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"SAP Americas is a subsidiary of SAP AG, the world's largest business software company and the third-largest software supplier overall.
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Source : SAP
Enterprise Contract Management for Life Sciences: Integrating Contract Creation, Administration, and Execution
Contract Management is also known as :
Contract Management,
Enterprise Contract Creation,
Automate Contract Review,
Contract MGMT Software,
Enterprise Contract Management,
Contract Management Software,
Overall Contract Management Lifecycle,
Procurement Contract Management,
Contract Management Plan,
Leading Analyst Report,
Contract Management Life Cycle,
Contract Compliance,
Contract Management Benefits Project,
Open Text Contract Management,
On-demand Contract Management System,
Contract Management RFP Template,
Contract Management Course,
Web-based Contract Management,
Contract Management Training,
Construction Contract Management,
Contract Management System,
Contract Management Process,
Contract Lifecycle Management Software,
Releases Contract Management,
Proposal Contract Management Software,
Contract Management Benefits,
Supply Excellence Contract Management,
On-demand Contract Management,
Spend Management Contract Management,
Best Contact Management,
Automating Contract Life-Cycle,
Easy Contract Management,
Contract Management Forms.
Leading life sciences companies are recognizing the need for synchronized, enterprisewide
pricing and contract management processes. An integrated solution can provide
the transparency needed to satisfy auditors, balance pricing with go-to-market strategies,
and support sales and finance teams ' including accurately predicting margins.
Content
- Executive Summary
- Pricing and Contract
Management Challenges
- Growing Complexity
- Risk Mitigation
- Compliance Concerns and Market
Pressures
- Responding Strategically to
Optimize Contracts and Pricing
- The Need for Transparency and
Predictable Results
- The Effects of Market Dynamics
and Disparate Processes
- Balancing Price with Go-to-Market
Strategies
- Support for Enterprise Pricing
and Contract Management
- Contract Management Solution
Requirements
- Industry-Specific Design
- A Managed Workflow
- Integration with Existing
Technology
- High Adaptability
- Enterprise-Wide Contract
Management Drives Profitable
Growth
- Closing the Loop on Processes
- SAP Technology for Pricing and
Contract Management
- SAP NetWeaver: The Foundation
- The Blueprint for Adaptive
Business
- Find Out More
Executive Summary
Integrating Contract Management
For Transparency And Growth
In the dynamic and price-driven life sciences
ecosystem, a significant proportion
of sales are distributed through
indirect channels based on contracts
negotiated between manufacturers and
contract organizations. Consequently,
increasing the productivity and transparency
of contract management is
paramount to achieving competitive
advantage and shareholder value.
However, life sciences contracts that
include incentives such as back-end
rebates and up-front discounts often
disregard preapproved company rule
sets ' compounding complexity and
risk. Disparate processes, as well as
contracts managed outside existing
systems too rigid to adapt, can result in
costly mistakes that reduce contract
margins. At the same time, market
forces such as patent expiries, branded
entrants, and the ever-changing regulatory
climate increasingly expose company
portfolios. The ensuing unpredictability
aggravates profit leakage and
exposure to risk while increasing channel
conflict.
To answer these challenges, leading life
sciences companies are recognizing
the need for synchronized, enterprisewide
pricing and contract management
processes. An integrated solution can
provide the transparency needed to
satisfy auditors, balance pricing with
go-to-market strategies, and support
sales and finance teams ' including
accurately predicting margins.
A unified IT platform supporting this
solution has the power to align related
processes to enhance profitable growth
and lower total cost of ownership. A
platform providing a consistent process
and data model enables common rule
sets and managed workflow across the
enterprise. It should leverage existing
technology and be highly adaptive to
help the company react to market
dynamics.
Life sciences companies that can
streamline their pricing and contract
management processes ' that can
move the right products at the right
prices, on the right terms and conditions
' are the ones that will thrive. And
they will continue to seek out enabling
technology.
Life sciences companies that can streamline their contract
management ' that can move the right products at the
right prices, on the right terms and conditions ' are the
ones that will thrive. And they will continue to seek out
enabling technology.
Pricing And Contract
Management Challenges
Managing Complexity And Risk
While Improving Compliance
With a significant proportion of all sales
and prices in the United States stipulated
by commercial or government contracts,
contract management has
emerged as a critical focus area for
most healthcare and life sciences organizations.
The challenges are substantial
and confront these organizations
everywhere ' from business processes
to legal and systems perspectives (see
Figure 1).
