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Strategic Procurement

Long considered a back-office function, procurement has emerged as an important asset in effective lab management.

by Tom Russell
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The importance of running an effective and efficient lab has never been greater, and today’s pharmaceutical lab managers face a dizzying array of challenges. From a need to orchestrate the myriad tasks required for day-to-day operations to the growing demand for cost containment and a clear return on research and development investments, lab managers are continually faced with overcoming the realities of an increasingly challenging environment.

As many of the world’s largest pharmaceutical companies move to implement a strategic and technologically enabled approach to obtaining R&D supplies and managing materials, research lab operators and procurement managers are already seeing firsthand that the benefits of procurement reform dramatically impact operations, budgets and even core missions. With a proven track record of rapid ROI in the pharmaceutical industry’s most sophisticated R&D operations, a strategic approach to procurement and associated enabling technologies is leading labs’ efforts to control costs and equip researchers to succeed.

The real costs of traditional procurement and sourcing processes

In research, the need for specific supplies often becomes apparent only as experiments evolve. Researchers and their assistants search paper catalogs and web sites, fill out purchase orders, acquire signatures for approval and wait. For the researcher who makes ad hoc purchases on urgently needed reagents, supplies and assays, the only choice often is to complete paperwork, pay extra for rush shipment and hope for on-time delivery.

For most lab managers and research procurement staff, the process rarely ends there. There are phone calls made and e-mails sent to the procurement department and suppliers to confirm contract pricing and determine when orders will arrive and if they will be on time, and calls back to researchers to confirm possible substitutions. On receipt of product, additional backtracking may be needed to determine why the wrong supply was received, followed by more research to determine if another lab has the needed supply— such as an important compound or reagent—in stock. Waste is rampant.

Enabling technologies alone have not provided the complete answer. Some labs have equipped researchers with internal purchasing tools that are supported by structure-based electronic catalogs and/or p-card purchasing capabilities, only to find that efficiencies gained in one area create increased costs and process delays in another.

Not surprisingly, most lab managers find it difficult to manage their labs’ manual systems, which can be cumbersome and don’t address the fastpaced nature of the lab environment. Perhaps most important, these manual systems do not provide for real-time monitoring of where money is being spent and even what is being purchased.

“Considering the broad accessibility of eprocurement systems and the very strong advancements in functionality made over the past five or six years, I continue to be surprised by the percentage of enterprises that utilize a fully or partially manual requisition-to-order process,” says Andrew Bartolini, vice president of Global Supply Management Research at Aberdeen Group. “These enterprises are leaving money on the table by continuing their off-line strategies.”

Today’s strategic e-procurement technologies address the realities of lab work and fundamentally redefine how pharmaceutical researchers obtain the goods and services they need to bring tomorrow’s drugs to market.

Fundamentals of strategic research procurement

A strategic approach to research procurement—one that returns hard cost savings on investment as well as empowers and assists researchers—rests on two primary tenets: leveraging the value of supplier relationships and empowering researchers to make the best possible sourcing decisions.

Leveraging strategic supplier relationships for sourcing requires aggregation of buying power—suppliers offer more favorable pricing, terms and conditions in exchange for greater market share. With researchers selecting goods and services from a variety of different suppliers, catalogs, etc., even the purchase of identical items is rarely done as a collaborative effort.

Without the data needed to keep volume discounts top of mind or the ability to aggregate spending across the lab, the opportunity to leverage the lab’s buying power is lost.

With strategic procurement, labs can direct R&D spend to key suppliers and, at the same time, gain real-time insight into spend data. Spend is categorized consistently across purchases and supported by powerful analytical reporting to enable clear, fact-based identification of opportunities to put more attractive contracts or agreements in place. This real-time visibility into enterprise-wide spending enables professional buyers to negotiate better terms and conditions with suppliers, based not on the purchasing power of a single lab, but of the entire organization.

The contracts that result often result in savings of up to 20 percent on items that are commonly purchased; for example, by directing purchases of solvents toward a preferred supplier in exchange for preferential pricing, invoicing and delivery terms.
Gregg Brandyberry, vice president of procurement for GlaxoSmithKline’s (GSK) Global Systems and Operations, is widely known in the procurement profession as a pioneer and influential advocate for strategic procurement. Under Brandyberry’s leadership, GSK won an ROI Baseline Award in 2005 from Baseline magazine for achieving the highest ROI ever verified in the competition—a 100 percent return every four business days.

Leveraging supplier relationships and achieving the associated benefits requires disciplined day-to-day compliance with strategic sourcing agreements. Some organizations have attempted to achieve compliance by placing lab management and procurement staff in rigid, bureaucratic roles, as overseers to catch and correct noncompliant behavior. Those efforts have generally achieved limited success, often with a severe impact on speed. In contrast, when procurement is seen as strategic rather than merely tactical, researchers are empowered to make the best possible sourcing decisions, coupling complete and accurate information with their knowledge of scientific requirements.

In particular, the best strategic sourcing decision may be to not make a purchase at all. Researchers with an urgent need for a particular material often purchase it without knowing that it is already in stock on-site. In most research labs, at least two-thirds of all on-hand chemical reagent inventory is distributed across several labs, with little or no visibility for researchers looking for chemicals. Because the fastest sourcing alternative is generally the container already on hand, and because each chemical container potentially carries handling and disposal costs that exceed its purchase price, this lack of visibility represents a major lost opportunity for cost and time savings.

