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 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 EXECUTIVE SUMMARY OPV is leading pharmaceutical compnay in Vietnam which have one factory with WHOGMP 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 end of year to ensure the model always improvement and efficiency 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 Table of Contents CHAPTER 1: INTRODUCTION 1.1 Company Background 1.2 Organization Charts CHAPTER 2: PROBLEM IDENTIFICATION 2.1 Problem Context 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 CHAPTER 3: CAUSE VALIDATION 25 3.1 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 Potential causes 25 Root cause validation: Inaccurate forecasting cause 29 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 CHAPTER 5: ACTION PLAN 38 CONCLUSION 40 SUPPORTING INFORMATION 41 REFERENCE .53 APPENDIX 57 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 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 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’ Interview transcript with CEO of Dai Phat Company (Dai Phat company is the agent in Dealers Channel of OPV) Q1: Can you introduce about yourself? Interviewee: “I’m Thắng – CEO in Dai Phat Company” Q2: Can you share with me about the business of Dai Phat company? Interviewee: “Dai Phat company is agent of OPV and distributes Tydol product from 2013” Q3: How you think about sale performance of Dai Phat in 2018? Interviewee: “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 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 This lead to the shortage of Tydol product make us challenges in sign contract and keep commitment with our customers” “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” Q4: Do you have any other difficulty than late in delivery when working with OPV? Interviewee: “In general, 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 We only feel unpleasant in the processing order progress because the information from OPV to the agents is too late and unclearly Additional, sometime the packaging specification have issues and we take a long time to return goods due to the procedure complexity of OPV” “Why OPV don’t add more product to dealer’s channel than only Tydol? We will commitment to sell more and get more profit We can build strategy with diversity products for our customers and extend our distribution network to north region of Vietnam” Interview transcript with Planning Manager (Main responsible in connection between sales team and factory team of OPV) Q1: Can you introduce about yourself? Interviewee: “I’m Trinh – Planning Manager in OPV” Q2: Can you share with me about functions and responsibilities of your department? Interviewee: “My department is responsible in organizing production according to demand and quality standards by determining manpower, equipment and raw materials which needed to cover production demand Especially, we plan and prioritize operations to ensure maximum performance and minimum delay My team will be the one to ensure our goods are produced on time for distribution in a profitable manner The goal of my team is to ensure the smooth and cost-efficient flow of OPV production operations” Q3: Can you talk specific daily work of your team? Interviewee: “My team coordinates production workflow for one or multiple products of OPV We make a plan to prepare requisite resource and schedule shift according to production needs My team monitors jobs of other teams which related production activities, to ensure they will finish on time and within budget Based on sales forecast of sale team, we schedule raw material deliveries and quantities, given assumptions of machine and labor units required to fulfill a sales forecast These are all planning works for OPV products which distributes in retail channel My objective is keeping safety stock levels for all OPV products according sales forecast from Sale team” “In contrast to this, the dealer’s channel only start to produce when OPV signed contract with agent and no products are kept in stock After my team received confirmation from Business Development team, we schedule a production for the required quantity of Tydol product which entails purchasing materials of Procurement team, giving desired quantity of worker to HR outsource service, preparing production plan When all materials arrived, we inform Production team for starting to make the Tydol product, update production progress to all relevant departments and inform production completion to Business Development team” “Finally, the contract manufacturing channel is simplest because OPV only implement secondary packaging from semi-finished goods of partners so that my team will request Procurement to order packaging material from local suppliers and assign workshops to particular production operations We always comply with the strict quality standards of partners and also complete ontime according the terms of contract” Q4: How you think about your department performance in 2018? Interviewee: “My department is not good performance in 2018 due to the issues in processing the orders of dealer’s channel which impacts directly to the work results of my team and