Procurement Has Vast Opportunities in the Pharmaceuticals, Nutraceuticals and Cosmetics Industry
Procurement is capable of having a major role to play in the pharma, supplements and cosmeceutical industry — even being a source of competitive advantage — if given the chance it deserves. In the Health and wellness sector, procurement hasn’t often been seen as a high priority. Emphasis is often put on healthy margins and the stability of the growth of the industry, with virtually zero control on crucial spend buckets such as marketing, research and development. This has relegated the role of procurement and purchasing in pharma to a minor back-office function.
However, things can change and push Procurement to a position of high priority such that it can play a major role by enhancing its capabilities in Category and Cost Management to create critical competitive advantage for pharma firms.
For most people, Category Management may appear not that critical in an industry like Pharma where the raw materials used are quite specific, with focus being instead put on the highly-regulated APIs (Active Pharmaceutical Ingredients).
However, even if the suppliers of such active substances may not be very many and even with validation and regulatory approval costs often being quite high, Category Management can still help make crucial savings. This is because Category Management is all about identifying, analyzing and prioritizing actions owing to a certain category’s specificities. It’s about proactively managing expenditure.
Our customers — as well as some companies cited by global management consulting firm McKinsey — have experienced double-digit savings when incorporating Category Management principles on APIs, primary and secondary packaging, and equipment.
Cost Management & Value-Based Sourcing
Cost Transparency and Value-Based Sourcing are other key areas with great opportunities. The most important aspect of cost transparency involves being able to break down the costs associated with the sourcing of APIs, excipients, both primary and secondary packaging, administrative processes, as well as margin/markup. Since margins and markups alone can take up to 80% of the selling price, cost management and transparency across these elements is essential as negotiations are bound to be strongly impacted by the weight of these components.
Another key advantage of working on cost management and transparency is gaining better market knowledge. When you are aware how costs compare to each other in the market, then it becomes easier to realize the best value for money and react to shifting market conditions accordingly.
Like in other sectors, the pharmaceutical industry often benefits a lot from low-cost country (LCC) sourcing to make huge savings. Although APIs already mostly come from China and India, LCC sourcing is capable of going even further than that. Apart from APIs, other categories that can take advantage of LCC sourcing include testing (which often amounts to a big portion of the selling price), buying manufacturing equipment and packaging.
Quite obviously, procurement organizations in the pharma sector should set their eyes beyond just prices and costs to also include “Total Value of Ownership” (TVO) in their sourcing processes. The cost of logistics may have an impact on what the best sourcing zone should be. Additionally, the pharma industry has its own risks to manage, therefore the choice of suppliers must also include a risk assessment and — at least for past suppliers — a performance assessment.
In conclusion, we are living in both exciting and challenging times for the pharmaceutical industry in general, and procurement can take its rightful place in bringing the desired change as long as its capabilities in critical areas like Category Management and Value-Based Sourcing are reinforced accordingly!
Toscpharma can assist you in creating a private label nutraceutical, supplement or cosmetic brand of yours. We’ll help you develop the ideal formulation, format, packaging, and marketing strategy. In addition to high-quality manufacturing, we also provide top-quality customer support at every phase of the private label product creation process. Contact us to get started today.
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