealing with are drugstores, hospitals and wholesales, where are more

specialized in the field and only provided pharmaceutical products and services for

most parties.

On end user analysis, the difference between the two is also very obvious. In most

cases, confectionary goods purchasers may be out of impulse buying. There might be

no plan or intention of such purchases on the list before entering the super markets.

But for the drug purchase, it is representing the opposite side. Customers usually have

strong purposes on what kind of drugs to buy before they go.

Third, drugs from the pharmaceutical industry relying on the chemistry development

very much are more scientific and have certain rules to follow or standards to test

their functions, so it is relatively easier to get the judgment for future development,

but the goods in confectionary industry are less scientific and have no fixed rules to

tell which favor should be developed. Confectionary goods selections might vary

greatly from different tastes, from different times, from different districts, or even

from different genders and ages. This means the information for confectionary

industry needs more detailed analysis than general treatment. From such comparisons,

we can draw one conclusion that the whole process in the confectionary industry

might be more complicated than the former pharmaceutical industry. If neglecting

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such division or details, it might mislead the confectionary industry participants and

be unable to provide the satisfactory services for the confectionary industry clients. So

far, Genexis has little experiences in this confectionary industry, even though the

rough structure of VAN is very similar and can be replicated, but the contents as well

as the working ways can not be just totally copied. It required Genexis to gain more

knowledge on this industry if it wants to expand its scope.

The success of VAN largely depends on its advantage on information integration and

processing the information obtained from the relevant partners in the industry, which

can help the supply chain participants to make decisions in a proper and cohesive

logic. Genexis’ success in pharmaceutical industry can be expected is based on its

knowledge in the whole industry from raw material suppliers to hospital physicians

and other relationship channels. With close bonding in the industry, Genexis is very

familiar with the information and know about which information is useful and

understand which information is wanted by its clients. Such information is the real

key point which attracts the clients to be part of the project. Industry background and

relationship with industry participants are the basis for getting adequate and accurate

information for a good VAN platform. If there is something wrong on the contents in

the platform, with its knowledge on the field, it is not difficult for Genexis to notice

and check for the quick solution immediately before giving the clients wrong

information. If there is little knowledge on the field, it is impossible to check anything

for the clients beforehand and give good suggestions for the correction. With such

understandings about the industry and good reputation in the past, the clients trust

Genexis and are willing to share information with it. In this way, it can be a good

service provider on launching this VAN project in the pharmaceutical industry in

Brazil. If entering into the new industry, the biggest challenge for Genexis is to obtain

efficient and effective information required by the new customers and to understand

the needs of the clients in the new industry, which can not be done within short

period. As Genexis lacked such knowledge in the new confectionary industry, I think

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it will be is a big obstacle for its success in the new field.

To better illustrate the difficulty of entering a new field, I will take one simple

example in the pharmaceutical case for easy understandings. Traditional Chinese

Herbal medicines are very popular in China and it had great functions in curing some

sick patient, but they are prohibited in EUROPE and the Unites States, because they

failed to pass the tests of FDA and EMA. If an importer from USA knew little about

such policy and wanted to introduce Chinese herbal medicine to the local market, he

is surely to lose. This example fully illustrate why it is not easy for Genexis to expand

in other sectors. Different industry has its own distinctiveness. With little knowledge

on other industry, it will be very much likely to fail. Each industry has its own

characteristics. If Genexis want to copy the pharmaceutical experiences in

confectionary industry, it should carefully study the confectionary industry including

government policies etc. before it can provide the suitable services for the

confectionary industry. If Genexis can not provide what the confectionary industry

really need and make them satisfied with the information, it is impossible for them to

use Genexis’ services.

Question 3

In the current pharmaceutical market in Brazil, Genexis has acquired unique

competencies, which are difficult to develop or imitate by potential competitors.

Firstly, Genexis has been working in the pharmaceutical industry for more than 17

years. It has established cooperation relationship with many of the supply chain

partners and clients. Starting with the first cooperation contract with Bristol Myers-

Squibb Laboratory to develop a system to gather, format, and summarize drug sales

information and register the clients of all the Bristol Myers distributors. Until now,

most of the laboratories and wholesales in Brazil have become its clients, which allow

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Genexis to acquire adequate and first-hand information in the industry for its VAN

platform. This advantage can also place Genexis in the leading position in this field of

integration.

