Why Procurement is Good Medicine for Life Sciences

By Tom Papa

Developing and bringing innovative products that improve patient health to people around the world is the lifeblood of the life sciences industry.

Right now, many life sciences companies are struggling to find new ways of getting their new and existing drugs to market, and the people that need them most, a lot faster. Accenture analysis suggests the payoff could be significant. If companies lengthened the exclusivity period for new blockbuster drugs by just one quarter they could realize, on average, an additional $1.4 billion in annual revenues.¹

One key to success: strategic collaboration between the business, its suppliers, and its procurement organization—where procurement acts as the bridge between the business and its suppliers, and thus is uniquely positioned to capture and help drive revenue-generating ideas.

Transactional no longer
The idea that procurement is purely transactional and narrowly focused on internal objectives—cost reduction and supply risk mitigation—is no longer viable. Nor can some parts of the business continue to view procurement as a necessary evil, rather than as a value-generating partner.

Instead, life sciences players need to recognize—and encourage—procurement’s strategic potential. By making the most of procurement’s skill sets, enhancing its talent, and having it collaborate with both suppliers and internal business partners in an expanded ecosystem, companies could enable more successful business strategies and innovation. What’s more, by equipping procurement decision makers with advanced digital technologies, they could unlock significant new value and dramatic top-line growth.

Enabling business strategies
Most life sciences procurement organizations have a ways to go before they turn into such powerful strategic enablers.

Over the years, procurement organizations have evolved into integrated front-middle- back office structures, which separate the workforce according to the type of work performed. In the front office, strategic thinkers concentrate on business partnering and category strategy development, as well as managing supplier relationships. A middle- office sourcing engine supports them with analytics-enabled market intelligence, while back-office resources continue to handle purchase-to-pay transactions and other operational activities.

In this structure, however, nearly 55 percent of procurement resources remain focused on the transactional and operational sourcing activities performed by either middle or back-office staff.² Plainly, most life sciences companies just aren’t realizing the full value of their procurement organization’s skill sets.

These leaders are restructuring their procurement organization to enable a significantly more strategic role.

Outsourcing back-office activities to third parties, or merging them with other shared services centers, can drive process standardization and efficiency. And as operating models continue to evolve, we anticipate that some leading companies may choose to follow the example of industries such as financial services, and outsource the middle office as well.

All of which would leave a thin, front leadership layer of top-talent strategic thinkers—drawn from a variety of backgrounds (not just procurement). Imagine, for example, an R&D procurement leader with years of innovation expertise as the former head of a clinical research organization sitting on a life sciences company’s R&D leadership team. This R&D procurement leader is now viewed as a strategic enabler to the business because they are supported by a team of procurement professionals that are capable of delivering expert R&D supplier market intelligence and procurement skill sets.

Embedded within the business and with deep knowledge of both leading business practices and supplier capabilities, these strategic thinkers will be functionally aligned with commercial, corporate, R&D and supply chain business areas. By partnering internally with the business, and externally with key suppliers, their focus will be on enabling business strategies that foster innovation and growth (see Figure 1).

Enabling innovation
Many companies are now becoming aware of procurement’s potential as a source of revenue-generating ideas. To enable this value, life sciences companies need to formalize not only the value creation objective, but also the processes through which value is delivered. Adopting a new innovation infrastructure that not only harvests the best ideas from across the enterprise, but also harnesses a much wider universe of initiatives, would provide a powerful mechanism for doing so. In such an open innovation model, businesses actively scour the globe looking for new ideas, or for the insights that could progress their own ideas.

In the consumer goods industry, for example, leading companies have employed open innovation to develop new products that have significantly boosted their sales. Case in point: P&G’s highly successful Olay® Regenerist anti-aging skincare, which was developed jointly with one of the company’s suppliers. By 2010, this and other game- changing product launches enabled by open innovation already accounted for 25 percent of P&G’s new annual sales growth—and could account for 60 percent in 2015. ³

By leveraging a similar approach, life sciences players could also drive bigger, better innovation. Imagine, for example, having category managers discuss new product suggestions in every conversation with suppliers. The life sciences category strategy development process would soon be humming with ideas. And a holistic innovation infrastructure would help prioritize and implement the best of them.

None of this means that cost reduction is disappearing from the procurement agenda— to the contrary. But it is becoming part of a more expansive value proposition. Companies need to take not only Total Cost of Ownership (TCO) into consideration, but also Total Value of Ownership (TVO): the additional value to be gained from strategic collaboration with key suppliers, and a more open innovation process.

