Pharmaceutical distribution sits at the center of a complex integrated supply chain of suppliers and customers large and small. McKesson Corporation is best known for its distribution business, which directs drug, health and beauty products to the market; the Fortune 16 company also distributes surgical equipment and supplies, and provides financial, patient care and dispensing systems and software. On the wholesale front, McKesson Pharmaceutical routes one-third of the medicines consumed in the U.S. to more than 25,000 locations every day. It is a competitive, regulated, high transaction volume environment where high-value relationships exist on both ends of the spectrum.
"You might have Wal-Mart as a customer on one end and Bristol-Myers Squibb as a supplier on the other," says Brian Hickie, vice president of business intelligence at McKesson Pharmaceutical. "We have to provide the capabilities to order from the customer side, provide the ability to place the orders on the supplier side and we're one of the highest volume transaction environments in the SAP [technology] world. It's about constantly trying to figure out better ways to allow everyone to perform their transactions and get information."
Hickie made his mark at McKesson years ago for his part in a rapid implementation of SAP that is evolving in mission-critical ways to this day. Equally interesting is McKesson's process-based approach to business intelligence, driven to an unusual degree by the business side of the organization. Hickie joined McKesson on the business side, reporting to the SVP of business process re-engineering. When his boss was named CIO a little more than a year ago, Hickie and his business counterpart addressing enterprise resource planning (ERP) moved over to IT and became sort of an integrated, business front end of the technology organization. Hickie considers it a natural and sensible transformation. "My group comes mostly from business and understands processes, but the bulk of them also have a technical bent which helps us drive IT from the business perspective within."
The group settled on three immediate focal points for improvement. "The goal was to build the [SAP Business Warehouse (BW)] database with all of the SAP and the bulk of the legacy data, and focus on productivity, process improvements and closing off profit leaks," says Hickie. "We knew we could better address those areas with process-based analytics." Operational activities were the context of the analytic approach. "In productivity, we might be looking for gains in our distribution centers or at customer sites," says Hickie. "As for closing off profit leaks, we monitor contract compliance for critical terms as well as other issues we were seeing in a different light through the use of process-based analytics."
The Process Focus
Once the objectives were set, Hickie's group organized around key business process areas: the selling process, the logistics process, the purchasing process, the finance process and critical areas of profitability and contract compliance. A separate person within Hickie's team and counterparts on the ERP side of the house were assigned to load carefully-chosen data from each process area into the SAP BW environment from which the analytic focus would launch. An eye was kept on other parts of the organization that might need help in the future, and so the group tried to look forward and capture more than just the data needed for the initial project. Since the focus was on lower layers of BW structure and not every bit of information was captured - including those applications scheduled for sunset - Hickie prefers not to call the repository an enterprise data warehouse.
But the selected data was targeted toward immediate business issues. One early area of improvement was in the inventory adjustment process, involving managers who previously had no view of the impact of quantitative adjustments on financial performance. "Now we leverage BW to bring material movements together with financial reports so distribution center managers see the bottom-line impact of quantity adjustments based on cycle counts and variables such as product dating," says Hickie. Another analytic win came in "drop shipping," whereby McKesson channels goods to the customer with or without intermediary inventory processing. In this case, data from the procure-to-pay, sales order and cash receipt processes are combined in a single view. "In drop-shipping we can now examine the supplier purchase and payment all the way through to the customer order, delivery, and cash receipt."
Process, Structure and Information
McKesson's strategy is meant to give a balanced weight to people, processes and transactions. "The greatest thing about the way we organize information is that when somebody wants to look all the way downstream or somebody who's downstream wants to look all the way back upstream, we can do that. It's incremental, but people can now understand more clearly how they fit into the process and how their decisions affect the process overall." That's a big learning curve for most organizations; Hickie is focused on training and education that gives a better view of where individuals sit within a process and what the implications of their decisions are for the organization. While roles at McKesson are still function oriented, the trend is to involve people in more horizontal processes based on existing working relationships. "Many functions already know well how they operate together," Hickie says, "In all the businesses I've been involved with there has been a procurement function, an AP function, a cash disbursements function and so on, and people in those organizations already work together fairly well. But when you start to see the information more clearly across the entire process, it brings them even closer together."
That is a reason Hickie is personally leery of launching an enterprise process overhaul by mere mandate. Instead, he feels the information provided by analytic applications could better be delivered and absorbed first by those who both use it and are judged by it. Initially, end users at McKesson were given freedom to create their own queries, which resulted in a glut of reporting. Hickie's leads noted the issues of relevance and boiled reporting down to its essence, in one functional area condensing 700 reports into a dozen. "Information can be extremely valuable; it can also be applied out of context. There's something to be said about the fact that data warehousing, star schemas and analytics give folks a new way to see data that they've never, ever seen before throughout an entire process. You want to give people a chance to look at and assess their processes before you start running things up in areas of alerts and dashboards and scorecards. It's in all fairness to those folks to give them a chance to understand that information."
In the same way, he's skeptical of assigning static KPIs - as some technologists suggest - to every individual role in the organization as false assurance that key personnel are up to par. "As you examine KPIs from the ground up you begin to learn the true KPIs of how you're going to run your business. In an analytical light, you might keep or adjust your focus, but six to 10 KPIs in a process area is about the maximum. Otherwise you're losing focus on the business process itself."
Unlike some other process evangelists, Hickie places a good deal of hope that technology will help spread practical usage of BI technology to more users, and believes advances such as composite applications (SAP xApps) will weigh heavily in the future. "SAP is very much a process-based platform we look at strategically from the point of reducing total cost of ownership. Once we understand what people are looking at and how they are leveraging information, we can go in and tune a lot of things. It's not like delivering an ERP solution and maintaining a support group to keep an eye on transactions and answer questions." Rather, it's an iterative process that requires ongoing training and collaboration. "You've got to constantly support users in the BI environment and understand how they're accessing information and help them improve their experience."
The structure of McKesson's IT community has brought with it a bit of confusion many outsiders would consider admirable. "Now that we've moved into IT, the business sees us as IT, but IT still sees us as a business group." While McKesson's overall organization is still functionally oriented, providing information and looking at transactions horizontally will help merge roles over time. It can be difficult to express, as Hickie says, but it makes sense.
This story originally ran in BI Review October 2006.
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