While inflation and economic pressures are forcing pharmaceutical brands to watch their pennies, they will do well to not tackle cost efficiency as a solo issue. Brands will also need to focus on resilience in various areas of their incredibly complex supply chain. Chief among these concerns is compliance as stringent regulations must be followed.
So, can brands manage resilience factors, such as costs and compliance, holistically?
Both factors have unique requirements, such as finding ways to cut costs or to stop risky activities. However, each factor stems from a common cause: murky supply chains. By fixing poor-quality supplier data, therefore, the pharmaceutical sector can be significantly more resilient at the same time as cutting costs.
Pharmaceutical supply chains are among the most complex.
In the pharmaceutical industry, the definition of “supplier” is particularly complex. Typically, direct suppliers are highly specialized in relevant fields, such as healthcare and research, and they serve various manufacturing plants to meet a unique range of purposes.
A characteristic of the industry is that brands are open to high levels of scrutiny and those that don’t meet legislation face severe penalties. In 2022, for example, the FDA issued 62 warning letters and 23 import alerts to drug organizations, and form 483 handouts more than doubled from 2021 figures, to 466.1
Further, in March 2022, the SEC proposed new rules for climate change disclosures. While these are not yet final, the SEC has proposed to advance rules that require disclosure.2 In Europe, meanwhile, there is the European Union's Corporate Sustainability Due Diligence Directive (CSDDD). In this case, relevant organizations will have to examine potential environmental and human rights risks in their operations and supply chains, which includes in-depth auditing of suppliers and business partners.3
Alongside this, there is the ever-increasing awareness of ESG among end consumers. This means that pharmaceutical manufacturers must consider corporate social responsibility and focus on ethical supplier management practices and sustainable procurement. As more local outsourcing is taking place, there are elevated threats to reputation at global level.
Processes behind compliance harm supplier data.
To support a multitude of compliance areas, pharmaceutical brands need various types of workflows, whether that’s concerning FCPA, FDA, HIPPA, 21 CFR Part 11, SOX, cGMP, HS&E, data and privacy, waste management, or corporate social responsibility (CSR), among numerous other areas.
As part of the process, businesses must request a vast amount of information from suppliers. These requests are not always relevant to the suppliers they go to, which means suppliers must wade through each one to determine its worthiness, in addition to providing information. Further, those requests that do apply are likely to include irrelevant sections. Solving this task is a time cost to suppliers. So, when it comes to filling in forms, they may have less time available to offer the most thorough, helpful responses.
Then, when brands do receive information, they capture and store it in a way that compromises their overall supplier data. This is because, over time, pharmaceutical businesses have invested in various digital tools with which to transact with suppliers and manage them. The digital setup now is very complex: most tools are magnets for collecting and storing supplier data. This creates multiple datasets and in this fragmented state, master data is compromised. It is riddled, when viewed as a whole, with outdated and duplicate entries which makes it difficult to tell which entries are accurate.
Data quality is a strategic disadvantage, or indeed, advantage
When leaders can’t see what’s going on inside their supply chains, it harms revenue and long-term prospects. They make misguided decisions, open their businesses to non-compliance, and miss quality thresholds. Poor visibility also hurts performance. This is especially pertinent when outsourcing warehousing and distribution, which are crucial and time-sensitive factors. Where the quality and performance thresholds are not met due to a supplier not complying with regulations (such as maintaining a specific temperature during transportation or storage), this can lead to significant losses for the manufacturer.
On the other hand, when leaders have good data, they have the full picture of what suppliers are doing throughout the production process and how each activity is linked. This means they can identify strengths and weaknesses to manage. Supplier information is used by thousands of internal stakeholders and a whole array of functions—from Inventory Management, Quality Control and Procurement, to Sustainability, the Board of Directors and more. Seeing into the supply chain allows various parties to assess risk factors. Certain functions might benefit from knowing, for example, how exposed suppliers are to severe weather risks, and whether suppliers are financially secure and adhering to quality control, data protection, and cybersecurity. Ultimately, reliable supplier data is the lifeblood of the supply chain.
In addition to their data, suppliers themselves are valuable stakeholders and can help pharmaceutical brands perform optimally. Suppliers represent value in the form of innovative ideas, supply in times of high demand, quality and much more. In fact, a recent HICX study revealed that suppliers are 24% more likely to go the extra mile for a customer of choice. It’s in a brand’s interest therefore to make the most of this vital relationship. I like to think of this principle as Supplier Experience Management.
Behind the data problem lurks a supplier experience problem
What lies behind poor visibility, and therefore poor resilience, is the way in which most brands work with suppliers, particularly through the brand’s people and technology. First, employees expect suppliers to go the extra mile, without making it easy for them to do so. The preceding example about how information requests are seldom personalised gives some insight into how employees see suppliers. The relationship is seldom equitable. Rather, it can be characterized by employees making unfair demands, late payments, and last-minute requests. It’s not that people are intentionally unkind, but there is a sense of passive acceptance that suppliers must fit in.
The second point of frustration for suppliers is the digital environments in which they are expected to work. Pharmaceutical brands use a complex mix of tools to transact with suppliers and manage them. This causes suppliers to sign-in to and jump between multiple tools to serve their mandates, which is inefficient. When suppliers are expected to navigate clunky digital landscapes and unhelpful engagements, their experience is bound to be poor.
The other side of the coin, though, is that we need suppliers. When suppliers have a poor experience, chances are they’ll be less willing or able to share vital information. Without the right data, leaders can’t make informed decisions around cost-savings, compliance, and general resilience. Passive supplier management, therefore, costs brands resilience.
How pharmaceutical brands can be stronger
Maximizing resilience means pharmaceutical leaders must give all their suppliers a helpful experience – not just a strategic few. If there’s one thing Covid-19 taught us, it’s that we could need any supplier at any time. When the pandemic hit, non-strategic suppliers, such as IT equipment and cleaning providers, became crucial partners overnight, without whom, employees could not work from home or in clean offices. In an ever-changing macro environment, all suppliers are important and as leaders build resilience, they will benefit from boosting supplier experience across the board.
Leaders can remove friction for suppliers by easing the digital processes they’re expected to use. A worthwhile exercise is to consider how different types of suppliers work with their business, with the view of understanding their end-to-end journey. This includes all the digital interactions a supplier-type has, covering everything from pre-onboarding through to lifecycle management and off-boarding, where user experience is relevant. It’s worthwhile for leaders to set themselves a supplier task to fulfill and attempt to recreate the process from the perspective of different supplier personas, with the objective is identifying points of confusion or friction and determining how to remove them.
The other way to remove friction is to improve the cultural mindsets and bring suppliers into the fold as valued partners. Employees who view suppliers this way are more likely to appreciate that the brands they represent indeed need suppliers and treat them accordingly.
When all is said and done, creating a better experience for suppliers, will make the pharmaceutical sector significantly stronger.
As the industry works towards cost-efficiency in an ever-changing world, it will benefit from viewing the building blocks of resilience holistically. Within the complex pharmaceutical supply chain realm, compliance and general competitiveness can also be addressed. The answer is to focus on two problems related to suppliers: their data and experience. Let’s turn them into solutions. It’s time to transform digital setups and mindsets and make pharmaceutical supply chains future proof.
Notes:
1 Inspection Observations | FDA
2 SEC climate risk disclosures: PwC
3 The Future of ESG Compliance: Understanding the EU CSDDD | NAVEX - JDSupra
