Why are Cost Reduction Strategies in Procurement Important in the Pharmaceutical Industry?
Technological advancements, the substantial increase in population, rising need for healthcare, and surge in demand for pharmaceutical products has significantly propelled the growth of the pharmaceutical industry. However, this rapid expansion has led to various challenges, including the rise in prices of raw materials, overall costs incurred, and investments required. To tackle this significant rise in costs, companies are leveraging cost reduction strategies that help CPOs reduce overall company spend, manage maverick spend better, and take other major steps. These strategies help pharma companies as they constantly strive to innovate, produce, and meet demands within a complex value chain, stay ahead of the rising competition, and overcome new challenges with sustainable solutions. In pharma manufacturing, there has been a significant surge in demand, major changes in the regulatory landscape, and substantial fluctuation in the availability and prices of various crucial raw materials. To efficiently tackle these situations while reducing spend, increasing savings, maintaining high ROI, and constantly innovating can be highly challenging. Therefore, experts advise key procurement cost reduction strategies that can help companies achieve their goals, and continue to minimize costs effectively.
What are 5 Key Cost Reduction Strategies in Procurement?
Managing Spend: The growing pharma industry has given rise to a variety of challenges for new and established pharma companies, including the need to invest significantly, with low guarantees of ROI. To avoid major losses, businesses have to apply comprehensive strategies and business plans that enable controlled spend, and improve profitability and savings. For instance, companies must be more particular about maverick spend. By developing strong supplier relationships, centralizing data, and reducing unnecessary labor, unnecessary expenses can be substantially reduced. However, it is also imperative for companies to closely monitor, track, and evaluate any costs incurred by the company. In doing so, the business can ensure all transactions are valid and required, calculate room for improvement, provide stakeholders with accurate data, and plan future expenses efficiently.
Review Contracts: As the pharma industry expands, manufacturers repeatedly struggle to manage costs, reduce unnecessary expenses, maintain efficiency, and constantly meet consumer demand. At this stage of major change and evolution, it can substantially help companies to address their challenges by reviewing current contracts, identifying shortcomings, and making substantial changes or replacements. Having the right supplier can serve as the biggest differentiator for growing businesses, and as the industry evolves, companies must work with suppliers that have similar strategic aims, offer fair prices, deliver high-quality products and services, and can be trusted during a time of crisis. Companies may want to revisit negotiation terms, review risk management systems, evaluate performances, and discuss changing prices. This can lead to sustainable relationships with suppliers that offer fair prices, help achieve strategic goals, and minimize unnecessary losses.
Leverage Technology: The rise of digitization has transformed every industry, and pharmaceutical manufacturing has profited significantly from the introduction of new technologies, digital capabilities, and changes in manufacturing and production. The adoption of automation, industry 4.0, machine learning (ML), artificial intelligence (AI), and centralized data systems can help companies significantly reduce costs. One of the easiest cost-reduction strategies, leveraging technology helps companies reduce manual labor for repetitive tasks, improve investment on decision-making, increase efficiency, track all expenses and savings, stay ahead of the market, and reduce human error. Although there is significant investment required to adopt these technologies, their benefits far outweigh their shortcomings, and they provide a substantial ROI.
Focus on Risk Management: Cost reduction strategies are not limited to making major operational changes, and require diligent planning, preparation, and continuous execution of data-driven solutions. Risk assessment includes identifying potential risks incurred across the supply chain, caused by factors such as fluctuating demand, changing market dynamics, suppliers’ non-compliance, and shortages of raw materials. These, and many other potential challenges, can directly lead to major losses for a company, and staying prepared for them is necessary to maintain long-term safety and profitability along the supply chain. Risk management helps companies develop sustainable solutions to target and mitigate potential risks, and create systems to minimize the impact of other risks, enabling safe, long-term, and profitable business.
Utilize Data: The use of information and data has transformed the way business is conducted, production is coordinated, and spend is managed. One of the most crucial procurement best practices and cost reduction strategies, companies have come to realize that centralizing all data and operations, enabling software that collects and provides data, and creating data-driven solutions substantially helps businesses. If used correctly, data can help reduce maverick spend, address shortcomings or gaps in the supply chain, reduce manual labor, increase efficiency, overcome operational challenges, and provide stakeholders, managers, and employees with crucial information to improve overall performance. Data and analytics can influence and enable significant and efficient change.
Success Story – SpendEdge Advantage
Manufacturing as a whole has witnessed substantial change in recent years, due to the introduction of IIoT and smart manufacturing, as well as the increasing implementation of industry 4.0. To keep pace with these changes, companies must employ major investments, make significant changes to their business strategies, and maintain efficiency with cost reduction strategies. A trusted generic drugs manufacturer witnessed a rise in costs, and significant decline in ROI and savings after the rapid implementation of new technologies. The manufacturer was uncertain of the decline in profitability, and sought advice from SpendEdge experts regarding automation and cost-reduction strategies. Our experts closely studied the implementation strategies of the business and identified a rapid decline in savings and ROI since the investment in technology. To help the company tackle the shortcomings in their business approach, the experts provided the client with detailed insights into the limited impact of new technology, and encouraged the adoption of comprehensive cost-reduction strategies. While adopting the new technology supports long-term attempts to reduce costs, the right plans and approaches are necessary to fully implement cost reduction strategies. With the insights provided, the company adopted and effectively utilized various cost-reduction strategies, to regain control over their savings, minimize unnecessary spend, and increase ROI significantly.