Head of IT Roland Schütz wants to simplify the pharmaceutical retailer’s merchandise management systems with SAP S/4HANA. The project is expected to last ten years. […]
“Our infrastructure must be highly available. Two days of failure would mean the bankruptcy of the company and many drugs could not reach their recipients,” said Roland Schütz, CIO of Phoenix, at the Handelsblatt annual conference “Strategic IT Management”. Despite a turnover of almost 35 billion euros, the margins are low. Against this background, the IT boss wants to modernize the pharmaceutical retailer’s merchandise management systems.
Phoenix distributes over 60,000 pharmacies around 400 million medicines annually to 155 million patients throughout Europe. In addition, the company operates about 2,800 of its own pharmacy branches. If a customer orders an out-of-stock drug at a pharmacy, it can be delivered there within an hour, according to the CIO. “This requires the shortest possible response times and demanding logistics processes take place in the background.“
In addition, Phoenix is building an e-commerce platform for medicines. The goal is a digital ecosystem to get in direct contact with patients away from the stationary trade. According to Schütz, it is important to pursue a holistic approach to digital care, from making an appointment with a doctor to telemedicine advice to prescribing and delivering medicines.
According to Schütz, the European healthcare market is a fragmented and heterogeneous patchwork. This influences which economies of scale can be achieved there. In addition, the dealer’s business processes have been optimized over the years and adapted to the local requirements of the individual markets.
“We have about 1,000 business applications and 29 ERP systems in use, which are linked to the processes in the individual countries,” reported the IT boss. Therefore, it does not work to introduce a standardized, pan-European ERP system.
Due to the high administrative burden, due to the peculiarities in the individual regions, hardly any added value would be created. In addition, according to Schütz, the existing systems could be operated very cost-effectively, although they often use legacy hardware. Introducing expensive standard software with high start-up costs is not practical with the narrow profit margins.
The total cost of ownership (TCO) of the old and new systems was therefore a decisive factor for the project. In addition, migration must be stretched for a long time. Schütz: “We assume that the undertaking will cover a decade, depending on the need to replace the old systems.“
Nevertheless, Schütz was looking for a common basic technology to replace the old systems at the end of their life cycle. For cost reasons, the choice was made in 2018 for SAP S/4HANA, which is operated completely in the Microsoft Azure cloud at T-Systems. His team selected an implementation partner and developed an overarching data management concept. In addition, a project organization was set up that integrates the business.
The team around the CIO then set about adapting the platform and standardizing processes. For this, the CIO chose a hybrid process model. The individual phases of the project build on each other according to a classic waterfall principle. Within the phases, the project groups work in cycles of agile sprints.
At the end of 2021, a warehouse in Austria was the first location to go live with the pilot environment. The new SAP templates for merchandise management, Master Data Management and central finance and controlling (FI/CO) are used there. As a result, the templates will be gradually expanded and rolled out throughout Europe. Phoenix employs more than 39,000 people in 27 countries.
Due to the high costs, the company must consider in which markets and areas such a project is worthwhile. Therefore, Phoenix focused on keeping the ongoing costs of the transformation process as low as possible.
For Schütz, an important success factor is to closely interlink business and IT. The project must be conducted from the point of view of the business process. The team needs to understand what the critical areas are that need to be adjusted. At Phoenix, for example, this is primarily inbound and outbound logistics.
The long-term operating costs should be kept low via templates. However, due to the heterogeneous structure of the company, a particularly high degree of standardization cannot be achieved.
Schütz does not expect any additional business benefits from the software change. Phoenix has a large data treasure and is investing in data analysis tools on a separate platform in the Azure cloud. But this does not require the consolidation of ERP systems in the sense of a single point of truth, according to the CIO. Technologies such as data visualization could leverage the economies of scale from consolidated data without having to wait for the harmonization of the ERP landscape.
*Jens Dose is editor of the CIO magazine. In addition to the core topics around CIOs and their projects, he also deals with the role of the CISO and its area of responsibility.