Larger pharma companies are well-known for spending a large amount on management consultants and other professionals services, due in part to the pharma industry’s unique and high-risk business model.
There is a real opportunity to managing professional services better in life sciences, but it is far from straightforward, as Cameron Smith, Procurement Senior Partner for Professional Services at Novartis explains in the latest episode of the PharmaSource podcast.
“Procurement is constantly evolving” says Cameron “I don’t think we’re anywhere near close to scratching the surface of the value that procurement can bring.“
Professional services meets life sciences
The pharma business model comes with significantly greater risks than industries as “Pharma has to take a long-term view” says Cameron.
“If we’re doing a deal with a strategy house, that strategy should help define what the business looks like for medium term, tie-in with the drug development pipeline and look at growth opportunities in market”.
Another challenge is that the high-margin nature of big pharma means that a “mindset shift” is sometimes needed before stakeholders are prepared to consider alternatives to their existing suppliers.
Procurement professionals supporting business leaders is these decisions have to be aware of the importance, and politics, of these business issues. “If you’re not, you’re going to be left behind very quickly. Stakeholders are going to take a fairly dim view of what sort of value you can bring to the table.”
7 strategies for transforming professional services procurement
Cameron details his recommendations for how procuerment professionals can manage professional services in the pharma industry.
1. Know your data down to the closest cent
“Make sure that that data is as hyper accurate as you can. I go down to two decimal places, to cents, because that’s proof that you’ve got a strong handle around your spend.”
- For more on supplier data management read The importance of cleaning dirty data
2. Segment your existing supplier base
Most organisations will already spending a lot on professional services, with spend coming out of different departments and budget lines.
“The company I’m with at the moment has something like 23,000 suppliers across the globe in the indirect space. So my starting point is data gathering. Answering the basic procurement questions: What are you buying? From whom? At what rate? Ender what model? For what purpose?”
Askeding these questions helps the procurement team to segment suppliers with specific nomenclature in order to determine what’s goes where.
3. Consult the category experts
“The big challenge is making sure that that data is characterised appropriately, so you can segment that into more manageable chunks so that you don’t have generalists looking at specialists topics.”
“You must have specialists to start looking at specifici topics, commercials, and to assist the special risks” within each category.
4.Benchmark against the market
Even if an internal customer is used to working with a legacy supplier, going out to multiple vendors results in a competitive tension of that can lead to better deal, says Cameron.
“My view is that there’s always a better deal available, based on benchmarking through competition. And that’s both qualitative and through the commercial structure. You might get a different opinion and expose yourself to something you weren’t aware of. “
5. Align with your stakeholders
“Never go to a negotiation without a powerful stakeholder in your back pocket. If you have the support of your customer, you can get a whole lot more achieved.” says Cameron.
“If suppliers see that you’re aligned with your stakeholder, there’s no way through that. You need an aligned position on commercials on quality, on delivery, on projects on future work on opportunities on the good, the bad and the ugly of dealing with that supplier.”
“If you have a strong relationship with your internal client, it achieves so much more. They see you as an extra pair of hands and an extra brain to to deliver something. You will have a far stronger position in your negotiation.
6. Consolidate your supplier base without compromising quality
Consolidating your supplier base is “a no brainer” when looking to reduce cost says Cameron.
However, he advises not to buy based on cost alone. “You’ve got to balance that against the qualitative factors that might not seem as important as the cost lines: service delivery, assurance, quality, history, knowledge, other tangible and intangible attributes of dealing with the supply.”
“Just because a deal looks cheap, does not make it necessarily a good deal. There’s always that balance between not overspending but but also not under spending.”
7. Measure only what is useful
On measurement, Cameron advises that contracts should contain a bespoke suite of measures which are meaningful to the relationship with supplier, and this will different from category to category.
“KPIs are quite a difficult thing to measure. Quite often the KPIs are legacy and measure the wrong things.”
“I’m a little bit sceptical around KPIs and SLAs unless they actually add value to the engagement. In lot of cases they don’t unless it’s a repetitive, repeatable series of activities that you can measure consistently and realistically with, with objective data. If not, then you probably should question what you’re doing with them.”