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The solution to leaking profits

SAP developed a system that helped South Star Drug put a stop to pilferage and enabled its owners to make swift financial decisions.
By Lenny Tirazona |

Drugstore chain South Star Drug automated part of its operations as early as 1986, at a time when small businesses were leery of information technology solutions because they were thought to be costly and complicated to set up.


[related|post]“We saw that the most important thing in business is control. That was why we decided to use technology to create our inventory management system (IMS). This way, we monitor the stocks and become aware of pilferage, the top problem in the retail pharmaceutical industry,” explains Manuel Dy, sales and marketing vice president.

South Star began as a Chinese herbal medicine store in Naga City, Camarines Sur in 1937. Family patriarch Tomas Dy Makao, an apothecary, formulated the medicines sold in the store. The American forces’ arrival in the country after World War II had the family adding a Western touch to the Chinese pharmacy.


The Dys attribute their success to their strategies of opening in hard-to-reach areas, offering competitive prices, and making medicines readily available, and which accounted for their steady growth for 69 years. But like many long-standing businesses, South Star’s tried and tested system had also brought forth serious problems, such as pilferage. In 1998, the Dys lost around P8 million worth of drugs in a span of six months.



“What the thieves did was to replace the contents of milk cans with powdered drugs, so that it appeared that they were buying a P900 milk formula when actually it was worth P15,000.” The Dys suspected it to be an inside job, and that erring employees were conniving with big syndicates targeting pharmacies. “I was able to confirm this when friends from the industry related similar experiences,” relates Manuel.


The owners wasted no time in creating and implementing a point of sale (POS) system to take care of their front end. But like their first system – the IMS – the POS was also made in-house to handle inventory management and was used only to collect and store sales data, including bar code reading and credit card authorizations.


But even with all the stores using the POS in 2003, the owners were not happy with the system because it could not produce financial reports quick enough to enable them to make financial decisions in a snap. “We decided to look for another solution that would help us make fast decisions. In business, the financial aspect is the most important thing,” says Manuel.



Three considerations guided the Dys in their search for a solutions provider: that the system to be designed would be flexible, that it had to fall within their budget, and that it had to be the work of a reputable, stable firm. After a careful study, the owners decided on SAP, a company known for its Enterprise Resource Planning (a business management system that integrates all facets of the business, from planning, manufacturing, sales, to marketing, and is usually intended for big corporations).


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