UK: Is Healthcare And Life Sciences Procurement ‘Geared’ Up For Business Growth?

Last Updated: 27 January 2015
Article by Karen Taylor

Most Read Contributor in UK, August 2017

Deloitte's 4th Annual Chief Procurement Officer (CPO) global survey results, released last month, highlights the key challenges faced by procurement leaders. A total of 239 CPOs participated from over 11 different industries, spread across 25 countries, including 22 working in the Healthcare and Life Science (HCLS) sector. Survey answers from HCLS CPOs show a number of notable differences from the cross industry responses.

What are the cross-industry findings?

Traditionally, a procurement function adds value to the business by keeping a close eye on the supplier base, providing assurance on financial stability of suppliers, minimising risk of supply chain disruption and ensuring purchasing costs are kept to a minimum. The survey results as a whole indicate that growth and increased spending, alongside continued weakness in the supply market, are expected to have a material impact on the traditional procurement agenda.

More specifically, the central focus on cost control is decreasing – in 2014, 69 per cent of CPOs viewed cost control as a key business strategy down from 79 per cent in 2013. Businesses are also increasingly looking for procurement input to new product development, innovation and mergers and acquisitions – activities that enable profitable growth and business differentiation. However, these new activities are requiring procurement teams to respond rapidly and are additional to their current role.

While this means CPOs will have an expanding remit, increased flexibility to shift resource depending on the needs of the business, and an opportunity to have greater influence on company performance. Perhaps because of these increasing expectations, 57 per cent of CPOs respondents indicated their teams do not have the necessary skills to deliver their organisation's procurement strategy, compared with 48 per cent last year.

What does this mean for Healthcare and Life Sciences?

On the face of it, the outlook for HCLS procurement is very positive. HCLS CPOs show a sharp increase in confidence since 2013. Perceived financial prospects for their companies are on the up (68 per cent felt 'more optimistic than last year' compared with just 28 per cent in the 2013 survey) and their views on levels of procurement-related risk e.g. price volatility and supply chain disruption is improving (in 2014, 19 per cent of CPOs stated procurement related risk was increasing compared to 77 per cent in 2013. The proportion stating a decrease in 2013 and 2014 was 0 and 29 per cent respectively).

There are also indications that HCLS CPOs are ahead of the curve in meeting the new expectations placed upon them and are working towards expanding their value proposition. They are more likely to be focussing on creating value through collaboration with suppliers around, for example, product design and driving innovation. HCLS CPO's are also more likely to be using predictive analytics (71 per cent of HCLS CPOs vs. 57 per cent of CPOs across all industries) and plan to invest in data analytics to support procurement activities (81 per cent of HCLS CPOs vs. 65 per cent of CPOs across all industries), which will help increase efficiency and free-up procurement resource for new value add activities.

In contrast some of the responses flag potential challenges for HCLS CPOs. Forty-eight per cent of HCLS CPOs are looking to reduce their team's full time equivalent (FTE) headcount compared to 24 per cent of CPOs across all industries. Secondly, and perhaps a symptom of their focus on driving value through collaboration, 76 per cent of HCLS CPOs state that the capabilities of their procurement team are not sufficient to deliver their procurement agenda. Training priorities suggest the skills gap is related to 'soft skills' e.g. business partnering and relationship management, rather than 'technical procurement skills'.

We have identified three reasons why many HCLS CPOs stand out from the crowd in the Deloitte survey:

  • the increased financial optimism could be explained by late stage pipelines that are projected to deliver higher returns on investment – as seen in Deloitte's  Return on Pharmaceutical innovation paper
  • innovation through partnerships and advanced analytics is at the heart of most of their research and development strategies. Whilst these activities may be new to procurement teams, knowledge transfer from the wider business could contribute to faster adoption
  • one explanation for why HCLS CPOs are more likely to expect a reduction in procurement headcount, in the face of increasing responsibility, could be down to a global business services (GBS) strategy. The life science industry has generally lagged behind others in its adoption of more efficient and effective back office models but, according to Deloitte's Healthcare and Life Sciences Predictions 2020 report, this is rapidly changing with nine of the largest 25 pharmaceutical companies having adopted, or being in the process of adopting a GBS model.

So what next for procurement?

Despite the key differences described above, HCLS procurement functions face the same broad challenge as other industries – creating new 'gears' to continue to climb and meet expectations. The Deloitte Procurement report makes a case for CPOs to broaden capabilities and transform the procurement function into a multi-speed gear box that must be:

  • Rapid – focussed on delivering results to the business as they are needed
  • Efficient – investing in the right number of appropriately skilled people
  • Innovative – bringing insight to the business driven by analysis and input from suppliers.

As the macro environment improves, the case for change is pressing, and those procurement officers who can most effectively shift gear will be well positioned to support the acceleration of growth within their business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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