With expiring patents and growing gaps in revenue a reality in today’s global pharmaceutical industry, an increasing number of drug manufacturers are beginning to evaluate their supply chains to identify any and all opportunities for savings so that they can continue to bring innovative products to market and remain competitive. With greater frequency, pharmaceutical firms are seeking new sources that can deliver key inputs such as active pharmaceutical ingredients (APIs) at a lower total cost than their current suppliers. And in many cases, they are looking abroad. While there are great gains to be had from sourcing in low-cost countries, there is also substantial risk. As part of its Category Chatter series, Ariba, Inc. (NASDAQ:ARBA), the leading provider of spend management solutions, has created a podcast aimed at helping companies understand these risks and develop sound strategies that enable them to reap the cost-saving benefits of sourcing in emerging nations without sacrificing the quality of their products.
“As the costs of healthcare continue to soar, pharmaceutical companies are taking aggressive steps to revamp their cost structures,” said Christopher Merchant, Director, Healthcare Sector, Ariba Spend Management Services. “But they face a unique challenge in that while seeking ways in which they can generate savings, they must also identify and resolve any areas in the supply chain that might present risk, as the consequences of contaminated products can have a dramatic effect on the global population.”
To help do this, Ariba has compiled a list of steps that pharmas can take to enforce their quality standards when sourcing APIs abroad:
1. Do Not Let the Government Do the Work for You
Pharmaceuticals should always hold its API sources to a higher standard than those set by the Food and Drug Administration (FDA). As stringent as FDA directives may be, approvals can be attributed to political and other factors that may prevent proper scrutiny and exposure of substandard operations.
2. Invest in Building a Strong On-The-Ground Presence
It can take a pharmaceutical company several years to identify API sources in low-cost nations and get them operating smoothly and in compliance with quality standards. Consequently, a serious commitment must be made upfront, to build a strong on-the-ground presence to manage the process. Walking suppliers through processes and procedures a few times or conducting random site visits isn’t enough. Suppliers must be monitored thoroughly and regularly to ensure they don’t cut corners or misinterpret expectations.
3. Limit Number of Offshore Partnerships
Every year, new API sources sprout up in low-cost countries covering a wide variety of specialty chemicals. This presents an opportunity to diversify the supply chain and maximize cost savings by partnering with dozens of suppliers. However, given the tremendous time and financial commitment involved in developing each API source, it is wiser to emphasize quality over quantity. Instead of trying to cultivate the same high standards within many suppliers and risking a weak link, concentrate on one or two key suppliers to ensure quality and safety over the long haul.
4. Emphasize Safety in Supplier Selection
The best way to create and enforce high standards is through a rigorous and thorough process to identify the right suppliers. One way to do this is to make safety a key criterion for selection in the initial Request for Proposal. This not only makes suppliers aware of safety from the get-go, but sets a baseline that can be used to measure performance on an ongoing basis.
5. Be Patient
Companies that have successfully integrated low-cost country suppliers into their supply chains did not do so overnight. Pharmas must give themselves adequate time to build supplier networks that take into account their unique needs, challenges and risks.
“Successful offshoring will be a key driver of success for drug companies in the long term,” Merchant said. “Pharma companies that invest in solutions and processes now that enable them to evaluate and manage new markets and sources of supply will ultimately realize the greatest benefits that low-cost regions can generate down the road.” For additional insights, visit Ariba Category Chatter and download the podcast, at http://www.ariba.com/learningcenter/chatter.cfm.
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