The Supply Chain Management at Actavis - Essay Example

Improving the supply chain management at Actavis through implementation of an integrated ERP system Copyright Academia-Research, Inc. 17 April 2006 Executive Summary This report presents PeopleSoft (PS) Strategic Enterprise Resource Planning (ERP) Implementation Plan for Actavis Pharmaceutical Group. It includes brief information on Actavis and its global operations, literature on ERP benefits and failures, current state of Actavis and possible practical solutions to the problems worrying the group. It also includes comprehensive findings, recommendations, and analysis before and after implementation of ERP integrated with Supply Chain Management (SCM) for Actavis to implement an ERP system. In this document, we provide Actavis with the realistic information and tools necessary to make a logical and prudent decision about implementing an ERP system. Furthermore, we provide guidance in the selection, implementation, and maintenance of an ERP solution, including the inventory control and business process redesign efforts necessary to ensure acceptance of the new system and to maximize its use. We intend this to be a visionary document, detailing the true cost of ownership and providing a base of knowledge for Actavis group to successfully complete its ERP implementation. The PS-ERP was developed by first understanding Actavis's existing culture, infrastructure, relevant skill sets, and organizational commitment. This was done by interviewing Actavis Management and Employees in the Payroll, Human Resources (HR), and Finance areas that will be impacted. We then analyzed the environment, leveraging our broad ERP implementation experience in the public sector involving both non-generic industry and other Pharmaceutical companies. We validated our understanding and findings with external research, including discussions with respected IT research sources and similar governmental organizations that recently implemented ERP systems. We then developed numerous recommendations to better prepare Actavis for its planned implementation, as well as tools to continue to evaluate the proper preparation and implementation steps. The possible benefits of the ERP implementation is examined in terms of improvement in cost justifications with low inventory pullout. CONTENTS CHAPTER PAGE EXECUTIVE SUMMARY CONTENTS 1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 SUPPLY CHAIN MANAGEMENT PROBLEM-THE ACTAVIS APPROACH .. 1 2.1 Generics Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Inventory Realization and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 POSSIBLE PRACTICAL SOLUTIONS TO SCM ISSUES . . . . . . . . . . . . . . . . . . . 3 4 LITERATURE REVIEW ON UNDERSTANDING ERP TECHNIQUE . . . . . . . . 5 4.1 Benefits of ERP Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.2 Failures of Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.3 Case-Study: Fox-Meyer Pharmaceuticals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5 ACTAVIS AFTER PROPOSED INTEGRATED ERP IMPLEMENTATION . . . . 7 6 JUSTIFICATION OF ERP IMPLEMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6.1 Inventory reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6.2 Improved customer service and sales . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6.3 ERP System Benefits on the Balanced Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6.4 ERP Benefits on the Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6.5 ERP Impact on Key Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 7 ERP IMPLEMENTATION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 8 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1. Introduction Actavis is a global leading player in the development, production and retail of high-quality general pharmaceuticals.The group is one of the five leading generic pharmaceutical companies in the world after the recent acquisition of the generic business of Alpharma (an American corporation). It has branches in over 30 countries across five continents and growing. Founded in 1956, its current headquarters is in Iceland. The wide manufacturing plants produce a variety of legal and safe drugs in different consumable or applicable formats such as capsules, tablets, injectables, sprays, suppositories, powders, steriles, semi solids and oral liquids. The group works on the production and marketing of high-quality generic pharmaceutical products for human use, conforming to good manufacturing practice (GMP) and covering all significant therapeutic classes (with expert and patent approvals)-Alimentary Tract and Metabolism, Blood and Blood Forming Organs, Cardiovascular System, Dermatologicals, Genito-Urinary System and Sex Hormones, Systemic Hormones, Systemic Anti-Infectives, Musculo-Skeletal System, Nervous System, Respiratory System, etc. Actavis has got one of the widest ranges in the generics sector with over 600 products available in the pharmaceutical market. It is also presently in the process of developing another 200 different products. Their simple policy is to provide its customers with a wide range of affordable, high quality, safe and reliable generic medicines. 