Growing Complexity
For a large life sciences company, contract
price reductions ' including backend
rebates, administrative fees, and
chargebacks ' may amount to more
than US$1 billion. Even a small variance
in chargebacks or rebates can
result in huge overpayments ' or huge
savings, if they are avoided. Just a 2%
overpayment variance for a company
with an annual contract exposure of
$100 million, for example, equals $2
million in potential savings. Adding to
chargeback and rebate liabilities is the
growing difficulty of managing government
regulations, which exposes companies
with inadequate processes and
systems to significant fines and penalties
that affect profit margins.
Pricing and Contract-Management Challenges for Life Sciences Companies
| Risk | Impact | Result |
| Government | Price
Exposure Compliance with Centers for Medicare and Medicaid Services,
Office of Inspector General, and Veterans Affairs requirements | Under- or overreporting government prices may result in the following: - Interest charges, penalties, or fines
- Overpayment of Medicaid rebates
- Corporate and personal legal risk
|
| Loss of Financial Controls | - Inability to execute creative or complex deal structures
- Inability to manage deal within the system
| Manual processes or outdated system may cause the following: - Irreconcilable deductions leading to write-offs
- Excessive or duplicate payments
|
| Sarbanes-Oxley Act | Improper treatment of deals could impact revenue recognition | - Improper disclosure in financial reporting
- Criminal and/or financial risk
|
| Channel Conflicts | Channel and trading partner disputes | Inefficient, non-value-added business processes |
| Profit Leakage | Large contract exposure may result in, for example: - 5%'20% or more of gross sales
- $50 million to $1 billion liability
| Small variances may cause profit leakage or overpayment, as follows: - 3%'8% of chargebacks and rebates paid
- Noncompliance and enforcement to contract terms further erode margins
|
Amid the increasing complexity, a considerable
channel conflict has emerged
in the life sciences marketplace. Lack
of data consistency and nonintegrated
enterprise contract-management processes
lead to dissemination of misinformation
and, in turn, to unhappy trading
partners and customers. Significant
opportunity loss occurs in the inability
to collaborate with trading partners to
wring efficiencies from the healthcare
system. Today's public policy climate
has heightened risks associated with
managing complex contracts, compliance,
and government reporting.
Risk Mitigation
In today's contract management environment,
the Sarbanes-Oxley Act and
other government pricing and reporting
requirements have a major impact on
financial controls and disclosures. With
a large portion of a life sciences company's
contracts typically managed outside
systems and their inherent controls,
the company is continuously
exposed to financial and legal risks. In
addition, contract-related liabilities only
continue to grow, stimulated by ongoing
price pressures from government,
managed care, and generic competition.
Making informed pricing and contract
decisions is therefore critical.
Compliance Concerns and Market
Pressures
Intensified compliance concerns also
increase the focus on pricing and contract
management, relative not only to
the Sarbanes-Oxley Act but also, in the
United States, to emerging Medicaid
and Medicare legislation and Office of
Inspector General (OIG) regulations.
Portfolios are also increasingly exposed
due to patent expiries, branded
entrants, and the shift toward biologics
and biotech-pharma alliances. In addition,
intermediary market influences are
increasing the strength of traditional
customers and expanding the involvement
of payers and other new
intermediaries.
Leading life sciences companies are recognizing the
need for synchronized, enterprise-wide pricing and
contract management processes. An integrated solution
can provide the transparency needed to satisfy
auditors, balance pricing with go-to-market strategies,
and support sales and finance teams ' including
accurately predicting margins.
Responding Strategically To Optimize Contracts And Pricing Leveraging Technology For Effective Contract Management
To address the challenges of contract
management, leading life sciences
companies are developing contract
strategies that harmonize pricing guidelines,
company policies, and contract
terms across the enterprise. In support
of such strategies, these companies
realize a need for:
- Flexible and configurable contractdevelopment
and contractmanagement
solutions supporting
diverse rule sets and deal offerings
that can vary by customer segment
- Effective measurement and management
of contract commitments and
obligations to drive visibility and
accountability, enhance profit margins,
and increase market share
- Embedded auditing tools with rigorous
validations designed to proactively
manage exceptions related to
pricing, contracting, sales and marketing,
and compliance
- Powerful data-analysis tools that
reach across different applications to
build strategic intelligence and optimized
price guidelines for greater
pull-through
- Robust data repositories that provide
the full contract history along with the
related procedural and process information
needed to survive government
audits
These needs are leading companies to
ask what values they can gain from
technology. On a company-by-company
basis, the answer to that question
brings up others. What do you want
from your contract management solution?
