Procurement has reached a critical juncture across the globe. As pressure to increase efficiencies while mitigating risk intensifies, it has become more critical than ever for organizations to increase visibility into the activities of suppliers throughout the value chain.
This is especially true in the pharmaceutical industry – where change and disruption continue to increase. With mounting scrutiny in the face of changing regulatory policy and price pressures, the time to drive supply chain innovation is now. Consider the promise of personalized medicine, which threatens to upend the traditional system of drug manufacturing and distribution that has been deployed in the pharma industry for so long. Moving from just a few drugs sold in large batches to a large number of unique, disparate treatments for a tiny patient population will require a logistical transformation that could jeopardize the viability of companies that don’t take steps to shore up the supply chain today.
As batch sizes shrink and distribution gets nimbler, pharma supply chains will need the capability to see and track every step of the network. The pharma industry is coming together through organizations like the Pharmaceutical Supply Chain Initiative (PSCI) to share knowledge and drive complex change, but even today many companies still don’t quite know where threats lie. For example, a recent study from the British Institute of International & Comparative Law found that more than 77 percent of companies that performed express human rights due diligence identified potential problems related to issues including child labor, issues of minimum versus living wage, safe and hygienic conditions, working hours, and discrimination. In many cases, these problems were overlooked at organizations that didn’t take express measures to perform human rights due diligence. Issues like these have the potential to be compounded as the already complex supply chain shifts to accommodate the distribution of precision medicine and other regulatory changes.
In fact, visibility is one of the top challenges facing procurement leaders across industries today. Healthcare and pharma already have a higher than average proportion of indirect suppliers, making them even more susceptible to risk from partners deep in the supply chain. According to the 2017 Sustainable Procurement Barometer from EcoVadis and HEC, only 15 percent of organizations said they have complete supply chain visibility into the Corporate Social Responsibility (CSR) and sustainability performance of both tier one and two suppliers, and only six percent reported full visibility into tier three suppliers and beyond. As the most risk often lies among those suppliers further down in the value chain, the need to scale up sustainable procurement programs to increase the depth of supply chain visibility has never been more urgent.
With disruption in the pharma industry continuing to change the face of treatment, and competition at an all-time high, organizations need a new approach to drive supply chain innovation and differentiation. Sustainability in the supply chain has been found by many organizations to be one such driver of positive change, according to survey respondents that participated in the EcoVadis/HEC study:
- 50 percent of sustainable procurement leaders experienced increased revenue from sustainability initiatives (33 percent more than non-leaders)
- 75 percent of organizations use CSR data when selecting new suppliers
- Nearly half (45 percent) say their SP program covers at least 75 percent of their spend volume today – 18 percent increase over 2013
A terrific example of leveraging sustainability to drive competitive advantage is Johnson & Johnson, which is one of many industry leaders that emphasizes sustainability in their relationships with suppliers. The Johnson & Johnson Sustainable Procurement team recently completed its Healthy Future 2015 initiative in an effort to join with suppliers who demonstrate a similar commitment to sustainability through their practices, goal-setting, and the positive impacts they seek to achieve.
In 2017, the two largest obstacles for sustainable procurement programs were a lack of internal resources and difficulty tracking supplier sustainability performance, but supplier commitment, on the other hand, was not found to be a primary challenge. In fact, only 14 percent of suppliers reported that they were not incentivized by buyers to be sustainable and socially responsible.
Even as change continues to occur at breakneck speed in the pharmaceutical industry today, the most innovative companies are recognizing the value of supplier visibility and developing relationships based on a shared commitment to sustainability. Pharma supply chain leaders are already looking to other experts and solutions like EcoVadis’ CSR assessment to prepare for the structural changes introduced by personalized medicine and ensure supplier visibility will not be threatened.
Driving full ROI and value creation requires getting the entire organization to adopt sustainable procurement in their daily jobs. The mantra of Johnson & Johnson’s procurement team summarizes the impact that these initiatives can have on organizations, especially those in the pharmaceutical and healthcare industries: “Enabling growth. For, With and Through the Business.”
For a complete look at the sustainable procurement landscape today – including analysis on business drivers, implementation challenges, program maturity, the supplier perspective, and more – download the full 2017 Ecovadis/HEC Sustainable Procurement Barometer Report, “Scaling Up Sustainable Procurement: A New Phase of Expansion Must Begin”.
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