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Sourcing & Procurement in the Pharma world

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For a long time the pharma industry has delivered high profit margins banking on patented and innovative products. However, times have changed now since generic drugs have started entering the market and emerging markets have started gaining prominence.


I took my 1st steps in the corporate world in the sourcing & procurement department of a leading Indian pharmaceutical company. Life has come a full circle now as I work in the services sector designing sourcing & procurement outsourcing solutions for customers including leading global pharmaceutical companies. I have moved from being in the client's seat dealing with raw material suppliers for the pharma industry to the opposite side of the table being a supplier of outsourcing services to pharmaceutical companies. The domain still remains the same - Sourcing & Procurement, however it has evolved over the numerous years.

For a long time the pharma industry has delivered high profit margins banking on patented and innovative products. However, times have changed now since generic drugs have started entering the market and emerging markets have started gaining prominence.

The procurement department has started gaining much more attention as companies look at more and more avenues for cost reduction & increasing efficiencies. This focus has been attained due to the fact that procurement accounts for about 50-60% of the total cost to pharmaceutical companies.

The pharmaceutical sector has a high level of sourcing & procurement maturity with respect to its direct spend. Spend visibility and control over categories such as APIs, intermediates & excipients is high. However, the indirect spend area is still gaining maturity as compared to the maturity levels in the automotive & retail sectors. The indirect spend in the pharmaceutical industry does constitute of categories such as facilities management, MRO, IT,R&D, freight & distribution, travel, marketing & sales, personnel and professional services etc. like many other industrial sectors.

However, the spend on R&D category in the Pharma sector is quite high as compared to many other industries. In categories such as these which require a high amount of technical expertise (sub-categories like: clinical trials, analytical equipment etc.), the procurement department was considered to be only a support system rather than a strategic partner. However, transformation initiatives are being taken up by companies and cross functional teams are now being formed for such kind of sourcing projects where the subject expertise is provided by the R&D personnel and the sourcing manager concentrates on negotiating the required KPIs & SLAs at the best possible price and terms & conditions. Collaboration between these functions has increased considering that the R&D phase of a drug/molecule is a costly affair and the choice of a wrong supplier at this stage & changing it later would result in the reduction in the effective use of the patent life & a delay in market entry, for which the company might have to pay a heavy price.

Besides forming internal cross functional teams, the concept of collaborative sourcing is also on a high, especially for categories such as packaging materials where pharma companies work hand in hand with their specialized packaging suppliers to tackle issues such as counterfeit drugs. Of course, such kind of relationships are based on a high amount of trust by both the parties.

R&D activities sometimes require adequate supply of hard to source materials. The quantity might be less during the development stage of the product but as it moves onto the pilot and then to the production stage, the requirement might increase exponentially with tighter specifications, GMP standard requirements and regulatory compliance. Hence, R&D specialists have realized that involvement of the sourcing team early on during the new product development, leads to lesser problems later. Due to this , they are also able to concentrate more on their subject matter & leave the vendor search & development aspects to the sourcing team.

Pharma companies have realized that in the bid to attain more cost savings & increased efficiency, indirect materials also need focus apart from the highly strategic direct materials. Hence, clearly defined procurement policies, supplier relationships, volume consolidations, specifications harmonization, TCO models, e-procurement solutions etc. are some of the strategies which have emerged in the indirect categories domain as well.

What are the challenges or peculiarities that sourcing & procurement faces in your industrial sector? Let's continue the discussion.

Comments

Deepa - As I was also a part of the above experience, fully echo your thoughts. Very cohesive.

Dear,

Nice post.. Please post a article on career growth in Procurement outsourcing and how can you compare with procurement in direct materials.

Akash

Decent detailing Deepa. Pharma S&P is a different world in itself on many dimensions. Stakeholder management's importance and mutual collaboration amongst S&P and them is key. You detailed these aspects by business functions aptly. Good stuff and keep writing.

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