With expiring patents, the proliferation of generic drugs, rising requirements for investment in R&D and marketing, and massive pressure from governments and health insurance companies to reduce end-market prices, there is an enormous opportunity for procurement to increase its contribution to sustainable business performance improvement.
Procurement is long overdue for a significant upgrade in many pharmaceutical organizations. The pandemic extends a unique opportunity and poses an immense need to ensure that the procurement process in the pharma sector can optimize risks and maximize costs more efficiently.
Organizations require an effectively sustained and self-funded transformation technique to achieve step-up changes in their procurement. This implies that pharmaceutical organizations can examine how procurement processes can utilize new technologies to solve current challenges.
It is quite evident that gaining better visibility in spending lays a foundation for improving and enhancing the management of categories and suppliers. Moreover, better visibility in spending lays a robust foundation for optimizing indirect expenditures. This is precisely what pharma businesses are doing to stay relevant.
It's time for a new Procurement Paradigm
Procurement functions play a pivotal role in getting pharma organizations through the crisis. The pandemic has created vulnerable supply chain uncertainty, complicated demand forecasting, and disrupted manufacturing operations. The challenges for supplier risk management and supply chain continuity are likely to continue in the coming times. And they come on top of other problems that pharma organizations have been coping with in recent years, including higher pressure to reduce costs, faster cycles for product launch, and more intense regulatory scrutiny. At the same time, however, the crisis has opened a window of opportunity to diminish spending and fundamentally rethink the role of Tech Operations procurement.
Some pharma companies have started to improve the procurement capabilities that support TechOps, mainly by deploying digital technology. However, most are still far from matching their peers in consumer goods and other adjacent industries. For various reasons, pharma firms have been reluctant to upgrade procurement radically. Once an organization selects a product platform, its expenditures are typically locked in throughout the product life cycle. This makes the situation hard to change the approach to procuring products in specific categories and managing suppliers. If a company changes its supply chain, it may be required to address regulatory compliance problems and adjust quality needs—which, again, creates issues to doing things differently.
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Siloed perspectives and decentralized decision-making on costs can also hamper an organization's ability to make fundamental changes. Likewise, the supplier network is generally fragmented and has grown organically without an eye toward enterprise-level costs. The network is managed decentrally, often based on undocumented knowledge held within subgroups of managers.
So, the time has come for pharma to overcome these obstacles to change. Let's navigate through the future of the procurement process in the pharma industry with a closer look at approaches shaping the sector.
1. Category Management
Procurement systems should fundamentally rethink how they implement category management in Tech Operations. By transitioning to an approach based on maturity, segmentation, and opportunities, the companies can manage the complexities of achieving targeted output. This assists the enterprise identify early savings—such as quick reductions in indirect spending—that can be applied to fund the subsequent journey.
Categories differ concerning the lead time or effort needed for a change. For instance, in some cases, changes in secondary packaging might be more straightforward than getting regulatory approval to change an active pharmaceutical ingredient (API). But, rather than considering a single category at a time, procurement functions should group them into segments based on clearly articulated priorities. Procurement teams can then evaluate each category's maturity to determine where changes can yield tremendous benefits. Finally, by prioritizing the size of the spending under consideration, the organization can first identify and pursue the most valuable opportunities.
This approach to category management offers a solid foundation for realizing savings through supplier management, which is the natural next step and is closely linked. A successful procurement company seamlessly iterates its activities in both areas.
2. Spending Visibility and Control
The pandemic underscores the requirement for speed and transparency in procurement companies. Organizations must adjust and respond instantly to the crisis and associated transformations in the global supply chains. They can utilize a real-time view of spending to assess item-level information on unit costs by site and supplier. This offers a baseline for identifying opportunities to leverage procurement synergies or save costs across the manufacturing network. Organizations also need insights on future demand (over the short, medium, and long term) to optimize quantities ordered, contract terms, vendor-managed inventory, and frozen horizon periods.
To drive efficiency and scale across the network, the procurement organization needs a clear decision-making structure and rules on decision rights related to buying and spending. This clarity is precious to address the intricacy of decentralized site-level purchasing.
Procurement companies that reach a high maturity level for spending control and visibility can curate tremendous value. And, because these improvements do not put any effect on the related manufacturing processes, an organization can capture this value without the need for lengthy regulatory reviews.
3. Effective Supplier Relationship Management
Long-lasting supplier relationships are significant to procuring higher quality products at the lowest prices. Building a solid relationship with a known supplier is far more effective than continually switching vendors to lesser costs. Frequently changing suppliers come across additional burdens on the complete procurement ecosystem. Suppliers put tremendous effort into understanding your business requirements over time, including feedback on the quality of raw materials purchased and the delivery speed, allowing them to make any necessary corrections to their processes. A robust supply chain management system that supports collaboration in such cases assists in integrating suppliers as partners to add value to the overall supply chain process.
4. Transformations in Tech Operations procurement
Companies adopt positive changes in their tech operations procurement by adopting specific developments: supplier management, spending visibility, and category management. It is, however, crucial that organizations take a rigorous step to sequencing the roll-out of transformation to ensure long-term scalability and sustainability.
As procurement continues to transform with changing developments in the pharma sector, companies must look into the enablers of successful procurement. These enablers include;
People - Internal and Staff procurement stakeholders must agree on the incentives that support this transformation for value realization.
Systems - An organization must upgrade its enterprise resource planning ERP system to enable effective spending management. An intelligent ERP system provides all spending visibility and visualizes expenditures by supplier and category.
Digital analytics - This element is the best enabler for getting the best from people and systems. To empower its employees and achieve a real-time data system, a company needs highly interactive and intuitive interfaces.
Therefore, Pharma organizations that lead the way in initiating and scaling up a transformation will gain significant benefits in cost and risk management. Moreover, the advantages of achieving step-change improvements in procurement operations will extend beyond individual organization to the entire pharma industry & the healthcare ecosystem.
Considering the lead time needed, organizations need to start taking action today to capture the benefits in the years ahead. If you're willing to learn more about Polestar Solutions Procurement's approach to the pharma industry, book a session with our Pharma experts today!