Improving the accuracy of sales forecast a case study of OPV pharmaceutical company in vietnam

UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
------------------------------

DINH XUAN THONG

IMPROVING THE ACCURACY OF
SALES FORECAST: A CASE STUDY
OF OPV PHARMACEUTICAL
COMPANY IN VIETNAM

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – Year 2020

1


UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
------------------------------

DINH XUAN THONG

IMPROVING THE ACCURACY OF
SALES FORECAST: A CASE STUDY
OF OPV PHARMACEUTICAL
COMPANY IN VIETNAM

MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: PHAN THI MINH THU

Ho Chi Minh City – Year 2020
2


EXECUTIVE SUMMARY
OPV is leading pharmaceutical compnay in Vietnam which have one factory with WHO-GMP
certificate in Dong Nai province and large distribution network in nationwide. Consequently, OPV
always commits to provide products with the highest international standards to customers.

Firstly, we introduce the history and the organization chart of OPV pharmaceutical.
About overview, OPV has the largest portfolio of the registered pharmaceutical products
in Vietnam, including OTC and the prescription formulations across important
therapeutic classes. In this thesis, we only focus in analyzing responsible and activities
of Planning team for understanding problems of OPV pharmaceutical company.
In the next chapter, all operation activities in the dealer’s channel will be analyzed to find the
potential problems through all symptoms manifesting outside which we can observation and
perception. According real data of OPV combining with literature and theory, we demonstrated and
pointed out the central problem of dealer’s channel that are raw material shortage and this
problem also leads to low performance and don’t achievement target 2018 of dealer’s channel.

This thesis were used the theory informed to identify the potential causes, which made
the raw material shortage in dealer’s channel and inferred root cause is inaccurate
demand forecasting which based on impacted range and important level. Finally, we
have the cause-and-effect diagram of raw material shortage that pointed out relationship
of all factors from symptoms to root cause in issue of dealer’s channel.
We have also given some ideals for the solution design by comparing efficient and accuracy
between two demand forecasting model that are simple moving average method and linear
regression method. In this experiment, we used sales data 2017 for history data and applied

two demand forecasting model for predict sales forecast 2018. After that, we would compare
the results with the sales actual sales data in 2018 for find the better solution. At the last,
next one provides some ideals for the design of change process in demand forecast of dealer
channel, to be used for the realization of the solution.
To be continued with the suggested plan for deploying linear regression method in demand
forecasting that were expressed and explained clearly on this chapter. We detail all steps
from the data preparation to train all departments about the new demand forecast procedure
and execute the linear regression model. At the last, evaluation and adjustment will be do
end of year to ensure the model always improvement and efficiency.

1


In the conclusion, based on a quantitative and a qualitative analysis of sales result 2018
in dealer’s channel, we can be concluded that the main problem in dealer’s channel of
OPV is shortage of raw material and the root cause of main problem is inaccurate
forecasting. The research aimd to identify the effective forecasting methods for dealer’s
channel by using linear regression model and the results indicated that this model is
improvement in more accurate and more efficient than other model.
The next part were showed the details of two types of data used in this thesis that are
secondary data was collected from quantitative data such as financial reports, sales reports,
policies,... and primary data was collected from qualitative research and used the in-depth
interview as the main method. Additionally, we also attached results of experiment in making
demand forecasting by using linear regression model and simple moving average model.

Finally, this is the list of all the articles and all the journals that were used in this thesis.
Those information used for verifying and demonstrating the pointed out problems and
causes that are urgent and importance in the dealer’s channel of OPV as well as
suggested solution is suitable and reasonable for solving the main problem.

2


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.

Unit: VND’ Billion

Target
Revenue
2018

All OPV
OPV Brands (OTC/ETC)

Actual
Revenue
2018

Different Actual 18 vs Target 18
VND’ Billion

%

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%

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%

Dealers

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

Target

Actual

Revenue
2018

Revenue
2019

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%

9.8

10.9

11.1

0.2

1.5%

135.0

145.0

143.5

-1.5

-1.0%

Contract Manufacturing
Total

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.
Unit: VND’ Billion in Revenue

All SO
in 2018
Qty

Revenue

Delivery Completion
Problem
Remain
New in Cancel
Hold
from 2017
2018

In Progress
Ongoing Move to
2019

Total

27

51

4

4

13

4

103

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

Production

Order

Production

Planning

Deposit

Manufacturing

Deposit Date (2 weeks)

OPV’s

Dealers

Dealer’s

Warehouse

Warehouse

Distributions

Inventory Management

Due Date of Sales Order (10 weeks)

Consumers

Based on Dealer’s Sale Strategy

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
Qty

From Deposit to
Manufacturing Completion
Less 3M

More 3M

From Deposit to Logistic
Less 3M

More 3M

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


Mr. Thắng – CEO of Đại Phát Corp – OPV Dealer complainted about overdue sales orders that

We have won more tenders and more product consumption in 2018 but OPV
didn’t complete our orders on time so that some orders must move to next
year and the revenue can’t meet our expectation.
Mr. Nhân – Business Development Manager mentiond about satisfaction of agents in 2018 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 delivery.

