Key takeaways
- Strategic Procurement is Vital: It’s essential for optimizing supply chains, managing costs, and mitigating risks in the pharmaceutical industry.
- Partnerships are Key: Strong relationships with suppliers and distributors drive success, ensuring favorable prices and regulatory compliance.
- Efficiency is Critical: Streamlining procurement cycles and using e-procurement platforms enhance efficiency and transparency.
- Adaptation is Key: Given industry dynamics, companies must continually adjust procurement strategies to stay competitive and innovative.
What is strategic procurement?
Strategic procurement is a systematic approach to sourcing goods and services that aligns with an organization’s long-term goals and objectives. It involves analyzing market conditions, identifying cost-saving opportunities, and establishing relationships with suppliers to secure favorable terms. By considering factors such as quality, price, and supplier performance, strategic procurement aims to optimize value while minimizing risks. It goes beyond simple cost-cutting to encompass supply chain efficiency, innovation, and sustainability. This approach helps organizations make informed decisions, manage resources efficiently, and maintain a competitive advantage in the market.
What is the Importance of Strategic Procurement in Pharma Industry?
Every industry has transformed exponentially over recent decades due to rapid technological advancement, higher consumer awareness, more global interaction and communication, and the rising use of digital platforms among companies and individuals. This has led to a dire need for robust systems, streamlined supply chains, well-trained employees, and strategic procurement. In the pharma industry, the approach to healthcare has changed significantly, and companies are focused on providing a consumer-centric experience that promotes customer loyalty, improves consumer satisfaction, and helps acquire a respectable position in the market. Strategic procurement helps companies achieve various crucial improvements to their supply chain, business strategies, and offerings by implementing robust plans and company-wide approaches that help reduce costs, increase efficiency, identify and mitigate risks, and stay ahead of competitors. Utilizing this process is crucial for growing pharma companies, particularly due to the rising prevalence of chronic diseases, increasing demand for innovation and differentiation, and surge in demand.
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What are the Benefits of Strategic Procurement in the Pharma Sector?
Cost-Reduction: The pharma industry value chain is highly complex and often faces various challenges due to the sensitive nature of various medications and products, the need for multiple sources, and varying regulations across the globe. As demand rises, pharma companies have needed to increase their focus on strategic procurement and implement this process to reduce costs. Having to source and procure crucial raw materials from various countries, and work with multiple partners can lead to high expenses, complex contracts, and unnecessary losses if not appropriately handled. By leveraging strategic procurement, companies can develop clearer and more dependable procurement strategies, address the various challenges that may occur, and develop strong business partnerships leading to significantly reduced costs, and a more robust supply chain.
Improved Partnerships: The rising need for innovative and unique offerings has caused many companies to find themselves struggling to develop and maintain strong partnerships. A well-developed partnership can provide companies with quicker resources, new perspectives, insight into changing trends, and robust strategies that utilize the combined knowledge of both parties. Strategic procurement provides companies with crucial insights and dependable systems, that enable a comprehensive understanding of a company’s needs, expectations, and requirements. Subsequently, this awareness helps them develop partnerships that are founded on honesty, transparency, and clear objectives, giving rise to sustainable, reliable, and long-term partnerships that are highly crucial in the challenging pharma industry.
Higher Efficiency: The main focus of the strategic procurement process is to address inefficiencies, target shortcomings, and develop sustainable alternative solutions to ensure improved functioning. The result of this process is lower costs, better partnerships, and most importantly, higher efficiency. An efficient and stable supply chain can significantly transform business for any company, and in the growing pharma industry, implementing robust strategies and data-driven systems can enable long-term growth and success. This process provides CPOs with necessary data and information regarding their operations, helps tackle obstacles, identify risks, and mitigate any challenges, which provides unparalleled efficiency in the long-run.
Risk Management: Every supply chain is susceptible to a wide range of risks and challenges, including supplier risks, sudden industry developments, changing regulatory policies, and other potential supply chain complexities. As the pharma industry continues to expand, the value chain becomes increasingly complex, prone to various risks and challenges. Strategic procurement focuses significantly on identifying, evaluating, and potentially mitigating major risks to the industry. This process is based on mitigating all challenges, inefficiencies, and risks to develop the most successful, resilient, and efficient supply chain possible within a company. Risk management is a crucial tenet to achieving a resilient supply chain, and companies often fail to address potential risks efficiently, which leads to major losses, customer attrition, and reduced market share.
