Collaborative Innovation in Sourcing and Procurement

Pharmaceutical companies face ongoing cost pressures and the need to optimize the pharmaceutical value chain. As one component of that effort, strategies to improve the supply chain, inclusive of sourcing and procurement activities, are important. To offer insight into this area, Gregg Brandyberry, CEO of Wildfire Commerce, senior advisor of AT Kearney procurement and analytic solutions, and former vice-president of procurement of global systems and operations for GlaxoSmithKline (London), discusses collaborative innovation in procurement and sourcing between pharmaceutical companies and their suppliers with Patricia Van Arnum, senior editor of Pharmaceutical Technology . Brandyberry will be a speaker at the upcoming DCAT/ISM Sourcing Summit 2010: Forward Thinking Sourcing, an educational program presented by the Drug, Chemical, and Associated Technologies Association (DCAT), along with its partner, the Pharma Forum and Chemical Group of the Institute of Supply Management (ISM). The program will be held Nov. 3 and 4, 2010, in New Brunswick, New Jersey.

PharmTech: In discussing supplier-customer relationships, you have used the term ‘collaborative innovation?’ What do you mean by that term and how does it support or differ from supplier relationship management? How is it different or supportive of traditional supplier metrics that may be used in an outsourced relationship?

Brandyberry: Collaborative innovation is a new style of working that removes many of the traditional boundaries associated with improving current states and, more importantly, with real ideation. Individuals across functions, companies, geographies, and even competitors, are bounded together by the objective of achieving a common goal.  Information, ideas, and work in process are shared freely among the participants. Significantly less formal governance structures are needed as collaborative innovation  groups are committed to operating with honest, ethical, and transparent principles.

Two major enablers make collaborative innovation an exciting and forward-thinking methodology to adopt. The first enabler is based on the ground-breaking work of the great systems thinker, Russell L. Ackoff, PhD, who developed the approach called ‘idealized design’ while working with Bell Labs in the early 1950s, and more recently the work of the modern-day practitioner, Jason Magidson, PhD, director of customer care for NextDocs and formerly director of innovation at GlaxosmithKline.

Idealized design is based on the following concepts: design by users; eliminating constraints (i.e., pretending the current system was destroyed last night); and starting with the ideal and working backward to today by identifying a clear roadmap toward obtaining the ideal. Practitioners of idealized design have a long history of achieving real breakthrough versus those practicing continuous improvement.  Idealized design focuses on ‘starting from scratch,’ whereas continuous improvement typically ‘tinkers’ with what exists today. As Ackoff so aptly stated: ‘All of our problems arise out of doing the wrong thing ‘righter’. The more efficient you are at doing the wrong thing, the ‘wronger’ you become. It is much better to do the right thing ‘wronger’ than to do the wrong thing ‘righter’.’ 

The second enabler is technology and the ability to easily transmit and store data. Technology, now including social media and mobile platforms, significantly increases our collective ability to transform data to information to knowledge to understanding and ultimately wisdom, another Ackoff model.

In contrast, supplier relationship management can be defined as a discipline of working collaboratively with a group of suppliers that are thought to be critical to the ongoing success of an organization or corporation. Supplier relationship management is intended to maximize the value coming from those supplier relationships. Some of the key process steps include: supplier segmentation (i.e., to ensure the right suppliers are picked), accountability (i.e., who owns the relationship), governance (i.e.,how all parties are to act), resourcing (i.e., making sure dedicated bodies are involved), and metrics (i.e., asking if there is value being generated). Although these intentions are admirable, few organizations or corporations have the skill sets to do this effectively, and unfortunately, supplier relationship management becomes another ‘tick box’ approach that typically provides little significant real benefit to either the buying organization or the supplier. Unfortunately, supplier relationship management often becomes one more bureaucratic management technique. While it is completely agreed that there should be some structure to ensure that critical suppliers provide maximum benefit and that the benefit is mutual between both parties, it is also strongly suggested  that collaborative innovation  be widely adopted within the framework of supplier relationship management.

PharmTech: Can you provide some examples of models or specific programs using collaborative innovation in the pharmaceutical supply chain?

Brandyberry: Little is being done within traditional pharmaceutical supply chains (i.e., the movement of materials as they flow from their source to the end customer, including purchasing, manufacturing, warehousing, transportation, customer service, demand planning, supply planning, and supply-chain management), with the exception of some anecdotal efforts in forecasting, logistics, and certain supplier programs.

Two examples within research and development (R&D), however, do come to mind. The first example was a project undertaken by GlaxoSmithKline’s procurement and R&D organizations to collaboratively develop a new type of test equipment using idealized design. A second example was a way to deliver more value, faster at a reduced cost by using classic collaborative innovation sharing among major competitors.

