Procurement and Supply-Chain Execs Look to the FutureBy
How have procurement and supply-chain executives from bio/pharma companies and suppliers responded to recent unprecedented sourcing challenges and the resulting need to re-evaluate sourcing and supply-chain management functions? The latest study from DCAT Research & Benchmarking highlights the changes in sourcing and supply-chain strategies and organizations.
Evaluating the supply-chain organization of the future
Sourcing, procurement, and supply-chain operations are traditionally expected to focus on cost of goods and inventories. However, the pandemic and other economic and geopolitical events have highlighted vulnerabilities in bio/pharma supply arrangements and added sustainability as a critical objective. As a result, sourcing and supply-chain management has become more visible, complex and critical, requiring a broader range of skills and capabilities than in the past.
To evaluate how procurement and supply-chain executives have responded to these unprecedented sourcing challenges and the resulting need to re-evaluate sourcing and supply-chain management functions, the Drug, Chemical & Associated Technologies Association (DCAT), through the DCAT Research & Benchmarking Committee, conducted a study to evaluate how companies are responding to these challenges and their vision for the supply-chain organization of the future.
DCAT is a not-for-profit, corporate member-supported, and volunteer-led global business development association for companies engaged in the bio/pharmaceutical manufacturing value chain. DCAT Research & Benchmarking is a complimentary, value-added member benefit providing in-depth studies that examine the crucial issues impacting the bio/pharmaceutical manufacturing value chain and the bio/pharma customer—supplier relationship. DCAT Research & Benchmarking studies are developed by the DCAT Research & Benchmarking Committee, composed of member representatives with diverse industry experience, to identify the topics of greatest interest for DCAT Member Companies.
The latest study from DCAT Research & Benchmarking, Envisioning Bio/Pharma Sourcing and Supply Chain Management in 2030, was based on a series of interviews of senior executives from DCAT Member Companies (both bio/pharmaceutical companies and suppliers) about their vision for the supply-chain organization of the future: what bio/pharma sourcing and supply-chain functions will look like, how suppliers can prepare for changing customer expectations, and how the role of suppliers will evolve. The picture they painted is reported in DCAT’s latest study, Envisioning Bio/Pharma Sourcing and Supply Chain Management in 2030, and was the subject of a panel discussion held on March 21, 2023, during DCAT Week, DCAT’s flagship event for companies engaged in the bio/pharmaceutical manufacturing value chain. The full report is available for download to DCAT Member Companies here.
A total of 15 interviews were conducted in the period November 2022–January 2023 by DCAT Content Advisor Jim Miller. The interviewee panel included seven executives from innovator bio/pharma companies, two from generic bio/pharma companies, and six from CDMOs. Key findings from the study are outlined below.
Strategic drivers of change
Procurement and supply-chain executives identified multiple factors as driving changes in their organizations. Not surprisingly, the number one driver has been supply-chain continuity. The supply problems encountered during the COVID pandemic and its aftermath have been a wake-up call for the industry. The challenges of sourcing manufacturing and packaging inputs have continued even as COVID-related restrictions have eased, requiring companies to carry larger inventories and plan on longer lead times when ordering and receiving materials. Supply-chain risks remain elevated, and widely held assumptions about the nature of the supply chain, e.g., the ability to leverage globalization to minimize costs, have been undermined.
Another major driver has been the “need for speed.” Bio/pharma companies are once again facing a patent cliff and must get new products into the market quickly to replace revenues from aging products. Growing head-to-head competition between products has put a premium on getting into the market as quickly as possible. As one bio/pharma executive noted: “For COVID vaccines, Pfizer and Moderna had the supply chain in place and succeeded; other companies didn’t and failed.”
Executives also cited the growing number of treatment modalities and forms of delivery. Each modality has its own requirements for manufacturing inputs and services, delivery and packaging components, laboratory services, and logistics. The result has been an exponential increase in the complexity of procurement and supply-chain management.