2. Supply Chain Management Problem - the Actavis Approach The Actavis group presently manages its flow of materials, information and products from suppliers to lab producers (and quality control) to final distribution such as wholesalers, retailers and healthcare via warehouses, ultimately to the consumers. This approach is known as supply chain management (SCM). Fig. 1 shows such an SCM model. It sometimes includes after-sales service and returns of bad and expired genetics for recycling or disposal. SCM typically involves coordination of information and materials among multiple firms globally. Actavis drug products are of high quality but the company presently experiences the following SCM problems such as: (i) increasing trend towards production problems, (ii) recalls, disruption of operations, drug shortages, (iii) overstocking of products and not meeting distribution datelines, (iv) negative impact on new drug applications, and (v) low efficiency manufacturing and quality assurance which leads to slow product innovation and modernization. Due to present and future business trends impacting the supply chain, pressures are being more intense within SCM that Actavis struggles to meet shareholder expectations. Unless Actavis begin to take action to create a more productive-like and business-effective cost SCM system, their business huge enterprise will be at stake. Two inter-related supply chain areas and their problems affecting Actavis are being addressed as follows: 2.1 Generics Manufacturing Actavis traditionally has been constrained by rigid global generics manufacturing with specialized production equipment, long lead times for materials and extensive regulatory requirements. This has led to inflexibility and an inability to react quickly to changes and facilities that are either capacity constrained or underutilized. Competition and the race towards gene profiling for therapeutic drugs may well push big pharmaceutical companies such as Actavis into niche drugs and smaller-batch production. 2.2 Inventory Realization and Delivery High levels of inventory, low turns and late deliveries have plagued Actavis over the years. This performance has been tolerated in the past on drugs with locked-in patents and where only one source is available. With increasing competition, shorter exclusivity periods and smaller batch production, Actavis need to reposition fulfilment capability to generate more accurate performance and respond to changing customer demand [19]. Two customer trends that will dramatically affect the future of pharmaceutical fulfilment are smaller batch production driven by genomics and customer demand and the addition of retailer, provider and consumer direct to manufacturers' customer base. Both point toward an inevitable shift from distributing larger pallet quantities to wholesalers to distributing smaller package-to-pallet quantities across a more diverse customer base. Technology as well as demand has presented opportunities for drug makers to sell direct to these new segments - segments in search of lower cost, better service and better information. The benefits to drug makers are the access to real-time demand and access to actual consumers. The order and service needs of hospital systems, pharmacists and consumers are dramatically different from those of large-scale wholesalers. The one thing they have in common is the need for accurate and timely delivery. Building fulfilment capability to meet tomorrow's demand will require infrastructure investments in technology, packaging rationalization and design, network optimization assessment and customer service. Logistics capability will need to include merge-in-transit and management of non-company products. Actavis will need to determine whether the of real-time demand visibility is worth the investment. Even manufacturers that choose to stay the existing course may find they have to deliver on some of these demands as competition heightens and wholesalers begin demanding services [13]. 3. Possible Practical Solutions to SCM issues Actavis has to turn the production into a supply chain capability worthy of future continuous success. This can be achieved by following three practices that would define tomorrow's winners: (i) rationalized global production networks, (ii) changeover competence via smaller batch production and (iii) compliance supply management. As the group gains global reach, production capability and the subsequent network have become unwieldy. They have to decide which sites to continue operating and which to divest, where to manufacture which products and how best to support long-term product strategy. Tactical factors such as compliance, profitability, labour skill and costs and age of equipment are key factors in making strategic decisions. Agility in these decisions directly affects growth and acquisition return on investment. Most pharmaceutical companies will recognize the need for competence in global sitting and production network rationalization. Furthermore, growth by acquisition companies such as Alpharma will seek to define a streamlined method to continuously evaluate the production network as part of post-merger integration. Today's manufacturing plants were typically designed for a specific drug or therapeutic class. Therefore, asset utilization and fulfilling high-demand products are systemic problems. Additionally, future genomic innovation will allow pharmaceutical companies to develop profile-specific drugs and some market analysts predict drug tailoring for custom batches of one. The pharmaceutical environment is necessitating faster changeovers and smaller production runs. Simplifying changeovers and gearing down batch sizes will likely require changes to plant layout as well as material and inventory storage. Similar to forecasting and planning, reconfiguring manufacturing processes and facilities to build changeover competence and to run smaller batches will take time. Manufacturers should begin addressing changeovers and future shifts in demand since it could take two to three years to ramp-up to consistent, reliable changeover performance [16]. Compliance management should be integrated into all manufacturing processes and touch points. Compliance involves communicating regulatory changes, documenting standard operating procedures, integrating into processes and on-going training. Manufacturing execution systems (MESs) allow plants to optimize production runs and changeovers in a complicated environment with stringent rules and regulations. Once a compliance strategy is put in place, an MES should be considered a