In the first example, in 2007, GlaxoSmithKline engaged 60 scientists and a supplier in an idealized-design process to design equipment for testing how potential medicines dissolve into the human body (e.g., peak concentrations, durations). This collaborative innovation process resulted in a breakthrough design that helps to shorten the R&D cycle, improves testing quality, and enhances productivity by freeing scientists to work on other things because the equipment requires less monitoring.

In the second example, driven by revenue loss due to key patent expiry, dramatic declines in pipeline productivity, and price-control strategies by government and health maintenance organizations (HMOs), pharmaceutical companies such as Merck & Co., Eli Lily, Pfizer, GSK, and Johnson & Johnson either are currently participating or planning to participate in ‘precompetitive consortia.’  Precompetitive consortia are based on collaborative innovation principles where information is shared openly with all parties in an environment of trust to advance new process or product design at the stages before actual competitive products are produced.

Considering that a substantial amount of prior discovery has been serendipitous discoveries (e.g. penicillin, chlorpromazine, Retin-A), it is great to see R&D adopting methodologies that can advance the process of ideation.

PharmTech: As a whole, how would you evaluate the pharmaceutical industry’s position in adopting more advanced supply-chain practices? Are there other industries in which you think are more advanced and can provide best practice approaches for the pharmaceutical industry?

Brandyberry: Having worked in other industries including industrial, consumer products, electronics, and automotive, I think I can accurately say that with the exception of procurement, the pharmaceutical industry is not known as a leader in advancing supply-chain practices. I was responsible for programs related to automotive, industrial and electronics manufacturing in the early 1980s through the late 1980s that were advancing statistical process control, Lean manufacturing, Six Sigma, and manufacturing resource planning (MRP II). In general, the pharmaceutical industry has been 10–20 years behind other industries. There are many examples of supply-chain leadership in industrial, consumer products, electronics, and automotive, such as Wal-Mart, Sony, Toyota, and Zara.

Procurement, however, is the exception. I had the great opportunity to work for a decade for the modern procurement transformation pioneer Willie Deese (now president of Merck Manufacturing) and later for Joe Meier, currently chief procurement officer for GlaxoSmithKline. GlaxoSmithKline and Merck are examples of the very best procurement organizations not just in the pharmaceutical industry but across all industries.

PharmTech: In what segments in the pharmaceutical supply chain do you see opportunity for more collaborative models? 

Brandyberry: No doubt there are many, many opportunities throughout the supply chain for opportunities to do a better job of collaborating. One of the most advanced and exciting collaborative models I have seen recently is a procurement-led methodology called collaborative optimization, which I have been involved with in my capacity as senior advisor to AT Kearney Procurement and Analytic Solutions. Collaborative optimization is used to optimize the supply base and even parts of the supply chain when complex arrays of suppliers, supplier capabilities, specifications and/or geographies exist. It is very different than traditional strategic sourcing in that, instead of focusing on achieving the perceived best price/cost/value delivery by pitting supplier against supplier, collaborative optimization combines detailed purchase price–cost analysis (i.e., cost breakdown), expressive bidding (i.e., allowing suppliers to bid on configurations that play to their strengths and also to bid creatively) with combinatorial optimization that can rapidly evaluate a multitude of potential scenarios and constraints finding the least costly solution that satisfies the buying organization’s requirements. With this methodology, suppliers and buying organizations can have significant mutual gains.

PharmTech: What are some barriers or limitations facing suppliers in forwarding more innovation or collaboration? What are the barriers/limitations facing the sponsor company in this regard? What are some strategies for improving collaboration or innovation?

Significant barriers do exist for the following reasons:

• True collaborative innovation requires a step-change in thinking.  The idea of working openly and sharing information in a highly transparent environment with little traditional governance just doesn’t fit very well in most of today’s corporate environments.

• There is most definitely a lack of skill sets by both the supplier and the buying organization. This problem is especially true if the buying organization’s procurement organization is leading the effort with the supply base. Even today, most procurement professionals pride themselves on their ability to leverage price down. Although this is not a bad thing, it’s not very effective when it is the common process adopted for every supplier engagement. 

• Most often some investment needs to be made to have the right technology, the right skill sets, and the right overall solutions in place that help to facilitate the collaborative innovation process. Most companies are not willing to make the investment necessary to support real innovation processes. Instead, they assign people with inadequate skill sets to match up with equally unskilled collaborators on the supplier side of the equation (great technical people often are not great collaborators). Again, there are notable examples of those who do it right and have made the proper investment. One which comes to mind is the highly successful collaborative strategic supplier program under the direction of DK Singh, chief procurement officer at Conagra, which drives innovation to the delight of the head of research and development.