Better Decision-Making: Strategic procurement is a highly data and information-reliant process, that encourages businesses and stakeholders to gain a comprehensive understanding of their market, company, and needs. Having detailed insights into the needs, expectations, business objectives, and factors in a market can help companies significantly mitigate the various risks, develop more comprehensive strategies, stay ahead of competitors, and remain prepared for various industry developments. As the pharma industry grows, making the right decisions can propel companies to leadership within their market, or cause massive losses as an increasing number of competitors enter the market, and the rapid pace of transformation provides opportunities for new entries to suddenly succeed.
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Pharma procurement challenges
Lack of Supply Chain Transparency
The lack of supply chain visibility makes it extremely challenging for pharma companies to plan medicine production, forecast demand, and manage their inventory effectively. Without consistent, standardized data, regulators fail to identify drug supply concerns, policymakers cannot make informed decisions to improve supply chain resilience, and healthcare providers (HCPs) are blindsided by the acute shortage of critical pharmaceuticals. This lack of transparency is also linked to improper security, making it problematic for buyers to protect medicines they cannot track, ultimately impacting drug availability and safety.
Poor Supplier Performance
Poor supplier performance generally results in unanticipated expenses and disruptions in the procurement cycle. For example, a pharmaceutical brand can face increased acquisition costs if a supplier fails to deliver on time. Extra replacement expenses can arise when drugs are discarded due to improper packaging, failing to meet approved quality standards. Hidden expenses can accumulate due to issues such as lack of appropriate documentation, improper storage, and wrong dosage forms. Any of these performance issues can create serious disruptions at any level of the supply chain, impacting drug availability and drug quantities needed for patient care.
Unexpected Geographic Factors
Many pharmaceutical companies rely on global markets for drug materials and are particularly vulnerable to shifting geopolitical situations. For instance, depending on sources in tariff-affected countries can substantially increase a pharma company’s operational expenses, complicating the comprehensive procurement process. Climate change is another factor that can disrupt supplies and contribute to higher costs. Regions that were once reliable sources of raw materials may now be plagued by adverse weather events, hindering production and causing inflated costs, thereby impacting the timely supply of the right pharmaceutical in the right quantity.
Main pharmaceutical procurement methods
At any level of the health system, procurement procedures generally fall into one of the following categories: direct procurement, competitive negotiation, open tender, restricted tender, and local and worldwide shopping.
- Restricted tender: To demonstrate their prior supplier performance, manufacturing methods, and financial stability, suppliers must go through the prequalification process.
- Open tender: Subject to the terms and restrictions specified in the tender invitation, any representative of a supplier may make an offer.
- Direct procurement: Materials or medications are purchased at the quoted list price or a negotiated discount from a single supplier.
- Competitive negotiation: To get a better deal or secure specific service terms, the buyer approaches a small group of suppliers—typically at least three.
- Shopping locally or abroad: Similar to competitive negotiation, the business typically contacts three suppliers; pricing discussions.
Success Story
A renowned pharmaceutical manufacturer was struggling to keep pace with the sudden transformation in the industry caused by the COVID-19 pandemic, and suffered significant monetary and market share losses, causing it to lose reputation and customers. Inefficiencies impacting their supply chain, strained supplier relationships, and unnecessary rising costs led to a weak supply chain, and an inability to adapt as the market changed. The company sought to improve their procurement processes and improve overall performance, therefore, they sought our expertise in the strategic procurement process. Our SpendEdge experts provided the company with detailed insights into the necessary changes required for their company to succeed and guided the company on the significant benefits and crucial best practices of strategic procurement. By implementing the data and processes provided by our experts, the manufacturer successfully addressed their challenges and shortcomings, implemented necessary changes, and ultimately reestablished themselves as industry leaders.
Conclusion
In conclusion, strategic procurement in the pharmaceutical industry is significant in navigating the complex landscape of drug selections, drug quantities, and procurement methods. By leveraging pharmaceutical expertise, companies can address challenges such as procurement disruptions and hidden expenses in an ethical way. Through strategic partnerships with suppliers and distributors, pharmaceutical enterprises can ensure favorable purchase prices and mitigate risks associated with improper packaging or regulatory compliance. Implementing efficient procurement cycles and utilizing e-procurement platforms are essential for effectively managing the pharmaceutical logistic cycle, especially in sourcing large molecule biologics. Despite the myriad challenges, embracing strategic procurement practices empowers companies to optimize their supply chains and maintain a competitive edge in the ever-evolving pharmaceutical market.
