Overview
The client, a global leader in the pharmaceutical industry, had been procuring key chemical raw materials from Supplier A, who acted as an intermediary between the manufacturer and the client. Over time, this approach revealed several inefficiencies, including elevated costs, quality issues related to packaging and shelf life, and delays in material delivery. These inefficiencies negatively impacted the supply chain and production schedules.
To address these challenges, a project was initiated to streamline procurement by establishing direct sourcing relationships with the manufacturers. The aim was to reduce costs, improve quality consistency, and enhance lead time reliability. The project was divided into two phases:
Phase 1 focused on materials that did not require repackaging
Phase 2 would address materials needing packaging modifications (future scope)
(The case study focuses on Phase 1 implementation.)
Challenge
Stakeholder Coordination: Needed cross-functional engagement and alignment for risk mitigation and process approval
Case Highlights
- EUR 60,000 Cost Savings achieved by eliminating intermediary sourcing
- ~30% Reduction in Lead Times, improving supply chain agility and production efficiency
- ~23% of raw material costs were reduced by eliminating intermediary markups
- Reduction in Packaging Quality issues through direct alignment with manufacturer
- Established a Scalable Sourcing Framework to support future phases and enterprise-wide adoption
- Specification Alignment: Variations in technical and packaging specifications required quality approval
- Change Management: Transitioning sourcing practices required robust documentation and formal change control governance
- Business Continuity During Transition: The risk of production disruption during sourcing change required careful planning and phased execution
Maintaining Strategic Supplier Relationships:
Managing the relationship with the existing supplier was critical to preserve long-term collaboration and contractual obligations.
Solution
Spend and Volume Analysis
Conducted end-to-end analysis for identification of materials with high annual spend and volume sourced via Supplier A
Stakeholder Engagement
Cross-functional collaboration with the Quality, Planning, Site, and Warehouse teams for risk evaluation, material identification, and approval
Implementation Plan
Structured change control process was initiated for transition of the material sourcing without disruption to operations
Material Segmentation
Segmented materials into repacked and non-repacked categories for phased execution
Manufacturer Engagement
Initiated direct discussion with the identified manufacturer to align pricing, specifications, delivery timelines, and compliance requirements, amongst other aspects
Specification Qualification
Aligned material specifications between the manufacturer and the organization, ensuring compliance
Material Transition
Initiated direct deliveries from the manufacturer, ensuring seamless onboarding into warehouse and planning systems.
Impact
Quality Improvements
After the implementation of Phase 1, the solution has delivered tangible and intangible results:
Cost Savings
~23% of raw material costs were reduced by eliminating intermediary markups
Lead Time Improvement
Achieved up to 30% faster deliveries through direct manufacturer engagement
Quality Enhancement
Minimised packaging-related issues and extended shelf life through improved handling at source
Operational Efficiency
Enabled better planning accuracy and reduced production delays
Scalable Model
Set a proof of concept for Phase II, involving repacked materials and future strategic sourcing projects.
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