Government mandates disrupt pharmaceutical operations, yet provide unprecedented opportunities for innovation.
Operating in Latin America is uniquely attractive to many pharmaceutical companies. A growing and increasingly talented labor market coupled with booming populations and increasing incomes make this area a bourgeoning region for pharmaceutical expansion. Eli Lilly, for example, has identified Brazil and Mexico as two of its “five focus” markets. However, operating in this region presents distinct challenges in the form of business-to-government regulations unseen in other major markets around the globe.
Brazil was the first Latin American country to require e-invoicing in 2009 with the goal of increasing transparency into business operations and ultimately increase tax revenues. As this approach has proven successful—in 2012, Brazil realized a ~$58 billion U.S. increase in tax collections—more and more countries throughout the region have implemented similar processes. Ten countries in Latin America have now enacted e-invoicing mandates, and these requirements are beginning to appear in emerging markets worldwide. Further, the reach of these mandates is spreading, affecting an increasing number of business processes—including sales, distribution, procurement, and even HR.
While many of these regulations are industry agnostic—required of all companies operating in the region—they take a particular toll on pharmaceutical companies in light of already strict operational requirements. In such a heavily-regulated industry, pharmaceutical companies also are often the first to be affected by these new regulations.
How do companies manage these challenges and yet continue to innovate in expanding markets? Understanding the risks and opportunities associated with Latin America’s changing compliance landscape is key for pharmaceutical companies looking to stay ahead in today’s complex market.
Regulations Present Pharmaceutical Supply Chain Risks
Compliance is simply a matter of doing business in Latin America, yet many companies operating here continue to underestimate its far-reaching consequences. While the end goal of e-invoicing and financial reporting requirements throughout Latin America may be tax revenue, the implications of these laws reach far beyond finance. Certainly audits, fines, and penalties are risks of compliance errors, but such errors, discrepancies, and disruptions can also bring business operations and supply chains to a complete stand-still.
Specifically, e-invoices act as a Bill of Lading in many Latin American countries. Pharmaceutical suppliers cannot ship without an approved invoice physically on the truck, and likewise manufacturers cannot fulfill orders unless the invoice is valid and present along with the goods. Invoicing errors or transmission issues can shut down supply chains for days.
E-invoicing requirements can also lead to refused collections. If an invoice is not 100 percent accurate, buyers may literally refuse shipments and physically turn trucks around at the gate.
Brazil, the region’s largest market for pharmaceuticals, is taking this requirement even further: now requiring mandated buyers in the pharmaceutical industry to implement Manifestacao do Destinatario, a process that requires matching inbound shipments to the government approved e-invoice and acknowledging the receipt and accuracy of that reception. Brazil’s next step to heighten transparency, eliminate black market pharmaceutical sales, and ensure goods are taxed properly is Project ID—an RFID shipment tracker deployed from the moment the truck leaves the manufacturing center to the moment it arrives at its final destination.
Despite these supply chain challenges and risks, the high level of standardization required by Latin American e-invoicing and e-accounting mandates is actually helping smart companies improve processes and reallocate resources toward innovation—not compliance.
Streamlined Processes Create Operational Efficiencies
Intense government regulations in Latin America create a unique opportunity for pharmaceutical companies to improve their supply chains and operational processes. First, the strict e-invoicing transaction and verification requirements ensure that purchases and payments are accurate—that you receive exactly what was ordered without requiring accounts payable teams to manually track down orders.
Second, innovative pharmaceutical companies can use standardized e-invoices to simplify inbound receiving by turning hours of manual data entry into a single scan and click process. Since the invoice is already on the truck (and can even arrive before the shipment), companies are assured that the invoice matches the merchandise. This added efficiency can lower the costs associated with receiving up to 40 percent.
Additionally, once Project ID is fully implemented in Brazil, this tracking system will give pharmaceutical companies a complete view of their shipping processes. Ultimately, companies can use this new visibility to identify inefficiencies and improve distribution processes.
Finally, Latin American e-invoicing requirements have opened the door for supply chain financing. The standardization required by these mandates means companies already have the necessary systems in place to mark invoices “okay to pay” in real time—in some cases as soon as the goods arrive. By offering suppliers this flexible financing option, pharmaceutical companies ultimately strengthen their supplier relationships by ensuring they have the cash they need to keep operations running smoothly.
Proactive Compliance in the World’s Most complex Regulatory Environment
Pharmaceutical companies operating in Latin America are at a crossroad. Those that only see compliance issues as a supply and demand risk are overlooking the chance to improve supply chain operations and liquidity. Companies looking to enhance their operations and gain competitive advantage in this emerging market can realize huge cost savings, streamline internal processes to allow employees to focus on innovations and critical business operations, and improve supplier relationships.
Which path will you choose to manage compliance?
About Invoiceware International
Invoiceware International standardizes complex compliance regulations in Latin America for the world’s largest companies, including Pfizer, Sigma-Aldrich, Qiagen, Medtronic, Siemens, and The Coca-Cola Company. As the largest regional business network, Invoiceware reduces the risk and cost of maintaining compliance, empowering its clients to capitalize on government standardized e-invoicing to improve supply chain efficiency and optimize cash flow. Invoiceware International is based in Atlanta with operations covering Brazil, Mexico, Chile, Peru, Colombia, Ecuador, Uruguay, and Argentina. For more information, visit invoicewareint.com and follow @InvoicewareInt on Twitter.
This article can also be found in the November/December 2015 edition.