Procurement in Pharma: 2023 and beyond

An expert roundtable

The major socioeconomic and geopolitical upheavals of recent years have seen supply chain management soar up corporate agendas. Procurement has become, more than ever, a key lever for corporate risk management, sustainability, and profitability.

The pharmaceutical and healthcare industry has been on the frontline of these challenges, with many of the materials commonly used by the industry facing supply disruption, volatility, and price inflation.  

To understand how pharma companies are facing these challenges, Efficio’s Pharma & Healthcare team spoke with four of Europe’s industry-leading procurement professionals.

We asked how they see the challenges for the years ahead, what their procurement priorities are, how they are working to make their supply chains resilient, and how this all fits with their broader corporate ESG commitments.

What are the major challenges for pharma in 2023?
 

Romain Roulette, Bausch

A major challenge is the recruitment and retention of talent – especially in the US. There is definitely a war for talent among all pharmaceutical companies at the moment. We receive a few good CVs but must rely on head-hunters, both in the US and in Europe. 

In addition, for the past few years, we have been in a very high inflation environment. The good news is that the rate of inflation is now slowing down for many materials, such as for aluminium, paper, and energy. For plastics, the price has begun to decline. Having said this, Bausch has a significant presence in Poland, for example, where there is still double-digit inflation. 

The next question is how to benefit from this return to normality. It is helpful to have the right price indexing in place to claw this back, but it will still require “interesting” discussions with suppliers.

Raffaella Arani, Bayer

The world has experienced many disruptive events in recent years, such as COVID, climate change, and geo-political instability, and there is an expectation that these disruptions to supply chains – and to the way we live – will continue in the future. This will require organisations to become more flexible and agile. I would not necessarily call it discontinuity, but rather uncertainty.

From a purchasing perspective, this is also an opportunity for procurement professionals to be seen as a vital business partner for delivering real value to the company in the face of cost and supply pressures. 

Roberto Della Valle, Chiesi 

We are in a situation of profound uncertainty, driven by geopolitical tensions, the energy crisis, and price inflation. This includes supplier prices, as well as energy costs, which have been very volatile, along with other raw materials prices, such as aluminium.

Some companies faced relevant cost increases, and we supported them, in full partnership, sharing part of the extra costs. In order to avoid any speculation, we monitor the situation very closely and, together with the suppliers, we go deep in their cost structure to have a clear understanding of total cost increase. 

Supply bottlenecks are almost always more important than pricing issues for the pharma industry. The pandemic revealed challenges in terms of production capacity within the marketplace and demonstrated that several supply chains are not as robust as we would like them to be. We have been very good and reactive at Chiesi in managing the situation and we avoided any production stoppage.

Sebastien Bals, UCB 

Geopolitics will continue to be top of mind. We, of course, continue to closely monitor the war in Ukraine, but we also have other challenges on our radar, such as the China-Taiwan situation or the tensions between the US and China. 

Next to that, we’re trying to minimize the impact of inflation and manage the volatility of the commodity prices. All these challenges make it difficult to discuss and agree on longer-term strategy with suppliers. 

Also, supply chains have not fully recovered since the pandemic, and the shift in behaviours across the global economy has been disrupting the availability of certain commodities.

Sustainability is a major challenge. The pharma industry can be slow to transition in the face of such change – for instance, it takes a long time to qualify new suppliers. But we all know that healthcare is a big contributor to the sustainable footprint of countries. For instance, the processes we use to purify drugs is heavily water-consuming. It will require industry-wide collaboration to push improvements throughout our supply chains. 

Ultimately, many patients depend on solutions provided by companies such as ours, and therefore overcoming these challenges is a must in order to enable these patients to continue to live their best lives.
 

What are your procurement priorities for 2023?
 

Romain Roulette, Bausch

Our top priority is security of supply, particularly relating to APIs. Ensuring we have a safety stock, for instance, where we are otherwise reliant on a single source – that’s definitely priority number one. We see suppliers discontinuing their API offerings for whatever reason, and other suppliers going bankrupt. From procurement, we want to always be on top of the API supply chain.

