- Creation of competition and independence
- Adaption of the procurement strategy to the company´s market position
- Optimisation of ordering behavior and procurement pricing strategy
Strategic procurement & cost optimisation of pharmaceutical raw materials
What made this project exceptional?
Our client, a contract manufacturer for pharmaceuticals and dietary supplements, has the vision of becoming the market leading CDMO within their industry and to offer their customers outstanding quality and service at a competitive price level.
The foundation for achieving these ambitious goals were set by the merger of several regional pharma CDMOs. Through the merger, our client could take advantage of the resulting broadened product range, increased production expertise, and a consolidated central procurement department.
In addition to production expertise, strategic procurement in particular played a decisive role in the competitiveness of the company and therefore in the achievement of its targets. Raw material procurement can often account for up to 50% of total costs in pharmaceutical manufacturing and therefore also for pharma CDMOs. As with many direct materials – though particularly in the area of pharmaceutical raw materials – the general rule applies: the more complex the specifications, production process, or supplier circumstances for a material, the more complex the requirements, the greater the savings opportunities, and the larger the pressure on strategic procurement and the entire organisation.
A closer look at the pharmaceutical supply chain containing a contract manufacturer illustrates the complexity and importance of the procurement exercise:
Typically, pharma CDMOs receive orders from big pharma players for their less lucrative products. In the pharmaceutical industry, this is especially true for products that have passed patent expiration or have low circulation volumes. The onset of competition or the high production costs compared to patent-protected products mean that many pharmaceutical giants outsource their products to contract manufacturers. These compete to win the orders and can distinguish themselves through cost efficiency and flexibility in production, but above all through procurement excellence. To achieve this, contract manufacturers often have to accept not only regulatory restrictions but also customer-side regulations on supplier utilisation and qualification as well as short planning periods for the quantities required.
In pharmaceutical raw material procurement in particular, the industry’s strict and internationally non-standardised regulations combined with the unique circumstances of the supply chain present a particularly challenging situation.
Additionally, in the case of our client, the integration of the individual companies and the associated changes in the organisational structure impaired the performance of procurement. Our client's strategic procurement function was severely neglected to the detriment of day-to-day business, which consisted of maintaining the supply of necessary pharmaceutical raw materials for production.
Objectives and approach of the cost optimisation project
Over a period of 8 months, we supported our client in achieving maximum savings with improved availability and at least the same if not better level of material quality.
The biggest challenges of this cost optimization project at a pharma CDMO were: to understand the multitude of restrictions as well as the 3500 different types of pharmaceutical raw materials; to achieve transparency regarding all dependencies; and to use the available resources efficiently. The ambitious objectives were largely addressed by using 3 levers:
- Cost optimisation with existing suppliers through competition
- Use and qualification of the best alternative suppliers
- Optimisation of procurement conditions and procurement behavior
With this in mind, the project was divided into 4 phases:
Conclusion and Outlook on strategic procurement of pharmaceutical raw materials
Strategic raw material procurement in the pharmaceutical industry is complex due to the many and globally varying regulations as well as changes in production techniques. The specification requirements for raw materials are extremely technical and extensive, and communication with Asian producers in particular is a challenge.
However, such challenges lead to opportunities. Many European companies and CDMOs in the pharmaceutical industry have traditionally had little experience in working together due to the high margins and concerns about quality from overseas. Companies that are able to overcome prejudices and invest more in communication and coordination with foreign companies can realise immense procurement cost optimisation and additional supply alternatives.
We would be happy to discuss with you the current circumstances, direction, potential for cost optimisation and further possibilities of your commodity procurement.
OCM is your reliable, innovative partner for customised procurement strategies and their successful implementation.
We combine our proven approach to align and optimise your procurement management with effective implementation in direct and indirect categories. In addition, we offer our expertise in supply chain management in order to optimise global supply chains. We would be happy to present our approach and modules to you or discuss concrete solutions based on your challenges.
Procurement Consulting Modules
Procurement Opportunity Assessment
- Benchmarking & Identification of Opportunities
- Tangible Action Plan for Implementation
External Cost Transformation
- Reduce costs & stop maverick buying
- Procurement Optimisation & Zero-Based Budgeting
Procurement Process Optimisation
- Procurement processes optimisation: fast, cost-efficient, digital
- Trained and invested employees
- Improving compliance
- Procurement Strategy & Cost Optimisation
- Increase quality & prevent maverick buying
Procurement Strategy Design
- Sustainable max. value contribution through optimal procurement strategy
- Reduce costs, optimise procurement processes
BI Cost Reporting
- Consolidated data sources
- Meaningful live analyses
- Fact-based decision making
Procurement Operating Model
- Maximising the value-add of the procurement organisation
- Optimise, measure, & control procurement processes
Training: Strategic Sourcing & Negotiation
- Buyers trained as specialists
- Putting theory into practice and implementing with support
Interim Procurement Manager
- Rapid response: candidates within 48h
- Matching of requirements and assessment of suitability using procurement experts
- From operational buyer to CPO
- Competitive advantages in speed, scope, & significance of information
- Efficiency through automation, data integration, & process simplification
- Procure-to-pay cost reduction
- Fraud prevention
- Efficient Cooperation
- Performance-based Supplier Management
- Cost Optimization
- Bespoke Optimal Insurance Cover