Strategies for Innovation in Pharmaceutical Sourcing and Procurement

Pharmaceutical companies and their suppliers face an increasingly challenging operating environment, marked by industry-wide restructuring, slowing revenue growth, constrained profits, competition from companies in emerging markets, and uncertainty in overall macroeconomic conditions. In light of these issues, innovation, as a means of creating business value and generating growth, is crucial for pharmaceutical companies and suppliers alike. How to cultivate innovation, implement it, and sustain it was discussed at a recent educational program, the DCAT/ISM Sourcing Summit’ 11: Innovative Sourcing, which was organized and held by the Drug, Chemical, and Associated Technologies Association (DCAT) and its partner, the Pharma Forum and Chemical Group of the Institute of Supply Management (ISM). The program brought together pharmaceutical companies, contract service providers, and suppliers to share perspectives and approaches on how to achieve innovation overall and in sourcing and procurement in particular.

“Innovation is not just an art, it is a science,” said Puneet Sapra, director of worldwide business development and innovation with Pfizer. From an overall business perspective, much like how the concept of quality became formalized through the adoption of specific frameworks, language, practices, and systems, the concept of innovation can be applied in similar systematic fashion, said Sapra.

“Innovation is a process to generate creative solutions and implement them for business value,” said Sapra, pointing to three levels of innovation. At the first level, “Sustaining” innovation consists of incremental improvements in products or processes that can be delivered by existing resources. It involves meeting base-level commitments. Business-line functions can drive Sustaining innovation by using problem-solving approaches to reduce inefficiencies in existing processes, such as Lean Six Sigma, fish-bone analysis, and total quality management.

“Transformative” innovation is the next level and involves expansionary improvements in products or process that can be delivered by existing resources and involves exceeding joint business targets, explains Sapra. Cross-functional teams can be used to create Transformative innovation through various ways, such as through a brand. An example outside the pharmaceutical industry is Virgin, a company founded by Sir Richard Branson, which creatively uses its brand in various businesses, such as mobile telephony, transportation, travel, financial services, media, music and fitness to create competitive advantage.

Transformative innovation also can be driven by communities developed within an organization. The innovation communities use web platforms and consist of cross-functional employees that share ideas, information, and lessons learned. In this approach, leaders pose problems and opportunities for communities to tackle them in the form of challenges. Small teams can develop promising ideas by following a structured guided process.

“Disruptive innovation” is the next level in the innovation spectrum. Disruptive innovation involves breakthrough business models that are delivered by new resources, processes, and economic formulas. “Disruptive innovation requires focus, collaboration, and new insights,” said Sapra. It involves identifying unmet needs, deciding strategic intent, creating an idea ecosystem, and devising business models. The idea ecosystem consists of not only internal participation across an organization, but also external participation from a variety of entities, such as suppliers, research institutes, contract service providers, joint-development partners, individual entrepreneurs, alliances, or trading partners. Within Pfizer, Sapra said innovation is a key focus of the company and building a sustaining culture of innovation requires “enabling business model innovation by sourcing and investing in transformational and disruptive ideas from inside and outside of the company.”

The need to eliminate obstacles for innovation and create systematic approaches for fostering innovation was further emphasized by other speakers at the summit. “Seek input and listen to your partners, customers, and your target market,” added Donna Gruol, associate director of business development and alliance management at Teva Parenteral Medicines. “Develop a system that makes it easier to introduce and evaluate opportunities,” she said, emphasizing the need to provide prompt and honest feedback. Gruol offered that getting innovative ideas into the proper channels within large organizations can be part of the challenge, and in her view, establishing a corporate culture that embraces innovation is a critical success factor. “Encourage, acknowledge, and incentivize innovation thinking at all levels.” She further highlighted Teva’s own creation of TevaPartners, a web-based process open to the global community, to not only solicit innovative ideas from any possible interested source but as a means to ensure further consideration in a forum where it is not disruptive to the day-to-day goals and objectives of specific departments or divisions. Once the process is moving forward and the opportunity becomes a project of interest she advises, “Be flexible and creative in your deal structures, which may involve sharing the risk to share the reward.”

Al Gallo, sourcing director and category lead for clinical technologies and supply management services with Johnson & Johnson (J&J) Pharma R&D, outlined an approach taken by J&J with its suppliers in holding an innovation and sustainability summit as a means of generating actionable innovation ideas. The dialogue at this forum was two-fold, with J&J generating awareness of its business needs and sustainability objectives for which the company was seeking innovative solutions. After identifying these needs, J&J communicated them to the suppliers and contract service providers assembled at the forum, who were placed in various breakout sessions, which served as the vehicle for idea generation. The innovation ideas were ranked, scored, and aligned with unmet needs. From this process, more than 30 projects were identified, making the forum a useful process for all parties involved.

Offering a perspective from a contract service provider, Andreas Stolle, head of the pharma business line for Saltigo, a subsidiary of the specialty-chemicals company Lanxess, pointed out that innovation can be developed and created at different levels, such as scientific/technology innovation and business-process innovation. To foster scientific/technology innovation, Stolle spoke of the need to create customer–supplier relationships through open communication and an alignment of objectives to build a level of trust that allows innovation to be generated and flow from both the customer and supplier. To achieve business-process innovation, Stolle pointed to possible areas of innovation in the supply chain, procurement, and outsourcing that affect key drivers in these functions, such as cost, efficiency, reduced complexity, and timelines, as well as by looking to other industries to adapt solutions that can be applied to the pharmaceutical value chain.

Oscar–Werner Reif, executive vice-president of R&D, managing director, and member of the board of directors with Sartorius Stedim Biotech, also pointed to barriers that may arise in the innovation process. In offering an overall perspective, he said that true innovation is often disruptive for user organizations and competing industries and may be opposed by internal technical and business process organizations. It is for that reason that he emphasized the importance of top management support and involvement with dedicated teams for successful implementation of innovative projects, processes, and other ideas.

Paul Sidhu, vice-president of marketing and strategy at DSM Pharmaceutical Products, echoed the need for management engagement and support for innovation and for developing structured approaches to cultivate and reward innovation. “Innovation requires internal mobilization,” he said. “In the right model, management endorses and promotes innovation, and innovative ideas get responded to consistently in a timely fashion,” he said. “Innovation becomes a recurring topic in internal and external communication. Innovative behavior is recognized and innovation effort is rewarded. Success stories, which are directly or indirectly, entirely or partially, attributed to innovation are communicated.”

In the case of DSM, Sidhu points to some examples in innovation, such as in biocatalysis and microreactor technology in pharmaceutical chemical development and manufacturing solutions. In biologic drug-substance manufacturing, he pointed to innovation in upstream biologics processing for yield improvement and downstream improvements in purification to eliminate the bottlenecks that may occur as upstream processing yields improve.

Sidhu comments that these higher upstream yields and downstream efficiencies lead to further innovation by providing a step-change in biopharmaceutical production through the use of disposable equipment with lower costs and smaller footprints to enable a small, yet highly productive, facility with only a small fraction of the capital requirement. As a case in point, DSM is building a new mammalian-cell biologics manufacturing facility in Brisbane, Australia. This facility is scheduled to come on line in 2013 and incorporates the company’s improvements in upstream and downstream processing technologies. In 2010, DSM formed a partnership with the Australian governments (Queensland state government and the Commonwealth of Australia) to design, build, and operate the facility with 100% government funding.