A second priority is continuing to deliver promised savings, especially in direct expenditure. We want to be efficient and sustain our innovation, and we see significant opportunities to do so. 

Thirdly, to continue the journey towards procurement maturity, including the training of systems users, as well as developing onboarding guides and appropriate training programmes which, as we are a young organisation after the spin-off, is not currently in place. 

And finally, R&D is also a priority, particularly given we have new clinical trials starting in in the US. 

Raffaella Arani, Bayer 

When considering the three pillars of procurement – namely business partnering, category management, and supplier management – what I'm seeing is that long-term category management and, even more important these days, the strategic supplier management piece are becoming more important than ever in our profession. To address this heightened importance, we're reworking our approach to category and supplier management, aiming to streamline our processes, and reduce unnecessary burdens. By tackling tail spend, improving sourcing practices, and adopting a pragmatic approach to category strategies, we can better align our actions with our goals. Our use of technology will help us to automate manual tasks and free up time to solve real business problems.

Roberto Della Valle, Chiesi

Security of supply is a top priority at Chiesi. We must always keep in mind the human factor and the impact on patients. A patient who does not receive their medication might be in pain. 

It is critical to understand which items are most at risk and to put in place mitigation actions that will help eliminate, reduce, or control the risk of disruption. 

Another priority is sustainability. We are a B Corp, and we have to continue the path we have started of onboarding suppliers on the sustainability journey.

Sebastien Bals, UCB

We must ensure we deliver on the entire value proposition of procurement, beyond the financials. Especially, advancing our digital business transformation, ensuring supply continuity, and strengthening our relationships with our suppliers will be key.

Next to that, we must move on sustainability and move big, which will require collaboration, not only across the whole company but also across the whole industry. This means on one hand joining forces, both with large- and medium-sized pharma companies, to push our suppliers to become more sustainable, whilst on the other hand ensuring that our business colleagues make sustainable choices.

In downturns, procurement tends to revert to traditional forms of operating, with a focus on savings, negotiations, and working capital improvement. Although this will remain a key priority for us in 2023, we must be careful that these short-term priorities do not prevent us from advancing on future procurement priorities. 
 

How are you making your supply chain more resilient?
 

Romain Roulette, Bausch

Although supply chain issues are easing for indirect materials, such as packaging, there remains significant volatility for APIs. Therefore, that is where our efforts continue to be focussed, and it requires constant vigilance.

Every two weeks we have a watch-list meeting, where we face around 10 new issues every month. We find a way to solve most of them – whether it’s a materials shortage, a supplier closing up, import licensing issues, and so on – but issues require quite some hand-holding and definitely a close collaboration with our suppliers. 

We plan on strengthening our supplier risk assessment tools and expanding our Supplier Relationship Management to new categories to be seen as a customer of choice.

Raffaella Arani, Bayer

At Bayer, we are focussed on building a supplier resilience program, the main levers being risk mitigation, risk prevention, and risk management. The goal is to have an organisation that can rapidly adjust and tackle unexpected market phenomenon at a market level.

Convinced that this is a people business, we are also faced with competition for talent, especially in certain geographies, and we look for problem-solvers who can deal with ambiguity and complexity – and we are looking to invest in and develop those softer skills. If I had to summarise how I see the future of the procurement profession, it is moving from category expertise to cross-category solutions. The lines between categories are becoming blurry. 

Roberto Della Valle, Chiesi

We want to understand which items are most at risk and mitigate possible disruption. 

Every year, we perform a Risk Analysis and define a Criticality Index for each item we purchase, and then we put mitigation actions in place. We increase the safety stock as much as possible, while paying attention to components’ shelf life. We also work with our suppliers to keep a safety stock of raw materials on their premises, as well as ours, to ensure speed of delivery. Sometimes, even a few days difference can challenge supply chain robustness.

We are also investigating different modes of supply management, such as vendor managed inventory or consignment stock, to benefit from our suppliers’ know-how. 