technology enabler. Successful compliance management involves an oversight council and cross-functional teams that define an integration strategy, evaluate enabling technology and instil performance measures supported by periodic audits. Separate supply chains with disparate systems have been the biggest impact in the pharmaceutical industry. In most situations, two merging parties have two different enterprise resource planning (ERP) systems and associated bolt-on supply chain applications. Supply Chain Event Management (SCEM) can provide tremendous benefits to an enterprise and its partners. The core elements of SCEM are gathering, monitoring, measuring, simulating, notifying and managing across supply chain processes, internal organizations and external trading communities [30]. The objective is to create smooth-running operations by seamlessly notifying the right people at the right time when action or intervention may be necessary. 4. Literature Review on understanding ERP Technique Enterprise resource planning (ERP) systems are a complete set of business applications that are symbiotically integrated to provide workflow automation across the entire Actavis group. This automation provides for single keying in of data and ability to track transactions throughout their process. ERP functions span across inventory control, order tracking, customer service, finance and human resources and contain all the appropriate business rules and data to control those functions [26]. Today's ERP applications transform front and back office business processes to the world of e-business, utilizing common interfaces via web portals, a single consistent data store (enterprise database) and supported by tiered architecture that is sufficiently flexible and robust that it can be rolled out anywhere across the globe. Many major ERP vendors identify the positives for implementing ERP software packages, yet are not so keen to highlight the trappings for their implementations. Research is well-documented on these pitfalls and the organizations that have been susceptible to them [33]. 4.1 Benefits of ERP Implementation Oracle, PeopleSoft and SAP are three of the largest vendors in the ERP market space [20]. Each vendor makes similar claims concerning their ERP product and what it can allow organizations to achieve. The ERP marketed by all three vendors provides a means to (a) streamline global operations, (b) optimise financial and human capital, (c) connect people to business processes in real time, (d) measure financial performance, (e) increase visibility for strategy and execution, (f) integrate lines of business, (g) align strategy with operational plans and (h) analyse profitability by customer prospect and channel [7]. Many customers have experienced ERP benefits after months of implementation. For example, a non-pharmaceutical company such as Air New Zealand (ANZ) has benefited from generating with their PeopleSoft ERP implementation [9]. They have re-vitalised their finance, logistics and supply chains, improve user access to key business performance information, monitor and control expenditure, enabling real-time reporting on finance and procurement, generate 'millions' of dollars in direct cost savings and eliminate the need for major hardware upgrades and deliver low cost infrastructure. According to [1], Alstom (a famous Gas Turbine company) also anticipates a Return on Investment (ROI) of at least 200% of the implementation costs over the life of their ERP implementation. This should be generated by reduced information technology (IT) support costs, efficiencies from using a single ERP and managing strategic alignment for the organization globally. But despite many of the documented success stories, ERP implementations are not without their drawbacks. 4.2 Failures of Implementation Esteves-Sousa (2000) declares implementation success for ERP projects when they are on time, within budget, smooth transition and achieve the intended business improvements. In turn, implementation failure can be defined as the inverse of this - where one or more success criteria may not have been achieved. There have been numerous documented cases of ERP failure both domestically and across the globe. A potential of an ERP failure is highlighted with a suitable instance of another pharmaceutical company as follows: 4.3 Case-Study: Fox-Meyer Pharmaceuticals Gillet-Liloia (2002) identifies one catastrophic failure, that of Fox Meyer pharmaceuticals. Fox Meyer collapsed following its ERP implementation, filing $500m lawsuits against both SAP and Andersen Consulting. Vogt (2002) analyses this disaster further by adding that Fox-Meyer group had $5.5bn in annual revenues and was SAP's first distributor-type (ie. non-manufacturing) customer. In 1994, Fox-Meyer, using an incremental methodology, began to roll out ERP to each of its twenty-six warehouses, one at a time. ERP routinely crashed, miscounted inventory stock, suffered poor system performance and faulty interfaces. The system had only been rolled out to six warehouses and the project budget had already doubled to $64m. To make things worse, Andersen was accused of sending consultants that were freshly trained and inexperienced to learn on the job. 5. Actavis after proposed integrated ERP Implementation Until recently, Actavis was using IT operating systems that were developed internally and not integrated. This aging technology, plus the need for full visibility of business critical information across its organisation, led the hiring of PeopleSoft (PS) to explore its options. They needed to upgrade their IT systems across the business, and felt that by implementing an ERP solution could achieve them full integration of their financial, distribution and manufacturing processes. In the long term, such a solution will also enable PS to incorporate additional functionality specific to our pharmaceutical needs. The