Procurement process automation necessary for pharma firms3 November 2017
When it comes to bringing automation into the procurement process, pharma companies are lagging behind. In fact, many firms resist adopting the new technologies made available through outsourcing, despite the positive impact it would have on their procurement team’s productivity. World Pharmaceutical Frontiers explores this idea, analysing why companies must update their outsourcing practices if they are to succeed in this modern technological world.
The complex world of a pharmaceutical company’s corporate structures means that, at certain points during the procurement process, more time and resources will be spent modernising one aspect of the supply chain over another. This is especially true when this task is undertaken by a third party.
While this delay in tech-uptake is not ideal under any circumstances – and companies ideally want up-to-date systems at all points in the procurement process – there is no magic money tree with which to fund every goal. Neither is there a tried-and-tested manual stating which tasks should be done in-house and which outsourced. It is worrisome that, due to the endless supply chain to-do list, some essential tasks are being completed too late. This issue, however, could be remedied easily and relatively cheaply by using an external company.
“Vendor selection and materials testing is complex enough, but in today’s volatile environment, risk mapping and monitoring are also crucial,” stated Christopher Moreton, a consultant from FinnBrit Consulting, in the ‘Best Practices for Effective Excipient Sourcing and Testing’ webcast by Pharmaceutical Technology magazine. Companies should therefore monitor their processes constantly, maintaining an awareness of which are receiving more time/funding, and which should be kept in-house or outsourced.
What needs to be done?
Speaking at the sixth Annual Pharma Strategic Sourcing & Procurement Summit in Amsterdam in March of this year, Marco van der Heijden, head of purchasing from Boehringer Ingelheim, discussed the issue of a lagging procurement process. He described it as an opportunity for value creation; a chance to reshape the process by sourcing new ideas and using better technology. He also discussed organisational set-up, and how to select the best suppliers and capabilities that are needed to drive such a transformation.
“As an innovative and globally operating pharmaceutical organisation, procurement can no longer add value by its usual business contribution lever,” he explained. “Aspects, such as cost-reduction, supplier and contract management, process compliance and service orientation are not sufficient to make a difference anymore. Procurement has to deliver more, faster and better, [so as] to enable the business to gain a competitive advantage.”
The golden goose: digitisation
The quickest way to achieve a more high-tech process in procurement outsourcing is digitisation; a modernisation that can aid pharma companies in their mission to achieve more productivity.
Using a third-party company to look at processes for security and procurement – and to strategise where a company could use more technology – is an option that some companies enjoy.
A 2016 PwC paper, entitled ‘Digitisation in pharma: gaining an edge in operations’, explored this need in detail. The global consulting firm was eager for pharma companies to fully embrace the idea, stating that the “industry has been very cautious in applying digital technology to improve manufacturing and supply chain operations thus far, yet that caution is becoming a hindrance”.
Dr Peter Ehrhardt, PwC’s director of strategy, believes that, as the pharma industry faces a number of growing challenges relating to its advancement, digitisation could be the best way to tackle these successfully.
“By applying digital technology, companies can significantly increase visibility into their supply chain operations, and make better and faster decisions,” he says. Digitisation in the procurement process will not only allow companies to fully integrate their supply chains and improve operational processes, it will also make them more adaptive and responsive. Ehrhardt says that, as a result of accurate planning and modernisation, companies are able to get products to consumers much quicker than before, and productivity, manufacturing efficiency, and inventory and service levels all improve.
“Capturing this opportunity requires building a digital supply chain ecosystem, including virtual supply chain control tools, cloud-based information architecture and a digitally enabled physical supply chain,” he says. “When these elements come together synchronously – humans, machines and resources communicating as a cyber-physical system – it leads to improvements in all stages of the operations value chain: plan, source, make and deliver.”
In order to remain successful in an increasingly digitally dependent sphere, pharma companies must embrace new technologies. This modernisation can, however, cause potential difficulties. Aside from the financial outliers from a tech upgrade, such changes may cause disruptions to the current procurement and supply chain processes, and, perhaps most importantly of all, it requires impeccable cybersecurity.
Blockchain and cybersecurity
Maintaining cybersecurity is a complex process that is perpetually evolving as more threats – and even better solutions – are created every year.
Probably the best way to protect procurement tech updates from any hacks, attacks or malware is the current industry buzzword: blockchain.
Many think that blockchain will provide security in procurement. A report by IBM published in the Investment Times in April 2017 explored the problems with this notion and the actual solutions that blockchain can offer.
“The key issue here is about supplier payment, transparency and fraud reduction,” states IBM. “The average payment terms for small suppliers in China, as in other countries, is 60–90 days after the goods are delivered. Supplier disputes are often around what was delivered and when. They can tie-up large amounts of money and take a lot of time to resolve. For small businesses, this can leave them not only out of pocket, but also out of business.
“Using blockchain to validate each step of the process means that small manufacturers can prove when they delivered goods to shippers and distributors”.
Those same shipping and distribution companies can then confirm that the goods were delivered, and when they moved through the supply chain. If the goods go missing or are replaced with fake items, the blockchain solution will show where this occurred.
According to IBM, this allows financial institutions to pay suppliers while goods are still in transit. Blockchain also reduces the cost to small suppliers of invoice factoring. “Long payment periods and a high risk of disputes mean that factoring companies charge higher fees,” IBM says. “With blockchain, there is no issue over disputes.”
Other financial analysis heavy-hitters agree too, including KPMG. The second session of KPMG’s Procurement igNite series, hosted in July 2017, centred on the impact of blockchain technology on procurement, and how procurement professionals can use cybersecurity and blockchain to build trust. The session noted that a variety of those involved found that blockchain was the key to tackling these cybersecurity worries, and it offered peace of mind when updating the procurement process to digital.
Mark Crouch, global head of procurement for a well-known technology company, spoke at the KPMG igNite series about the future of procurement built around blockchain. “The adoption of blockchain application will strengthen the operational aspects of the procurement process, but the technology lacks the personal aspects of supply chain,” he stated.
The importance of modernisation
Modernising the procurement process is no easy feat, and things like digitisation are complicated tasks. Risk factors such as cybersecurity are a worry in terms of business but, as modernised industries have shown, digital transformation offers an opportunity to gain a competitive advantage. Given the rapid pace of change in technology, pharma companies need to make digitisation of their operations and supply chain a priority if they are to remain successful and at the forefront of their markets.
The elements that Van der Heijden spoke of in his presentation are also important, but long ago lost their buzz. While exploring the possibilities of new technology is important in today’s business world, analysing alternative reasons as to why procurement processes in pharma are slower than in other sectors will always involve multiple avenues.
Whether a task should be completed in-house or not is a complex question. If a company lacks the necessary technical expertise, or can reduce costs by using outside companies, then outsourcing the building and development of a digitised procurement system could be a great way to save time and money in the long run.
A robust plan for business efficiency is key to making sure the procurement process is not being adversely affected by other aspects of the company that may be lagging. It is essential to take the time to explore all aspects of a procurement line, look for possible snags and then explore ways in which the process could be sped up.
The procurement process of pharma won’t be spurred into fast forward overnight, but with increasing globalisation and greater supply chain complexity, the need for its increased efficiency is essential.
Digitisation, cybersecurity, efficient outsourcing, and a solid plan indicating where and why a company is lagging hold tremendous potential to help companies adapt and improve.