26th April 2017, Royal Society of Medicine
Carwyn Jones introduced the meeting. This is the first time such a meeting has taken place - procurement and agencies together in an open discussion and hopefully with both sides learning something to improve the procurement-agency relationship in the future.
Justin Lambert – Roche
Global vs Local - Procurement Strategies & Supplier Diversity
Justin Lambert, Head of Procurement at Roche was the first speaker. He has worked in pharma for 15 years, 13 of those in a very globalised company and the last 2 years at Roche which is very decentralised. He started by talking about how the current purchasing environment in pharma is volatile, uncertain, complex and ambiguous. "What's important is that we include smaller businesses into the supply chain" - in other words he advocates "supplier diversity". "This means you get different sorts of people around the table and therefore different conversations".
Supplier diversity is no longer a “nice to have” – it is a competitive advantage
Justin went on to explain the key things procurement teams look for when assessing suppliers or potential projects:
- First is innovation - this is something that's always looked for during a pitch process
- Second there is the economic impact or importance to shareholders
- Third is the management of risk and the importance of compliance
- Fourth is the people, and the need to improve diversity of thought
- And fifth is sustainability - for example a new supplier needs to be able to prove they will be around in 5 years’ time.
Inclusive procurement + Diverse supplier pool = Innovation
The great thing about thinking with an open mindset and including diverse suppliers (eg smaller companies) is that you are likely to be offered a more diverse and differentiated set of solutions. For example you could include companies with local knowledge that are quicker to react and ultimately help with innovation.
Justin went on to talk about how everything at Roche is about putting patients first and procurement is no exception. In fact, in his view, it helps in making the right purchasing decisions if you always ask the question 'how will this project or solution help enable the business to make sure drugs reach and benefit patients?'
One of the questions from the floor was about preferred supplier lists - Justin made it clear that he doesn't feel reducing the size of a preferred supplier list is always right for the business. While some companies are trying to "reduce the tail" of high volume/low value supplier spend, he doesn't feel this is always right or necessary. Ultimately, having a diverse portfolio of suppliers, large and small, is what matters and he feels that just relying on large organisations to deliver solutions will ultimately stifle innovation.
Malik Akhtar - Procurement
2020 Vision of Procurement & What Pharma Procurement Need from Agencies
Malik Akhtar, the second speaker, started by reminding us that there still can be what he called a 'hooligan element' within pharma procurement. It might be stating the obvious, he noted, but buying agency services is not like buying pens and pencils and yet there are still some procurement professionals that try to commoditise marketing services. Malik advocates a "procurement business partner" model. In his experience this has meant that procurement acts more like other functions such as HR, Finance or Legal - where a single procurement professional is wedded to a department or market, gathering detailed business requirements and then bringing in subject matter experts (SMEs) e.g. an expert on media or digital when needed.
Malik had several pieces of advice for agencies; firstly "have confidence in your differentiated product" - you need to show how you are different from your competitors; secondly consider ALL remuneration options when pitching - be creative and consider the "at risk" options; another tip was to remember that in 99% of cases it is not procurement that makes the decision - it's the brand teams. Procurement ensures the team has all the information they need to make the decision but ultimately it's up to them.
Malik presented strong views on when pitching is appropriate. He shared that he doesn't feel that companies should run pitches for what he termed “small projects” as he feels it’s a waste of money on both sides. For smaller projects you should be using your preferred supplier list or incumbent agency and if there are problems with the incumbent, try to sort these out! Pitching should be a last resort.
Malik also suggested that agencies need to "make us (in procurement) look good". He urged agencies to make sure they build relationships with procurement and show procurement what they do. Literally "show us the work" he said, "If we only meet your Finance Director, then we'll only know about your rates".
