As the critical bridge between the business and its suppliers, procurement is uniquely positioned to capture and help drive revenue-generating innovation. No longer is procurement a purely transactional function, but rather an enabler of business strategies and innovation.
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Many life sciences companies struggle to rapidly move their drugs to market. If they could, an analysis by Accenture suggests the payoff could be significant. If companies lengthened the exclusivity period for new blockbuster drugs by just one quarter they could realize, on average, an additional $1.4 billion in annual revenues.
One avenue to success: strategic collaboration between a business, its suppliers, and its procurement organization. Here, procurement organizations function as the bridge between the business and its suppliers, and can capture and help drive revenue-generating ideas.
Success through Procurement Collaborations
Life sciences companies could realize dramatic top-line growth by having their procurement operations collaborate with suppliers and internal business partners in an expanded ecosystem focused on innovation. But to do so, they must equip procurement with digital technologies and the right talent.
Companies must view procurement as a value-generating partner. Procurement should not be purely transactional and focused on internal objectives, such as reducing costs and risk. Instead, life sciences players should recognize – and encourage — procurement’s potential.
Companies could create more successful business strategies by harnessing procurement staffers’ skills, enhancing talent, and facilitating collaboration with suppliers and internal business partners. Moreover, providing procurement decision makers with advanced digital technologies also would help them release significant new value and generate dramatic top-line growth.
Unfortunately, many life sciences procurement organizations aren’t powerful strategic enablers. Many have evolved into integrated front-middle-back office structures, which separate the workforce according to the type of work performed. In the front office, strategic thinkers concentrate on business partnering and category strategy development, as well as managing supplier relationships. A middle office sourcing engine supports them with analytics-enabled market intelligence, and back-office resources handle purchase-to-pay transactions and other operational activities.
In this arrangement, nearly 55 percent of procurement resources focus on the transactional and operational sourcing activities performed by either middle or back-office staff. But this shows how most life sciences companies just aren’t realizing the full value of their procurement organization’s skill sets.
Giving the procurement organization a more strategic role requires restructuring. Outsourcing back-office activities, or merging them with other shared services centers, can drive standardization and efficiency. As operating models continue to evolve, Accenture expects some companies to follow other industries, such as financial services, and outsource middle office operations.
This approach would leave a thin, front leadership layer of top-talent strategic thinkers – pulled from a variety of backgrounds – not just procurement. Consider an R&D procurement leader, with years of innovation expertise as the former head of a clinical research organization, sitting on a life sciences company’s R&D leadership team. This leader would be a strategic enabler to the business that’s now supported by a team of procurement professionals capable of delivering expert R&D supplier market intelligence and procurement skills.
Embedded within the business with a deep knowledge of leading business practices and supplier capabilities, such strategic thinkers would be functionally aligned with the commercial, corporate, R&D, and supply chain business areas. By partnering internally with the business, and externally with key suppliers, they would focus on strategies that foster innovation and growth.
The Potential in Procurement
Companies are just beginning to appreciate procurement’s potential as a source of revenue-generating ideas. But to get the most out of this value, life sciences companies must formalize not only the value creation objective, but also the processes through which value is delivered. A powerful mechanism toward this end: adopting a new innovation infrastructure that harvests the best ideas from across the enterprise, and which also harnesses a much wider universe of initiatives.
Using this type of open innovation model, businesses could scour the globe looking for new ideas, or for the insights that could advance their own ideas.
In consumer goods, companies have employed open innovation to develop products that have significantly boosted their sales. Look at P&G’s highly successful Olay® Regenerist anti-aging skincare, which was developed jointly with one of the company’s suppliers. By 2010, this and other game-changing product launches, made possible with open innovation, accounted for 25 percent of P&G’s new annual sales growth – and could account for 60 percent in 2015.
By investing in a similar approach, life sciences players could also drive better innovation. Category managers might discuss new product suggestions in conversations with suppliers. The life sciences category strategy development process would be humming with ideas. A holistic innovation infrastructure would help prioritize and implement the best of them.
This doesn’t mean that cost reduction is disappearing from the procurement agenda. It’s part of a more expansive value proposition. Companies need to take not only Total Cost of Ownership into consideration, but also Total Value of Ownership – the additional value gained from strategic collaboration with key suppliers, and a more open innovation process.
Digital Enables Better Decision Making
Accenture research shows that companies are least likely to use analytics in procurement, relative to other business areas: only 40 percent, versus 59 percent that use analytics in finance, and 55 percent that deploy analytics in customer service. But 60 percent of companies are investing in digital collaboration platforms to stimulate ideas, facilitate idea collection, and foster new partnerships and collaboration. More life sciences players will harness digital technologies as enablers of better decision-making and new value.
A Digital Foundation
Four digital technologies will form the foundation of procurement future digital strategy:
- Cloud computing will enable access to more content, making employees more productive and engaged;
- Real-time analytics, sensors and embedded software, will generate deeper, more valuable insights from richer, real-time data, enhancing risk management and improving decision-making;
- Social media will strengthen collaboration platforms that support innovation;
- Cognitive systems — digital agents integrated into the fabric of procurement – will handle such transactional activities as help desks, and more strategic pursuits.
Maximize the New Procurement Organization
Five steps maximize the potential benefits of transforming your procurement organization:
1. Align procurement’s objectives with those of other business areas; focus on
identifying and enabling growth, innovation and cost reduction;
2. Construct procurement’s organization and operating model around the
skills needed for this new focus;
3. Implement a talent development program that embeds business partnering
and strategy development expertise in each business area;
4. Integrate key suppliers with a mutually beneficial value proposition into the
5. Define a digital procurement roadmap that leverages supplier analytics and
Strategic and collaborative procurement organizations are an urgent necessity for the life sciences industry. These organizations can connect a business and its suppliers, and generate revenue from novel product ideas.
Tom Papa is a managing director in Accenture Strategy and is the global lead for the Life Sciences Procurement practice. He specializes in the area of procurement transformation and has more than 22 years of procurement and supply chain experience, both as a practitioner and a consulting professional. Tom holds a B.S. in Economics from Rutgers University in New Jersey.