2018 was a tough year for procurement professionals — trade wars, supply chain disruptions, price hikes, and patient and consumer privacy laws were some of the choppy waves they had to navigate. Here we look at the key takeaways from 2018 that Pharma & MedTech enterprises could learn from.
Focus on New Technologies to Streamline Operations
In the pharma and med-tech space, established business relationships with outsourcing partners continue to be upended. The pharma industry has made concrete efforts to streamline operations across the value chain in order to improve efficiency and productivity. It has reached a tipping point when it comes to having risk-sharing and outcome-based partnerships with select strategic suppliers as a norm rather than an exception. The supplier/ partner community too has taken note of this and is heavily investing in next-generation tools and technologies. Decision makers within the healthcare ecosystem are increasingly exploring ways to use technologies such as Digital Data Capture, AI, Machine Learning, Mobile Health, Automation and Robotics to increase efficiency across the pharma value chain. However, there are also concerns about the changing dynamics in the contract manufacturing organization and clinical research organization space due to consolidation among major outsourcing partners.
Challenges in Securing Supplies
In the pharma and med-tech manufacturing space, a major challenge faced by category managers in 2018 was the increase in manufacturing costs due to a spike in raw material prices (plastics, silicones, polyamides) and labor costs. These were mostly driven by a spike in crude prices, which rationalized toward the end of 2018. However, in certain cases, there were serious concerns over securing supplies due to structural issues in the supply chain coupled with demand from other industries. A classic example is the massive price hike (and severe supply crunch) seen in the case of Polyamide 66, which is used in numerous medical applications. Silicones too observed a 20-30 percent price hike to accommodate upswings in raw material and energy costs. This situation was again aggravated by the global capacity crunch, high operating rates of plants, and demand from sectors such as automobiles and construction.
Shift in Sourcing Strategies
On the economic and regulatory front, trade tensions between the U.S. and China have complicated the already complex and tricky global supply chain of the healthcare industry. Items such as diagnostic equipment, defibrillators, anti-malaria kits, and parts of X-Ray machines, among others, have been severely affected in this tussle. Many organizations have even taken steps to move their manufacturing units from China to the United States in case the tariffs are enforced.
It is early 2019 and some of the bigger threats from 2018 are still present — notably, the trade wars and Brexit-related uncertainty. Due to continuous developments, policy revisions, trade discussions and power play, it is a volatile situation that needs to be closely monitored by procurement professionals along with their strategies to secure supplies of essential raw materials and intermediate products. They should also look out for cutting-edge technologies such as Digital, AI, Robotics and Machine Learning that promise to enhance efficiencies across the value chain of the pharma industry as it shifts from pay for use toward pay for value/performance.