Managing Strategic Sourcing and Procurement Complexity in the Life Sciences Industry
Life Sciences companies have reached a tipping point with a recent sequence of external events forcing the industry to re-evaluate their strategies and rethink their goals. On one hand the drug patents for some of the most blockbuster drugs started to end from 2011. This phenomenon referred to as ‘patent cliff’ is expected to continue for the next five years. It means that medicines that currently generate $133 billion in U.S. sales alone will face generic competition, according to Evaluate Pharma. On the other hand there is a growing decline in US prescription sales to the lowest in decades. The projection from data firm IMS Health shows the global prescription drug market growing by 3 to 6 percent over the next four years to $1.2 trillion by 2017 compared to a growth rate of 5.4 percent in the last four-year period. These coupled with the ever-increasing R&D costs have mandated the companies to find new ways to save costs to counter diluting revenues and redirect money back into R&D.
The Outsourcing Conundrum for pharmaceuticals
Outsourcing is one of the major trends in pharmaceutical business, motivated in part by efforts to reduce costs and increase ready access to specialized capabilities and services. This is a natural evolution beyond back office outsourcing like finance and accounting and information technology, of which pharmaceutical firms have been strong adopters. Companies are increasingly outsourcing activities previously considered core internal processes ranging from formulation, lab services (assay testing, toxicity testing), validation processes, clinical trials, downstream production and regulatory advice.
Supplier Management: A strategic imperative
There are, however, challenges associated with outsourcing especially in an industry like life Sciences. Companies now have to manage a large number of fragmented outsourced processes, which in itself may result in unintentional inefficiencies. Thus, there is a need to consolidate, streamline and manage suppliers consistently and efficiently to mitigate related risks. Supply risk is typically associated with single source suppliers – API, specialty components. Supplier risk management is needed to identify potential new suppliers, analyze these new suppliers, and score them on key performance indicators of price, quality, reputation and service. Companies generally communicate the score back to suppliers and allow them to act on the feedback and continually measure the improvements. Once a supplier is finalized, they need a host of services to help simplify and streamline the commerce process for both buyers and suppliers – from automating key purchase, invoice, and payment transactions; to accessing community-based insights and services like dynamic discounting, receivables financing, and community-based ratings and market data.
From supply chain to a supply network
The industry also needs to have a re-look at the supply chain. In fact, it needs to think not about supply chains — with their sequential orientation — and more about supplier networks with multiple points for obtaining information and taking action. Companies should have access to supply chain insights enabling faster and more informed decisions aligned with direct and indirect spend, supply, inventory, and fulfillment goals. They should support serialized item traceability to allow monitoring of condition of goods and provide authentication service/ pedigree information and enable faster recalls.
Outsourcing and offshoring of the pharma and life sciences industry in its many forms has resulted in significant benefits — revenue growth opportunities and lower costs for companies, lower costs for patients and greater access globally to life-saving and life-enhancing products. Yes, it is fraught with insidious challenges and invidious risks companies have not seen before. To counter them a well-orchestrated and thoughtful outsourcing strategy is needed to achieve multiple benefits that many are not currently achieving. The best practices are here and you don’t need a weather man to know which the way the wind blows!
You can read the full blogs along with the infographic at http://blogs.sap.com/innovation/industries/manage-strategic-sourcing-and-procurement-complexity-in-life-sciences-0125083…