Pharma/Bio Procurement Strategies
Whether your company is 20 years old or more than 100, developing the correct procurement strategies directly affects its long-term success.
By Tom Branna
Editorial Director
As market demands accelerate and supply issues become even more global in nature, the importance of procurement will continue to grow, insisted pharmaceutical sourcing experts at a Drug, Chemical and Associated Technologies (DCAT) Association roundtable held last month in New Brunswick, NJ. Stephen Chyung, vice president and chief procurement officer, Novartis, North America, urged purchasing executives to take a leadership role in offshore procurement.
Procurement on a Global Scale
“Fifteen or 20 years ago, most people assumed that the U.S. would manufacture all the materials they would need,” observed Len DeCandia, senior vice president, supply chain management, AmerisourceBergen.
But since then, of course, there have been dynamic changes in sourcing and supply chain management. In addition to the emergence of Asia as a key supplier to the pharmaceutical industry, the very nature of the supply chain has become the No. 1 concern of CEOs in this post-9/11 atmosphere, according to Mr. DeCandia. At the same time, procurement often provides the link to the outside world.
“We’ve become much more important to the corner office,” he said. “As partnerships grow, we become the bridge to what goes on inside and outside the company.”
Procurement in a global industry often calls for leveraging single sources of supply as well as uncovering lower cost sources and optimizing the efficiency of third parties, according to Mr. DeCandia. But in order to achieve all of these goals, companies must strive to create a transparent environment—one that features internal functional alignment (S&OP, inventory management and supplier management), internal metrics alignment (planning, manufacturing, procurement and logistics) and external process alignment (cross-functional team and performance contracts).
That’s a tall order, but Mr. DeCandia insisted that the industry is loaded with top-notch procurement talent.
“We’re in an area of talent right now,” he noted. “People can come and go as they please in order to find an organization where they can grow, develop and be recognized.”
But while the talent may be apparent, clearly defined goals are sometimes lacking. Mr. DeCandia told the audience that they must help their companies create environments for success.
“Does your team understand why? Or are you too busy worrying about how?” he asked. “Do you have the clarity on the journey ahead?”
Get the Support You Need
Although no one would deny the important role that procurement plays in the pharmaceutical and biopharmaceutical industry, getting the necessary support from the corporation is not always easy. To remedy the situation, Bryant Wales, vice president, strategic sourcing at Watson Pharmaceutical, said the procurement function must be brought into the conversation as early as possible when it comes to new drug development.
“Too often, research and development selects a material off the shelf, gets approval and only alerts procurement after the train has left the station!” he charged. “Procurement must have early visibility for major events.”
He also urged the audience to raise the visibility of the procurement function throughout the corporation by issuing periodic reports, having annual meetings with CEOs and conducting intranet sessions to show the value of procurement. Such promotional activities can help procurement executives establish winning partnerships for the department.
Creating a Winning Team
During the past two years, Merck & Co. has received plenty of bad press regarding its unproductive new product pipeline and growing legal battle over Vioxx liability lawsuits. But Richard Spoor, vice president, global procurement, Merck & Co. told the audience that under the direction of CEO Richard Clark, the company has a plan in place to emerge victorious. In fact, some of these efforts are already bearing fruit.
For example, on Nov. 1, the company announced that the U.S. Centers for Disease Control and Prevention (CDC) added Merck's cervical cancer vaccine, Gardasil [Quadrivalent Human Papillomavirus (Types 6, 11, 16, 18) Recombinant Vaccine] to the CDC's Vaccines for Children (VFC) contract for girls and women aged 9 to 18.
In another victory for Merck, in October the company received approval for its Januvia, Type II diabetes treatment. Januvia is the first in a new class of diabetes medicine known as DPP-4 inhibitor. The drug works by enhancing the body's own ability to lower blood sugar, or glucose, when it is elevated. Swiss-based Novartis AG has a similar drug, Galvus, which is also awaiting FDA approval. According to industry analysts both drugs could easily reach blockbuster status of more than $1 billion in annual sales by 2010 as long as no major safety issues emerge.
Merck’s recent successes have been due, in part, to the transformation of its procurement department. According to Mr. Spoor, the company realized changes were necessary as operation costs continued to rise even while revenues remained flat. As a result, the company has developed a plan to save $1.2 billion between 2004-2008.
In order to be successful, Merck’s new global procurement strategy had to be strongly aligned with key stakeholders in order to understand the critical business drivers for each of them. Mr. Spoor urged the audience not to underestimate the importance of creating close alignments and alliances with key stakeholders across the company.
“It’s all about people,” insisted Mr. Spoor. “Spend the time necessary to hire the right people and then develop a comprehensive education program that’s tied to individual career development.”
Amgen: The Exuberance of Youth
While Merck represents the Old Guard in the Pharma/Bio space, Amgen, just 25 years old, represents the New Guard. According to Farryn Melton, chief procurement officer for the world’s largest biotech company, Amgen’s needs and how it goes about satisfying them vary greatly from the traditional model.
“Amgen is scaling for growth and managing risk,” explained Ms. Melton. “You must understand where your company is in its lifecycle in order to gain a better understanding of its strategic imperatives and business drivers.”
For example, while Merck may be most interested in cost-savings, Amgen is trying to manage its wealth of projects. Ms. Melton told the audience that Amgen has 50 compounds in its pipeline—several of them are already in Phase III. To manage this kind of growth, the company has developed a robust opportunity analysis process to prioritize opportunities, align business strategies and assess its spend.
“Understand the company’s objectives and what’s important,” she insisted. “Don’t ask them, ‘How can I help you?’…They don’t know!”
According to Ms. Melton, one of the biggest mistakes the sourcing department can make is trying to be all things to all people.
“Focus on the couple of issues that are most important to the company,” she urged.
But whether young or old, big or small, most of today’s pharma and biopharma companies realize that they can’t go it along. For instance, 40 percent of products in the Merck pipeline rely heavily on third party partnerships. Meanwhile, Ms. Melton said that Amgen is aggressively seeking contract research organization partnerships.
