Anatomy of Buying: Organization of A Life Sciences Company

Anubhav Asthana and Bharat Maheshwari

Purchasing management has become a key lever to improve profitability in firms. Life sciences industries spend around 40-50% of their revenue in purchasing materials and services required to run their business. Firms generally use very sophisticated tools available for planning and managing purchases of direct material (Production). However, purchasing of indirect materials/services is a relatively ignored area. Very few controls and management tools are applied in this area and those applied such as the periodic spend analysis are often very inaccurate. In this case study based presentation, we focus on describing and comparing the efforts made by two medium size Bio-pharma companies (3-5 Billion Dollars) to deal with the inefficiencies in the indirect purchasing through ERP enhancement and transformation projects.

The projects in both the companies started when inefficiences in indirect purchasing caught the attention of the management and a special focus group was formed to address those and implement a solution specifically focused on indirect purchases. Both the companies were facing challenges such as lack of standardized processes and policies, very little visibility in to a large portion of their spendings, high transaction costs, and unhappy suppliers.  Obviously, unhappy suppliers reduced the potential saving through discounts. As both the companies are poised for growth through new product development and international expansion there were increasing pressures for preserving margins.