This shows that overdue rate of sale orders in OPV is very high due to the rate over
27% (approx. 14 sales orders) and this problem serious affected to the satisfaction
of agents which lead dealer’s channel to inefficient operations in 2018.

2.2.4. High competitive price
Tydol 500 product of OPV uses for treatment in cold and flu which only sale through dealers
channel and cold is one of the most common diseases that most of Vietnamese people have
caught at least one in a year therefore it’s hot and popular product in the Vietnam market.

In fact, Mr. Thắng – CEO of Đại Phát Corp – Dealer of OPV also confirmed the
high demand of product for cold and flu treatment in the market by 2018 that
The demand of antipyretic is very good in 2018 year.
Comparison with the products of other manufacturers in same sale segment of Tydol.

Unit: VND in Price per box Price per caplet

Brand

Manufactured
by

Qty per
box

Price per
box

Price per
caplet

Biragan 500mg

Bidiphar

100

36,000

360

Tydol 500

OPV

100

45,000

450

Glotadol 500mg

Glomed/Abbott

100

48,000

480

Mexcold 500mg

Imexpharm

100

48,000

480

Dopagan 500mg

Domesco

100

60,000

600

Paracetamol 500mg

Mediplantex

50

32,500

650

Paracetamol Choay 500mg Sanofi Aventis

100

78,000

780

Panadol (500mg)

120

114,000

950

100

118,000

1,180

GSK

Decolgen Forte (500mg) United Pharma

Table 5: Price comparision between Tydol and others product
Source: Retail price list of Pharmacity Store Chain in 2018

14


The Tydol 500 product has higher price than Biragan 500mg of Bidiphar when compare with
nine product brands of other manufacturers in same sale segment and direct rivals of Tydol.

Consequently, the price of OPV product is slightly higher price as same as
other product brands made in Vietnam which being sold in market.
2.3. Verifying Tentative Problems
Rajesh, Kumar, Kumar

(30)

suggested the model for influence of the strategic issues in the

pharmaceutical supply chain to the company performances which point out two main groups
issues consisting resource and process. In the facts, the resource group and process group
are importance factor to affect directly the performance of sales channel and sales teams.

Figure 9: The performance framework in Pharmaceutical Company
Source: Strategic issues in pharmaceutical supply chains: a review

(30)

This model covers all activities of the pharmaceutical company which are a combination of
processes, organizations and operations involved in the development, design and
manufacture of pharmaceutical products but the phenomenon of OPV is under performance
in dealer’s channel so that we will eliminate the factors unrelated dealer’s channel below
-

Resource group is assets which used to define the requirements for research and
(30)

development of the new products
but it doesn’t happen in dealer’s
channel of OPV due to only Tydol product for the distribution.
-

Outsourcing logistics activities and reverse logistics processes in the Process group
mentions about logistics operation optimization by outsourcing or using logistics’s
(30)

providers or cooperating with the wholesalers
that are not happen
in dealer’s channel due to logistic terms is out of agent contracts.

15


-

Quality management in Process group prescribed the pharmaceutical must comply with

the GMP regulations

(30)

as well as the Vietnam government regulations that is the

basic matter of all the pharmaceutical companies in Vietnam which must compliance.
For this reason, the quality management will be never the problem in OPV.
-

Green supply chain management (SCM) in the Process group encourages the proactive
practices such as the recycling, reclamation, reverses logistics and remanufacturing for

lower the environmental pollution and raise ecological efficiency

(38)

. Therefore it

isn’t relative with the failure in achieving the 2018 target of OPV dealer’s channel.
Finally, the remain items in Process group are inventory management and lean manufacturing
process that will cover problems in dealer’s channel of OPV in which the lean manufacturing
process is improvement of manufacturing operations through a Lean Management

(8)

approach . Therefore, we should replacement by inventory management and manufacturing
process for general view in the problems of OPV dealer’s channel by 2018.

