Outsourcing: Procurement Pros Shrink Supplier Base - Buyers of pharmaceutical services are changing their behavior—and service providers need to change theirs, too - BioPharm International

ADVERTISEMENT

Outsourcing: Procurement Pros Shrink Supplier Base
Buyers of pharmaceutical services are changing their behavior—and service providers need to change theirs, too


BioPharm International
Volume 19, Issue 10


Jim Miller
A major shift is occurring in the way the biopharmaceutical industry sources goods and services. Price pressures at the retail end of the value chain and a difficult fundraising environment are forcing biopharmaceutical companies to take greater control of their costs. Purchased goods and services, including contract research and manufacturing services as well as raw materials and laboratory supplies, are a major expense in most companies, so control of those purchasing decisions is coming in for special scrutiny.

In the annual survey of sourcing practices we conduct in conjunction with BioPharm International and its sister publication Pharmaceutical Technology, we have been tracking the evolution of sourcing practices for several years. The insights we have gained from both buyers and sellers of contract services indicate that major changes are under way.


Figure 1. Role of procurement and sourcing groups in decision-making
A major component of this trend is the shift of decision-making power and influence from scientific and technical professionals to sourcing professionals. Service providers are certainly experiencing the growing power of procurement operations: The number of contractor respondents who report that sourcing and procurement groups currently control the decision nearly doubled in 2006, to 22% from 12% in 2005 (Fig. 1). The portion of contractor respondents that expect sourcing and procurement groups to eventually control decision-making grew to 30% from 24%.

Procurement and sourcing groups are leading efforts to reduce the number of suppliers that their companies work with. Consolidating the supplier base is a critical component of the cost-reduction strategy at most large and mid-size biopharmaceutical companies and many small ones as well. Shrinking the supplier base enables companies to reduce vendor management and overhead costs, negotiate better pricing based on the higher volume of purchases, and improve coordination and communication mechanisms.


Figure 2. Status of companies┤ efforts to reduce the supplier base
Our 2006 survey indicates that vendor consolidation efforts are well underway (Fig. 2). Among biopharmaceutical company respondents, 29% indicated that they have already begun reducing the number of suppliers they work with, and another 15% expect to begin the process within the next year or so. Nearly half of those client-side respondents report that they are considering new vendors only when they need specialized capabilities or services not currently available to them, and 13% said that they are using only current or recent vendors.

Contractors are beginning to feel the impact of supply base consolidation efforts. Among contractor respondents, 20% say that they are gaining business already, while 16% report that they are losing business as result of supplier consolidation programs. Nearly half of respondents do not expect much impact on their revenues, which we think is a na´ve position for them to take.

Service providers willing to be proactive and keep knocking on doors should do well, however, because plenty of opportunities still remain. A quarter of respondents report that they are looking to expand their supplier base and are continually identifying and testing new vendors.

SLOW EVOLUTION IN SOURCING FROM ASIA

We continue to track biopharmaceutical company interest in sourcing from low-cost countries (LCCs), especially contractors in India and China. Our survey results show a slowly-but-steadily growing interest in sourcing from LCC suppliers, but the pace is not yet alarming to Western service providers. LCC sourcing options are limited for biopharmaceutical companies with large molecule candidates because the universe of biomanufacturers and other suppliers is still very small. On the other hand, companies with small molecule candidates face an increasingly sophisticated set of options.


blog comments powered by Disqus

ADVERTISEMENT

ADVERTISEMENT

Suppliers Seek to Boost Single-Use Technology
August 21, 2014
Bristol-Myers Squibb and Celgene Collaborate on Immunotherapy and Chemotherapy Combination Regimen
August 20, 2014
USP Center in Ghana Receives International Lab Accreditation
August 15, 2014
USP Awards Analytical Research
August 15, 2014
FDA Warns about Fraudulent Ebola Treatments
August 15, 2014
Author Guidelines
Source: BioPharm International,
Click here