Excerpts from an Inflection conference procurement panel discussion
Moderator Rahul Gupta, Head Procurement&SC Amway to
Speaker – Riju Verma, Head Procurement, Hetero Labs Limited
Question-What does Proactive Procurement in Pharma mean to you?
Select vendor having materials which can be used across globe& deploy your PIP (in plant person) at manufacturing location to have online pulse.
In the last decade, the regulations in pharma industry have become tight. Hence, in a proactive procurement first step would be their right kind of vendor qualification process and vendor approval process. A wrong vendor selection could cost millions of dollars. We also track the vendor through SRM(Supply Relationship Management) based on the criticality of the raw material &the spend. Companies within procurement function nominate supply relationship managers to keep a very close eye and concurrent monitoring of the supplier. In a contract manufacturing of the operation most of the pharma companies are into low licensing and P2P arrangements. We now depute PIP(Person in plant) to monitor online what is happening at the ground level.
Let’s take a small example on the importance of vendor qualification. Earlier a typical specification match would result in a vendor approval but today pharma companies are operating multiple markets. Earlier, USA was a big market and generally everyone used to prioritize towards USA. Later, as Europe& Rest of World (ROW) gained importance all big pharma companies started working in multiple global markets consolidated the vendors. So, it’s very important for procurement professionals to ensure that all the requirements of each regulatory market are met before qualifying any vendor. If you just meet basic specifications &get the material approved for couple of markets you will get stuck when you see a small order coming in from small country. QA might raise issue that the RM cannot be use for new market because the certain animal impurity etc& also because you have filed your ANDA’s or DMF’s in terms of API’s.
In a contract manufacturing situation generally, you have the 3 months plan & you get a commitment for say 1 million packs but due to some constraints you may get and supply order of 0.6 million packs. Proactively, we depute PIP’s at strategic supply locations and we also sign SRM’s for regular supplies.
Question- Could you share an example from your current industry or from past experience where you have been able to use proactive procurement?
Pro activeness in Design- Keep Vendor factories close to your own factories:
Today most of organizations are working on a demand driven supply chain. So there is an increase focus on having the right inventory of finish goods from real packaging material in our factory. So, we in procurement are working on having the right inventory of all the material in our factory. So, one of the key initiative procurement takes that we are try to go for core locations and setup our factories & ask our vendors to come close to our factories so that we can have reduce some order inventory in our factories that not only helps in bringing the work capital down but it also helps in reducing the freight for the incoming material. That’s the initiative that procurement has taken.
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Speaker- Chandan Chatterjee, Head Procurement Zydus Wellness Ltd
Question-From your side Chandan, would you like to share an example which could benefit for all of us?
Procurement is a key enabler of P&L;Leverage Strategic buying in future 3 months or 6months or taking advance positions for annual aggregate instead of Buying in Spot for commodity procurement;Res-killing of employees & making use of the information available us, analyze it and taking a judicious call.
For me the procurement was initially a transaction based, as Riju said its nothing but demand based generated indents of procurement. Converting them with the vendors with negative terms. But when time when we took over, we said how do we make the procurement team and key enabler to the P&L. The first thing that we realize that we need to believe in yourself that procurement is not a transaction department only it’s a knowledge-based department where information is the key and how to utilize that your information and relationships across the industry where intelligently and noisily to bring profit to the company. It’s not only simple negotiation that I am getting the discount. In the morning session if you recollect, we all discussed about the demand forecast securities is as good as 50% that means it’s a flip of coins. So you are better just like flip of coins whether you are good or bad nobody knows and it’s for edges the forecast securities levels have remained that 40 to 60% level. So we as a team when we shutdown to turn around the procurement wing we took a both clauses that we need to be efficient despite this forecast security. So whatever be the forecast security we need to build our KPI’s so as to bring down the cost of goods also. For me the proactive procurement basically turn out to be re-skilling of the existing employees. Where small scale companies we didn’t have the guts to completely change the world, we did is that re-planned, re-skilled the employee’s capability and build-up some new capabilities although and so as to analyze the information available around us very wisely. So I’ll take some examples, of a company which rely heavily on commodity such as palm oil as key ingredient for one of its market leader product. Earlier, it used to be demand base procurement that this month this amount of edges we required so we brought. Then, itsaw the opportunity &got into commodity market. In fact,it added capability within its small team to analyze the commodity market to procure approximately around 700 Tons a month whereas India procures about 0.8 million Tons a month. So just understand it is very small player and in spite of that its product contributes 80% of that product cost so it couldn’t afford a single slippage. The company build its capability by re-skilling. We all know in this room that the last year was a mayhem year for the palm olein. The import duty went haywirefrom 33% to 48% and for a product where 80% of the product cost comes from one RM you could very well understand what pressure it was tolerating as it cannot simply increase the market price of the product. So the team build-up relationships, it started taking positions of futures. In spite of heavy fluctuations of the price the team build-up relationships. So instead of buying spots, it started buying in futures 3 months, 6 months advance so it used the judicious mix of futures &spots. It was a perfect example of proactive working taking a wise decision to take a risk the same time safe guard the budget. So it’s good to share that it actually went within the budget when the year ended. Similarly, it high dependency on procurement from China. It took advance features call positions, advance buying, buying a part of our annual requirement at as aggregate. Continuously reviewing rates in markets and China being a very dynamic situation they have always there is ongoing pollution issues and supply constraints. So a proactive procurement team today is on top of the information on hand, analyzing it and then taking a call. So what I am saying precisely is that procurement buying is nothing but common-sense, taking and making use of the information surround us, analyze them and taking a judicious call. Tools and analytics will obviously be leveraged.
* The views given by the speakers are generally from the industry and not any specific company.