Controversially Malik urged agencies to "call out bad practice" that they encounter during the procurement process, informing the ISBA (Incorporated Society of British Advertisers) of any bad procurement behaviour, assuming the client they are dealing with is a member. He then asked the audience if anyone had reported bad procurement practice in the past. Of the 80 agency representatives in the audience, a show of hands revealed that while at least half felt they had issues that they would have liked to address, only 2 people had seriously thought about taking these further, and no one had actually done it. Food for thought!
Daniel Roberts - ex-BMS Procurement
The Procurement function’s KPIs and the value they bring to the business and Procurement supplier selection process and strategy
The next speaker was Daniel Roberts - ex-BMS and now a freelance procurement contractor. He talked about the transformation that is happening in procurement, from old fashioned, cost-focussed procurement to a more strategic, creative innovation-focussed discipline. In fact he agreed that procurement and marketing as disciplines, are actually getting closer.
When assessing purchasing options it’s all about ‘value’ and Dan shared a useful diagram showing the 7 elements of value - cost reduction, partnership, cost avoidance, risk mitigation, ROI, cash flow, and positive revenue impact.
He explained that there are now 3 types of procurement approach you may encounter:
- Technical procurement – this is all about cost reduction.
- Traditional procurement – this is cost reduction plus cost avoidance and risk mitigation.
- Strategic procurement – this includes the traditional areas of focus plus ROI, Partnership and Revenue impact.
Procurement are looking for value creation - activities that provide a sustainable competitive advantage. While RFPs traditionally set out to make cost savings, now they are more strategic, focussed on business needs rather than saving money.
There was a discussion of the typical RFP process - a 4 month schedule that starts with internal engagement and desk research in month 1, producing a short list of agencies and drafting an RFP in month 2, the pitch in month 3 and then negotiation and awarding a contract in month 4. But RFPs are costly for both sides and the trend is for less of them.
The procurement department helps break down silos across a business and reduce duplication. So if you have good relations with procurement they can put you forward across the company, acting very much like a facilitator or enabler. On the other hand, procurement is responsible for ensuring the supplier can do the job and so they will seek to “get under the skin” of the agency to check that they can really deliver. Do they have capacity? Is this really their area of expertise?
He shared with us how the performance of procurement professionals is measured - it’s not just about saving money or managing supplier relations; in fact 40% of his performance KPIs while at BMS were about driving business performance and 20% about building diversity for long term growth.
Carwyn Jones (Partner, OPEN Health) and David Hunt (CEO, Havas Lynx)
Carwyn Jones and David Hunt then shared the stage to discuss good and bad examples of procurement-agency relations. Dave shared a very positive story of a client that tried out the agency using a 3 month pilot with clear KPIs, then, when it worked, helped scale the solution across the business. In another example, he explained how a procurement team had coached the agency through a series of unsuccessful pitches so that they learnt from them and eventually won work with the company.
Carwyn talked about one large client where procurement has been instrumental in representing the agency around the entire business and where any issues have always been discussed openly and improvements suggested on both sides. This very “adult” relationship has been positive for the agency team internally and has resulted in everyone wanting to work on that account.
Dave and Carwyn then shared some procurement horror stories – there was a procurement person who ran an RFP process from start to finish with no involvement from marketing, and would not let the agency communicate with the brand team at all. Another procurement department took an agency’s own idea for a project and turned it into an RFP, sending it out to multiple other agencies. Yet another insisted that the acceptance of T&Cs without question was a part of the RFP process. In summary, Carwyn and Dave painted a very mixed picture of pharma procurement, with good stories balanced very much by bad examples.
Finally, the meeting concluded with a panel at which David Hunt was joined by Chris Edmonds (MD, emotive) and Martin Brass (MD, Blue Latitude). There was some disagreement about the extent to which the current procurement-agency relationship needs improving. While all agreed that there were many difficult situations and room for improvement, there was also consensus that there were some fantastic procurement departments that really develop and maintain partnerships with their agencies. The final thought was that it comes down to trust and that all agencies need to make sure they have plans for how they build better relationships with pharma procurement.