The sales process procedure in OPV dealer’s channel describe as below
Sales
Order

Deposit

Production

Production

Planning

Manufacturing

Deposit Date (2 weeks)

OPV’s

Dealers

Dealer’s

Warehouse

Warehouse

Distributions

Inventory Management

Due Date of Sales Order (10 weeks)

Consumers

Based on Dealer’s Sale Strategy

Logistic Completion (Based on contract terms)

Figure 10: OPV Dealer’s channel sales process procedure
Source: OPV Sales Policy and Regulation
The contract execution comprises 2 main stages that are the deposit money step during 2 weeks
after signed contract then the manufacturing step takes 10 weeks for completion and logistics
stage is in appendix terms of contract. For this reason, the tentative delivery timeline in OPV
contract manufacturing is only 12 weeks and the agents must self to arrange shipping methods for
goods receipt at OPV factory because the logistics do not cover in the contract terms.

Business Development Manager stated tentative time for processing sales orders as below
We specified the deposit date is when OPV received 70% of sales order amount and
delivery date is when OPV completed the production. It takes around 12 weeks total for
processing of a sales order and the logistic conditions isn’t belong to contract term.

In 2018, OPV have 27 orders in total 37 new sales orders on-time delivery
(accounted 73%), which have more 12 weeks for sales orders completion and
the rate is 93% with 13 orders in total 14 new sales orders overdue delivery.
16

Unit: VND’ Billion in Revenue

Lead-time
On-time Delivery
Overdue Delivery
of new SOs Within 12 weeks More 12 weeks Within 12 weeks More 12 weeks
Qty
%Qty
Revenue

10

27

1

13

27%

73%

7%

93%

12.7 billions

38 billions

1.8 billions

27.2 billions

Table 6: Lead-time new sales orders in 2018
Source: OPV Sales Performance Report 2018
This show that the completion time in the both on-time and overdue delivery of new sales
orders is so long and OPV actually needs to evaluate the activities in the manufacturing
process for reducing the completion time and improving operations efficiency.
The backorders is the total number of the orders which the customers have sent that have not yet
been shipped out and was also over the due date of the orders

(35)

. The backorder is one example

of the system wherein firm produces the product after receiving an order from the customer and
they represent a stark contrast to the traditional Make-to-stock (MTS) system where firm
anticipates demand and satisfies it from finished inventory

(32)

. A backorder occurs when the

product is not available to meet the customer’s demand today and the producing firm places an
(6)

order on the future capacity to produce today’s demand . The backorders impact on sales directly

because the firms need more day to complete the orders and the customers do not sastisfaction to
(6)

postpone purchase to a later date . Consequently, the backorders is the new problem because
overdue of sales orders are so high and delivery of sales orders are so long.

Following Mr. Thắng – CEO of Dai Phat Corp said for due date of sales orders in 2018 that is
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.

Similarly, Mr. Thắng - CEO of Đại Phát Corp emphasized that
In some peak time of sales, we even continue to book more although still be awaiting
the delivery for confirmed orders. Particularly, some cases must cancel and order
again with larger quantity due to unallow change according OPV regulations.
Sales Policy and Regulation determined that contract will complete during 12 weeks because we
just used 40% designed capacity of factory so production will be finished within 2 weeks in all
situations. Additional, material suppliers already commited delivery time around 8 weeks.

17


Finally, the total time for a sales order completion is 12 weeks which comprise manufacturing
step is 10 weeks and deposit step is 2 weeks. However, the data of lead-time new sales
orders in 2018 and interview result of CEO Dai Phat Corp have demonstrated that the
completion time of the almost sales orders are over 12 weeks and take longer as OPV
commitment in the contract so it makes agents shortage of goods for selling in 2018 and
leads to the backorders which is the new factor besides the possible problems are shortage
of product, high rate of overdue sales orders and prolonged completion time of sales orders.

The high competitive price
The backorders
Shortage of product

Under performance in
dealers channel

High rate of overdue sales orders
Prolonged completion time of sales orders
Figure 11: Initial Causes and Effects Chart
The secondary data pointed out that the “under performance in dealers channel” symptom is only
related to OPV and do not issues of dealers because the completed orders by OPV is less than the
total orders which have been placed by dealers as well as market demand and business situation
of dealers are very good which already showed by shortage of Tydol product in 2018. As we have
mentioned in beginning of this chapter, the secondary data have demonstrated the problems of
dealers channel fully so that we only interviewed Dai Phat Corp for representing viewpoint of
dealers about the problems of OPV and also for confirming secondary data again.
In the previous section, we only have remaining two items for analyzing performance problems of
dealer’s channel that are inventory management process and lean manufacturing process.
However, inventory management and distribution requirements planning by determining the
demands after that aggregated and imposed on appropriate warehouse/distribution centers

