Supplier Relation Management Revisited
15
Giles Breault, C.P.M., MCIPS Former Chief Procurement Officer Novartis Pharma Mumbai, July 2013 Supplier Relationship Management Revisited: Co-Creating Value 4 th Annual Pharma Supply Chain Summit
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Giles, from his immense experience in areas of procurement has learned that traditional forms of buyer-seller relationship management have run their course and are no longer delivering value that should be expected. Check this presentation, which is brought to you by the FMCG Confext team. Visit www.fmcgconfex.com to know more on the event.
Transcript of Supplier Relation Management Revisited
Gi les Breaul t ,
C.P.M., MCIPS
Former Chief
Procurement
Of f icer Novar t is
Pharma
Mumbai, Ju ly
2013
Supplier Relationship Management
Revisited: Co-Creating Value
4 th Annual Pharma Supply Chain Summit
2
An opportunity to re-think the meaning of
relationships
1- Background
2- Bold Assertion
4- Buyer-Seller Relationship Map Today
5- Understanding Customer Needs / Dif ficulties to manage
3- Changing Pharma Marketplace
6- Changing Relationship Map
7- Putting it altogether – What does it take to do it r ight?
3
Professional History Giles Breaul t
Strategic Procurement Strategic Procurement
Emerges Trail-blazer
A Breakthrough in A Breakthrough in
Value Creation
Getting Control of Getting Control of
Global Spend
7 8 3 8
1988 1994 2002 2005
1.0% 1.0% Va
lue
V
alu
e
2.0% 2.0%
4.5% 4.5%
7.0% 7.0%
Business Unit Head
Director WW Purchasing
VP US Procurement
Head of Strategic Proc. SVP - CPO
CPO – Pharma
Head of Productivity
3
4
Traditional forms of Buyer-Seller relationship management
have run their course and are no longer delivering value that
should be expected
It is time to re-evaluate our Trading Relationship
Management programs (SRM, CRM, KAM, …….) and and re-
design them to co-create value
The Pharma marketplace is changing dramatically
Traditional commercial methods fail seek solutions to unmet needs and
force commoditisation
Recent revelations from Pharma Productivity “Think Tank” acknowledge
the limits of traditional programs - Procurement Organisations are
seeking new sources of value and not price
New Trading Relationships have a different set of objectives
A Bold Assertion – (career lessons learned)
Copyright © 2013 Accenture All Rights Reserved.
Shifting global markets
New Markets: • BRIC into top 10 by 2016
• UK & Spain drop out of top 10
New price points: • 15%-20% price reduction in top
line product sales in the markets growing at +20%
• Slow down of growth to 1%-3% in mature markets
New Supply chain models: • West to East movement of supply
chain
• Need to operate global supply to service growing market needs
• Increased use of contract manufacturers driving need for more orchestrated supply chain control
Changing Product Portfolios
Replace Products:
• Pressure to replace lost revenues from products off patents
Rise of generics: • Generic growth in mature and
emerging markets
• M&A in developing economies
Rise of specialty products: • Switch from mass market
blockbusters to more specialized drugs in mature markets
• R&D driven at more niche therapies with innovative medicines
• Requirement for evidence of outcomes/efficacy for reimbursement for new drugs coming on the market
Macro Economic Influences • Healthcare costs rising faster than GDP in many countries
• Mature market payers (Governments and Payers) forcing generic substitution for long standing therapies and requiring evidence of outcomes in return for paying higher prices for specialized therapies
• Emerging market demand rising sharply - need for product at the right cost for growing economies
Customer Engagement Revolution
New Customers: • 1.3bn new patients • 1.27m more doctors
New Technologies: • Digital/cloud, Shifting from sales
reps available from 9.00am-4.00pm to multi channel engagement (web, mobile apps, call centres, video)
• Rise of Social Channels: Physician Sites (e.g. Sermo.com, haoyisheng.cn) patient sites (e.g. patientslikeme.com)
Changing cost base
EBIT and SG&A changes: • Shifting portfolios to a mixture of
generic and patented products result in a lower EBIT for many companies
• Pressure to reduce SG&A in line with new product portfolios
• Need for investment in new geographies and new product areas puts more pressure on core back office optimization
“The new world of old Pharma” Transformation Themes in one page!
