An integrated American healthcare, pharmacy, and retail leader serving millions of customers and patients every day, Walgreens has a time-honored prescription for success: continuous innovation of business processes to improve customer, vendor, and operation experiences.

Once Walgreens identified that its legacy scan-based trading mainframe solution was creating invoicing issues, the company—which went live on SAP S/4HANA Cloud in the fourth quarter of 2022—leveraged SAP solutions to innovate an end-to-end solution, enabling faster and more accurate payment processing.

As presented by Walgreens Boots Alliance employees in their opening keynote session at the June ASUG Chicago Chapter meeting (June 15 at Harper College, in Palatine, Illinois), the 18-month scan-based trading innovation journey at Walgreens—which earned the company the title of Business Innovator at the 2023 SAP Innovation Awards—has driven significant business efficiencies.

“Walgreens is a world-class organization; therefore, we needed a world-class consignment program that benefits our organization,” said Brad Trychta, Senior Director of Enterprise Financial Services at Walgreens Boots Alliance. “That objective was met with the tools and environments delivered by SAP.”

Overcoming Legacy Deficiencies

Through the process of scan-based trading, vendors maintain ownership of and responsibility for their physical inventory in retail stores until each product is sold and scanned, at which point the vendor gets paid and relinquishes ownership. Holding retailers accountable for items that sell, the process can reduce inventory holding costs and cut down on purchasing costs, giving vendors greater visibility of inventory and sales information while speeding up the payment process.

Previously, to generate invoices, Walgreens’ legacy system outside of its massive SAP landscape required point-of-sales data, stored within SAP, to be transferred out to the legacy system and transferred back to SAP through several distinct interfaces. That was a multi-step process that ran the risk of accruing data inaccuracies and contributing to incorrect invoicing.

Issues like an 11% invoice error rate in billings led to an inbound volume increase in the Walgreens Call Center, requiring Walgreens and vendor employees to manually fix the results of inaccuracies each day. The sum of these incorrect payments reached $117,000,000 over three months, impacting more than 8,000 drugstores Walgreens maintains across 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Moreover, vendors were not receiving the visibility Walgreens committed to provide them with.

A Successful Migration

To eliminate inaccuracies and provide a daily record of sales activity to scan-based trading vendors, Walgreens needed to migrate scan-based trading invoice information over to SAP and move away from its non-SAP legacy workflow. Ultimately, Walgreens innovated an enhanced daily invoicing flow in SAP that was capable of providing data at the article, universal product code (UPC), and store level.

One of the key challenges was differentiating between Walgreens-owned merchandise invoicing and merchandise invoicing for scan-based trading vendors, to maintain distinction and prevent inadvertent payments to vendors. “What drove our success in this respect was tight controls,” said Beverly Barnes, Senior Manager, Inventory Controls at Walgreens Boots Alliance.

The company’s first go-round for scan-based trading in SAP, implemented in October of 2021, failed to achieve the success rate that Walgreens required and needed manual fixes, so the Walgreens team went back to the drawing board, realizing by June of 2022 that an overhaul of the design, rather than minor fixes, would be necessary. Walgreens’ final end-state design for scan-based processing was ultimately completed within three months. In that compressed timeline, its teams came up with requirements, designed it, built it, tested it, and deployed it.

In the new, SAP-run process, cost-of-goods to a vendor is still recorded when an item is scanned at the register, with a daily MRKO process converting it to article-level invoices created on behalf of the vendors. A control report is then generated to ensure that all invoiced transactions were successfully copied to Walgreens’ Customer Activity Repository (CAR) environment, signaling CAR to generate UPC-level data files for transmission to vendors.

With this design, implemented in the fall of 2022, Walgreens has experienced a 100% match rate of success with invoicing, costs, materials, UPC, and electronic data interchange (EDI) going out to scan-based trading vendors. The improved process enabled Walgreens to migrate from its legacy mainframe systems and use all SAP systems for processing.

Post-Deployment Improvements

With its new scan-based trading solution, Walgreens has improved the experience of its vendors, enabling consistently on-time, accurate payments as well as timely, actionable visibility into what’s selling in stores. In addition, vendors have seen improvements such as:

  • Maximization of stock in individual stores
  • Improved forecasting of product production
  • Minimized in-store inventory scouting
  • Increased labor cost efficiencies 

Since migrating scan-based trading invoice creation into its SAP environment, Walgreens has seen its error rate drop to zero on most days, with residual errors reaching only one half of 1% of all invoices. On peak days, such as Christmas and Mother’s Day, SAP enables Walgreens to handle 1.2 million scan-based trading transactions, translating to 2.3 million items sold. Even at this volume, processing requires only two to three hours and does not impact other concurrent SAP processes.

As a result of this deployment, Walgreens vendors  gained visibility into what’s selling in each store and can perform daily operational analysis and accurate forecasting, while eliminating in-store scouting of inventory and reducing inefficient use of shelf space. “The power of what SAP does inside of Walgreens is just starting right now, but it’s incredible,” said Trychta.

In considering the keys to the company’s success, he credits the Walgreens team with responding to unexpected obstacles along the way. “Scan-based trading with SAP didn't work out of the box for Walgreens Boots Alliance,” Trychta said. As a result, the team needed to be flexible with integrating its SAP software with third-party vendors and to be consistent in holding SAP, its vendors, and its partners accountable. TCS served as Walgreens’ managed service provider; the company also engaged SAP Max Attention. 

To tackle the challenges of scan-based trading migration, Walgreens’ EDI team collaborated with developments ops teams for manage finance, channel execution, and CAR, among others, in addition to business subject matter experts.

“One key driver is having the structure of your team be cross-functional,” Barnes said. “It can’t be a silo of one area working on deploying, designing, and implementing a new process into the system. You have to have your key subject matter experts involved as resources on that team, to have that dedication that you’re all working toward the same goal.”

For its world-class scan-based trading solution, Walgreens won the Business Innovator prize in the Health Care category of the 2023 SAP Innovation Awards. Review its keynote slide deck from the June ASUG Chicago Chapter meeting.

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