What's different for a Contract Research Organization (CRO) when implementing an ERP solution?
Updated: Jun 11, 2020
Having worked across the full spectrum of the Life Sciences space, I have come to appreciate that every company in the Pharmaceutical, Biotechnology, and Medical Device industries has their own unique set of circumstances. Every organization is unique, but aligning approach to the service that a company provides is a reasonable first step as the business needs are often uniform across like companies.
The segment of industry known collectively as Contract Research Organizations (CROs) has a unique set of requirements as the primary revenue stream comes from providing a service to their customers rather than a product. The clinical support provided by the CRO saves a pharmaceutical or medical device company time and money by fulfilling a one-time need in the drug development cycle without having to purchase all the human resources or infrastructure that are required to complete these necessary studies and trials.
For the CRO itself, this means that the ERP system needs are going to vary in many aspects from their brethren in the Life Sciences industry. As I am completing a current project, I have been taking note of the similarities to CRO implementations I have done in the past:
Project Management and Accounting - Because the CRO is providing a service, every customer order is unique. They are long term commitments (think years) with many milestones along the way. No two are alike so having selected an ERP software with excellent project accounting capabilities, there will be heightened focus on this module during implementation.
Customer Invoicing - Project costs for the customer are broken down into milestones achieved as tasks are completed over the course of time. These tasks will vary in time and dollar amount. A portion of these milestone charges is often collected as a pre-payment whereas the remainder is invoiced as the given milestones are achieved. CROs need a solution within the ERP for this, ideally integrated with the Project Manager's task tracking tool.
Revenue Recognition - Given the pre-payments mentioned above, a solution for deferred revenue to be recognized over milestone occurrences is necessary to avoid accounting headaches. Because the milestones are task-based rather than a subscription- or time-based format, this makes the revenue recognition requirements more complicated.
Time Tracking - As this is a service organization, understanding true costs and margins primarily comes down to understanding labor and how the CRO's resources are allocated. Tracking employee and contractor time over the course of the day and project tasks is necessary to understand where the business is winning and losing. An ERP system that tracks such time or integrates to a project management tool, that does the same, is necessary to achieve this visibility.
Pass Through Costs - CROs consume material costs while completing the research for their clients. These costs need to be tracked as they are typically passed through to a customer, sometimes with margin. The ERP solution must account for this scenario in both costing, revenue, and invoicing.
Customer Demands for Visibility - Unlike a stock product or even a made-to-order product which simply has a completion date, customers of CROs need to know where their project is all along the timeline. This is important for both the cashflow forecast in payments due to the CRO as well as planning for the upcoming submissions that will occur at the end of the trial or study. A business intelligence (BI) tool that offers this as part of the ERP data will serve the CRO's needs well.
Research work is exciting and in the life sciences space does wonders for humanity. Having the proper systems in place at a CRO allows the business to focus on what they do best -- the actual research.
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