implementation of ERP puts Actavis in firm control of their distribution business through every step from production to inventory process. This powerful tool enables the pharmaceutical group to manage their warehouse and inventory levels more effectively, enhancing customer satisfaction while maximising profits. The PS-ERP distribution suite was designed to provide a key component with input from supply chain experts to meet the specific needs of the pharmaceutical distribution company. As part of the ERP system, the warehouse-centric design of the Inventory Management (IM) module lets Actavis track costs and sales histories by warehouse, thus enabling them to quickly locate the products based on customer demands and allows them to continue taking orders during inventory cycle mounting, ensuring that their business continues to operate at peak efficiency. The IM module supports manufacture to order and includes full lot and serial number tracking. In addition, it supports first in, first out (FIFO), last in, first out (LIFO), average, actual, standard and warehouse-specific costing. More advanced features include support for fixed asset inventories, substitute item definition, landed cost calculations, inventory catalogue management and powerful unit of measure conversion tables [27]. Actavis can now maximise inventory investment by establishing a variety of system options to meet their unique daily business requirements. With the new ERP system, they can critically identify a wide range of inventoried and non-inventoried items, set-up multiple price lists (based on multiple foreign currencies) according to their multiple global branches and multiple warehouses and define buying authority thresholds for specific buyers. The group is able to monitor that all the delivery promises are kept and on-hand stock balances are accurate with advanced warehouse management and inventory transaction capabilities. The system also allows receiving and shipping of orders during inventory cycle counting, so that Actavis would always be able to meet datelines. The integration of ERP with SCM enables the ability to manipulate prices and improve sale orders regularly. The Actavis sales group can now freely exercise their right to product discounts and promotions to facilitate their business growth. They can establish different pricing by warehouse. If the multicurrency module is used, different currencies can be used at each warehouse. Price structures can be set to suit various customer types. For example, customers bought medicine from retail may pay more for the same item than wholesale or manufacturing customers. 6. Justification of ERP Implementation The expected return on investment (ROI) provides the cost justification and motivation for investing in ERP. There are quantifiable benefits as well as intangible benefits in the ERP investment decision. The quantifiable benefits have a bottom-line impact on profitability and asset turnover . The quantifiable and the intangible benefits of an ERP system can be studied by comparing Actavis performance before and after implementing ERP. The most significant quantifiable benefits involve reductions in inventory, material costs, and labour and overhead costs, as well as improvements in customer service and sales [4]. 6.1 Inventory reduction Improved planning and scheduling practices typically lead to inventory reductions of 20 percent or better. This provides not only a one time reduction in assets (and inventory typically constitutes a large proportion of assets), but also provides ongoing savings of the inventory carrying costs. The cost of carrying inventory includes not only interest but also the costs of warehousing, handling, obsolescence, insurance, taxes, damage, and shrinkage. With interest rates of 10 percent, the carrying costs can be 25 percent to 30 percent. ERP systems lead to lower inventories because Actavis can make and buy only what is needed. Demands rather than demand insensitive order points drive time phased plans. Deliveries can be coordinated to actual need dates; orders for unneeded products can be postponed or cancelled. The bills of material (BOM) ensure matched sets are obtained rather than too much of one material and not enough of another. Planned changes in the bills also prevent inventory build up of obsolete ingredients. With fewer incoming shortages and realistic schedules, manufacturing orders can be processed to completion faster and work-in-process inventories can be reduced. Implementation of Just-in-Time (JIT) philosophies can further reduce manufacturing lead times and the corresponding inventories. 6.2 Improved customer service and sales Improved coordination of sales and production leads to better customer service and increased sales. Improvements in managing customer contacts, in making and meeting delivery promises, and in shorter order to ship lead times, lead to higher customer satisfaction and repeat orders. Sales people can focus on selling instead of verifying or apologizing for late deliveries. In custom product environments, configurations can be quickly identified and priced, often by sales personnel or even the customer rather than procurement staff. Taken together, these improvements in customer service can lead to fewer lost sales and actual increases in sales, typically 10 percent or more. ERP systems also provide the ability to react to changes in demand and diagnose delivery problems. Corrective actions can be taken early, such as determining shipment priorities, notifying customers of changes to promised delivery dates, or altering production schedules to satisfy demand. 