International Licensee Royalty and Service Performance Compliance
Scenario: A brand owner licenses production of certain of its major over the counter medicine brands to foreign manufacturers. It is to be paid royalties on the volume of medicine. However, the brand owner has some history of poor royalty reporting in past relationships with similar firms in this market segment, and poor customer service to major hospital chains and National Health Agencies with whom the brand owner has global distribution agreements.
Industry Segment: Pharmaceuticals, Life Sciences, Medical Devices
Company Size: $Any
Example Company in this segment: Merck, Novartis, Johnson & Johnson, Phibro Animal Health, Medtronic
Department(s): Supply Chain, Procurement, Planning, IT, Account Managers
User: Buyers, Supply Managers, Operations and Fulfillment Planners, Sales Managers, Marketing Managers
Economic Buyer: VP of Licensing
Technical Buyer: IT Manager for Operations Systems & Applications
A Day in the Life (Before)
Scene or Situation #1: Today the brand owner receives royalties based on the Licensee’s declared volume. It is not possible for the brand owner to independently validate the volumes reported. As part of the contract the brand owner is given access to purchasing records and production records which must be reconciled. The licensee has ERP and related systems, but limited IT capabilities limited analytical reporting capabilities. Periodic licensing audits are costly for the brand owner and somewhat disruptive and annoying to the licensee.
Desired Outcome: Build a positive relationship with the licensee, while still ensuring an easy to maintain and reliable audit trail for compliance with both license royalties and global retailer service level commitments.
Attempted Approach: Today the brand owner receives email reports of royalties due based on the Licensee’s declared volume. The brand owner hires a local independent audit firm to check written purchasing records and production records which must be reconciled to royalty reports to validate the volumes reported. There are no customer service reports available related to the global retailers the brand owner has commitments to, so the brand owner has difficulty working proactively to ensure the licensee has effective processes and procedures to maintain target service levels.
- Limited levels of trust in reported statistics
- Limited licensee IT capabilities
- High cost of physical audits
- Lag time / inaccuracy in customer service performance reporting
- High compliance cost
- Relationship strains
- Risk to quality of global retailer relationship
- Uncertainty over fairness of reported results
- Lost royalties
- Issues that degrade negotiations with global retail partners
A Day in the Life (After)
New Approach: Licensee uploads a daily file to the Vecco Control Tower with material purchases and balances on hand, and order and shipping activity with the targeted global retailer. The Control Tower automatically models the ratios agreed and maintains order fulfillment statistics for the key customer. Alerts are generated when the medicine yield from each ton of unobtanium (a production efficiency indicator) purchased falls below a prescribed level and when delivered medicine falls below a prescribed percentage of raw produced medicine volume (a packaging efficiency indicator). These indicators are set and agreed in advance based on best practice for the type of production and packaging equipment installed. These statistics are visible to both the brand owner and the licensee, and delivery service levels can be made visible to appropriate global customers.
The contract manager uses the Vecco dashboard to review licensee reporting. He compares reported output to key ratios for the licensed production. When an alert is generated the contract manager discusses the issue with the licensee brewer to ascertain whether any exceptional circumstances prevailed. When followed over time, the transparent, real time data provides visibility to both parties in a manner that is much harder to deliberately or accidentally distort than delayed, manual, periodic data is.
The customer visible service level data is of value to both parties in maximizing their market share with the retailer, and ensuring that the global customers see the brand as a global benchmark for quality worldwide.
- Firm has improved confidence in royalty stream
- Global customers have improved confidence and allocate more of their category spend to the more reliable manufacturer.
- Vecco E2E Conductor
- Daily file exchange between Licensee’ ERP and Vecco Control Tower
- Business Procedures configured by company team using Vecco process visual workflow tool
- Vecco process alert escalation tool
- Vecco Customer portal view for global customers
Resources Not Required:
- No changes to existing enterprise systems at the company or its licensees
- No new IT hardware
- No increase to Company data center workload, after set up of daily file exchanges
- License revenue maintained is appropriately
- Compliance costs are reduced and audit related “friction” is eliminated
- Key customer confidence is improved and there are potential market share gain opportunities