What imperatives would drive the
design? Most companies would require
predictability, especially of margins and
revenues. But they would also demand
complete manageability to meet market
dynamics, full visibility into processes
and information, the ability to stand
under the scrutiny of auditing, and a
self-determined solution to control their
business future. The quest is for simplicity
in processes so that these processes
serve business needs.
The Need for Transparency and
Predictable Results
However, in most of today's life sciences
companies, contract management is
not a predictable process and is anything
but simple and manageable. The
complexity of pricing and contract management
in life sciences has compounded,
creating too many variables.
An unpredictable solution can never be
manageable.
This unpredictability undermines the
very mechanism that drives revenue
and profit margins. The unintelligible
rule sets supporting pricing and contract
management processes prevent
the CFO and finance people from accurately
predicting margins and revenues.
A CFO who is not in control of the revenue
recognition rules in the sales contract
is putting the business at risk,
potentially making statements about
revenues gained that do not match
reality.
Contract management has become
obscure, a fundamentally incomprehensible
process essentially imposed by
market dynamics. Life sciences companies
are leaving money on the table
because they do not understand the
potential of contract pricing and are
unable to provide their sales teams with
effective tools. Or they are winning
sales through low pricing, undermining
profit margins.
Furthermore, with unmanageable, poorly
defined contract development and
management processes, channel partners
feel the resulting customer confusion
and frustration when faced with
inconsistent answers or misinformation.
That drives up complaints and
costs.
SAP technology, combined with a robust product suite, enables
SAP customers in life sciences to manage contract
documents in all their aspects ' from market analysis and
contract strategy, through offer and contract development,
to contract administration and fulfillment of chargebacks
and rebates.
The Effects of Market Dynamics
and Disparate Processes
Today's contract management environments
exist because of the highly intricate
relationships among pharmaceuticals
and medical-device suppliers, their
distributors, the contract agents, and
the final consuming organizations. This
ecosystem was not thoughtfully
designed but evolved one organization
or buying center at a time ' a true product
of market dynamics.
Today, the market creates intense competitive
pressure, with huge sales being
made by contracting organizations that
grow ever larger. Sales organizations
are continually forced to invent new
means to satisfy market needs; they
may use discounts, rebates, or other
mechanisms to work with their distribution
channels and end customers without
regard to the business processes
that will be affected. Amplifying that situation
are regulations intended to control
the dynamics of the ecosystem to
ensure an undistorted marketplace and
fair treatment of end customers. Each
regulation change demands new
checks and balances in the contract
management process.
Over the years, different business units
and organizational functions have
assumed responsibility for different
parts of contract management, leading
to dispersed process ownership '
which, in practice, is a lack of ownership.
Typically, proposal generators are
separated from price masters, who are
separated from sales teams, who are
separated from invoicing teams. Furthermore,
barriers are sometimes set
up between business units within the
same organization. A contract management
solution must not only traverse
these barriers but also integrate with
multiple transaction systems, some of
which are external and outside the
company's control.
Balancing Price with Go-to-Market
Strategies
Without control over pricing and contract
management, decision makers
must constantly counter pricing pressures
with new promotional ideas. But
every new promotion results in special
terms and conditions that need special
coding. And these schemes must be
weighed against the regulatory risks
and potential audits from different
departments that request proof of
compliance.
Gaining supremacy over the pricing and
contract management process requires
transparency that can exist only with
accurate, available data sources. Such
transparency does not result from
deploying disparate point solutions. It
can result only from integrated contract
development and management supporting
selling processes, auditing
demands, and predictable earnings per
share. Since financial markets are more
interested in margins than revenues,
CFOs are faced with the massive challenge
of margin predictability in the
midst of this tangled web of rebate and
discount rules. But a highly controlled
contract-management environment can
clarify the impact of revenue predictions
on margins and improve the quality
of earnings-related predictions.
Gaining supremacy over the pricing and contract management
process requires transparency that can exist only
with accurate, available data sources. Such transparency
does not result from deploying disparate point solutions. It
can result only from integrated contract development and
management supporting selling processes, auditing
demands, and predictable earnings per share.
Support For Enterprise Pricing
And Contract Management
An End-To-End Solution For The
Life Sciences Ecosystem
A complete contract management solution
must consider the complexity of
the life sciences ecosystem from end
to end (see Figure 2). The solution
must be able to manage the contract
needs of many different customers
such as pharmacy benefit managers,
group purchasing organizations, hospitals,
and government entities. It must
take into consideration the multitiered
sales channels and multifaceted relationships
among trading partners '
manufacturers and wholesalers as well
as contract organizations and their
members.