(33)

and

only applied in retail channel of OPV because in dealer’s channel, all distribution activities in
Vietnam market are executed by the agents therefore OPV do not have the policy for control
warehouse of dealers and also the dealer’s contracts do not include the distribution terms. In the
addition, all potential problems related only related to manufacturing process due to the due date

of sales orders be determined before the inventory management process.
Consequently, we eliminate inventory management process and only focus on manufacturing
process for finding the central problem, which leads to under performance in dealer’s channel.

18


According to OPV Sales Policy and Regulation, the manufacturing process
include two main tasks below:
-

Production Planning: Planning team will prepare requirements for production
and control execution of relevant teams based on respective responsible in
each task of production such as Procurement buys material, HR arranges
seasonal workers, Production builds production schedule and Quality
prepares inspection plan. Total tentative time of those tasks is 8 weeks.

-

Production: After all resource for production activities have received
completion, Planning team will inform to Production team for manufacturing.
In the next, the factory will start to produce OPV products according to
production schedule which has approved by BoD and complying to quality
standard of DAV. Total tentative time of this task is 2 weeks.

Tentative completion time of manufacturing stage is 10 weeks.
As Mr. Nik – Production Manager of OPV expresses that
My team will start the job when Business development team informs that the customer has
deposited money following OPV requirements. In preliminary step, Planning department
will request Procurement for purchasing the raw materials and feedback to my team about

fully receiving raw materials expectation date. Based on this, I will prepare the production
plan and propose HR to recruit seasonal workers. The Production step will start when all
raw materials received and we took 2 weeks maximum for completion. After finished goods
release, I inform to Business Development team for contacting customers to get the Tydol
product as soon as possible.

Figure 12: Delivery details of new sales orders in 2018
Source: OPV Sales Performance Report 2018

19


Total on-time delivery of new sales orders in 2018 is 37 (approx. 73%) and overdue is 14
(approx. 27%) in which overdue new sales orders related production planning task accounted
13 (approx. 93% of total overdue) and only have 1 orders (approx. 7% of total overdue) related
production task as well as no sales orders related the both tasks.
Completion time details of all new orders 2018 for each task of manufacturing stage as below

Details of lead
time in
manufacturing
stage
Qty
%

Production Planning Task

Production Task

Within 8 weeks Over 8 weeks Within 2 weeks Over 2 weeks

8

43

50

1

16%

84%

98%

2%

Table 7: Lead-time of all new sales orders in manufacturing stage
Source: OPV Sales Performance Report 2018
Almost all sales orders take more time in production planning task than the completion
timeline standard of the OPV contract with 43 orders (approx. 84%) occurred in the
production planning task and 1 order (approx. 2%) occurred in production task.

As Mr. Nik – Production Manager of OPV complained that
Production schedule in 2018 frequent changes because of slow at preparing resources which
required for production especially raw materials meantime other resources were always ready.

As the result, the unusual high late rate in production planning affects to production schedule and
lead time of sales orders because the production only start when all resource requirements have
fully. Consequently, the dealers were forced to wait a long time than due date of contract and so
they have to agree for signing new maturity term or terminate sales orders.

All demonstrated that the tardy work progress in the production planning have
impacted indirectly to the sales performance of dealer’s channel in 2018 through
group problems which include the backorders, shortage of product, high rate of
overdue sales orders and prolonged completion time of sales orders.

Figure 13: Updated Causes and Effects Chart

20


2.4. Identify the central problem
2.4.1. High competitive price problem
Comparison between production cost norm and actual production cost for Tydol 500 below

Unit: VND

Direct Cost
Tydol 500

Raw
Packaging
Material
Material

Indirect
Labor

Cost

Cost
per
Box

Cost
per
Caplet

Production Cost Norm

11,703

5,359

3,283

20,506 40,852

408

The Average Actual
Production Cost

12,439

4,765

3,165

20,418 40,787

407

Table 8: Compare between policy and actual for cost of goods sold of Tydol product

Source: OPV Manufacturing Policy and Regulation
Mr. Nik – Production Manager said that
The price of raw material is increased higher than 2017 but OPV still keep the product
retail price in 2018 by many efforts of production team for decreasing operation costs.