As Paula Martinez, vice president for global purchasing at UCB Pharma SA puts it: “We connect with the market to nurture innovation in order to generate incremental value beyond cost reduction for UCB and its patients.”

Digital technologies—enabling better decision-making
Accenture research shows that companies are least likely to use analytics in procurement, relative to other business areas: only 40 percent, versus 59 percent that use analytics in finance, and 55 percent that deploy analytics in customer service.⁴ But research also shows that 60 percent of companies are investing in digital collaboration platforms to stimulate ideas, facilitate idea collection, and foster new partnerships and forms of collaboration. ⁵

Some insights could drive deeper understanding of supplier risk and the strategies to mitigate it. And in time, we expect more life sciences players to leverage digital technologies as enablers of better decision-making and thus new value generation and new growth.

Four digital technologies in particular will form the foundation of procurement’s future digital strategy:

• Cloud computing will enable access to more content, as well as make employees more productive and engaged.
• Real-time analytics, in combination with sensors and embedded software,⁶ will generate deeper, more valuable insights from richer, real-time data, thus enhancing risk management and facilitating better decisions.
• Social media will greatly strengthen the collaboration platforms that support ideation and innovation.
• Cognitive systems —digital agents integrated into the fabric of procurement— will eventually handle not only such transactional activities as help desks, but also more strategic pursuits.⁷

Practical steps
Here are five practical steps that you can take now to maximize the potential long-term benefits of transforming your procurement organization:

1. Align procurement’s objectives with those of other business areas, and focus resources on identifying and enabling growth, innovation and cost reduction opportunities.
2. Build procurement’s organization and operating model around the skills needed for this new focus.
3. Implement a talent development program that embeds business partnering and strategy development expertise in each business area.
4. Establish a preferred supplier program that virtually integrates key suppliers with a mutually beneficial value proposition into your business.
5. Define a digital procurement strategy and future roadmap to leverage supplier analytics and collaboration platforms. A more strategic and collaborative procurement organization is an urgent necessity for the life sciences industry.

Contact the Author: Tom Papa thomas.f.papa@accenture.com
Additional Contributors:
Jay Merenda jay.merenda@accenture.com
Ruslan Parashchak ruslan.parashchak@accenture.com

References:
1 Accenture analysis based on average revenue in the last year of patent protection for six blockbuster drugs: Plavix, Abilify, Lipitor, Nexium, Seroquel and Crestor.
2 Accenture insight
3 The next digital wave, Accenture 2012
4 Analytics in Action: Breakthroughs and Barriers on the Journey to ROI, Accenture Report, 2013
5 Open Innovation: What’s Behind the Buzzword, ESCP Europe & Accenture, 2011
6 Driving unconventional growth through the industrial internet of things, Accenture 2014
7 Is yours a procurement organization of one? Accenture 2015 

About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with more than 323,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high- performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.

About Accenture Strategy
Accenture Strategy operates at the intersection of business and technology. We bring together our capabilities in business, technology, operations and function strategy to help our clients envision and execute industry-specific strategies that support enterprise wide transformation. Our focus on issues related to digital disruption, competitiveness, global operating models, talent and leadership help drive both efficiencies and growth. For more information, follow @AccentureStrat or visit www.accenture.com/strategy.

About Accenture Life Sciences
Accenture’s Life Sciences group is dedicated to helping companies rethink, reshape or restructure their businesses to deliver better patient outcomes and drive shareholder returns. We provide end-to-end business services as well as individual strategy, digital, technology and operations projects around the globe in all strategic and functional areas—with a strong focus on R&D, Sales & Marketing and the Supply Chain. We have decades of experiences working hand-in-hand with the world’s most successful companies to improve their performance across the entire Life Sciences value chain. Accenture’s Life Sciences group connects more than 10,000 skilled professionals in over 50 countries who are personally committed to helping our clients achieve their business objectives and deliver better health outcomes for people around the world.

Accenture Life Sciences Blog
Accenture experts share insights and opinions on opportunities and challenges in the pharmaceutical and medical technology industry. www.accenture.com/LifeSciencesBlog 1 Accenture analysis based on average revenue in the last year of patent protection for six blockbuster drugs: Plavix, Abilify, Lipitor, Nexium, Seroquel and Crestor. 2 Accenture insight 3 The next digital wave, Accenture 2012 4 Analytics in Action: Breakthroughs and Barriers on the Journey to ROI, Accenture Report, 2013 5 Open Innovation: What’s Behind the Buzzword, ESCP Europe & Accenture, 2011 6 Driving unconventional growth through the industrial internet of things, Accenture 2014 7 Is yours a procurement organization of one? Accenture 2015