Improving the accuracy of sales forecast: a case study of OPV Pharmaceutical Company in Vietnam

Table of Contents 1. CHAPTER 1: INTRODUCTION ................................................................................... 4 1.1. Company Background............................................................................................. 4 1.2. Organization Charts ................................................................................................ 4 2. CHAPTER 2: PROBLEM IDENTIFICATION .............................................................. 8 2.1. Problem Context ..................................................................................................... 8 2.2. Identifying and Diagnosing Tentative Problems .................................................... 10 2.2.1. Shortage of product........................................................................................ 11 2.2.2. The prolonged completion time of sales orders............................................... 12 2.2.3. The high rate of overdue sales orders ............................................................. 13 2.2.4. High competitive price................................................................................... 14 2.3. Verifying Tentative Problems ............................................................................... 15 2.4. Identify the central problem .................................................................................. 21 2.4.1. High competitive price problem ..................................................................... 21 2.4.2. The tardy work progress in production planning task ..................................... 22 2.4.3. The central problem is raw material shortage ................................................. 23 3. CHAPTER 3: CAUSE VALIDATION ........................................................................ 25 3.1. Potential causes..................................................................................................... 25 3.1.1. Potential cause 1: Ingredient is out of date ..................................................... 25 3.1.2. Potential cause 2: Delivery delay ................................................................... 26 3.1.3. Potential cause 3: Material is used for another product ................................... 27 3.1.4. Potential cause 4: Short notice from planning................................................. 28 3.2. Root cause validation: Inaccurate forecasting cause .............................................. 29 4. CHAPTER 4: ALTERNATIVE SOLUTIONS ............................................................. 32 4.1. The first alternative solution: the forecasting method based on the simple moving average (SMA) technique ................................................................................................ 33 4.2. The second alternative solution: the forecasting method based on the linear regression technique ......................................................................................................................... 34 4.3. Comparison two methods...................................................................................... 35 5. CHAPTER 5: ACTION PLAN .................................................................................... 38 6. CONCLUSION............................................................................................................ 40 7. SUPPORTING INFORMATION................................................................................. 41 8. REFERENCE .............................................................................................................. 53 9. APPENDIX ................................................................................................................. 57 3 1. CHAPTER 1: INTRODUCTION 1.1. Company Background For over 65 years, OPV has been a leader in the Pharmaceutical sector in Vietnam. OPV produces and markets OPV brands, develops products for third party distributors, and provides contract-manufacturing services for multinational companies. The OPV factory is WHO-GMP certified and operates to highest international quality standards. Additional, OPV factory has capability to produce many different types of products (drugs, liquid, solid, cream and ointment). The production equipment and facilities are invested to meet the requirements in high quality standards which expected from OPV multinational partners. As a result, OPV has become the partner of choice of world leading pharmaceutical companies including MSD, GSK, Johnson & Johnson and Otsuka. Furthermore, the business is managed by a talented professional team who bring deep industry expertise and high ethical standards to everything we do. Our staff are amongst the best in Vietnam and we value them as critical to OPV’s success so that OPV has the largest portfolio of registered pharmaceutical products in Vietnam, including OTC and prescription formulations across important therapeutic classes. OPV has dedicated itself to continuously improving its operations to meet current international quality standards and to provide reliable professional services to its customers, both local and multinational. Finally, OPV will commit to improve access to affordable medicines and help patients “Stay healthy by combining technologies of the world and the traditions of Vietnam”. 