Secondly, Genexis has got strong technology support. The success of VAN services is

very much depending on the infrastructure construction of the network and

information technology. In 1995, Genexis cooperated with a Brazilian telecom

company called Embratel. Such consortium equips the company with the latest

information methodology and technology and lays good ground for its VAN

construction. With the support of the telecom company, Genexis is able to gather the

information regarding the demand, sales, etc. on the daily basis instead of weekly or

monthly basis, which expedite the working efficiency for the clients and is a core

competency in this field.

Thirdly, Genexis has strong financial support as well. In 1999, the company started

negotiation with the Pactual-Electro investment fund, which invested around

USD15.5 million for the company to purchase the latest equipment and hiring elites to

work for the company. Good reputation on business management project is another

attractive point. Genexis started E-commerce activities for Pfizer laboratory, which

enables the company to get into the inside business manage and witness the growth

both inside and outside the company.

The major competency Genexis should keep and develop to grow is its ability in

gathering, processing, analyzing a large quantity of accurate pharmaceutical

information in real time. It is one of the core advantages for the company to beat other

competitors and keep profits all the time.

The biggest reason for most clients to choose Genexis’ VAN services is that they can

make right decision based on the information from the platform.

Right now, Genexis has established strategic alliances of information sharing with

many industry participants such as manufacturers, wholesales, drugstores, hospitals

and clinic etc to supply real-time information and optimize the whole processes for its 8

participants from raw material purchase, demand, production, marketing and sales.

We all know useful information is the life for the construction of VAN. Sharing

information with the participants can save a lot of costs for all the participants, which

is the basis for making the right decision. At the same time, the key point of VAN is to

provide analysis services based on the information and provide reports to its clients.

Without effective and correct information, its service network can not work

efficiently. Clients will not be delighted to use its services if it can not help them.

Thus information is very important for alliance relationship. Also Genexis has

developed alliances on cooperation with some companies on E-commerce and other

activities.

In order to become the leader in VAN or service network, Genexis should create

global strategic alliances as well. With the technology development, Internet is

playing a key role in business life. The whole world is getting more and more united

with the help of computer and network. International business communication and

cooperation is everywhere in the pharmaceutical industry. For example, the raw

material supply is not limited to Brazil alone and can be imported from other places.

Also the sales of drugs on the VAN platform can be reached by the whole world,

which will be a good challenge for the company. If Genexis only focused on Brazil, it

will limit its view and will be hard to provide good services for those big international

clients, who need information and services on the global basis, not just Brazil basis, as

they might import raw materials from other countries, or export some drugs abroad.

Information on the international market might also affect the Brazil market. If some

raw materials are in shortage in the international market, it will result in price change

in the Brazil market as well. Thus, all the information all over the world concerning

the clients’ needs must be considered into its VAN or service network. Gladly Genexis

has realized the importance of global strategic alliances. It has established Genexis

Portugal, which is the first step of global strategic alliance.

The international expansion of Genexis can be a very good supplement for its VAN or

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service network. It can broaden the market and enrich the knowledge for Genexis to

provide better services for its clients.

COMPULSORY QUESTION

In the past, people think logistics is the last frontier of cost reduction. Nowadays, with

the development of logistics and better understanding towards supply chain

management, more and more people begin to realize that logistics/supply chain

management is the new frontier of demand generation---a competitive weapon. In the

literature of Simchi-Levy (2000), it described that supply chain management is a set

of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses,

and stores, so that merchandise is produced and distributed in the right quantities to

the right locations and at the right time, in order to minimize system-wide costs while

satisfying customer level requirements. This is true with the development of

information technology. Nowadays, logistics/supply chain management can help

increase profits/customer satisfaction and decrease the costs, these two functions are

of great importance in present business operations.

To fully illustrate the idea of satisfying customer level requirements in the right

quantities, we can use ZARA’s case as an example; ZARA is a Spanish clothing

company, who specializes in making affordable fashions clothing throughout the

world. Several years ago, the name of ZARA was unaware of by many in the clothing

industry. This is because of a number of reasons; ZARA had no outstanding designs to

lead the industry, did not achieve cost leadership back then and ZARA has not

spectacular quality in the industry. However ZARA improved upon their previous

supply chain management and as a result of the change ZARA has well-known among

the fashion followers all around the whole world. ABC News (2011) described

hundreds of people camped outside the shop overnight ahead of ZARA Melbourne’s

store’s opening, extra staff were flew in from overseas to handle the opening rush.