Other drivers mentioned included sustainability and ESG (environmental, social and goverance) targets, especially by Europe-based companies, increased visibility of supply-chain management at the senior most executive levels, and inflation.
Focus on risk management
The concerns about supply-chain continuity have led to a heightened focus on risk management. The number one objective in those risk-management efforts is to avoid dependence on single sources of materials and inputs, both in terms of suppliers and countries of origin. The response in many cases has been as straightforward as second sourcing, qualifying alternative vendors, and qualifying vendors across multiple sites. Dependence on single countries and regions is being addressed by greater monitoring of geopolitical and economic developments, geographic diversification of suppliers, and avoiding suppliers in certain high-risk regions.
Supply-chain executives are also gaining a greater voice during the development process because decisions made there often lock companies into a single source, e.g., a supplier’s propriety excipient, or a customized component, or process.
Companies are communicating more intensively with their suppliers in order to monitor and manage potential supply interruptions. As one executive said: “We can’t just issue a PO [purchase order] and get a delivery date. We must regularly check in on suppliers to make sure they are on schedule, and if not, why not, and when can we expect delivery. We have to be more proactive.”
While executives noted that they have always interacted with their suppliers, they said that those interactions are now more formalized and go deeper into operations and risk factors than before COVID. That includes a closer look at how immediate suppliers, i.e., Tier 1 suppliers, monitor and manage their own suppliers, i.e., Tier 2 and Tier 3 suppliers.
Network integration and ESG
Supply-chain and procurement executives reported that they are moving toward tighter integration of their manufacturing networks so that manufacturing sites and suppliers operate more as a single entity, rather than as separate islands. Integration efforts have focused on two main initiatives: greater integration of a company’s own internal facilities with each other and greater integration with external manufacturers, primarily CDMOs, for a range of purposes, including capacity planning, scheduling, and investment. A key part of this focus is having suppliers and materials qualified at all relevant sites within the manufacturing network, where appropriate.
All major bio/pharma companies and CDMOs have proclaimed ESG (environmental, social and governance) objectives, including sustainability, but in practice bio/pharma companies in Europe and the US address them differently. Europe-headquartered bio/pharma companies have incorporated sustainability objectives into their day-to-day procurement and supply-chain decision-making, but US-headquartered bio/pharma companies are still working to give them high weighting in their procurement and supply-chain decision-making. Because CDMOs must be responsive to their customers’ demands, regardless of where they are located, they are attuned to best practices for sustainability and other ESG objectives.
New skill sets
Executives agreed that making procurement and supply-chain more responsive to the changing global economy and potential sources of competitive advantage will require significant changes in roles and culture within those organizations. Foremost among those changes are greater agility, transparency, data analysis, and relationship-management skills.
Procurement and supply-chain executives have made it a priority to make their organization more “agile,” i.e., better able to respond to crises and take advantage of opportunities that the market might offer. Structural changes, such as greater standardization of inputs and multi-sourcing of materials, contribute to agility. Beyond that, however, companies are also looking at the characteristics of the professionals they hire and develop, putting greater weight on the ability of current and prospective staff members to adapt quickly to changing conditions.
Bio/pharma executives realize they need to be more “transparent” if they expect suppliers to make the necessary investments to ensure that they have adequate capacity and capability and to share innovations and risks. To these procurement and supply-chain executives, “transparency” means a lot of different things, including the willingness to share mid- and long-term plans and projections beyond a 12-month forecast. In addition, it means a willingness to be open about problems and challenges and to accepting suggestions from suppliers about how products and processes can be achieved.
A number of the executives interviewed for the study discussed how they are making their organizations more valuable to the business units they serve by doing more than just negotiating prices and ordering materials and services. Often this means cutting across traditional category-management silos or inserting a layer of business professionals to help find solutions to specific business problems. One executive labeled this process “business enablement.”
