Magazine Article | September 28, 2012

Pharma And Biopharm, Suppliers Can Cost You More Than You Think

Source: Life Science Leader

By Ken Baker, CEO, NewAge Industries-AdvantaPure

How many suppliers do you have that cost you millions of dollars per day? Your quick answer might be that none of them do. Think again. In 2010, the top 50 pharmaceutical companies had total revenue of $1.67 billion per day. That averages to over $33 million per company. If you are one of these companies and your production is down for a day, you just lost a chunk of that $33 million.

There are many causes of downtime in pharmaceutical and biopharmaceutical production. Your suppliers can be a major cause of downtime. When is the last time you had delays getting raw materials or replacement parts, and your production was down for a day, a week, or longer? Even a delay of a few hours can impact a production schedule and your bottom line. If your supplier or their supply chain is unreliable, it is you who foots the bill.

While you cannot totally avoid these interruptions, there are steps you can take to mitigate much of the risk you assume when relying on suppliers. You need to be aware of the many factors both inside and outside the control of your suppliers that can cause them to have delays in getting you the product or service you need. These can include validation issues, mergers and acquisitions among suppliers, natural disasters, problems with your suppliers’ own supply chain, and even the suppliers’ strategic plans.

Ben Franklin said “an ounce of prevention is worth a pound of cure,” and this is true in mitigating supplier risk. Here are some best practices for choosing your supplier network:

  • First and foremost, always have a backup supplier. It might cost more for this “insurance,” but remember what Ben said.
  • Make sure your suppliers have backup suppliers. Supplier agreements should have a change of materials notification clause, so you are notified when changes, such as the use of a backup supplier, are made that might affect your production.
  • Understand how much control your supplier has over its supply chain. Is their manufacturing outsourced, and how well is it managed?
  • Audit your suppliers.
  • Push for open communication with your supplier regarding your own internal projections and needs so the supplier can plan properly. Involve your supplier in problemsolving on the production floor.
  • Evaluate the supplier’s investment in inventory. What is its inventory value? Is it changing and if so, why? If your projections increase, can your supplier react immediately?
  • Get references.
  • Understand your supplier’s distribution model and how it can impact you. Can it ship direct? What is the average delivery time?
  • Understand the long-term strategic plan of the supplier. Is it part of a merger or acquisition that could divert its investment in inventory or production? Is it serving other growth markets that might impact its available inventory for your market? Will it be discontinuing any product lines?
  • Understand the employee turnover, especially key people in the organization. A company’s success is due to its people. Is the company losing expertise or reliability through turnover?

If you can avoid even a few days of delay per year by improved vetting of suppliers, it can save you money, time, and relationships. The cost to you of establishing and executing a good process around vendor selection and management will be small compared to the problems you face when a supplier fails you.