Procurecon Pharma 2016 First Takes: Industry in Transformation, Sleepless CPOs, Cross-pollination, Leaders Seeking Impact

March 3, 2016 EcoVadis

Attending the ProcureCon Pharma this week is an insightful view into the challenges facing procurement teams of all sizes in this changing industry. From keynotes onward, you are immersed in the transformation occurring in procurement. Here are a few highlights and takeaways from the first couple days that I found interesting, especially as they affect CSR topics.

In the keynotes we heard one CPO reveal “Risk and CSR are what keep me up at night”, while talking about the pharmaceutical industry facing fundamental transformation: The era of ultra-high profit products is ending. The afternoon Panel on R&D echoed a similar sentiment: “The days of blockbuster drugs is ending, with increasingly ‘personalized’ medicine the niches (and revenue opportunity) get narrower, but development costs remain the same.”  Margins are thinning, and thus the business is facing competitive pressures. This pushes procurement to source in lower cost ways, looking around the globe for new suppliers, which as a consequence can often introduce new CSR and related risks.

Leadership on the move… Up!

Procurement heads have their hands full establishing their leadership role and business impact potential in this industry. Many delegates I spoke with indicated that the CPO does not report directly to the CEO in most pharmaceutical companies. Reporting line is often to CFO, COO, CAO (Chief Administrative officer) or similar structure. This additional ‘layer’ may be an obstacle to engaging top-level executive support in initiatives such as sustainability that coming laterally from within the organization or from bottom up. Several procurement heads I talked with had targets that were rolled into the CXO/functional area they report into, sometimes making it harder to get recognition for accomplishments.

Cross-pollination from other industries

Several CPOs (more than three present at the conference) came recently (within the past 5 years) from other industries. These leaders are bringing perspective from experience in areas such as FMCG, Automotive, Electronics, and others. Key differences in these markets are

  1. Time to market: 8 to 12 years in Pharma, vs 8 to 12 months in FMCG
  2. Margins: in those sectors are a fraction of what they are in Pharma, although as noted this is changing.
  3. Balance of Spend: Indirect is a comparatively much larger portion of spend in compared to many other industries.  Often direct materials may be as little as 20% of spend, while sales and marketing may be 30% to 40% — very different when compare to other sectors (like FMCG, automotive, etc.).

With the changes noted previously in Pharma, it seems clear why they are recruiting leaders with this experience, to give them an advantage in the changing landscape.

Add to this the additional CSR pressures of:

  • Developing new and emerging markets
  • Responding to the ever growing raft of legislation across the globe
  • Managing the environmental, ethical and legal risks that can bring even the largest enterprise to its knees.

On Day Two, morning case studies lead into afternoon workshops and round-tables, where EcoVadis hosted the session entitled “How Will Sustainability Impact the Role of Procurement in Pharma over the Next 5 years?” Participants, who included a current client, talked through the issues and shared :

  • There is an inevitable shift starting to occur, from the perception that sustainability means “Green procurement” to expand to include social/human rights and ethical issues.
  • Risk reduction (reputation protection) is currently the strategically most important reason to engage CSR, but for one of the participants, cost savings is still the only way to ‘sell’ an initiative internally.
  • Overall ownership of CSR varies: Some companies it is COO, or CAO (Chief Admin Officer) others it is Supply chain operations, one it was Corporate Communications, and two it was the CPO. However, specific issues are initiated from multiple stakeholders including HR (labor issues), EHS (Environmental), Legal/financial (ethical issues), and procurement teams. But procurement ends up collecting the data.
  • A strategic impact of CSR engagement is on talent acquisition: millenials — the next generation work force — are immediately and acutely aware of CSR issues, and will factor it into employment decisions. A sustainable procurement program may not yet be the key reason that attracts new talent (but it may in the next few years…), but may well be the key deciding factor for top prospects who have several options: All other things being equal (or close) they choose the one with a better CSR record. This applies to recruiting across all areas of a company – not just in procurement.

To cap off the evening, we dined in an airplane hangar, next to a full original 1940’s airplane, which doubles as a ‘smoking room’. Odd, but interesting.

Will the global search for lower-cost supply introduce new sustainability-related challenges and opportunities, and change the course of Pharma procurement? The answer I gathered from Days One and Two of this ProcureCon Health 2016 conference is definitely yes!

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