1.2. Organization Charts Figure 1: OPV Organization Chart Source: OPV Annual Report 2018 4 OPV company have the six primary divisions which presents for the important aspects in the pharmaceutical company that are - Regulatory Affairs Division is accountable for licensing and maintaining pharmaceutical products of OPV. They responsible for compliance with the policies of Drug Associate Vietnam - DAV in all OPV activities and OPV product portfolio. - Commercial Division is accountable for sales performance of OPV and engage core customers in company activity as well as maintain good relation with the customers to improve the company image in field and in front of the customers. - Supply Chain Division is accountable for all supply chain activities such as supply planning, demand planning, inventory management, import planning & forecasting, warehousing, expiry management, distribution, invoicing, etc. with the objective of creating net value, building a competitive infrastructure, leveraging logistics, synchronizing supply with demand resulting the optimum customer satisfaction by minimizing the stock levels/CID, reduced lead time and expiries, and measuring performance against pre-agreed KPIs. - Quality Division is accountable for all production activities are delivered to the OPV standard of quality and drives compliance in accordance with the applicable regulatory requirements, the OPV Quality Management System, Policies and written procedures and industry best practices. - Production Division focuses on ensuring that all OPV products are produced to the highest standards of quality, safety and efficacy and are available when needed. Production Division is accountable in maintaining and handling advanced pharmaceutical manufacturing equipment, and software that controls manufacturing equipment following GMP documentation and other formalized, rigorous procedures. - Support & Operation Division is the central core management function of OPV which involves managing people, equipment, technology, information, and all the other resources needed in the production of goods and services. OPV are committed to operating at the highest standards of corporate governance. Most of systems and processes are well-defined to ensure minimum wastage of time and money. We believe our governance structure underpins our ability to deliver the company strategy to create long-term value and benefit for our shareholders and stakeholders. ‘Efficiency’ was added as a part of ‘OPV Core Value’. 5 The Planning Department In this thesis scope, we will go deeply to the structure of the Planning Department which hold accountable in organizing production according to demand and quality standards as well as committing materials and equipment are available when the Production needed and ensuring everything runs smoothly. Figure 2: Planning Department Organization Chart. Source: OPV Organization Chart The total headcount of Planning department is four employees that include one manager and three staffs with the specification and responsibility below: - Planning Manager are in charge of developing the strategies to increase production efficiency and output in which is responsible for creating a better workflow that uses company resources more effectively and oversee all aspects all production process and recommend changes as needed. Additionally, production planning managers share information about the future production changes with other managers and work closely with other managers of other departments to ensure a cohesive shipping process. - Planning Staff is responsible for the accuracy and timeliness of the production process by maintaining an accurate inventory of items produced, as well as ensure all company and industry standards and regulations are followed. Duties include a specific focus on the materials and goods required in the production phase, ensuring the working requirements is properly maintained in order to have optimal performance. The planning department plays a central role in the manufacturing and the production for OPV organizations, this process can be responsible for OPV success or failure in these core areas of responsibility. Therefore, Planning department should be the one to commit that OPV goods are produced on time for distribution in a profitable manner. This lead to the goal of Planning department is to ensure the smooth and cost-efficient flow of OPV production operations. In summary, the role of Planning department is to ensure that materials and equipment are available when needed and that everything runs smoothly so that Planning department involves what to produce, when to produce it, how much to produce, and more. 6 Dealers channel and Tydol product The OPV business in Vietnam with approximately 300 employees, focusses on bringing the prescription medicines and healthcare products to Vietnamese patients and consumers through three distribution channel as below - Retail Channel: OPV sales teams direct sell and distribute the products under OPV brands to pharmcy stores (for OTC products) and to hospitals (for ETC products). - Dealers Channel: OPV factory produces the products under OPV brands according to sales orders of the dealers and the dealers will self to make sale policy based on their business and their resource. - Contract Manufacturing: The partners such as MSD, GSK, J&J will provide material for OPV factory produces the products under partner brands based on contract terms between OPV and partners. In boundary of this thesis, we only research the performance of the dealers channel in 2018 by analyzing sales results data combining with theory and interview results from head of related departments to define the issues and suggest the solutions for performance improvement. The Tydol product temporarily relieves the common cold symptoms and is treatment pain from mild to moderate including: toothache, pain of osteoarthritis, headache, sore throat, pain in cold and flu, dysmenorrhoea, migraine, pain after vaccination or tooth extraction. Until 2018 year, OPV only have approval visa of Drug Administration Of Vietnam (DAV) for Tydol product in the distribution through dealers channel. It means that Tydol product of OPV only distributes in dealers channel and on contrary, the agents only sale Tydol product to the customers as well. In the development strategy for 2020 – 2025 period, OPV will step up agents network extension and will plan to get the approval visa for more OPV product which be distributed through dealers channel because the stiff competition from rivals in other channels and the changes in management policy of Vietnam government in pharmaceutical market. That are development strategy of OPV during period 2020 – 20225, OPV allocate almost all resources to support the dealers and improve sales policy for dealers. 