Contract Management Solution
Requirements
In addition to the core aspects of pricing
and contract management processes,
a solution must address a spectrum
of business benefits. It should offer
improved revenue management, predictability,
and channel performance. It
should reduce risk and lower operating
costs. And it should lead to enhanced
customer and trading-partner
relationships.
Achieving this vision moves contract
management toward an integrated and
synchronized process spanning the
enterprise ' with simplicity, manageability,
predictability, responsiveness, flexibility,
and control as key objectives. But
what does that involve? What are the
criteria for a complete contract management
solution?
Industry-Specific Design
The best option is an industry-specific
solution that embraces open standards,
is built upon a stable platform, and can
adapt to industry-driven requirements
or regulatory changes. The solution
should also balance industry-specific
needs with generic core sales, pricing,
and contracts functionalities inherent in
the system for the flexibility to adapt to
future technology changes and
upgrades. Finally, the solution should
avoid software modules that use different
technologies or that have been
patched together, thus exposing the
company to risk whenever there are
module changes or upgrades.
A Managed Workflow
A managed workflow provides control
across multiple process silos by using
a consistent process model that
applies not only to the vertical silos but
also to the horizontal activity of the
contract management process. By
combining managed workflows with
business-process modeling tools, organizations
are able to model, execute,
and monitor their processes, ensuring
that proper controls are in place and
everyone supporting the process
knows his or her role.
Integration with Existing Technology
Effective contract management is not a
question of new technology but a question
of how to deploy existing technology
to solve new problems. In general,
contract management solutions are
integrated with a company's back-end
processes and systems to support
contract management needs. Existing
technology must not restrict employees
from responding to diverse contract
requirements.
High Adaptability
While usability, security, and performance
are critical, the paramount concern
for a contract management solution
is high adaptability. Because
dynamic market and regulatory forces
drive contract management processes,
the solution must be easy to maintain,
with well-documented rule sets so that
rule changes and their implications are
clearly understood and used.
Enterprise-Wide Contract
Management Drives
Profitable Growth
What are the ramifications of ignoring
these contract management and pricing
requirements? Expenditures continue
without supporting data. Substantial
sums are wasted without a focus on
process and controls. The ability to
meet Sarbanes-Oxley and OIG requirements
is weak, and noncompliance
with government programs and regulations
can result in huge settlements,
criminal indictments, civil fines, and
five- to seven-year corporate integrity
agreements. Systems and processes
will not support strategic and tactical
business needs, raising questions
about the value of contract pricing
strategies. In addition, companies that
implement point solutions lack end-toend
visibility; responsibilities are fragmented
across the organization, potentially
leading to costly errors and
dissatisfied customers.
The dynamics of today's economy
require life sciences companies to manage
costs and government compliance
rigorously, as they also attempt to
increase market share with innovative
sales strategies. To drive profitable
growth in the world of sales-contract
development and pricing, chargebacks,
and rebate management, life sciences
companies are responding faster to
changing market demands, requiring
well-defined goals. But they cannot
meet this challenge without an integrated
contract development and management
solution operating on an open,
scalable technology platform.
Closing the Loop on Processes
Closing the gap between a company's
technical and process capabilities and
its business requirements is critical to
success in the market today. Companies
must align systems and processes
to support stability and profitable
growth, lowering the total cost of ownership
and increasing the flexibility to
address the future. They must also be
able to decrease the risk of exposure
from high error rates and a limited
capacity to meet market needs.
As a solution provider to the life sciences
industry for more than 35 years,
SAP has been evolving its vision
toward a complete, closed-loop process
for managing all phases of a life
sciences contract. Today, SAP leverages
feedback from customers in the ethical,
biological, generic, and medical
device fields, including 18 of the
world's top 20 life sciences companies.
Their portfolios of complex contracts,
member relationships, and rebates and
chargebacks create a dynamic and
challenging business environment.
In addition to the core aspects of pricing and contract
management processes, a solution should offer improved
revenue management, predictability, and channel performance.
It should reduce risk and lower operating costs.
And it should lead to enhanced customer and tradingpartner
relationships. Achieving this vision moves contract
management toward an integrated, synchronized process
spanning the enterprise ' with simplicity, manageability,
predictability, responsiveness, flexibility, and control as key
objectives.
