Hospital Pharmacist Vol 7 No 2 p37-41
February 2000 Special Features

Pharmacy procurement

Electronic data interchange

This first article in our special feature discusses why pharmacy departments should embrace electronic trading. It has been contributed by PharmEDI, a collaborative group comprising hospital pharmacists, pharmaceutical manufacturers, wholesalers and commercial software suppliers. The second article in the special feature deals with generics contracting in England

Electronic data interchange, or EDI, is a term that is bandied around in procurement circles, but is one that not too many hospital pharmacists fully understand. Even less of them have grasped the full potential of this development. Unlike other industries where this method of trading is routine, hospital pharmacy has not gained the benefits to be had in terms of driving down the cost of trading and eliminating processing errors. The reasons for this are explored in this article and some possible solutions detailed. Organisations like PharmEDI, a collaborative group of hospital pharmacists, pharmaceutical manufacturers, wholesalers, and commercial software suppliers, are in existence to facilitate the development and application of this software in the hospital pharmacy environment. The potential benefits are apparent, and the obstacles can be identified and surmounted. EDI benefits suppliers, wholesalers, pharmacy departments and ultimately, the patient. This article also aims to provide the reader with some underpinning knowledge about e-commerce and EDI trading. Furthermore, it describes how hospital pharmacy practitioners can move forward, with the support of the hospital and industry, to reap the undoubted benefits available from this new way of trading.

In electronic trading, streamlining of the business process results in cost savings to the pharmacy and supplier

E-commerce is a technology that has been used extensively in other markets. Supermarkets and other component industries use it to drive out costs and inaccuracies in ordering and pricing. They have also used the efficiencies of the technology to drive the supply chain, so that stock holding is minimal, problems are identified and dealt with promptly at an early stage, while keeping everyone informed. Every time we shop at our local superstore, the sale of each item is captured electronically, automatically producing an order that is communicated electronically up the supply chain. The invoicing and payment for those orders is also dealt with electronically. There is no paper in sight, and the fast efficient system ensures low stocking levels. Can this system work in hospital pharmacy?
The concepts of electronic trading and e-commerce as they apply to pharmacy departments will now be discussed.

Electronic trading

Although the pharmaceutical suppliers and hospital pharmacy departments each have their own computer systems (presumably as they offer advantages in efficiency), they usually rely on printed orders, delivery notes and invoices when communicating with each other. These take time to process and transmit (even with faxes), and, worse still, the printed descriptions of the goods are not necessarily the same, and rely on interpretation by humans. No wonder there are occasional errors.
In general terms, the aim is to improve the efficiency of trading between two business partners. The ultimate definition of this would be for the exchange of information to be between the trading partners' computer systems using accepted data standards for this communication. This streamlining of the business process should take cost out of the operation at both ends of the trading partnership. An improvement in the accuracy and timeliness of information is a benefit that grows as the trading relationship develops. Replicating successful electronic trading partnerships brings greater benefits, but the growth in trading partners takes time and patience. Ultimately, electronic trading becomes the major business tool and the greatest benefits can be reaped.
To unlock the benefits of electronic trading, the data needs to remain in an electronic form. This presents hospital pharmacies with the first hurdle, namely, that of sending the information from their computer system to the trading partner's computer system in the correct electronic format.
Some of the problems with exchanging data can be illustrated with the printed purchase order. The first step would be to get this document in an electronic format. However, sending this file could prove difficult, although not impossible, as the recipient may find all the different file types problematic to deal with. In any case, the product code and unit of measure will be hospital-based, again very difficult for the recipient's computer system to deal with. These problems are replicated for each potential customer, since hospital systems, even if they are from the same system supplier, are configured differently. Similar issues will arise in the reverse process of receiving, for example, an electronic invoice in the same manner from many recipients.

E-commerce

To make the exchanging of data work for all senders and receivers, an e-commerce gateway can be installed between the hospital pharmacy system and electronic trading partners.
E-commerce is a generic term used to describe the electronic trading environment, which is constantly changing due to advances in technology and communications. It can include a host of methods of transmitting information, including electronic faxing (e-fax), traditional EDI and special point-to-point, proprietary links (see below).
An e-commerce gateway is a software package that effectively works as a "translator" between the two computer systems, ie, those of the pharmacy and the wholesaler, and will allow the sender to match internal codes and pack sizes to those of the recipient. The communication link is either a modem over a telephone line or over the health service NHSnet network. The future holds much promise for the internet, offering interactive interfaces and more structured e-mail interchanges carrying the formatted messages of today.

The gateway offers the sender various methods of physically executing the e-commerce trade such as e-fax, EDI or proprietary links (see Figure 1). The data is then formatted to the standards agreed and required by the recipients. This overcomes the problems of exchanging data, and facilitates the electronic trading business advantages. Gateway software is continually being developed to move the electronic trading environment forward.

