Lifesciences Industry Part 2 – Accounting, Production and Sales

In part 1 of our series ‘NETSUITE AND THE LIFESCIENCES INDUSTRY – GRANT MANAGEMENT CHALLENGES’, we discussed a need for an effective grant management solution during a startup phase of the Lifesciences company. In this article, we want to fast-forward to the next stage of the organization’s evolution. For ease of reference, let us call our (hypothetical) company AlphaPharma. At this point, the company’s patents were approved, substantial investments were made in production facilities. Lastly, initial contracts to deliver products or services were signed. 

AlphaPharma hired staff to support the operations and facilitate their expansion. The system(s) must be in place to allow the organization to scale, track costs, maximize profitability, and maintain effective communication and collaboration. This is where a truly robust Enterprise Resource Planning (ERP) tool, such as NetSuite, can step in and provide a foundation for balanced growth. 

  • Next, let us divide this article into three functional areas that an ERP system must handle at this stage of the company’s development: 
  1. Accounting Systems 
  2. Production and Supply Chain Management 
  3. Distribution and Sales 
  • Each section will cover NetSuite's functionality and how it fulfils specific AlphaPharma’s business needs. 

Accounting Systems 

In our previous article NETSUITE AND THE LIFESCIENCES INDUSTRY – GRANT MANAGEMENT CHALLENGES , we touched on financial segments and how they can be used to identify projects or grants. In the current phase of AlphaPharma’s growth, the company would like to record sales and track profitability against the recently launched intellectual property, device, or drug. To learn more about how ‘financial segments’ interact with a company’s Chart of Accounts (COA) and what role they play when it comes to reporting, please read this article Managing Your Financial Segments in Netsuite. 

AlphaPharma must also comply with recently introduced revenue recognition standard ASC – 606 / IFRS 15 related to revenue resulting from contractual agreements signed with clinics. As per ASC – 606, the revenue is recognized in 5 steps. 

  1. Identify contracts with customers 
  2. Identify the separate performance obligations in each contract 
  3. Determine the transaction price 
  4. Allocate the transaction price to the performance obligations in the contract 
  5. Recognize revenue when or as a performance obligation is satisfied 

Often, these steps are reviewed just before the end of the accounting period; the work is manual, and accounting teams are under substantial pressure to gather required contract information and recognize the revenue accurately. NetSuite’s Advanced Revenue Management (ARM) module automates the execution of revenue recognition schedules and recognizes revenue based on predetermined milestones and/or events. In simple terms, ARM separates Invoicing from revenue recognition; it defers the revenue recognition until the contractual obligations are met. It can amortize the cost of services provided and align them with the revenue recognition schedule as a bonus feature. This makes monthly profitability reports for AlphaPharma accurate while eliminating costs resulting from user errors caused by mundane and unnecessary tasks. 

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Lastly, AlphaPharma made substantial investments in its lab equipment and DNA sequencing technology. Furthermore, the company has several intangible assets (patents, intellectual property) that they would like to amortize over their ‘useful life.’ NetSuite’s Fixed Asset Module (FAM) can help organizations such as AlphaPharma automate depreciation/amortization and transfer these processes from Excel Worksheets (which are sometimes difficult to manage) to an ERP system. NetSuite’s FAM can handle: 

  • Asset management and tracking across multiple business units, locations, and departments 
  • Automatic depreciation with flexible, configurable schedules and handling for alternate methods 
  • Accurate reporting to slice and dice asset data by business unit, locations, departments, etc. 

Production and Supply Chain Management 

In relation to production and supply chain management, AlphaPharma follows a hybrid production model where some elements of their drugs and devices are produced overseas. At the same time, the final product is assembled in the United States. As the company is planning to grow rapidly over the next few years, they require functionality in the following areas: 

1. Product Lifecycle Management (PLM) for their devices 

Although NetSuite can connect to various leading PLM tools, it can natively manage product lifecycle and track product/drug development cost. AlphaPharma can take advantage of NetSuite’s Project Management module to track time, expenses, and design changes against a device the company is developing. 

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2. Production, BOM Revision control and contract manufacturing. 

Once the product design is finalized, the difficult part involves planning for the production/assembly of AlphaPharma’s finished goods. NetSuite has a sophisticated Advanced Bill of Materials (BOM) functionality which allows engineers to maintain several BOM versions of their product and manage revision control of components under each BOM. 

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The system will default current (effective) revisions on Work Orders, but it will also allow production managers to set other revisions or BOM versions if necessary. 

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Lastly, the system supports AlphaPharma’s need to manage to outsource manufacturing orders. Typically, the company will purchase component / raw material inventory and request that they be delivered directly to the Contract Manufacturer. As part of light manufacturing functionality in NetSuite, the system allows the creation of Outsource Manufacturing Purchase Orders that can automatically create Work Orders which will consume the raw material and include the labor or overhead charges that are part of the production process. This is a clean process that provides visibility and a simple way to accurately track and account for production costs 

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3. Material Requirements Planning (MRP) and Supply Chain 

AlphaPharma carries complex products with multi-level BOMs. Before NetSuite, forecasting for component inventory purchases was done in Excel; suffice it to say, it was inaccurate, which resulted in substantial delays in order fulfilment. By adopting NetSuite’s MRP functionality, the company increased their inventory turnover from 3 to 6 turns per year. The fill rate reached 97 % within the first six months after MRP was implemented.  

