Team Up to Avoid Costly Cuts
Failures have happened as a result of cost-cutting in the pharmaceutical industry, notes Frederic Brunner, CEO of a-connect. “The world remains very frightened about the recession and a potential double dip. Additionally, as pharmaceutical companies start preparing for new challenges and regulations around healthcare reform, they are focused on costs more than ever,” he says. Mistakes can be made when companies look solely at cost per unit. “This may not always be appropriate, especially without looking at the total cost,” he advises.
Brunner reports that his global project execution firm has been working with a number of drug companies that are revisiting procurement policies purely to optimize cost. “There is a lot of cautiousness when companies are looking to invest in their next project,” he says. “Drug manufacturers want a one-year payback on capital investments when they start projects.”
For many, “lean manufacturing is a bit more important than innovation in packaging,” Brunner notes. “But innovation in packaging is a big element in cost control. As drug patent protection continues to erode, the pharmaceutical industry must innovate to find sources of revenue and profit.”
Potential opportunities for innovation include optimizing material thickness as well as packaging configurations to maximize space in truck transportation, which one a-connect client is piloting now.
Another involves increasing supply chain visibility. “The pharmaceutical industry is the only one historically that looks at the cost of bringing products to market but not back from the market, as in chargebacks or recalls,” Brunner says. “There are a lot of gains to be made in improving track and trace.”
Drug manufacturers are also under pressure to reduce head counts. Reductions couldn’t come at a more challenging time, as drug makers “must balance the needs of changing business processes with those of running the business,” says Brunner. To help, a-connect has stepped in to provide “experienced people when companies have needed capacity.” According to Brunner, a-connect has a network of more than 1000 experienced professionals (most are McKinsey, BCG, and Bain alumni) who can provide strategy and execute projects from start to finish, maximizing the client’s available resources and making budgets go further.
To avoid making mistakes when cutting costs, Brunner emphasizes the importance of relying on a cross-functional team, including engineers, quality control personnel, regulatory affairs, and others. This can be an adjustment for some companies, but it can lead to a greater understanding of the value of packaging innovation and the drivers of profitability linked to it.
“Today’s best-in-class strategic sourcing professionals are involved in the business,” Brunner says. “They know what drives the packaging line and the business.”
This article was published in the September 13 ePackage e-newsletter from PMP News. To receive the monthly analysis, click here and register.