To build these capabilities in their organizations, executives are finding they need professionals with broader skills sets than they have had traditionally. In particular, the growing emphasis on nurturing and managing relationships with internal constituencies and external suppliers is pushing procurement and supply-chain organizations to recruit professionals who possess a broader set of interpersonal and business skills and to train professionals who lack those skills. As one executive noted: “The job needs different skill sets; it’s less about subject-matter expertise. You need broader business knowledge to understand the bigger picture, to have different interpersonal skills, and to be able to seek out the resources to address the problem.”
Executives also highlighted the need to bring in or nurture professionals who are more “adaptable,” i.e., able to handle situational decision-making in response to changes in the internal and external environments. In many cases, this means being able to balance staffing across generations. As one executive noted: “We must mix generations of people, hold on to older generations with their experience and skill sets while recruiting younger people who are more flexible and open to change.”
The needed skill set most commonly mentioned by procurement and supply-chain executives was data analysis for understanding costs, risk management, and operational improvement. Companies have very large amounts of historical data available from their internal management systems (e.g., SAP) and other sources that they are just beginning to leverage to better understand their costs and operations. Companies are analyzing data for insights into basic operating parameters, such as appropriate safety stock levels, re-order points, and quantities, and are beginning to build sophisticated models to help manage costs.
A source of competitive advantage
The results of DCAT’s latest benchmarking study, Envisioning Bio/Pharma Sourcing and Supply Chain Management in 2030 suggest bio/pharma companies are just realizing the competitive advantage potential of procurement and supply-chain management and are just starting to consider the capabilities and organization needed to leverage that competitive advantage.
Companies with deep and modern supply-chain management capabilities will be able to out-compete companies with weak supply chains. They will have lower costs, be faster to market, face fewer risks to delivering product, and comply more effectively with governmental and investor expectations.
CDMOs, on the other hand, already see supply-chain management as a major differentiator and long-term source of competitive advantage. Driven by customer demands and their service orientation, and supported by top-most leadership, CDMO procurement and supply-chain executives already have the strategic mindset and are putting capabilities in place to make their operations a source of competitive advantage. Their ability to manage supply chains effectively may rival capacity, technical and regulatory capabilities as the reason why bio/pharma companies are increasingly turning to CDMOs to manufacture their products.
Summary of benchmark status
Table I below summarizes the most important initiatives cited by procurement and supply-chain executives in this study, and where companies overall stand in implementing these initiatives. The table is a helpful source for companies to benchmark their progress in reshaping their sourcing and supply-chain strategies and operations. A complete listing of initiatives may be found in the full report, which is available for download for DCAT Member Companies here.
Table I: Summary of Benchmarking Status: Key Initiatives and Status
|Procurement and supply chain as source of competitive advantage||Widely accepted among CDMOs; some bio/pharma companies view it as such, others still view as tactical.|
Supply-chain risk management
|Single-source vulnerability||Most companies starting to qualify multiple sources, sites and geographies.|
|Supply-chain involvement in development decision-making||Evolving, not yet widespread.|
|Supplier engagement||All companies having more frequent, more formal engagement.|
|Monitoring Tier 2 suppliers and lower tier suppliers||Generally left to suppliers to monitor their own lower-tier suppliers, except where lower-tier supplier is providing unique/custom inputs.|
|Predictive analytics||Some companies trying more sophisticated modeling.|
|Qualifying suppliers across internal sites||Most companies adopting this practice.|
|Supplier involvement in operational and capital planning||Increasing, but not yet standard practice.|
|Digital integration with suppliers||Coming, but still in very early stages; system compatibility a big issue.|
|Investment in suppliers||Common for dedicated capability and capacity; otherwise on a very selective basis.|
Sustainability and ESG (environmental, social and governance)
|Weighting sustainability and ESG||Widely practiced in EU/UK-based companies; less advanced but with momentum in US-based companies.|
|Dedicated staff||Some companies have added dedicated staff to support sustainability/ESG goals.|
|Need for standardization||A major impediment to broader focus on sustainability and ESG.|