MRP in NetSuite addresses complex planning, forecasting and scheduling needs that cannot be handled efficiently in Excel or other disparate, disconnected systems. Its biggest advantages are:  

  • Automation - interconnected functionality that allows quick creation of Purchase and Work Orders,

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  • MRP Workbench  interactive interface with signals that help planners, buyers and production managers quickly approve suggested order quantities and track ‘outliers,’ exceptions and system-recommended actions.  

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  • Handling for complex distribution needs – As mentioned earlier, AlphaPharma may need to refine and reconfigure the product they receive from their Contract Manufacturer. After the product is ‘built’ in the virtual Outsource Manufacturing location, transfers to the company’s distribution warehouse (location) may be needed as well. There, AlphaPharma will sanitize the product and ship it to their customers.  

NetSuite MRP can automate the creation of Transfer Orders (TOs). The signal to generate TOs can be driven by demand in the distribution warehouse. This is called ‘Planning Rule Group,’ and it can be defined on the ‘Supply Planning Definition.’ 

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Distribution and Sales 

In the context of distribution and sales, AlphaPharma must answer the following questions: 

  1. How do we deliver products to end-customers or facilities where procedures are performed promptly?  
  2. How do we organize our sales force and distribution centers? 
  3. How do we manage 3PL facilities, and how much control will they have over our products and services? 
  4. How do we leverage external tools, and can they be integrated with our ERP system? 
  5. How do we achieve real-time visibility for more informed decision-making? 

Regardless of what approach AlphaPharma takes to answer the above questions, NetSuite’s flexibility allows implementers to configure the system to meet most of the company’s requirements. Below, we present configuration proposals that can address these needs. 

1. Warehouse Management System (WMS) tools and shipping integrations 

NetSuite’s WMS and the multitude of integrated 3rd party tools (see our Partners page) offer easy to handle interfaces (UI’s) for quick processing of inventory receipts, transfers, and shipments.  

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Even though basic shipping integrations with FedEx and UPS are supported out-of-the-box, AlphaBOLD recommends pairing NetSuite with more robust shipping software such as ShipHawk or PaceJet. 

2.  Salesforce automation and multi-location environment 

AlphaPharma gave their sales reps access to their system and its powerful sales dashboards. 

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The reps now have access to NetSuite’s CRM functionality which allows them to manage their sales cycle from an opportunity to a sale. It also lets managers establish quotas for their teams and adjust their monthly, quarterly, or annual quotas. 

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Sales reps were set up as (virtual) locations in the system for delivery and distribution purposes. The inventory is now transferred to these ‘distribution centers’ (typically, private storage spaces).Reps deliver devices and products to the appropriate facilities where certain medical procedures are performed (i.e.: clinics, hospitals, etc.) 

3. Integrations with 3PL 

Cloud-based systems such as NetSuite are very easy to integrate with even the most archaic 3PL systems out there. AlphaPharma is considering engaging a third-party logistics firm on the East Coast to handle the distribution of their product in that part of the U.S.  

Depending on the sophistication of their partner, the platform can be adjusted to handle flat-file communication between the two systems or better yet, a real-time SOAP / REST API connection can be established between two parties (see more here).. 

4. External tools 

Our hypothetical company uses external tools such as: ‘Asana’ for project management, ‘Calendly,’ which helps sales reps with appointment booking, and ‘HubSpot’ for marketing activities. These are not integrated with their ERP, and the company is trying to discern whether some of these apps can be replaced with NetSuite functionality. It is clear to AlphaPharma that retiring existing (external) tools can result in noticeable cost savings. This is if NetSuite can provide comparable functionality. Today’s business software trends push for best-in-class cloud applications. The platforms mentioned above are best-in-class and provide a myriad of features that a suite such as NetSuite may not be able to match. With that said, AlphaPharma decided to replace ‘Asana’ with NetSuite Project Management module as it offers advanced tracking and billing options. At the same time, they kept ‘HubSpot’ and connected it to their ERP with a native (free) connector. ‘Calendly’ meetings will be pushed to NetSuite via the platform’s REST web services. This strategy connects disparate systems, streamlining their sales activities and centralizing otherwise scattered data. 

5.Visibility through advanced reporting 

Now that AlphaPharma’s data is accessible and well organized, hundreds of preconfigured reports in NetSuite will provide needed visibility to the system’s users. Easy-to-configure Analytics in NetSuite is very robust and can suit most business needs. However, there are situations where certain snapshots, historical reports or advanced visualizations may not be available. To bridge these gaps, AlphaPharma uses PowerBI and AlphaBOLD’s NetSuite connector (learn more here). PowerBI is an affordable and very popular solution among small to medium-sized businesses (SMBs) that provides unparalleled flexibility when it comes to reporting and visualization. 

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With this, we will conclude our second article in a three-part series. We hope that some of the ideas and real-life examples above will resonate with you and unearth some opportunities for growth in an extremely competitive industry. Stay tuned for our next article, which will focus on the international expansion of the Lifesciences industry companies. 

 

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