Healthy Business in China

An inside peek at how SAP is keeping China's pharmaceutical industry healthy (image: Fotolia)

CITIC Pharmaceutical Industrial Co., Ltd. is a leading company in the supply of medicines in China. With 10 subsidiaries and more than 300 trading partners, CITIC ranks among the top 20 companies in the pharmaceutical market. Together with its partners and suppliers, CITIC Pharmaceutical covers a wide range of pharmaceutical products, from vaccines and prescription medicines to medical supplies and equipment.

The company supplies hospitals, retailers, and pharmacies in all provinces of China. CITIC Pharmaceutical and its distribution network is growing rapidly, mostly through acquiring and integrating companies. And it has implemented SAP ECC 5.0 in all 10 subsidiaries. Shen Ming conducted an interview with Wang Yan, CIO of CITIC Pharmaceutical, on the topic of SAP software in the pharmaceutical industry and China’s recent healthcare reform .

Mr. Wang Yan, CITIC Pharmaceutical is China’s first SAP customer in the pharmaceutical industry. What made you choose SAP?

The selection process took a whole year. The pharmaceutical industry has very specific requirements, for example when it comes to quality control. CITIC Pharmaceutical was also using many different IT systems at that time, which led to major problems. We opted for SAP because its international business solutions have a good reputation in the pharmaceutical industry and they have a lot of experience in this field.

CITIC Pharmaceutical’s business is developing fast and well. What problems did you want to solve with the implementation of an ERP system?

As the business developed, business processes were becoming increasingly complex. The management needed a reliable information base for planning. Here is an example: We were using software from different providers for purchasing, accounting and sales, which were not compatible. This often led to incorrect information about our inventory. The warehouse system was still controlled manually and there was a lack of effective quality control. This old IT structure was increasingly becoming an obstacle for the development of our business.

Next Page: Implementation and innovations for ECC 5.0

Pharmaceutical companies must meet industry regulations on storage and transport (image: Fotolia)
Pharmaceutical companies must meet industry regulations on storage and transport (image: Fotolia)

What are the particular challenges in pharmaceutical marketing?

We are the link between producers and purchasers of pharmaceutical products, between pharmacies and hospitals, for example. We guarantee a smoothly running supply chain. This is what makes supply chain management so crucial. We also want to accelerate our strategic decision-making. CITIC Pharmaceutical is growing rapidly. When the project started, CITIC Pharmaceutical had a revenue of two billion Chinese Yuan. Four years later, it will be three times that, which brings new opportunities and risks. Processes need to keep pace with this growth. To achieve this, our management requires a high integration of information and capital flow and must have all data at a glance. This is the only way you can maintain stability and improve performance.

How did you proceed with the implementation of SAP?

We first launched SAP ERP in the largest subsidiary of CITIC Pharmaceutical. The plan was to quickly achieve a breakthrough in one place and then use the success for motivation and as a best practice for the other companies. Within four months, the project team had arranged and improved the core processes so we could go online successfully. After a full test run, we turned off the old systems and started to work with SAP.

What are the highlights of the new system?

The main objective was to establish a customer-oriented data management system that integrates all information about upstream and downstream processes. This made it necessary to introduce the SAP ERP system to the central business areas. Firstly, we changed the processes in accounting and cost control and can now track the costs in real time. Secondly, the ERP system covers all processes in marketing and sales, from the placing of an order to invoicing. Thirdly, procurement, materials and warehouse management were important, and we were able to reduce the workload and costs dramatically. The system shows us the real procurement costs and thus the current profitability. The fourth application concerns the overall quality control.

Were there any innovations?

What is new is the combination of SAP software with mobile terminals for warehouse management. We can now obtain a real-time inventory and check the sales anytime and anywhere.

Next Page: Healthcare reform in China

The Chinese government has carried out a healthcare reform. What new perspectives does this show for CITIC Pharmaceutical?

The reform of the healthcare system is resulting in improved care especially in rural areas. Clinics are being built or renovated; health centers and first-aid facilities opened. The government further encourages the increase of pharmaceutical production, services, marketing and issues regulations for quality control of trade. This is a huge opportunity for companies supplying pharmaceutical products and medical devices. CITIC Pharmaceutical will also expand its network through mergers and equity investments. With the SAP system, we are able to efficiently develop our administration and the management of business processes to keep up with the growth of the company.

With the new SAP system, is CITIC  Pharmaceutical already well prepared for these new requirements?

The government has implemented a GSP (Good Safety Practice) regulation for safe storage and transport of pharmaceutical products to ensure quality throughout the supply chain. With SAP, we have implemented a comprehensive quality management and an automatic control of our GSP system. The new requirements will affect the flow of information between producers, marketers and retailers. The aim is a better coordination between customers and manufacturers. For this purpose, we have already developed services to act as a broker between the two groups to improve the industry chain. I am sure that such challenges will lead to a big boost for ERP solutions.

Has the SAP system already passed muster within the development of the business?

The implementation of SAP ERP has far exceeded expectations. We recently acquired a company in Hubei. It took only 21 days from the acquisition to the online integration into the CITIC Group. This shows that we can easily apply our management to takeovers and mergers. In addition to that, ERP has enabled us to develop a new internal service: we founded the Health Link Information Technology, which specializes in solutions for management and IT in the pharmaceutical market. This is going outstandingly well. The company is currently growing at 80 percent.

Your conclusion?

The decision to use SAP ERP has proven highly successful. With the increasing complexity of the supply chain and extension of our business, we require good business solutions now more than ever. Therefore, we will replace the current version ECC5.0 with the next version 6.0. The SAP system can grow with us.