Case Study; Pharmaceutical Supply Chain Risk

Pharmaceutical Supply Chain Risk

Largest pharmaceutical company in the world. This was work done for their European head of manufacturing

Situation


• Spend in category £25m across 5 geographies
• Category manager has been in situ for 3 years and delivered double digit savings for the last 3 years
• Procurement seen as reactive and non value added in this area
• No risk assessment process in place – As I was the category manager it was myself that decided that there was a risk.

Approach

The First element to identify this was to conduct across the category a “D&B” report [Dun and Bradstreet Financial Report]. This highlighted that one of the suppliers had a financial issue which I then delved into the elements of risk.
• One of the key risk factors here was then to look at the risk of the supplier and overlay this onto the risk profile for the business. As the supplier was responsible for a product that had a substitute it was known that once a customer moved they would never return to the product. Hence the risk to $1Bn in sales was real to the business.
• The risk factors were then presented to the European CFO, Republic of Ireland CFO, Head of Procurement and Manufacturing Director of Europe. All agreed that this risk was unacceptable to the business and as such my recommendation of finding an alternative vendor became of utmost importance.
• During the development of supply with the alternative vendor it was then found that the price was askew by 30% hence the risk was even greater than anticipated.


• Full opportunity assessment carried out including risk assessment on total category
• Key long term and short term targets identified and action plan developed
• Short term priority seen as risk assessment as situational assessment generated a risk of $1bn of drugs tied to single sourced supplier with no alternative capability in the market place
• Key team codenamed Project Oxygen to develop alternative source of supply sponsored by CFO and Manufacturing Director whilst achieving no reduction in supply

Related Article: Aggreko Logistics; Multiple Suppliers, High Costs, Savings Made


Results / Benefits of Pharmaceutical Supply Chain Risk


• 30% savings on spend of £3m
• Qualitative benefits
• Reduced the risk of supply disruption for the future thus reducing risk throughout the value chain
• Reduced the cost for the business in a competitive marketplace
• Created a very tight working relationship ongoing for the procurement department and the manufacturing teams
• Enabled the business to ongoingly implement the risk management process that had been identified here for all vendors linked to manufacturing
• 2 Backup suppliers identified and transferred to one of the suppliers with the other in backup

Critical success factors


• The commercial relationship had to be maintained whilst we were investigating the alternatives sources
• Alternative sources of supply be found with no interruption to current production
• A back up supplier for that alternative should be found so that we didn’t have to face this again

Results

Within 12 weeks a new source of supply was identified, trialed and delivered 40% cost reduction on current spend.
Previous vendor notified that their services were no longer needed as the risk to £1bn of drugs was unacceptable.
Previous vendor believed that there was a form of oral agreement and so decided to go to High Courts of Dublin.
Court case carried out and ended up in Supreme Court of Ireland ruling in favour of the category director.

Conclusion on Pharmaceutical Supply Chain Risk

Always carry out a full risk assessment of the supply chain especially when you are new into the situation
Believe in yourself and the conviction you have to get actions delivered
“Where focus goes energy flows” – the absolute focus driven through to the cross functional team eliminated doubt and delivered outstanding results that were way in excess of expectations.
Team work delivers faster than working alone.

Other Resources: Procurement Management