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David Ma Wei - How to Simulate a Complicated, Dynamic Business Process in Program Design

A breakthrough method of design a business simulation for Sino-pharma executive. Sino-pharma is the No.1 distributor in China, and has very complicated business model due to geographic diversify. The supplier (Upstream) and terminal (downstream) are co-related and mixed. Face the business challenge of 20% organic growth and asset effectiveness. We find a way to help the executive to practice before the really deal with it.

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David Ma Wei - How to Simulate a Complicated, Dynamic Business Process in Program Design

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  1. “CATCH 3 MONKEYS” CUSTOMIZED SIMULATION FOR BUSINESS IMPACT SERIOUS PLAY CONFERENCE 2014 USC, JULY 22-24 SIMU4WISDOM LEARNING CONSULTANTS & CO.

  2. WELCOME BY SIMU4WISDOM ! DAVID MAWEI 马伟 • TRAINER 马伟 • DESIGNER • GAMER

  3. WHO IS SIMU4WISDOM? What we provide: Strategy Strategy Alignment Alignment Training Training Deliver Deliver Simulation Simulation Design Design

  4. AGENDA Customer case 10’ • Business challenge 5’ • Methodology 10’ • Introduce Vito-Creek simulation 15’ • Q&A 5’ •

  5. CUSTOMER (SINO-PHARMA) • State owned company from 1950, 30Billon USD revenue in 2013 • Net profit rate<1%, Negative operation cash-flow • Market leader in China pharmacy distribution business • Past growth from M&A 200+ local distribution companies

  6. MARKET • 500Million rural people seldom go to hospital, they deal with disease like our ancestors • Average medical consumption per people per year: China 11$, USA 800$. • Notorious corruption among the local governments and hospitals, business deal mostly under-table

  7. DEMAND • Communicate the strategy shift from M&A to organic growth • Regulate the business operation ethic as a public list company • Leadership development of the head of new M&A local distribution companies

  8. RESEARCH：CONCENTRATION RATIO USA USA CHINA CHINA 5% 9% Amersourc ebergen Mckesson 5% Sinopharma 26% 4% SH Pharma 33% Cardinal Huarun Others Others 82% 36% 95% VS.18%

  9. SAME BUSINESS DIFFERENCE IN 2 COUNTRIES CHINA CHINA USA USA Hospital (85%+) Retail (87%+) Major sales channel CFDA + Local gov. FDA Hospital admittance Local gov. Fair Sales competition Local gov. Fair Payment term Local gov. Fair Upstream relationship “Guanxi” Fair ……

  10. INTERVIEW WITH CUSTOMER “What is the key successful factor of your business?” The answer is : “ GuanXi (Relationship)” • The relationship with • the local government • the major hospitals • the upstream company

  11. INTERVIEW WITH CUSTOMER “What is the headache problem that block your success?” The answer is : “ Meet the conflict and combined needs of 3 stakeholders” • Local government -----------------------------------accomplishment • Downstream channels ----------------------------categorize of medicine • Upstream companies ------------------------------volume of sales

  12. INTERVIEW WITH CUSTOMER “What kind of competition you deal with?” The answer is : “ The competition are variable in different local market” • Different area has different relationship level with • local government • Downstream channels • Upstream company

  13. THE UNIQUE BUSINESS MODEL Local government Sino- Pharm Downstream Upstream

  14. THE DESIGN CHALLENGES 1. How to simulate “ Guan Xi(Relationship)” in a learning programs 2. How to simulate 3 stakeholdes coupling effects 3. How to simulate the strategy characters of different company Conflict “GuanXi” Characteristic Design Challenges

  15. THE DESIGN SOLUTIONS 1. Intangible asset measurement “ Guan Xi(Relationship)” 2. Upgrade system for 3 stakeholders coupling effects 3. Asynchronies startup among the learning groups Design Solutions Intangible Asset Upgrade System Asynchronies Startup

  16. METHODOLOGY 1. Business impact map analysis 2. Business big picture (Over view) 3. Business value structure 4. Business logic tree

  17. BUSINESS IMPACT MAP Behaviors Initiatives Results Competence Understand the business challenge and improve the industry insight Build up the strategy, finance, market and opeation capability Find a way to increase the negotiation power in value chain Make decision in relationship foster and realize Identify the key strategy factors and correlated Proactively deal with market dynamic, build up the solid business relationship with stakeholders. Effectively allocate the precise resources to influence the value chain, to achieve the profit rate and cash- flow Maintain No.1 and increase the share of market in China Rev reach 40 Billion USD in 2016 (CAGR 22.6%) Increase 1% Nopat rate and positive operation Cash-flow Market and value chain analysis, estimate the trend and dynamic Decomposition the group strategy and planning the business and risk control Manipulate the key successful factors to influence the growth, profitability and cash-flow Use KPI to guarantee the execution and measurement HOW HOW HOW?

  18. BUSINESS BIG PICTURE Local Government Demand generation Downstream Channel Upstream Company DUMMY Distributor Wholesale Purchase • Deal • Upgrade • Value add Sales • Deal • Upgrade • Value add Front Business Upstream team Downstream team Product Category Gov. relationship Sino-Pharma Backoffice Business Logistic Financing Cash Mgmt.