7 2. CHAPTER 2: PROBLEM IDENTIFICATION 2.1. Problem Context In 2018, OPV have a good growth year especially the outstanding performance of the contract manufacturing team but unfortunately total sales revenue only achieves 312.1 billion VND and approx. 96.5% of sales target 2018 (325.7 billion VND) therefore total sales revenue in 2018 does not meet sales target of BoD in 2018. All OPV Target Revenue 2018 Actual Revenue 2018 Unit: VND’ Billion Different Actual 18 vs Target 18 VND’ Billion % OPV Brands (OTC/ETC) 165.8 165.2 -0.6 -0.4% - OTC 86.4 85.4 -1.0 -1.2% - ETC 79.4 79.8 0.4 0.5% Dealers 131.9 118.4 -13.4 -10.2% Contract Manufacturing 28.0 28.4 0.4 1.6% Total 325.7 312.1 -13.7 -4.2% Table 1: Sales performance result 2018 Source: OPV Annual Report 2018 During 2018, OPV sales activities actually so exciting because OPV have new MSD customer in contract manufacturing channel to demonstrate the OPV manufacturing competency and quality of OPV products. From that OPV has focused to develop in dealers channel to push sales growth without stiff competition from rivals as in retail channel. However, revenue 2018 of dealers channel still don’t meet expectation of BoD (shortage 13.4 billion VND vs target). The sales result of first six months 2019 comparing between target and actual as below Unit: VND’ Billion All OPV Actual Revenue 2018 Target Revenue 2019 Actual Revenue 2019 Difference Actual 19 vs Target 19 VND % OPV Brands (OTC/ETC) 82.3 82.9 83.3 0.3 0.4% Dealers 42.9 51.2 49.2 -2.0 -3.9% Contract Manufacturing 9.8 10.9 11.1 0.2 1.5% Total 135.0 145.0 143.5 -1.5 -1.0% Table 2: Sales performance result in first six months 2019 Source: OPV Semi-Annual Report 2019 8 The poor performance in dealers channel continue to show in sales result of first six months 2019 by only dealers channel does not achieve target (shortage 2 billion VND vs target). Firstly, the target of BoD in 2018 will be analyzed to ensure OPV sales team could achieve based on current resources of dealers channel without new agents development. All SO Unit: VND’ Billion in Revenue Delivery Completion Problem In Progress in 2018 Remain from 2017 New in 2018 Cancel Hold Ongoing Move to 2019 Total Qty 27 51 4 4 13 4 103 Revenue 38.8 79.7 4.1 1.9 19.4 3.4 147.1 Table 3: Sales orders of Dealer’s channel in 2018 Source: OPV Sales Performance Report 2018 The actual revenue of dealers channel in 2018 is 118.4 billion VND including 78 sales orders delivery completion which 27 sales orders remained from 2017 and only 51 sales orders is new in 2018. However, total sales orders of dealers channel have in 2018 that are 103 corresponding with 147.1 billion VND revenue and it is higher 15.2 billion VND than the target of BoD is 131.9 billion VND. In case of exclusions all problem sales orders which have status in cancel or hold then the total remaining revenue is 141.2 billion VND and still higher 9.3 billion VND (approx. 7%) than sales target is 131.9 billion VND. This lead to dealers channel were be able not only achieve but also over target 2018 if all sales orders have been completed delivery. Secondly, the target of BoD in 2018 is realistic so that the performance in dealers channel should be consideration for defining the issues in target 2018 achievement of BoD. Figure 3: Comparison of monthly sales between actual and target in 2018 Source: OPV Sales Performance Report 2018 9 The actual sales in 2018 for all OPV channels is 312.1 billion VND and lower the revenue target 2018 of OPV is 325.7 billion VND in which the period time from Jan to May, the sales results seem to be good because the sales result per month slightly higher than respective sale target. After that, the sales situation starts to decline increasingly from Jun. Total sales target and actual revenue of each channel in 2018 as below Figure 4: Sales target achievement of all channels in 2018 Source: OPV Sales Performance Report 2018 Comparison the sales target achievement in 2018 between sales channels (Retail, Dealers and Contract Manufacturing), the Dealers channel has lowest achievement rate with completion 89.8% of the target (corresponding to 118.4 billion revenue vs 131.9 billion target) against with 99.6% by OPV Brands in Retail channel (corresponding to 165.2 billion revenue vs 165.8 billion target) and 101.6% from OPV Contract Manufacturing (corresponding to 28.4 billion revenue vs 28 billion target). Under performance in Dealers Channel The conclusion that the low performance in dealers channel has leaded to final sales result only 118.4 billion VND and lower 13.5 billion VND than the target revenue of BoD in 2018 is 131.9 billion VND. Finally, the symptom is “sales performance in dealers channel doesn’t meet sales target” or be briefly called “under performance in dealers channel”. 2.2. Identifying and Diagnosing Tentative Problems This thesis uses data from the interviews combining with the sales data of OPV to find and analysis the potential problems which make under performance in dealer’s channel by 2018. We take the interview with Mr. Nhân - Business Development Manager, Ms. Trinh - Planning Manager, Mr. Nik - Production Manager and Mr. Thắng - CEO of Đại Phát Corp – Dealer of OPV because we desire observation from both directions that are internal and external. Additional, we also analysis the sales data in 2018 to have more quantitative data for an overview about the problems. 