However, the retail price per caplet of Biragan 500mg (approx. 360 VND) is
still lower than Tydol 500mg (approx. 450 VND) even lower 12% than cost of
goods sold of Tydol 500mg (approx. 407 VND per caplet).
That demonstrated the high competitive price is unsolved problem in this time because
OPV also Production team has made all things for production cost lowest as they can
but it is still higher than retail price of Biragan 500mg. Moreover, the production cost
norm more related to technology and facility of factory which is over scale of this thesis.

Additionally, Business Development Manager showed the competitive
advantage of Tydol product that
The competitive price of Tydol 500mg do not impact to sale performance of dealers
channel because the agents have separate market share as well as different target
customers so that they still bulk ordered Tydol 500mg in 2018 with the average price
were 42,995 VND per box (approx. 430 VND per caplet) because they can sell Tydol
500mg with higher price than retail price also including price of Biragan 500mg.

Hence, we eliminated the high price competitive factor in the potential problems due
to less affect to the dealer’s channel performance and it is unsolved problems in
this time due to more relate in technology and facilities.

21


2.4.2. The tardy work progress in production planning task
Production planning describes the design and management of the entire manufacturing
process (including raw material scheduling and acquisition, manufacturing process design
and scheduling, and material handling design and control)

(5)

. In generally, production

planning is generally used to describe collective processes of capacity planning, material
requirements planning, shop floor control, works order release and control

(28)

plans are optimized within the boundaries of material and capacity constraints

and production
(26)

.

Especially, the production plan is considered as an optimized production plan when it has a
wide range of constraints, including raw materials availability, machines and operators’
capability, service level, secure stock level

(10)

. On the contrary, the production planning may

count as inefficiency and fault when it creates many problems to the later production in
which the main problems are often excess finished goods inventories
service

(19)

, the insufficient capacity utilization

(19)

(19)

, the poor customer

and the raw material shortage

(10)

.

Figure 14: Last Updated Causes and Effects Chart
CEO of Dai Phat company mentioned about lack of Tydol product for selling in 2018
The demand of antipyretic is very good in 2018 year therefore Dai Phat always
fall into situation of no product for selling.
Planning Manager also expressed about problem of planning for production of Tydol that

The raw material shortage is really serious case of OPV in 2018 for making
Tydol product because we have to wait a long time to receive raw material

fully for production and also deal with agents to postpone completion date.

Beside that Production Manager said about surplus capacity of factory that
The production schedule in 2018 frequent changes because of slow at preparing resources
which required for production especially raw materials meantime other resources were always
ready in which OPV use outsourcing HR services to ensure enough seasonal workers for
production fastest and available capacity of factory always remained 50% during 2018 as well as
OPV regular execute maintenance the machines to prevent unplanned downtime of factory.

22


Business Development Manager stated that
The dealers feedback good in communication of OPV sales and support for dealers
This showed clearly in feedback of CEO of Dai Phat company about customer service that

The sales service and after sales service of OPV are very good. OPV sales
team always offer good sales packages for my company and always ready to
support answering my customer’s questions about Tydol product.
For this reason, poor customer service and insufficient capacity utilization do not main factors to
affect in performance of OPV dealer’s channel because all things is good and available to serve
the dealers demand. Additional, the excess finished goods inventories problem will be eliminated
due to the real case of OPV is lack of Tydol product for selling. Finally, raw material shortage is
main problem leading to the tardy work progress in production planning task.

2.4.3. The central problem is raw material shortage
The production planning task in order to meet required quantity and delivery date is the
(7)

challenging . In the specially, the raw materials is highest importance for pharmaceutical

manufacturing and the relatively large stocks of active pharmaceutical ingredient must be held to
ensure good service and ensure smooth operation at the interface of these processes

(33)

.

According to the explanation of Production Manager,
The production step will start when all raw materials received and we took 2
weeks maximum for completion.
The lead time in delivering orders on the part of the suppliers also causes delays and all delays, no
matter their reasons, affect planning, production and delivering of finished products

(11)

. In any

manufacturing process, at the beginning of every production run, it is necessary to prepare all the
raw materials required to complete lot size of the finished products

(38)

so that if the raw materials

have problems such as late in delivery, failure quality,... then production planning task will
complete late and production cannot start that are reasons for high rate of overdue sales orders,
prolonged completion time of sales orders, shortage of products and backorders.

According the interview result of Business Development Manager suggested that
I think that OPV need to build inventory policy of Tydol product which include minimum

amount of raw material available to provide the previous orders while the departments are
processing and manufacturing for next orders. This will diminish the waiting time in
material preparation for production as well as shorten orders completion.

23