By: George Mathew
Key takeaways
- Supply Chain Transparency and Visibility: Maintaining transparency and visibility in the supply chain is crucial for efficient pharma procurement, enabling better planning, forecast demand, and managing supplier performance.
- Comprehensive Procurement Process: A thorough procurement process that ensures the timely supply of the right pharmaceutical products in the right quantity while adhering to approved quality standards is essential for the pharmaceutical industry.
- Supplier Relationships and Ethical Sourcing: Building strong supplier relationships and sourcing materials in an ethical way are vital for securing high-quality raw materials and maintaining pharmaceutical expertise.
- Advanced Procurement Methods: Utilizing advanced procurement methods and incorporating legal expertise can help streamline operations, manage total costs, and enhance the overall efficiency of medicine production.
What is procurement in the pharmaceutical industry?
Pharmaceutical procurement is the process of procuring the supplies, tools, and services required to produce medicines, clinical trials, and other associated tasks. There are various crucial factors to consider when purchasing pharmaceuticals. To guarantee the security and effectiveness of the finished products, it is first necessary to source premium chemicals and raw materials from reliable vendors. To satisfy regulatory requirements and protect the quality of medicines, this is essential. Additionally, pharmaceutical procurement involves managing relationships with suppliers, negotiating contracts, and ensuring timely delivery of materials. Collaboration with suppliers is vital to maintain a steady supply chain and avoid disruptions in production. By streamlining procurement processes, the industry can improve efficiency, reduce costs, and ultimately contribute to better healthcare outcomes for individuals worldwide.
Key challenges in pharma procurement
Lack of supply chain transparency
The lack of visibility in the pharmaceutical supply chain presents significant challenges for companies in planning medicine production, forecasting demand, and managing inventory. Inadequate and inconsistent data standards hinder regulators’ ability to identify drug supply issues, impede policymakers’ informed decision-making for supply chain resilience, and leave healthcare providers blindsided by critical pharmaceutical shortages. Furthermore, the lack of transparency is associated with security issues, making it challenging for buyers to safeguard medicines they are unable to track.
Unsatisfactory supplier performance
Inadequate performance by suppliers commonly leads to unforeseen costs. For instance, a pharmaceutical company may experience heightened acquisition expenses when a supplier fails to meet delivery deadlines. Additionally, the company must bear supplementary costs related to the replacement of improperly packaged drugs that are subsequently discarded. Unseen costs can accumulate, escalating due to various issues linked to supplier performance, such as inadequate documentation, storage inadequacies, incorrect dosage forms, and other factors. Any of these performance failures can significantly disrupt the supply chain at various levels. If not effectively managed, poor supplier performance has the potential to compromise drug safety and availability.
Geographic factors
Numerous pharmaceutical companies, reliant on global markets for drug materials, face considerable susceptibility to geopolitical shifts. For example, dependence on sources in countries affected by tariffs can significantly elevate operational costs for pharmaceutical firms. Furthermore, the implications of climate change may disrupt supply chains and lead to substantial cost escalations. Regions that were historically primary suppliers of raw materials may encounter challenges due to extreme weather events, which can impede production and result in inflated expenses.
Current procurement strategies for the pharmaceutical industry
Effective supplier relationship management
Having enduring ties with suppliers is essential for getting better APIs at the best pricing. It is considerably more beneficial to establish a solid rapport with a trusted provider than to keep switching pharma vendors to save costs. The whole procurement ecosystem is impacted by frequent supplier changes. In order to make any required adjustments to their operations, suppliers spend a lot of work knowing your company’s demands over time. This includes receiving feedback on the quality of raw materials purchased and the speed of shipments provided.
Sustainable and ethical sourcing
The pharma industry is addressing sustainability by prioritizing sustainable sourcing of raw materials. This involves working with suppliers who adhere to environmentally friendly practices and promote responsible land and water use. By doing so, pharmaceutical companies contribute to the preservation of natural resources and protect ecosystems. Ethical sourcing also extends to the labor conditions within the industry. Pharmaceutical companies are actively working to ensure fair treatment of workers and promote safe and healthy working environments. In addition, many companies are implementing stringent auditing and certification processes to verify the sustainability and ethical practices of their suppliers.
Support for the strategic vision
Pharma’s current supply chain management system ought to aid in achieving its strategic objectives. Spend analytics, which is collected from many aspects of purchase transactions, can perform features like a quicker purchasing process. The success rate of higher-quality materials from approved suppliers, competitive pricing information, and assessing on-time delivery from preferred suppliers are just a few examples of key analytics that can help the purchasing department of the organization make better decisions and achieve its objectives.
