Growing Stronger After the Storm

To manage through a resource-constrained environment, it is essential to get the most out of procurement planning
Feb 01, 2011
By Pharmaceutical Executive Editors

Reassessing ways of doing business, then changing your organization's behavior to your advantage is key to finding the sweet spot between managing demand and consumption. (getty images / andy roberts)
The global financial crisis has led many pharmaceutical companies around the world to make strategic changes and, more often than not, reduce costs. Fluctuating prices, aggressive generics entries, and challenging pipelines, are adding increased pressure on the top line, so executives need to have an efficient annual setup in order to free up cash flow for R&D, while also preserving margins and shareholder returns.

While working to manage company growth and operational challenges, one of the key levers in cost strategy is excellence in global procurement and, above all, execution of the broad project portfolio across the organization. These imperatives have elevated the role of the procurement executive from a buyer of goods and services to a true business partner in the pharmaceutical companies' quest to remain profitable and competitive in the turbulent economy.

Making an impact on costs is complex in large multinational, matrixed corporations. To see a true impact on your bottom line, you need to ask the right questions from the start, and tailor your programs to your business's unique circumstances. While there is no one-size-fits-all strategy, I have found through many years of working with pharma companies that there are five key questions every global procurement executive should ask as they enter a constrained fiscal and payment environment in 2011. Addressing these issues will not only put you in a better position to plan for the year, but also help you come closer to meeting your financial goals.

1. Are you aggressive enough in your targets on procurement cost savings?

Many executives limit themselves by comparing their results with other large pharmaceutical companies. Consider looking at more aggressive businesses in generics and other industries, which have taken more of a hard line on their cost reduction strategies and, consequently, have seen bigger payoffs. For example, one professional benchmarked the travel expenses of a pharmaceutical client's executive office to those of other global manufacturing firms with the same geographical footprint. He found a $9,000 to $10,000 difference per person in total annual costs, demonstrating an enormous opportunity to revisit travel cost targets. This strategy can even be more dramatic if you start comparing industries like automotive or high-tech, which are making most of their profits from their ability to source and procure effectively.

2. When you look at procurement costs, are you looking at all the factors affecting them?

Just focusing on driving prices down with suppliers is a good start, but usually this will have its limits, as it affects only your suppliers. The concept of total cost of ownership has gained greater importance in many corporations, but the degree to which it is implemented is a different story. We find that managing demand and consumption remains mostly unexplored. The key is to reassess ways of doing business first, then change behavior within your organization to modify—to your advantage—the current demand and adaptation to new processes.

A leading pharmaceutical company needed to reduce their overall marketing spend. We worked to prioritize their needs, while looking for ways to generate greater compliance and reduce costs. Several new processes were developed, such as requiring that 90 percent of all purchases go through an approval process, scaling back catalogue offerings, and requiring longer lead times for placing orders. As a result, the company experienced 40 percent savings across the key regions with no loss of business.

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