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Executive Summary

NWDA IOS NETWORK/DATABASE CONTRACTOR SEARCH IS "VERY ENCOURAGING," and the trade association believes that the cost of an industry interorganizational system (IOS) could be "considerably less than we thought," National Wholesale Druggists Association VP-IOS Development David Prins reported March 10 at the NWDA marketing conference in San Antonio. Prins said the manufacturer/wholesaler link should begin preliminary operation "somewhere in the June/July timeframe." On that schedule, NWDA should be able to unveil the initial phase of the IOS system at the association's PROTECH meeting in mid-June in Louisville. The association hopes to add increasingly sophisticated levels of service later, including an item-level database by the end of the year. Initial interest in the role of provider for the IOS has been expressed by eight data network companies. NWDA sent requests for proposals to 12 companies. Prins said the association has "configured an IOS resource review committee" made up of representatives from five wholesalers and six manufacturers to evaluate the eight candidate companies and "what our industry needs might be relative to their capabilities both current and future." The resource review committee members, who are experts in electronic data interchange and databases, already have met and will "recommend the most logical sources of IOS services" by "the first half of May." NWDA began drafting a business plan for the IOS in January to determine which features should be part of the IOS, in what order they should be implemented, and how the system will operate. Prins said "there is a long way to go" until the business plan is complete, but that he expects it to be finished in May. He added, however, that many of the details of the development of the IOS depend "on who the resource company is." NWDA's goal is to create an industry-wide electronic data interchange system that will reduce the costs to individual corporate users. The association disclosed the project at its November annual meeting. At that meeting, the accounting firm Coopers & Lybrand, which performed a feasibility study on the system, estimated that if the IOS were fully implemented, it could save wholesalers and manufacturers combined $550 mil. to $900 mil. annually ("The Pink Sheet" Nov. 18, 1991, p. 22). Calling IOS "an idea that's time is past," Prins estimated that the industry currently spends $200 mil. on "the chargeback system or [to] operate it annually," and "I would submit that if we gave $10 mil. to anyone in this room he could come up with a system that is potentially superior to the one we have today." Prins added that the obstacles to the development of the IOS are not technological, but "performance thinking as opposed to industry thinking." Technologically, "this is stuff we are doing today," he observed. Prins addressed concerns that the IOS would wash out the individuality and competitive advantages of individual firms by giving all wholesalers access to the same information system. The purpose of IOS, Prins explained, would not be "to interfere with the competitive nature at any level of the industry" but to reduce or eliminate costs "wherever possible." Cost reductions from IOS would not produce "a level playing field" but only reduce the entire industry's costs. Describing IOS as "an industry neutral service organization," Prins called it "an information utility." Using another utility as an example, he said, "think of us as the water company." The "most complicated part" of gaining acceptance for the IOS could be dealing with promotional offers. Prins noted that, "generally speaking, the manufacturers would like to keep their cards pretty close to their chests with promotions." Using an example where an IOS-type system has been used in the food industry, Prins said that Super Value supermarkets "asked for 12 months worth of data [on upcoming promotions] in advance" from Folgers coffee supplier Procter & Gamble. Once P&G revealed its promotional plans for the coffee, "all of a sudden it was a partnership that was formed because they relayed vital information." The transformation of the relationship between wholesalers and manufacturers from one of buyer and seller to one of partners was cited by Coopers & Lybrand as a prerequisite for the realization of IOS's full benefits. Without such a fundamental change, the accounting firm said that wholesalers and manufacturers would never move to a system of sales evaluated settlement to eliminate chargebacks and speculative buying.

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