Figure 1: An overview of electronic trading

Today, hospital pharmacists can choose between two major gateways, both based on PC technology. They are sponsored by major distributors (Mediate from AAH Hospital Services and Provision from UniChem Hospital Pharma). Both products offer a point-to-point link to their proprietary distributor with e-fax and EDI available for open trading. Both systems have available automated interfaces to most of the hospital pharmacy systems. In both cases, there is a cost for the interface and a subscription fee to the EDI network, if required. The cost of the software is variable, and dependent on the business available to the sponsors. In the future, independent software will be available which maximises the benefits of electronic trading for all trading partners, while still allowing for competition. This will push the e-commerce boundaries forward, with these advantages being available to all on the same gateway software. Hospitals should seriously consider bearing these costs themselves. This enables them to be free agents in sourcing the product, thus utilising the most beneficial channels of supply, in terms of service and value-added benefits.

Electronic faxing This can be done directly from the pharmacy system. However, sending information from the e-commerce gateway adds value by matching the product codes of the drugs ordered to the recipient's product codes to make identification easier, sorting out any potential pack size anomalies on the order, cueing and logging the fax session for future review and allowing various audit checks to be performed prior to sending. This method is at the lowest level of e-commerce as the recipient still has to handle the data manually to get it back into an electronic format, which can lead to inaccuracy and error. However, as the first rung in the electronic trading ladder, some of the data matching and trading relationship requirements can be addressed for future use.
EDI EDI uses a value-added network (VaN), such as the GE network, as an electronic "post office". Anyone can subscribe to the post office and the subscription allows the sending and receiving of electronic messages within the network. This process is known as "store and forward". The post office receives formatted information from the sender and stores it in the sender's subscribed "mail box". The post office then processes the "envelope" in the mailbox, interprets the electronic address of the trading partner, which can be for one or many recipients, and forwards the information to the trading partner's "post box".
This process works both ways, so that while "posting" messages into the "mail box", the sender can also extract any messages waiting in their "post box". This becomes an electronic trading session analogous to sending a batch of purchase orders and receiving a batch of invoices. This relationship between trading partners must be negotiated and set up prior to the commencement of electronic trading. One of the terms to be agreed is the timing for retrieval of data. In the post office ambience, the recipient must retrieve the data before the trade of information is completed.
Once the data envelope containing the address information has been delivered to the recipient, EDI makes use of pre-defined and ratified message types. These message types, held within the envelope, conform to two commonly used standards, EDIFACT or TRADACOMM. The most commonly used is TRADACOMM, but the health service recommends the EDIFACT standard. Within the chosen standard, there is a choice of message types: purchase order, invoice, confirmation, etc. EDI requires that the traded documents, purchase orders and invoices must be packed to a predefined message layout or version. Some of the elements of the data within the layout are mandatory, but these low level data are part of the negotiation process with the recipient. As part of the negotiation, the standard, message type, version and any data elements are agreed and documented to form part of the trading agreement, some time referred to as the exchange interchange agreement. All these details will be negotiated for the hospital pharmacy department by the gateway company.
EDI is currently the most sophisticated method of e-commerce available to the hospital pharmacist today. It allows computer-to-computer electronic trading to take place, and enforces standards to a data element level, which facilitates open electronic trading on a many-to-many basis. It is proven to take cost out and improve accuracy. However, achieving these benefits will take time and in the early days EDI can be labour-intensive and time-consuming. Nevertheless, patience and persistence will pay off in the long term. Developing an electronic trading strategy and approaching it on a phased implementation will help. It is beneficial to develop the relationship with trading partners as this has been proven to increase the business awareness of the two partners involved.

Point-to-point trading This effectively means that a direct link is established between the customer's computer and the supplier, that is, there is no intermediary VaN. This gives greater flexibility in the details of data interchanged, produces a better performance and speeds up the communications. In hospital pharmacy, wholesalers use this type of communication where it gives the potential benefit of accessing real stock levels, especially if the wholesaler runs a live stock situation on their system. It can be used to enhance electronic trading if used in conjunction with other trading methods. However, if used as the only method of e-commerce, the full benefits of trading electronically are not realised, as it is only possible with a limited number of trading partners.

