The Pharmaceutical Supply Chain: Supplier Management, Cost Reduction and Beyond (Part 2)

In the first post in this series, I examined some of the elements that PWC suggests will highlight what life sciences supply chains will need to focus on in the coming decade. Today, I'll continue to share some highlight from PWC's latest report on the topic which suggests that only four options exist for restructuring pharmaceutical supply chains in the current environment. Incidentally, as I walk through some of these in more detail, I hope you come away with the same conclusion I did -- that the segmentation is quite relevant for manufacturing industries outside of life sciences as well.

PWC breaks down the supply chain segmentation of future industry players into two groups based on the types of products they will produce: "Specialist Therapies" and "Mass-Market Medicines." The two possibilities within the structure of the former comprise "Virtual Manufacturers" which will "create a virtual network of integrated supply partners" and "Service Innovators" which will "build a service oriented supply chain to enhance brands and differentiate" companies from competitors. For the latter, the two options are to become the "Low-Cost Provider" by building a "reliable, no-frills supply chain to deliver products as economical as possible" or to become a "Profit Center" by combining "agile, economic manufacturing and distribution with the provision of satellite services to generate profits."

Whether you agree entirely with this segmentation or not, the questions it raises for the role of sourcing and supplier management within life science organizations and broader manufacturers is fascinating. Procurement must place a critical role in all four scenarios, even when the low-cost option is not the desired end-state. Consider, for example, in a virtual manufacturing scenario, how companies will outsource large portions of the supply chain not as a "short-term fix to address cash, capacity or capability constraints but, rather, [as] a deliberate strategy." PWC suggests that a number of organizations are in the process of pursuing this model already while "Bristol-Myers Squibb, GlaxoSmithKline, Merck and Pfizer aim to outsource as much as 40% of their API needs."

In this environment, direct procurement emphasis will evolve entirely from one of simply global supplier sourcing and basic vendor management to a model where understanding all costs and risk elements in the supply chain in a pre-emptive manner will be key. Done correctly, this will make "target costing" sourcing and negotiation approach look like child's play. Rather, in this context, procurement organizations will need to step up to the Spend Management plate and put supplier management skills focusing on the total cost and risk of ownership and relationships front and center. This will require a transition to becoming entirely data-driven in approach and as PWC suggests, requiring new levels of visibility into supplier activity such as "requiring suppliers to provide a complete history for every batch of raw materials or components they produce and replacing periodic audits with constant surveillance."

Stay tuned as we investigate procurement's role in the other three scenarios that PWC outlines.

Jason Busch

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