Strategies to improve sourcing and procurement, including risk mitigation, was a key theme addressed at a recent conference for supply-chain professionals in the pharmaceutical industry. The conference, the Strategic Sourcing Summit, was held this week in New Brunswick, New Jersey, and was organized by the Drug, Chemical, and Associated Technologies Association’s (DCAT) Supply Management Committee and the Pharmaceutical Forum and the Chemical Group of the Institute for Supply Management. The conference featured perspectives from economists, analysts, regulatory officials, and chief procurement officers.
As speakers pointed out, sourcing and procurement professionals from the pharmaceutical industry and their suppliers face a myriad of challenges. The uncertainty in the economy, including volatility in commodity prices such as oil, affects energy costs for manufacturing and transportation. Prices for raw materials are affected by fluctuating prices for oil and natural gas that serve as the feedstocks for petrochemical-based products and their derivatives, thereby placing pricing pressure throughout the chemical supply chain. Approaches such as hedging can be use to mitigate the risk in commodity pricing and fluctuating currency exchange rates, an important consideration as the pharmaceutical supply chain lengthens and revenue and cost centers are located globally.
At the same time, the pharmaceutical industry is under continual pressure to reduce costs while maintaining quality control. Suppliers from low-cost countries such as China provide attractive options from a cost perspective. But as speakers pointed out, further considerations in the due-diligence process, project management, and review of the customer-supplier relationship need to be addressed to develop a successful sourcing program when working with suppliers from China.
With many variables affecting sourcing and procurement activities, an important take-away from the conference was provided by Michael Wise, a partner in A.T. Kearney’s life sciences practice, who provided the results of A.T. Kearney’s 2008 Assessment of Excellence in Procurement Study, which analyzed the procurement strategies of pharmaceutical and chemical companies. He pointed out that leading companies align their procurement strategy with their overall business strategy and that procurement takes an active role in developing that strategy. To realize that goal, procurement organizations from leading companies have moved beyond cost-cutting initiatives and transaction-based activity with their suppliers. Rather, they work with their suppliers collaboratively for continuous cost and process improvements, risk mitigation, and other value-added activities.
In light of the uncertain times we face, the deepening of the strategic role of procurement and collaborative supplier-customer relationships to execute that strategy are two things that we should bank on for the pharmaceutical supply chain.