In an earlier post, LGM Pharma’s Lina Cogan discussed the difference between the act of Purchasing vs. the art of Procurement. In this post, we’ll focus on a key component of the art of the Procurement strategy — finding the right manufacturing partners.
Identify Partners, Not Suppliers
Manufacturers and suppliers are a critical part of our supply chain, and they need to be viewed as such. This was readily apparent prior to 2019, but the COVID-19 pandemic and the war in Ukraine have provided powerful reminders of why these relationships matter. Manufacturers and suppliers are more than just vendors — they’re partners who help drug companies manage supply chain risks and overcome a wide range of product challenges.
Procurement Risk Mitigation
As procurement leaders we deal with many risks, including sole suppliers, product availability, price volatility, potential fraud, quality, delivery risks, maverick spending, compliance, price increases, tariffs and freight costs. What’s more, the shocks of recent years have significantly shaken up sourcing and procurement, exposing weaknesses in the system but also creating new opportunities for collaboration and improvement.
According to the Boston Consulting Group, procurement is long overdue for big changes in five key areas:
- Spending visibility and control — responding and adjusting in real-time to changes in the global supply chain while identifying opportunities to reduce costs and anticipate future demand.
- Category management — transitioning to an approach based on segmentation, maturity, and opportunities to manage the complexities associated with achieving output targets.
- Supplier management — maximizing the impact of procurement relationships by handling each segment of the supply chain according to their level of partnership (enterprise, strategic, core, or extended core).
- Indirect-spending optimization — working with the business side to pursue holistic savings in CapEx, enterprise-level expenditures, and spending for professional services.
- Product life cycle cost view — jointly setting priorities with the business side for costs and initiatives along the product lifecycle.
Risk mitigation lies behind all of these challenges and is key to overcoming them, in addition to having a significant impact on the bottom line. In today’s supply chain-challenged world, the relationship with any ingredient supplier — and transparency into their supply chain — is therefore mission-critical. In this environment, it’s essential to identify and build relationships with the best suppliers to ensure stable and high-quality delivery of goods and service.
To make these solutions a reality, we need to have strong relationships with an increasingly diverse range of manufacturers. To a certain extent this means embracing our humanity, because at the end of the day people like to do business with other people — not with impersonal corporate entities. As a result, strong relationships and trust aren’t just a foundation, they’re essential.
Pharma Procurement: Supplier Relationship Management (SRM) in an Era of Uncertainty
In the world of tactical purchasing, simply communicating via email and sending purchase orders used to be enough to bring in goods on time. That’s no longer the case in today’s dynamic and rapidly changing environment. Procurement professionals need to engage with their manufacturers and treat them as part of their extended supply chain team.
Scarcity and uncertainty are giving manufacturers more influence today than in the past. As procurement leaders focus on securing reliable supply and receiving goods on time, we face the additional challenges of mitigating price increases, including massive spikes in freight costs.
But price is not the only factor that needs to be considered when evaluating vendors and manufacturers as potential partners. Our selection process considers the full landscape view of the value they can bring. We therefore look at a wide range of criteria. Ultimately, it comes down to supplier relationship management (SRM) and partnership. We consider it critical to have an open and transparent communication channel. A broad and honest dialogue is a good start.
Manage – and Measure – Your Supplier Relationships
An effective procurement strategy today must be built on good relationships, open communication, and trust. These partnerships naturally need to be managed but must also be continuously measured in order to stay nimble in changing markets while strengthening and growing the business.
Contact us to learn how LGM Pharma can help you source the best APIs from the right manufacturers, putting you on the path to swift regulatory approval.