Some of these ways of working require a change management in terms of forecasting and planning activities, such as IT tools that must be flexible in supporting the implementation. 

Sebastien Bals, UCB

We have strengthened our entire risk governance at UCB following COVID, making it much more proactive. 

Events that seem unforeseeable, such as the invasion of Ukraine, often have warning signals, so the questions are: How do we track a wide variety of early warning signals? And how do we develop scenarios for when these risks could impact us again?

It is important to deeply understand your supply chains – not just knowing who your suppliers are. We need to go a level deeper. For that, we are building digital twins to identify and proactively manage interconnected risks in the supply chain, whether they are geopolitical, reputational, environmental, or financial. We want to be able to proactively monitor all the warnings in order to understand how we can react faster.

All this can be tricky in pharma because of the extensive supplier qualification processes, so we need to continuously ensure we have the right supply chain, which has risk management incorporated into it. For example, it is good to have two suppliers, but if both suppliers are located in Europe, then again, we are dependent on the European region. 

How does procurement contribute to your corporate ESG targets?
 

Romain Roulette, Bausch

Given the recent spin-off from Bausch & Lomb, our ESG efforts are in their infancy. We are focussing first on Scope 1 and 2 and then Scope 3 emissions reporting. My vision is that we delve into Scope 3 mapping to identify and prioritise the path forward with our suppliers. Our supply chain’s emission will feed into the company’s overall emissions reporting targets. 

Next, we would look to establish scorecards for suppliers to support those targets. I expect procurement to lead the way in our extended supply chain. At the moment, we are very much inward-looking and supporting the creation of the overall ESG vision and strategy, following our corporate separation. 

Raffaella Arani, Bayer

Bayer is moving to the next level of embedding sustainability in everything we do, from the early stage of every RFx, for example. And then, of course, leading and improving the relationship with the suppliers, as well as efforts to measure and reduce emissions along the supply chain, in Scope 3, and ensure human rights and environmental standards are respected in our supply chain. 

We recently decided to invest in and reinforce the team, focussing on decarbonisation in the supply chain, and we are also looking at the implementation of other company values, such as inclusion and diversity. For example, we have a program for supplier diversity with specific KPIs.

Roberto Della Valle, Chiesi

ESG is a super strategic point for us, in the sense that, as procurement professionals, we have a primary involvement in all activities that increase sustainability.

We asked all our suppliers to sign our Code of Interdependence to let them formally share their commitment and care toward sustainability in business. Such Code of Interdependence has been drawn up as part of a joint initiative with our strategic suppliers

As Procurement, we are involved in all related workstreams, including Net Zero, that we target for 2035. 

We asked our suppliers to map their CO2 emissions and to rate their sustainability levels in order to set the baseline for improvement plans. 

In addition, we have defined category plans for new supplier selection that include sustainability parameters. This is an incredible mindset change: buyers cannot choose the cheapest supplier. If they are not sustainable, we would rather choose a more expensive one.

As Chiesi, we are also investigating the possibility of a sustainable re-engineering, where products that have not been designed with sustainability in mind – say from a recycling perspective – must be unpacked and re-thought. 

Sebastien Bals, UCB 

Sustainability is at the heart of what we do at UCB. Our commitments as a company are not just about minimising the effect that we have on the planet but relate to the ethical approach we take to provide new therapeutic innovations for people living with severe diseases, and conducting business and interacting with our people, communities, and shareholders. UCB procurement therefore also plays a pivotal role in delivering on this promise and ensuring UCB allocates its resources externally intentionally and purposefully.

To achieve this, we have embedded sustainability transversally across procurement – from how we build category strategies, how we manage sourcing initiatives and vendor selection, how we do contracts, all the way to how we manage our ongoing relationships with our suppliers. 

We must all find the balance in every decision that we take, between people, profit, and planet! If we want to create a sustainable future, these risks must be carefully managed. We should be initiating the change we want to see. Every step that we take, every little initiative that we can undertake – no matter how small or how big it might be – actually helps us move in the right direction.

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