SAP® Technology For Pricing And
Contract Management
SAP Netweaver® Technology Platform
Supports A Total Solution
To address the key processes that
comprise the contract management
scenario for life sciences, SAP offers
solutions powered by the SAP
NetWeaver® technology platform, as
shown in Figure 3. As part of the SAP
for Life Sciences solution portfolio,
SAP® software supporting the contract
management scenario aligns contract
creation and pricing processes with
membership and customer information.
This alignment makes it possible to initiate
contracts quickly and accurately,
post them to a central integrated repository,
and administer rebates and
chargebacks in a cost-effective way.
Supporting the contract life cycle from
negotiation through financial reconciliation,
SAP NetWeaver enables streamlined,
synchronized business processes
to facilitate integration with SAP and
non-SAP components, whether standard
interfaces or shared master data.
In conjunction with the SAP NetWeaver
Business Intelligence component, SAP
software offers robust data-analytics
functions and tools from Business
Objects, an SAP company, that allow
sales-trend analyses, consolidated
financial reporting, and complete margin
and profit analyses.
To create a scalable enterprise-level
solution, existing SAP software components
configured to support contract
management processes can be combined
with those used for everyday
business needs. The result is end-toend
contract support ' from strategy
definition, to negotiation, through deal
execution and monitoring ' the only
contract management solution built
upon a mature development and technology
platform.
SAP also recognizes the strategic value
and benefits of enterprise-level pricing
and contract management for life sciences
to both SAP and its customers.
Customers benefit from the following:
- The evolution of SAP's experience
delivering solutions to the life sciences
industry ' with more than 1,000
customers worldwide
- SAP's increasingly bulletproof technology,
with ongoing audits of SAP
development by life sciences companies,
assuring solution stability
- SAP's position as the world's largest
enterprise software company, with
continuing investment in R & D
- SAP's ability to provide natural integrations
to essential core business
solutions, including enterprise
resource planning for sales transactions,
business intelligence for superior
analytics and reporting, and complete
financials and distribution
solutions
SAP NetWeaver: The Foundation
In developing the most innovative
approach to contract management,
SAP takes the point of view that technology
must not stand in the way or
obstruct progress. The focus must be
on resolving the business issues, not
on keeping up with technology.
As a result, SAP believes the technological
foundation for contract management
should be based on open standards
' able to integrate people,
information, and processes within and
beyond the organizational boundaries
of a life sciences company. SAP
NetWeaver provides this foundation
with a comprehensive integration and
application platform that works with the
existing IT infrastructure to enable and
manage change.
With SAP NetWeaver, companies can
flexibly and rapidly design, build, implement,
and execute new business processes,
combining existing systems
while maintaining a sustainable cost
structure. The resulting pricing and
contract management solution
becomes a new source of competitive
advantage and a driver of innovation
throughout the organization. As shown
in Figure 4, while SAP NetWeaver provides
the technological foundation,
service-oriented architecture (SOA)
provides the blueprint for building the
adaptive business approach necessary
to revolutionize contract management
and contract execution.
The Blueprint for Adaptive
Business
Using the SOA blueprint, a company
can deploy new solutions on top of
existing SAP functionality and enterprise
solutions, increasing the value of
the current software while facilitating
the development of new processes.
With SOA and SAP NetWeaver, a company
can enable its information-delivery
strategy to leverage both existing SAP
and non-SAP software (see Figure 5).
This architecture allows companies to
focus on improving the effectiveness of
business processes, not on implementing
advanced technology.
With SOA and SAP NetWeaver, life
sciences companies profit from the
following:
- Innovative new business processes
' The platform powers innovative,
industry-specific software and
enables SAP partners and customers
to deploy solutions that take advantage
of existing functionality
- Superior business value ' SAP
NetWeaver provides a businessfocused
infrastructure that supports
continuous improvement of processes.
It minimizes the risk and cost of
introducing new processes, because
existing systems remain unchanged
when added to end-to-end enterprise
processes.
- Improved business performance '
SAP NetWeaver helps aggregate and
analyze information across the organization,
enabling management to
gain the insight needed to make the
right decisions.
- Unparalleled user experience '
Solutions built with SAP NetWeaver
provide an efficient user experience
through a role-based portal interface.
With SAP NetWeaver, companies
can extend business processes to all
employees, partners, and customers.
Find Out More
SAP technology, combined with a
robust product suite, enables SAP customers
in life sciences to manage contract
documents in all their aspects '
from market analysis and contract
strategy, through offer and contract
development, to contract administration
and fulfillment of chargebacks and
rebates.
To learn more about how SAP can
enhance pricing and contract management
for your life sciences company,
visit the SAP for Life Sciences Web
site at www.sap.com/industries/lifesciences.