  19. BUILD THE VALUE STRUCTURE Business Value Tangible Intangible Asset structure Cash-flow Profitability Upstream Downstream Local Gov.

  20. ROLE OF MANAGERS Input Output （Use resource） Sino-Pharma （Collect money） Foster resource to build edge

  21. 2014/7/26

  22. 2014/7/26

  23. THE BOARD Downstream Relationship Local gov. Relationship Order Area Upstream Relationship Payment & Collection 2014/7/26

  24. UPSTREAM BRIEF Category Company Portfolio Strategy preference Contract term White Market share High penetrate Good refund Upgrade optimize payment ◎+☆ ◎ Generic ☆ Original Blue Muilti channels Good refund Upgrade is useless ◎+☆ Anesthetic ▲ Green ☆ Hospital focus Mid refund High margin Black Binding sales ◎+▲ ▲ No refund, need license Bad payment term 1% profit. cash on delivery Dummy Null Money and cash

  25. DOWNSTREAM BRIEF Name Category Demand Preference H I H II H III RC Hospital Relationship Variety etc. ◎☆▲ Rural Clinic Relationship Discount etc. Promotion Logistic etc. Discount Variety etc. ◎☆ RS Retail shop ◎☆ WS Wholeseller ◎☆

  26. LOCAL GOVERNMENT RELATIONSHIP Foster： • Government Task Accomplishment • Investment, Industry benchmark , Generic coverage, etc. • Upgrade the value chain control Realize： • Influence the local directory admittance • Influence the hospital decision • Accelerate the hospital money collection

  27. DOWNSTREAM RELATIONSHIP Logistic Relationship

  28. UPSTREAM RELATIONSHIP Distributor rank Downgrade Upgrade Retail Order Wholesell Order Hospital/Clinic Order

  29. THE SIMULATION PROCESS 1. Loan Planning 2. Quota 3. Support 4. Hospital 5. Clinic Bid 6. Retail 7. Wholesale

  30. TANGIBLE ASSET Cash Cash AR AR Deposit Deposit Logistic Logistic Total Total asset asset AP AP Loan Loan Total Total liability liability Beginning Beginning equity Gain/Loss Gain/Loss Ending Ending equity equity Equity Equity & & liability 314 250 40 16 620 0 300 300 309 11 320 620 equity liability

  31. DIFFERENCE OF STARTUP Alpha Alpha Beta Beta Gamma Gamma Tangible SAME Intangible Difference Wa 2 2 3 Ba 3 1 2 Gov.pt 5 5 3 Main force Hospital I Hospital II Hospital III

  32. MEET THE NEEDS OF 3 STAKEHOLDERS

  33. THE MARKET FORECAST

  34. RESOURCE PLANNING (UPSTREAM) √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √

  35. UPSTREAM QUOTA BID

  36. LOCAL DIRECTORY ADMITTANCE

  37. UPSTREAM BID

  38. RESOURCE PLANNING(DOWNSTREAM) √ √ √ √ √ √ √ √ √ √ √ √ √ √ 2014/7/26

  39. DOWNSTREAM BID

  40. DOWNSTREAM BID 2014/7/26

  41. EXAMPLE: THE NEED OF HOSPITAL I GA*4, BA*1, DA*1 PRIORITY: ALPHA > DUMMY > BETA

  42. EXAMPLE: THE RESULT OF HOSPITAL I ALPHA DUMMY BETA

  43. YOU GET ORDER ! Retail Order Wholesale Order Hospital/Clinic Order DO YOU HAVE QUOTA? CAN THEY LIST IN LOCAL DIRECTORY?

  44. YOU GET MONEY ! WHEN GOV. YOU HAVE TO PAY ! WHEN

  45. YOU GET STATUS ! GOV. GOV. GOV.

  46. SIMULATION TARGET Alpha Alpha Group Group Cashflow Cashflow Income Income Rev. = Rev. = M M Margin + Refund = Margin + Refund = M M Tangible Tangible statement statement Fixed Cost = Fixed Cost = M M Net profit = Net profit = M M B Balance alance Total Asset = Total Asset = M M Loan = Loan = M M sheet sheet Equity = Equity = M M ROA = ROA = Upstream Upstream Wa Wa· ·◎ ◎ Wb Wb· ·☆ ☆ Ba Ba· ·☆ ☆ Ga Ga· ·◎ ◎ Da Da· ·▲ ▲ Relationsip Relationsip Downstream Downstream Hospital I Hospital I Hospital II Hospital II Hospital III Hospital III Clinic Clinic Retail Retail Intangible Intangible Relationship Relationship Gov. Gov. Use Use ， ，Earn Earn ， ，Reserve for next year Reserve for next year： ： Relationship Relationship

  47. BUSINESS SETTLEMENT 2014/7/26

  48. WRAP UP Customize simulation fit unique customer’s business situation and talent development needs Conflict “GuanXi” Characters Design Challenges Design Solutions Intangible Asset Upgrade System Asynchronies Startup

  49. VALUE CREATED What we have done? What we have done?

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