also make us failure to achieve KPI target in 2018 This is actually sad of my team because 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” Q5: Can you tell more details about issues in processing the orders of dealer’s channel? Interviewee: “The main supplier of raw material in US have troubles which lead to late in delivery and OPV not register backup supplier with DAV for Tydol product so it was made OPV to raw material shortage for production in 2018 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 When the supply source of raw material is difficulty, it will affect to my team in preparing production planning and adjusting production schedule following updated progress in raw material delivery of supplier This is truly a hard work for my team in 2018” “Particularly, the situation is truly bad when the main raw material suppliers occur issue in their factory and they take months for fixing The consequence is prolonged sales orders and lack of Tydol product in market during all July 2018” “Production start the manufacturing work immediately when they received fully material for the orders of agent but in rare cases, the inconsistent demand occurs when the sales of Tydol product not depend on the demand of the local market Especially the end of year season, the customers have high demand in medicines treatment cold flu and the OPV agent were also without stock when suddenly they receive the new orders with large quantity from their new customer Consequently, the OPV agent will change the quantity of their order which already confirmed by Business Development team immediately to resolve Tydol product shortage in the market However, the raw material needs to be imported from overseas and it normally takes weeks to arrive in OPV but the production schedule for the ordered of agent is available This seems to be a unique problem in peak seasonal, probably due to smaller inventory volume of OPV agent than demand of market and OPV don’t have backup plans in this unexpected case with spike in market demand” “As the results of lack sharing information from Business Development team, my team always was dropped to passive situation when happen the changed agent order cases because they will keep the secret information until they get approval fully from BoD in spite of these are not the cancel orders cases At last, my team have short time for adjusting work in progress jobs of production and inform all relevant departments about the changes This was made the Production team always complain about the short notice from planning for changing production schedules to make the current production tasks disorder although it is not my team faults and the Business Development team can spread immediately when they received changed customers order confirmation” Q6: Did you know causes of issues in processing the orders of dealer’s channel? Interviewee: “Yes, of course In my opinion, OPV don’t have safety policy for raw material and Tydols product as well as lack of a working process definition fully and clearly from sale planning step to production completion We just follow OPV Sales Policy and Regulation but it only declares general steps corresponding to tentative timeline in each step thus we are hard to work together with related department if occurs problems in production or changes in sales orders Especially, Business Development team frequently forgets to send sales forecast even their data which have given, also don’t correct It’s make my team difficulty in devise a plan for raw material purchase and production schedule from incorrect forecast data In conclusion, if we can issue working policy in dealer’s channel which define fully process from sales forecast to production combination with safety stock quantity clearly, I believe that all current problems will solve because OPV is excellent in promotion scheme and price” Interview transcript with Production Manager (Main responsible in management and operation in factory zone of OPV) Q1: Can you introduce about yourself? Interviewee: “I’m Nik – Production Manager in OPV” Q2: Can you share with me about functions and responsibilities of your department? Interviewee: “The Production department is the functional area responsible for turning material inputs into finished outputs through a series of production processes I’m responsible for making sure that raw materials are provided and made into finished goods effectively as well as compliance with GMP requirements” Q3: Does it means that your department is responsible in all activities of production process? Interviewee: “Exactly 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 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 posible” Q4: How you think about your department performance in 2018? Interviewee: “My team has a great year when we get outstanding achievement in optimize internal resources for increasing overall equipment effectiveness (OEE) So 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” 50 “However 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 the available capacity of factory always remained 50% during 2018 as well as OPV regular execute maintenance the machines to prevent unplanned downtime of factory” “Planning