Drug companies face tough road to win over suppliers

A pioneering attempt to create an Internet trading community among Australia's pharmaceutical suppliers is running into heavy weather.

Despite solid support from the Big Five drug wholesalers, only one-fifth of the expected number of suppliers have moved onto the Pharmaceutical Extranet Gateway (PEG).

The shortfall illustrates how e-commerce enthusiasts have underestimated the effort needed to sway companies into replacing their entrenched trading processes.

Sterling Commerce, which a year ago won a tender to implement PEG, expected to have signed up about 100 suppliers by now.

In fact, only 20 have moved onto PEG to date, said Sterling's regional director for Australia and New Zealand, Brian O'Doherty.

PEG is a Web-based electronic trading bureau which functions as a central industry switch for purchase orders and purchase order responses.

It is a key project in the Federal Government's Pharmaceutical Electronic Commerce and Communication (PECC) initiative and is backed by the major wholesalers such as Faulding, Sigma Pharmaceuticals, Hospital Corporation of Australia, Australian Pharmaceutical Industries and Soul Pattinsons.

"It is too early to say it won't take off," says O'Doherty. But he now believes it could take as long as three to four years to win over the 600 to 700 companies who make up the supplier community.

The issue revolves around the amount of upfront groundwork needed to convince potential users about the business benefits they will reap.

Building trading communities that exchange Web-enabled documents is proving time intensive not because of high costs but because of the amount of discipline, rigour and standardisation required, according to O'Doherty.

"The first question business managers ask us is what's wrong with their current paper-based processes. The next one is what is in [PEG] for their companies."

The answer is that reform of the supply chain carries cost savings for both wholesalers and suppliers.

However Sterling Commerce is discovering those savings come in different guises for different sectors of the supplier community.

The top 50 suppliers will gain greatest benefits from using electronic channels for a type of reverse purchase order called the turnover order.

The smaller 600-plus companies don't do turnover orders. Their benefits come from speeding up the payment cycle.

O'Doherty believes building PEG will be an incremental process where parties on both sides of the trading switch can count the benefits gained each step along the path.

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More about Australian Pharmaceutical IndustriesAustralian Pharmaceutical IndustriesGatewayPharmaceutical Electronic Commerce and CommunicationSigma PharmaceuticalsSterling Commerce

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