By: Vel Dhinagaravel -- CEO and President
14 September, 2015
In my previous blog post, I talked about the need for procurement to shift from a focus on "savings/PPV" to a focus on measuring their impact on the organization's competitive advantage.
I showed how relative cost competitiveness could be measured by procurement organizations.
Clearly, there are more dimensions that procurement organizations need to optimize - Beyond cost.
In order to drive continuous competitive advantage, I believe that procurement has to optimize:
Clearly, each of the above parameters will have different degrees of importance in different industries and even for different categories within the same company.
To create seamless business alignment, category procurement teams should engage with their respective business partners to identify the weightage that is to be placed on each of the five parameters listed above.
We talked about cost competitiveness in my previous post - How about speed?
Clearly, the R&D team in a Healthcare company will value R&D speed more than cost reduction. Â Especially given the 58 Million Euros/month of revenue lost for every month's delay in approval.
I strongly believe that R&D procurement teams should only talk about how they are making decisions/working with suppliers that speedup the R&D process.
To compare "speed" for a company and their peer group, we can compare the average time taken for a molecule to move through one phase of a clinical trial.
Look at our analysis below. Please note that we have adjusted these numbers to account for variations in therapeutic focus areas.
The above chart is based on data from 2000 to 2014 and includes more than 14,000 clinical trials. We have masked the company names.
Clearly, there is a massive difference in speed between the companies. If procurement can impact this in a meaningful manner, it would be worth more than any savings that can be delivered in R&D procurement.
Remember, a month's worth of delay costs 58 Million Euros - Which also means that a month's worth of reduction of the R&D cycle can drive 58 Million Euros incrementally to the topline.
If the conversation in R&D is shifted to speed, sourcing managers can completely align their strategy to drive up speed. This ensures perfect alignment with the business. What do you think about Speed to Market? How do you think this metric can be adopted for your business?
In my next post, I will look at the next metric: Flexibility.
PS: If anybody from the healthcare industry wishes to get the full results of our R&D speed benchmarking, please contact me.
Join us on Feb 1; Rethinking Procurement Operating Model to Drive Stakeholder Success