10 The symptom is “under performance in dealers channel” and the secondary data is shown that this is issues of OPV and do not issues of the dealers so that we just interview one dealer which is the Dai Phat company for representing all the dealers of OPV. Furthermore, all the interview questions of dealers only use to verify and confirm the secondary data which already manifest the problems of OPV dealers channel fully. 2.2.1. Shortage of product The dealers channel of OPV get total 76 new sales orders in 2018 but OPV only completed 51 sales orders (approx. 67%) and still remained 17 sales orders for ongoing and postpone to 2019 (approx. 22%). Additional, the hold and cancel status in the sales orders problems relevant late in Production occupied 10% with 8 sales orders. Figure 5: Total new sales orders of Dealer’s channel in 2018 Source: OPV Sales Performance Report 2018 This result shows that dealers channel have 76 new sales orders corresponding to revenue is 108.4 million VND but the manufactured product quantity only enough delivered for 51 sales orders corresponding to revenue is 79.7 million VND that occupies approximately 67% total quantity and 74% total revenue of new sales orders in 2018. Accordingly, the quote in the interview of Business Development Manager pointed out that OPV don’t have safety stock policy clearly for Tydol product so we are always shortage of Tydol product for urgent orders or during peak sales season such as 3 months end of year. and CEO of Đại Phát Corp complained about the shortage of Tydol The shortage of Tydol product make us challenges in sign contract and keep commitment with our customers. As the result, the shortage of Tydol product is real problem of OPV dealer’s channel in 2018 which leads to the low performance of dealer’s channel especially 3 months end of year 2018. 11 2.2.2. The prolonged completion time of sales orders The fully process of sales orders from deposit stage to logistic stage as below Sales Order Production Planning Production OPV’s Warehouse Dealers Warehouse Dealer’s Distributions Consumers Deposit Manufacturing Inventory Management Based on Dealer’s Sale Strategy Deposit Date (2 weeks) Due Date of Sales Order (10 weeks) Logistic Completion (Based on contract terms) Figure 6: OPV Dealer’s channel sales process procedure Source: OPV Sales Policy and Regulation After OPV received order and signed contract, the agent have 2 weeks for 70% deposit amount and OPV have 8 weeks to prepare requirement resource for production. The tentative timeline based on available resource combining with delivery commitments of material suppliers. After that we take maximum 2 weeks for production which relied on the currently factory design capacity. In brief, we have 10 weeks total for finishing manufacturing stage. Therefore, the due date of sales order in OPV’s contract is maximum 12 weeks from deposit date then OPV will complete manufacturing and agent will receive fully quantity in sales order. Lead-time of new sales orders on-time delivery From Deposit to Manufacturing Completion From Deposit to Logistic Less 3M More 3M Less 3M More 3M Qty 10 27 5 32 %Qty 27% 73% 14% 86% Revenue (VND’ Billion) 12.7 38 8.6 42.1 %Revenue 25% 75% 17% 83% Table 4: Lead-time of on-time delivery new sales orders in 2018 Source: OPV Sales Performance Report 2018 In 2018, OPV have total 37 new sales order on-time delivery in which 27 orders (approx. 73%) have lead time from deposit to manufacturing completion larger 3 months (12 weeks) and 32 orders (approx. 86%) have the lead time from deposit to logistic completion larger 3 months. With the same comments about completion time of sales orders in the dealer’s channel by 2018, Mr. Thắng – CEO of Đại Phát Corp – Dealer of OPV expessed that The demand of antipyretic is very good in 2018 year therefore Dai Phat always fall into situation of no product for selling due to OPV frequent changed the completion time of orders for extending delivery time and we compelled to agree in this case. 12 Mr. Nhân – Business Development Manager also said that The dealers feedback good in communication of OPV sales and support for dealers but the time to complete the orders are so long and regularly overdue deadline delivery. Ms. Trinh – Planning Manager talked about this issue affecting her team performance that We have efforts during the year for making the best production plan and keeping safety stock policy in retail channel and contract manufacturing but we failed in completed orders of dealers ontime. The manufacturing stage determines sales order completion time which is 12 weeks maximum but almost the sales orders had ontime delivery to dealers that were taken more than 3 months from deposit date to receive the OPV products fully. Indeed, it is so a long time and influence to business planning for both OPV and the customers also. 2.2.3. The high rate of overdue sales orders Total sales orders delivery in 2018 is 78 in which 27 (approx. 34.6%) is remaining sales orders from 2017 and 51 (approx. 65.4%) is new sales orders of 2018. Actually, the large quantities of remaining orders from 2017 is serious issue, which directs to low performance of sales team. Figure 7: The total sales orders delivery in 2018 Source: OPV Sales Performance Report 2018 Furthermore, in 51 new sales order of 2018 have delivered then the number of sales orders completed on-time is 37 (approx. 73%) and 14 for overdue rate respectively (approx. 27%). Figure 8: The delivery status of new sales orders in 2018 Source: OPV Sales Performance Report 2018 13