A strategic, empowering procurement approach instead gives researchers a complete view of available in-house inventories and purchase options—including electronic alerts that notify researchers when an item they want to purchase is already available in-house. Inventory information is accurate and reliable. Purchase options are presented with rich, descriptive information, accurate contract pricing, and clear identification and promotion of preferred suppliers. Information is standardized for streamlined flow through purchasing systems. Applicable health and safety risks are clearly identified prior to purchase confirmation and automatically trigger required approvals in the e-procurement workflow

Perhaps most important, the resulting information is seamlessly integrated with ERP systems—ensuring that senior leadership and financial departments maintain a clear view of where money is being spent, how it is being used and how research ties into organization-wide systems and processes.

Enabling researchers to make the best possible sourcing decisions has dramatic benefits. SciQuest’s clients have consistently achieved savings of 10 to 20 percent of total annual chemical spend by avoiding redundant purchases, and have reduced average delivery times by one to two days without incurring additional shipping costs.

Adoption – Focus on the researcher first

Achieving the promised benefits from e-procurement processes and technologies requires pervasive end-user adoption. Effective organizations achieve high adoption rates by focusing on the researcher’s experience.

Where traditional procurement processes hindered researchers and lab managers with time-consuming paperwork, strategic e-procurement solutions present the same online shopping experience consumers have come to expect on popular e-commerce sites. Utilizing an online shopping platform that enables researchers to quickly find the items they need in hosted electronic catalogs or “punch out” to suppliers’ web sites, these solutions automate the entire procurement process.

Researchers log in, browse for needed items, add them to a virtual shopping cart and click “send.” A purchase order is created, automatically routed electronically for the proper approvals, and delivered to the supplier, at which point invoicing and payment are likewise handled electronically.

The benefits of a researcher-focused e-procurement process aren’t confined to pharmaceutical labs. John Riley, executive director of Purchasing and Business Services at Arizona State University, credits a new approach to procurement and e-procurement technology with helping the university attract world-class research talent to its more than 1000 labs.

“If you’re a researcher in academia, you have a six-year window to set up your lab, bring together your staff, conduct your work, get published and attain tenure. When you consider how many purchases are required to get a lab up and running, it’s not surprising that we receive inquiries from researchers who want to know what kind of procurement process we offer before deciding on which institution to work with. Automation can take months off the set-up process and ensure that researchers gain from greater efficiency.”

One of Brandyberry’s initiatives to empower researchers was to implement SciQuest’s Enterprise Reagent Manager (ERM) at GSK. ERM, which allows researchers to use chemical structures in a “one-stop shop” for inventory and managed catalogs, is now in use or being rolled out at eight of the company’s nine major research and development sites around the globe.

“A chemist can draw chemical structures and know exactly what he or she wants, but transforming that information into a request that the procurement department or most purchasing systems can understand or process can be difficult,” Brandyberry says. “ERM takes that guesswork and frequent source of misunderstanding out of the equation. The researcher draws what he or she wants and the technology takes care of the rest.”

While Brandyberry was quick to prove e-procurement’s value and impact on the bottom line, he is equally proud of how procurement reform is modernizing the research function.

“The reality is that everything we do in the pharmaceutical industry starts and ultimately ends with the ability of our researchers to create new ways to combat disease and suffering,” says Brandyberry. “There is no more important work. New procurement technologies and the efficiencies that result from them won’t deliver tomorrow’s innovative new drugs, but they do ensure that researchers have quick access to the materials they need and are freed from as many administrative interruptions as possible.”

The promise (and threat) of emerging technologies

Other developments promise to extend the value of ERM and e-procurement technologies further; one currently available option is integration with compound libraries. While most pharmaceutical companies manage well-populated libraries of proprietary compounds, it can be difficult for researchers in disparate labs to quickly determine what is available on-site. As a result, researchers are forced to resynthesize needed compounds—a process that can add weeks to the discovery process. Integrating global compound library search and request capabilities with ERM greatly simplifies and streamlines searching and avoids unnecessary synthesis.

Web services and mobile computing promise further opportunities and end-user benefits by making key capabilities portable and interoperable. Imagine a researcher using an e-lab notebook to plan an experiment, and searching for and requesting the required materials without leaving that application, or scanning an empty bottle with a mobile device to request a replacement. These technologies offer exciting potential to streamline researcher operations and drive adoption; however, unless they are rooted in core strategic procurement capabilities, including keeping an accurate inventory and managing catalog content with accurate contract pricing and promotion of preferred suppliers, these technologies can just as easily create more downstream issues, costs and delays.

Given the advancements and innovations now shaping how pharmaceutical labs purchase the materials they need, one would think that procurement reform would be a top-of-mind issue in the research community, but Brandyberry cautions that procurement, when done right, is simply accepted as a matter of course.

“For years, labs have operated with little thought given to how they procure crucial materials. It’s only when researchers have the opportunity to utilize new technologies for themselves that the laborious nature of existing systems becomes so evident. Technology is like that. We thought fax machines were highly efficient until the Internet came along. E-procurement is no different.”