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Most other clothing companies need 6 months to one year to develop a clothing line,

but with ZARA only a month is needed to create a new clothing line, production

regardless of its final destination are delivered to logistical center for branding, and

from where it is distributed simultaneously to all the stores worldwide on a highly

frequent and constant basis. In the case of ZARA, distribution takes place twice a

week and each delivery always includes new models, so that the stores are constantly

refreshing their offer. The logistics system based on software designed by the

company’s own team required the time between receiving an order at the distribution

center to the delivery of the goods in the store is on average 24 hours for European

stores and a maximum of 48 hours for American or Asian stores.

Logistics/supply chain management played a key role in ZARA’s success. ZARA has

established special transmitting channels for quick delivery and used air transport for

international sales, whose productions, distribution and sales are all well integrated on

the concept of quick delivery. The management can clearly see which clothing is sold

out, which one is almost sold out and which style is favorable by the customers now.

Based on that information, the designer can quickly respond to the trend and make the

next new clothing design. From ZARA’s perspective, clothing is time sensitive

products. If they want to create more sales, it is a must to shorten the cycling period

for the clothing. Thus, they are very careful with logistics and supply chain

management. In each store, they only provide limited quantities for a design. Such

unique supply chain management brings huge success as customers feel they are

unique with ZARA clothing. It marks a miracle in clothing history compared with the

traditional sea shipment, bulk sales or slow delivery. Clearly ZARA’s logistic/supply

chain management adds extra value to its products, which brings a lot of satisfaction

on its customers on tightly following the trend. In this way, its logistics upgrade the

whole ZARA brand value.

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Using a secondly example which is different from ZARA’s case to illustrate the

importance of supply chain management and how to minimize system-wide cost for

the company. This second example is about the strategic alliance between Chinese

vegetable farmers and the low-price vegetable stores.

The low-priced vegetable stores are under the administration of a large organization,

which is responsible for process from producing of the vegetable until the sales of

which. It schedules the purchase plans for all the stores based on the realistic

demanding information to avoid harsh competition on one item only. Then the group

will place the orders to the farmers with contracts. In each contract, it has detailed

information including purchase prices, ordering quantities, and so on. Since the

purchase amount is enormous, it can form group advantage on pricing and guarantee

reasonable incomes for the farmers as well as making sure of various vegetable

supplies. Before that, in most cases, the vegetable supplies are subject to the farmers

themselves. Most peasants have little knowledge on the whole demand and supply

situation and can not predict which item will be bestseller, which vegetables are

already beyond the supply-demand line. In most scenarios, the vegetable farmers

decide their schedule based on the present market price of vegetables. For instance,

if one vegetable is in high price, a lot of other farmers will offer the same vegetables

next season, which can easily to cause dull sale for their products during next harvest

season. United purchases from the group for the low-price vegetable stores can solve

such problem. Before the production, the price is fixed. Even the total supply of the

market is too much, it will not harm the benefits of the cooperating famers. As we all

know, vegetables can not be kept for a long time. Such model of direct cooperation

with the famers decreases the circulation loops and fresh vegetables can be directly

delivered to the stores for sales. There is no need for warehousing. In this way, it

minimizes the system costs sharply. All the parties from farmers, customers, to stores

benefit a lot from such strategic alliance.

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To sum up, if the key point for ZARA’s logistics is speed, then the key point for

China’s low-price vegetable stores is integration. It integrates all factors of good

supply chain management from production to distribution to decrease the costs. The

above example of ZARA and low price vegetable has alerted us the importance of

supply chain management in today’s world. Griffin University, 2010. described

Today’s increasingly turbulent commercial world, achieving an efficient and

effective supply network is central to business success (Griffin University 2010).

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Reference List

Simchi-Levy, D. 2000. Supply chain management: concepts, techniques and

practices, enhancing value through collaboration.

ABC News. June 2011. Shoppers queue for zara opening. Viewed 20th October 2011,

http://www.abc.net.au/news/video/2011/06/15/3244916.htm?site=farnorth

Griffith University 2010.Logistics and supply chain management. Griffith University,

Viewed 20th October 2011, http://www.griffith.edu.au/business-commerce/logistics-

supply-chain-management#toolbar

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