55
6
Traditional forms of Buyer-Seller relationship management
have run their course and are no longer delivering value that
should be expected
It is time to re-evaluate our Trading Relationship (SRM,
CRM, KAM, …….) Management programs and and re -design
them to co-create value
The Pharma marketplace is changing dramatically
Traditional commercial methods fail seek solutions to unmet needs and
force commoditisation
Recent revelations from Pharma Productivity “Think Tank” acknowledge
the limits of traditional programs - Procurement Organisations are
seeking new sources of value and not price
New Trading Relationships have a different set of objectives
A Bold Assertion – (career lessons learned)
7
The Relationship Map Current Relat ionships force Commodisat ion
Buyer and Seller collaboration is reduced to competitive performance
on specification (commodity)
• Relationship is Price not Value based
• Little understanding of the ultimate customer need
Supplier Pharma Customer
1 2
3 4
C o m m e r c i a l T r a n s a c t i o n
C o m m e r c i a l T r a n s a c t i o n
8
Traditional forms of Buyer-Seller relationship management
have run their course and are no longer delivering value that
should be expected
It is time to re-evaluate our Trading Relationship (SRM,
CRM, KAM, …….) Management programs and and re -design
them to co-create value
The Pharma marketplace is changing dramatically
Traditional commercial methods fail seek solutions to unmet needs and
force commoditisation
Recent revelations from Pharma Productivity “Think Tank” acknowledge
the limits of traditional programs - Procurement Organisations are
seeking new sources of value and not price
New Trading Relationships have a different set of objectives
A Bold Assertion – (career lessons learned)
9
Commercial Va lue-based ou tcomes
Regu la t ions ( loca l / reg iona l / g loba l )
Success fu l p roduct l aunches
Development Save t ime / f as te r t o marke t
Time for commercialization
A day is worth $20 mio!
Res t ruc tu re c l i n i ca l s tud ies / new geograph ies
Manufactur ing / Production Need grea te r ag i l i t y i n response to g rea te r uncer ta in t y
Switch from eff iciency to effectiveness (f lexibil ity)
Maintain quality despite improving productivity
Opportunity to outsource (not large PH's core competency)
Suppor t dec is ions to bu i ld p lan ts f o l low leg is la t ive / i nves tment cons idera t ions (e .g . Ch ina , Russ ia )
Business Operations Pathway to Headcount reduct ion /ou tsourc ing
Simp l i f i ca t ion p rocess
Shared se rv i ces and BPO
The world according to customers Key Chal lenges & Opportuni t ies : Commercial
10
Why are value based relationships so
difficult for Big Pharma?
Focus on Cost Savings - “We just can’t seem to escape this without
recognising that what we want to achieve is a route to lower costs, not only a
route to lower prices”
Metrics management – “Of course we need to measure the performance
of our most important suppliers, but this “crowds out” a much more
important dialogue”
Control vs. Collaboration – “Our systems do not encourage suppliers to evaluate
us as customers of choice who actively are seeking innovation and co-created value”
No Priority / No time – “Our own buyers often have neither the time nor the
knowledge to manage a deeper discussion with our most important suppliers”
11
Traditional forms of Buyer-Seller relationship management
have run their course and are no longer delivering value that
should be expected
It is time to re-evaluate our Trading Relationship (SRM,
CRM, KAM, …….) Management programs and and re -design
them to co-create value
The Pharma marketplace is changing dramatically
Traditional commercial methods fail seek solutions to unmet needs and
force commoditisation
Recent revelations from Pharma Productivity “Think Tank” acknowledge
the limits of traditional programs - Procurement Organisations are
seeking new sources of value and not price
New Trading Relationships have a different set of objectives
A Bold Assertion – (career lessons learned)
12
The Relationship Map The Buyer & Suppl ier sel l to the ul t imate customer
Buyer and Seller are collaborating on how to meet the needs of the
ultimate customer?
• Understanding the need
• Creating a Set of Services that increases the buyer’s and
ultimate customer’s perception of value
• Mutual Dependency
Supplier Buyer Customer
1
3
2
C o m m e r c i a l T r a n s a c t i o n
V a l u e - A d d e d S e r v i c e s
4
13
WHY is it time to focus on re-inventing the
landscape of trading relationships?
Aspiration
Move Procurement from:
From Cost reduction to Value Creation
Market realities
• Unprecedented challenges In HCS
• Growing pressure to manage costs
• “Crisis as usual” not possible much
longer
Direct Assessment
• Top-3 option for “What’s next” from
Beyond Procurement survey
• Professional Procurement
organisations can no longer sustain
simple continuous price reduction
and are looking to increase value
“Gateway to
buying company”
“Conduit to
supplier base”
Experience
• Personal involvement in many SRM
programs often with differing aims
• All programs had shortcomings
whose weaknesses were not obvious
until a crisis
The answers may not be so apparent!
Putting it Altogether
The New Relationship: What does it look like?
14 © 2012 The Beyond Group AG
The New Relationship:
• Mutually Dependent, Indispensible, Co-
Destiny
• Value Creative – vs. Cost Reduction
• Financially Transparent – End of the
buyer/seller traditional model
• The contractual strategy needs to align
with the commercial model
• Executive Co-commitment
• Multi-Layered Communication
• Organizational Readiness
• Capability Building
Q & A
Giles Breault, C.P.M.,MCIPS
Copyright © 2013 Accenture All Rights Reserved.
Implications for High Performance Procurement?
A different market – “Entropy on Entropy”
• A different 80:20 – geographies, suppliers, markets…
• More complexity…more focus on complexity management
• Desire to work end-to-end rather than in silos
A different way to engage – “Winners work with winners”
• Suppliers and supply chains as sources of ideas and differentiation
• Social media as a tool for engaging supplier network
• Selective focus on the few rather than everyone
A different outcome – “Looking for scale”
• Identifying the areas where innovation/process change can alter EVA
• Leverage of services that are scalable on outcomes
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Relationships