team frequently informed that the raw material supply have issues leading to delivery late but I don’t know why they don’t have any solution for this problem although it occurs in a long time” “The situation got worse when Planning team add more or push urgent batches to production priority so it leads production schedule disorder and shortage of materials” Q5: Did you know causes of issues in production schedule as you mentioned? Interviewee: “I’m definitely that the forecast data of dealer’s channel have errors because the raw material shortage only occuring in Tydol product and others is still production good I have debate with Planning team so many time and they promise that the raw material of Tydol will better soon and all things will be solved but it look like unchange till now” There are the sampling observation from June to December 2017 using as history data set and this data is used to forecast for the 12 months (January - December) of 2018 Finally, the forecast accuracy assessment indicators will be made by comparing sales forecast with the fact and all results were calculated by using Microsoft Excel tools Sales history from June 2017 to December 2017 Months History data (boxes) Promotion per box (VND) Price per box (VND) Total Promotion (Gifts/Discount) (VND) Promotion & Price Percent (%) Jun-17 15,572 102 42,903 1,588,332 0.24% Jul-17 36,753 283 43,070 10,401,009 0.66% Aug-17 132,847 659 42,042 87,481,837 1.57% Sep-17 156,891 459 42,664 72,021,357 1.08% Oct-17 111,933 480 42,994 53,708,984 1.12% Nov-17 249,593 1,036 43,381 258,578,608 2.39% Dec-17 215,849 904 43,117 195,170,805 2.10% Total 919,439 678,950,932 Table comparing result summary between actual sales 2018 and two forecasting models (Simple Moving Average and Linear Regression) Months Actual Sales 2018 (boxes) Regression months (boxes) Error SMA months (boxes) Error SMA months (boxes) Error January 190,096 195,799 (5,703) 232,721 (42,625) 192,459 February 108,883 108,107 776 202,972 (94,089) 218,513 (109,629) March 106,648 103,085 3,563 149,490 (42,841) 171,609 (64,961) April 193,345 199,839 (6,494) 107,766 85,579 135,209 58,136 May 429,973 450,938 (20,965) 149,996 279,977 136,292 293,681 June 237,122 244,364 (7,242) 311,659 (74,537) 243,322 (6,200) July 436,444 457,379 (20,935) 333,547 102,897 286,813 149,631 August 139,714 140,731 (1,017) 336,783 (197,069) 367,846 (228,133) September 167,734 169,419 (1,685) 288,079 (120,345) 271,093 (103,359) October 267,406 276,269 (8,862) 153,724 113,682 247,964 19,442 November 148,503 150,498 (1,994) 217,570 (69,067) 191,618 (43,115) December 100,806 102,489 (1,683) 207,955 (107,149) 194,548 (93,742) Total 2,526,675 (2,363) 2,598,917 (72,242) 2,692,263 (165,588) 2,657,286 (130,612) REFERENCE Abolghasemi M, Eshragh A, Hurley J, Fahimnia B Demand Forecasting in the Presence of Systematic Events: Cases in Capturing Sales Promotions2019 Anusha SL, Swati A, Shaik A Demand Forecasting for the Indian Pharmaceutical Retail: A Case Study Journal of Supply Chain Management Systems 2014;3(2):1-8 Atilgan C Improving supply chain performance through auditing: a change management perspective Supply Chain Management: An International Journal 2011;16(1):11-9 Avlijas G, Simicevic A, Avlijas R, Prodanovic M Measuring the impact of stockkeeping unit attributes on retail stock-out performance Operations Management Research 2015;8(3- 4):131-41 Beamon BM Supply chain design and 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Table 8: Compare between policy and actual for cost of goods sold of Tydol product Table 9: Summarized error estimates for demand forecasting for SMA method Table 10: The error comparison of demand forecasting method in all experiments LIST OF FIGURES Figure 1: OPV Organization Chart Figure 2: Planning Department Organization Chart Figure 3: Comparison of monthly sales between actual and target in 2018 Figure 4: Sales target achievement of all channels in 2018 Figure 5: Total new sales orders of Dealer’s channel in 2018 Figure 6: OPV Dealer’s channel sales process procedure Figure 7: The total sales orders delivery in 2018 Figure 8: The delivery status of new sales orders in 2018 Figure 9: The performance framework in Pharmaceutical Company Figure 10: OPV Dealer’s channel sales process procedure Figure 11: Initial Causes and Effects Chart Figure 12: Delivery details of new sales orders in 2018 Figure 13: Updated Causes and Effects Chart Figure 14: Last Updated Causes and Effects Chart Figure 15: Final Causes and Effects Chart Figure 16: Analysis for raw material problems Figure 17: Cause-and-effect diagram of raw material shortage Figure 18: Linear regression result with months sales data history in 2017 Figure 19: Historical demand data and experimental demand forecasts ...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. .. that the raw material manufacturers usually maintain a certain amount of storage of the raw materials, but they may also suffer from the shortage if they have more demands from customers in the. .. safety capacity and safety lead times in producing sales orders Therefore, the lack of collaboration between internal teams leads to inaccurate forecasting in dealer’s channel According McCalman