The benefits

The manual system is familiar to us, with printed orders, delivery notes and invoices being the norm. The electronic alternative is detailed in Table 1. It offers commercial, operating and economic benefits. 8. Invoice or credit note Paper system manually entered into pharmacy system Electronic invoice with automatic matching and exceptions management

Table 1: Comparison of the paper system with EDI
Trading process	Paper system	Electronic alternative
1. Need to order identified	Pharmacy system produces order based on reorder cycle. Extra order produced manually	Essentially the same. Can be done more frequently as the ordering cycle could be based on need rather than the order method
2. Supplier information (price/availability/services)	Present on pharmacy system	Still on pharmacy system. Items translated into standard codes (EAN) via a look-up table. Could get availability from supplier before placing order
3. Customer selects supplier	Done within pharmacy system (usually defaults)	Can have an option of intelligent selection based on stock availability, current price, etc
4. Customer orders	Order printed, then posted, faxed or read out over the phone	Order already matched perfectly to supplier; descriptions sent instantly
5. Supplier confirmation (price/availability/delivery date)	Verbal message by 'phone. "To follows" are faxed back on delivery note	Automatic confirmation of delivery. Confirmation of order received and "to follows"
6. Selection of secondary supplier (if necessary)	Manually done	Review updated supplier information on system
7. Goods receipt	Paper system with details manually entered into pharmacy system	Bar code reading of delivery details and goods automatically updates pharmacy system. Automatic prompting with storage location
9. Payment	Paper system manually entered into accounts system	Automatic transfer of invoice details. Automatic payment systems

Data accuracy This is one of the first benefits to be realised. Data is transferred between systems with significant improvements in speed and accuracy.

Lower transaction costs This results mostly from less inputting in the transmission and receipt of information. This is shown in more detail in the section headed "cost benefit analysis".

Improved cash flow Significant internal savings can be achieved by the elimination of paperwork and clerical effort. One-off savings in stock holding have been demonstrated by Alan Dean and Sue Gerrard (Pharmacy in Practice, April, 1995, p161-3).

Improved accountability Another advantage of EDI is that auditing and traceability are easier to achieve by the elimination of paper records and the ability to maintain automatic audit logs.

Effective use of human resources Staff time is freed up with reduced processing requirements. Humans are given the time and information they need to do what they are good at, dealing with problems.

Closer trading relationships The establishment of an EDI partnership involves a high degree of dialogue between customer and supplier. This has historically resulted in a greater understanding of each other's requirements and priorities.

Precision timing Advanced notification of shipments, early warning of low stock levels, and customer sales forecasts can be combined to result in smoothing the "lumps" in the supply chain, and a better "meshing together" of its component parts. This has been generally acknowledged to have occurred in the motor manufacturing and supermarkets industries, but is some way off in pharmaceuticals. It is when we can deliver this that we will maximise the benefits of electronic trading in the hospital pharmacy environment.

Cost benefit analysis

Setting up any new system would inevitably involve cost and effort. It is therefore important that pay-back can be projected and built into a business case.
In terms of cash, the following is a realistic projection and may be worse case:

Item	£
PC hardware	1,200
PC software	5,000
Training	250
Network	250
Interfacing costs	3,000
Total expenditure	9,700

However, if the system is fully used for ordering and invoicing, a considerable benefit in time can be predicted. This could result in staff being redeployed or (more likely) the prevention of the need for new staff to meet increasing workloads.

Thus it can be seen that the initial outlay is returned within 0.8 years (a rate of return of 115.7 per cent).

Constraints

A recent meeting of PharmEDI tried to identify the constraints that are preventing the widespread adoption of EDI. The following were agreed as being problems that had occurred:

• High cost of setting up
• Time needed to set the system up
• Pharmacy systems not being able to handle EDI
• Lack of understanding of EDI and particularly its benefits
• Problems caused by security of hospital IT systems not allowing dialling out
• EDI controlled by major wholesalers
• Lack of reference material
• Limited numbers of suppliers offering EDI trading

The meeting also came up with solutions, some of which form this article. The high cost of setting up and time involvement can be tolerated if a pay-back position is seen to be achieved quickly. This calls for more information to be provided for users. PharmEDI have prepared this article, which constitutes the basis of a help pack available to hospital pharmacists. Pharmacy system suppliers will respond to customer requirements, and most of the big systems are now able to interface with EDI suppliers.
Pharmaceutical wholesalers have agreed to allow access to their product catalogues by hospitals, whichever system they are using. IT departments can be reasoned with, particularly if other sites who have overcome the problems can be used as examples. The use of the NHSnet is also assuaging security problems. Thus, most of the barriers are down or at least are less daunting.

Making a start

Future developments

It is inevitable that EDI will move to the internet. The internet will become more and more influential in our lives. Trading via this route is free, and will allow widespread access. There are currently difficulties with security, but these are being managed by encripting software coding the messages. It may well be that hospital pharmacies will be able to search for products or even best offers using a search engine on their machines which is updated live with stock availability, price information and new products. Future purchasing could then be adjusted accordingly.

NOTE:

Any correspondance concerning this article should be addressed to Kevan Wind, Pharmacy department, Southend hospital, Westcliff on Sea, Essex SS0 0RY.