Pharmaceutical procurement methods
Procurement methods within the healthcare system typically fall into the following categories: restricted tender, open tender, direct procurement, competitive negotiation, and international and local shopping.
Restricted tender: Suppliers are required to undergo a prequalification process to demonstrate their past supplier performance, manufacturing practices, and financial viability.
Open tender: Any supplier representative can submit their offer, complying with the terms and conditions outlined in the tender invitation.
Direct procurement: Drugs or materials are acquired from a single supplier at a negotiated discount or quoted list price.
Competitive negotiation: The buyer engages with a limited number of suppliers (usually at least three) to negotiate the price or establish specific service arrangements.
International or local shopping: Similar to competitive negotiation, the company contacts an average of three suppliers; however, price negotiations are not permitted.
Futuristic and innovative procurement strategies
End-to-end data traceability
In the near future, the pharmaceutical industry’s existence may be made simpler if pharmaceutical businesses are able to track every stage of the pharmaceutical supply chain from the manufacture of the medicine to the patient’s hands. This would enable a multitude of benefits such as ensuring product authenticity, enhancing patient safety, improving efficiency, and combating counterfeit medications. This would allow for real-time monitoring of the product’s journey, ensuring that it remains within the required temperature and storage conditions.
Increased reliance on artificial Intelligence
Artificial Intelligence has the potential to revolutionize various aspects of pharmaceutical research, development, and manufacturing processes. With its advanced analytical capabilities, AI can help pharmaceutical companies analyze vast amounts of data, such as patient records, clinical trials, and scientific literature, to identify patterns and insights that humans may have missed. This can lead to faster and more accurate drug discovery, as well as the development of personalized medicines tailored to individual patients.
Packaging automation
With automation, pharmaceutical companies can streamline their packaging processes, reducing the risk of human error and ensuring consistent quality. Automation technologies like robotic packaging systems, smart labeling, and high-speed packaging machines will revolutionize the industry. They will enable faster production, precise dosage measurements, and improved tracking and traceability. Moreover, automation allows for customization and personalization of packaging, making it easier to cater to individual patients’ needs.
On-time delivery
Timely delivery of raw materials can improve how drugs and healthcare supplies are distributed. This would eliminate the risk of delay in procurement, saving time and effort, while also ensuring quick access to critical supplies. Implementing user-friendly mobile applications or voice-activated platforms that allow purchasers to place orders seamlessly is essential. These platforms should be integrated with inventory management systems to ensure real-time tracking of available raw materials and supplies.
Cloud-based platforms
If pharmaceutical companies manage procurement operations via the cloud, they can move commodities through the supply chain much more quickly. Utilizing portals and clearly defined procedures improves communication with suppliers and speeds up the processes of procurement. The use of interactive visualizations and presentations, augmented reality, and virtual reality for forecasting demand and delivering on time, inventory management, and supplier research can be beneficial for pharma companies.
Success Story: How a pharma giant enhanced its procurement function with SpendEdge
The pharmaceutical business encounters several difficulties with procurement, including choosing a reliable source, issues during the transit of APIs, and improper inventory management, which make it challenging to acquire materials effectively. To tackle this, they need to take a step toward the area of packaging and deliveries.
When a UK-based pharmaceutical business approached us for assistance with a similar issue – the company was facing the problem of damage to the materials because of human error in the packaging and labeling of supplies. Another significant issue they had was that they couldn’t provide the drug right when it was needed,
Their issues were successfully resolved by our specialists, the experts provided insights based on the best practices that will help them with the packaging and labeling. They were able to automate their packing with the aid of these technologies, and they also found it simple to provide vital medications on demand. These solutions assisted them in achieving on-demand delivery and almost eliminated the possibility of material damage during transit.
Do you face similar problems? We can help by providing you with effective solutions!
Conclusion
Pharma procurement plays a critical role in ensuring the timely supply of the right pharmaceutical products in the right quantity while maintaining approved quality standards. The comprehensive procurement process involves navigating challenges such as maintaining supply chain transparency and supply chain visibility, managing total costs, and ensuring ethical sourcing. Effective supplier relationships and pharmaceutical expertise are vital for securing high-quality raw materials and meeting medicine production demands. Utilizing advanced procurement methods and incorporating legal expertise can enhance supplier performance, streamline operations, and improve forecast demand. By adhering to these principles, the pharmaceutical industry can optimize procurement strategies and achieve better healthcare outcomes globally.
Author’s Details
George Mathew
Vice President, Sourcing and Procurement Intelligence
George is a procurement specialist at Infiniti Research and provides advisory services to clients across the pharmaceutical, CPG & FMCG, energy, and automotive sectors. He specializes in the procurement areas of industry benchmarking, cost modeling, rate card benchmarking, negotiation advisory, and supplier intelligence.