6.3 ERP System Benefits on the Balance Sheet Benefits from improved business processes and improved information provided by an ERP system can directly affect the balance sheet of Actavis. To illustrate this impact, a simplified balance sheet is shown in Table A assuming the pharmaceutical group having an annual revenue of $10 million. The biggest impacts will be on inventory and accounts receivable. In the example, the company has $3 million in inventory and $2 million in outstanding accounts receivable. Based on prior research concerning industry averages for improvements, implementation of an ERP system can lead to a 20 percent inventory reduction and an 18 percent receivables reduction. Current Improvement Benefit Current assets Cash and other 500,000 Accounts receivable 2,000,000 18% 356,200 Inventory 3,000,000 20% 600,000 Fixed assets 3,000,000 Total assets $8,500,000 $956,200 Current liabilities xxx,xxx Non current liabilities xxx,xxx Stockholder's equity xxx,xxx Total liabilities and equity xxx,xxx Table A: Summarized balance sheet for a typical $10 million firm Inventory Reduction: A 20 percent inventory reduction results in $600,000 less inventory. Improved purchasing practices (that result in reduced material costs) could lower this number even more. Accounts Receivable: Current accounts receivable represent seventy-three days of outstanding receivables. An 18 percent reduction (to sixty days' receivables) results in $356,200 of additional cash available for other uses. 6.4 ERP Benefits on the Income Statement A simplified, summary income statement for the same $10 million revenue is shown in Table B. For many manufacturers, the cost of sales ranges from 65 to 75 percent of sales (the example will use 75 percent). Using industry averages for each major benefit, the improved business processes and associated information system almost double the current pre-tax income. Inventory Reduction: A 20 percent reduction in the current inventory of $3 million results in ongoing benefits of lower inventory carrying charges. Using a carrying cost of 25 percent results in $150,000 in lower carrying charges each year, identified here as part of the administrative expenses. Material Cost Reductions: A 5 percent reduction in material costs because of improved purchasing practices results in annual savings of $225,000. Labour Cost Reductions: A 10 percent reduction in labour costs because of less overtime and improved productivity results in annual savings of $100,000. Increased Sales: Improvements in customer service typically lead to a 10 percent sales increase; this is not shown in Table B. Annual benefits totalling $475,000 in this example almost equals the current pre-tax income of $500,000. Current Improvement Benefit Sales $10,000,000 10% Cost of sales 7,500,000 Material 4,500,000 60% 5% $225,000 Labour 1,000,000 13% 10% $100,000 Overhead 2,000,000 27% Administrative expenses 2,000,000 $150,000 Pre-tax income $500,000 $475,000 Table B: Summarized income statement for a typical $10 million firm 6.5 ERP Impact on Key Financial Ratios Ratio analysis provides another way to look at the impact of an ERP system. Three ratios illustrate the effect---two related to liquidity and one to operating performance. 1. Inventory turnover (Cost of Sales/Inventory). Low inventory turnover can indicate possible overstocking and obsolescence. It may also indicate deeper problems of too much of the wrong kind of inventory which can create shortages of needed inventory for production and sales. High turnover indicates better liquidity and superior materials management and merchandising. Given the example $10 million Actavis company, the current number of inventory turns is 2.5. With a 20 percent inventory reduction, the number of inventory turns increases to 3.1. 2. Days of Receivables (365*1/(Sales/Receivables)). This ratio expresses the average time in days that receivables are outstanding. It is a measure of the management of credit and collections. Generally, the greater the number of days outstanding, the greater the probability of delinquencies in accounts receivable. The lower the number of days, the greater the cash availability. With an 18 percent reduction in receivables, the current days receivable of seventy-three days can be reduced to sixty. This means $356,200 is available for other purposes. 3. Return on Assets (Profit before Taxes/Total Assets). This ratio measures the effectiveness of management in employing the resources available to it. Several calculations are necessary to determine the return on assets. In this example, the return on assets can be improved from 5.9 to 12.9 by effectively implementing an ERP system. Performance evaluation based on ratio analysis can also use comparisons between Actavis and similar pharmaceutical firms in terms of size and industry. The Annual Statement Studies provide comparative ratios for this purpose. This use of comparative ratio analysis will use the same three ratios for inventory turnover, days receivable, and return on assets. To perform the analysis, one need to identify the median and upper quartile ratios for firms in the same industry. These roughly correspond to average and good performance. By comparing the ratios with Actavis current performance, one can calculate how much better Actavis should be performing to be competitive. Using the inventory turns ratio of $10 million, assume the Annual Statement Studies indicate that the median and upper quartile are four and six turns for other firms in the same pharmaceutical industry. Average performance of four inventory turns translates into an expected inventory of $1.875 million ($7.5 million divided by four). If Actavis had this ratio, it would have had $1.125 million less in inventory. With inventory carrying costs at 25 percent, this would produce savings of $281,250 each year. For the days receivable ratio, assume the Annual Statement Studies indicate that sixty and fifty days are the median and upper quartile. The days receivable in the example $10 million Actavis is currently seventy-three days; an improvement to sixty days would reduce receivables by $356,200 (using a daily sales rate of $27,400 and a thirteen day reduction). This means that cash is available for other purposes. Note that the return on assets ratio is 5.9 for the Actavis group. Assuming the Annual Statement Studies indicate the return on assets is ten and fifteen for firms in the same industry at the median and upper quartiles, improving the return on assets to equivalent levels would mean increased profits or asset turnover. 7. ERP Implementation Plan Selecting and implementing a new ERP system, and the process changes that go with it, is unquestionably a complex undertaking. Regardless of Actavis size and perceived resources, an ERP implementation is not something that should be approached without a great deal of careful planning. Among companies that have been through a fully successful ERP implementation, five reasons for good results show up consistently (i) operating strategy must drive business process design and deployment, (ii) the implementation should not take longer than expected, (iii) pre-implementation preparation activities were done properly, (iv) people were well-prepared to accept and operate with the new system and (v) the cost to implement was anticipated within the budget set by management. The flowchart in Fig. 2(a) depicts several activities that must be performed before implementing an ERP system in Actavis. First, managers must conduct a feasibility study of the current situation to assess the organization's needs by analyzing the availability of hardware, software, databases, and in-house computer expertise, and make the decision to implement ERP where integration is essential [25]. They must also set goals for improvement and establish objectives for the implementation, and calculate the break-even points and benefits to be received from this expensive IT investment. The second major activity involves educating and recruiting end users to be involved throughout the implementation process. Third, managers will form a project team or steering committee that consists of experts from all functional areas to lead the project. After a decision is made, a team of system consultants will be hired to evaluate the appropriateness of implementing an ERP system, and to help select the best enterprise software provider and the best approach to implementing ERP. In most situations, apart from inventory control, the consultant team will also recommend the modules that are best suited to the company's operations (manufacturing, financials, human resources, logistics, forecasting, etc), system configurations, and business-to-business applications such as supply-chain management, customer relationship management, e-procurement, and e-marketplace. The importance of adequate employee and manager training can never be overestimated. IT analysts usually recommend that managers reserve 11% of the project's budget for training. Different kinds and different levels of training must be provided to all business stakeholders, including managers, end users, customers, and vendors, before the system is implemented. Such training are usually customized and can be provided by either internal or outside trainers. The system installation process will address issues such as software configuration, hardware acquisition, and software testing. Data and information in the databases must be converted to the format used in the new ERP system and servers and networks need to be upgraded. System maintenance will address issues and problems that arise during operations. A post-implementation review is recommended to ensure that all business objectives established during the planning phase are achieved. Needed modifications are tackled during this phase too. Fig. 2(b)/(c) shows the timescales and key milestones completed in relation to Fig. 2(a). 8. Conclusion Actavis is in a very strong position to begin an ERP implementation. The fact that they have established as the leading pharmaceutical company after the acquisition of Alpharma is a testament to that. Their employees that were involved in the takeover process are enthusiastic, willing, and motivated to implement an ERP system. Equally as important, Actavis leadership seems committed to invest the proper amounts of time, funding, and resources (internal and external) necessary to make the ERP project a success. The implementation of any major system is an effort to take on with proper planning and strategy. To date, Actavis has done its due diligence and now has a strategy, approach, and tools to continue in the right direction. Integrating ERP with SCM is not an easy task anywhere. An ERP implementation is a huge commitment from the pharmaceutical group, causing millions of dollars and can take up to several years to complete. However, when it is integrated successfully, the benefits can be enormous. A well-designed and properly integrated ERP system allows the most updated information to be shared among various business functions, thereby resulting in tremendous cost savings and increased efficiency. When making the implementation decision, management must have considered fundamental issues such as Actavis readiness for a dramatic change, the degree of integration, key business processes to be implemented, e-business applications to be included, and whether or not new hardware need to be acquired. In order to increase the chance of user acceptance, employees must be consulted and be involved in all stages of the implementation process. Providing proper education and appropriate training are also two important strategies to increase the end user acceptance rate. Actavis will be going through a drastic change, with changes in the way businesses are conducted, the organization being restructured, and job responsibilities being redefined. To facilitate the change process, managers are encouraged to utilize several levels of organizational change process. 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