Managing maverick spending in pharma companies

Though India is at a nascent stage of Spend Management adoption, with the rapid advancements and growing challenges in businesses, companies are soon expected to adopt a singular streamlined approach to identify spends and make way for operational efficiency and improved margins, avers Arun Kharbanda

Dynamic global and local economic conditions continuously challenge and shape the business priorities of companies. Though businesses cannot control the economic conditions in which they operate, they can control the money they spend. As all of the money saved goes straight to the bottom-line, managing expenditure allows companies to remain competitive in all economic cycles. Effective management of expenditure—what am I spending on, with whom, and at what prices—enables companies to ensure that expenses fall faster than revenue in a weak economy and increase more slowly than revenue in a strong economy. This is what Spend Management (SM) is all about.

SM is a new category of solutions that is designed to enhance a company’s sourcing and procurement strategy. By allowing companies to combine their analysis, sourcing, contracting, procurement, and reconciliation processes into a single, cohesive system, SM provides closer visibility over its spend. It helps companies to efficiently manage their purchasing functions and they thereby gain a competitive advantage and improve bottom line results.

Most pharmaceutical companies today find it difficult to gain meaningful insights into spend because their spend data is typically scattered across separate systems-for sourcing, contracting, purchasing, and invoicing activities-as well as different divisions and locations. This hampers their ability to target savings opportunities, achieve compliance and improve performance.

By enabling businesses to automate key steps of the spend management process in a single, closed-loop system, an SM solution provides enterprise-wide visibility and operational control required to fully manage and leverage spend. As a result, financial, sourcing, and procurement professionals can deliver and sustain significant spend reductions that immediately improve the bottom line.

Ariba SM in pharmaceutical industry

Ariba SM solutions allow pharmaceutical companies to automate and streamline every step in the sourcing and procurement process—from spend analysis to negotiation to supplier selection to payment.

SM allows procurement and sourcing professionals to expand their sourcing categories across departments, build closer relationships with key suppliers and negotiate more advantageous contracts.

This reflects both, for purchasing strategic and non-strategic items ranging from packaging, capital equipment, intermediate and specialty chemicals to lab supplies and temporary labour. Ariba caters to eight out of world’s fifteen largest pharmaceutical companies. These include GlaxoSmithKline, Aventis, Pfizer, Astra Zeneca and Merck.

Challenges faced by the companies globally

Global majors such as Pfizer had been struggling with legacy system and with slow, manual, labour-intensive purchasing process. They had high maverick spend and needed a scalable solution that could integrate with the legacy system. They deployed the Ariba Buyer and Ariba Invoicing. This helped them in contract compliance and to eliminate contract leakages. This also automated and streamlined every step in the invoicing process and helped them to reduce reconciliation cycle times and improve exception handling.

Companies like Astra-Zeneca who lacked the ability to gain global visibility across the source-to-pay cycle and global vendor relationship engaged Ariba for Global Spend Visibility which helped them in identifying new savings opportunity by building solutions that created a single source to identify, share and monitor their global spend. This was accomplished by creating a system that supported their sourcing process and integrated with their backend ERP system.

SM in the Indian scenario

Indian enterprises have been extremely successful in the adoption of e-sourcing that enabled them to significantly reduce cost, improve bottom-line, and bring transparency and efficiency to their purchasing functions. In recent times, the Indian market has witnessed a total sourcing volume worth Rs 25, 000 crore across sectors.

Ariba has been at the forefront and the most preferred choice within companies by contributing sourcing transactions worth Rs 15, 000 crore. The pharmaceutical sector in particular has witnessed early adoption of SM with leading major such as Ranbaxy taking the first step. With growing challenges and fierce competition in the pharmaceutical sector, SM is soon expected to gather traction with companies that have realised the need to manage their spend and improve efficiency.

Ariba’s spend management proposition–Valuable tools to track and monitor spend in the pharma sector

Ariba spend management resolves the procurement issues by extending spend visibility, closed-loop compliance monitoring and improved productivity through decision support and supplier performance management. With a comprehensive and meaningful visibility across all numerous spend categories, purchasing officials now can instantly analyse their spend on the go. The online audit and reporting capabilities of SM solutions enable pharmaceutical companies to ensure the use of preferred suppliers across the globe, reducing chances of high level of maverick buying, typical in pharmaceutical R&D, and delivering more accurate data so buyers can negotiate contracts based on actual purchasing history.

Furthermore, the increased visibility gained through the Ariba solution allows pharmaceutical companies to identify trends, track spending and make accurate forecasts for strategic planning. By automatically issuing notices that budget thresholds have been reached or exceeded and initiating appropriate workflows, the Ariba solution provides clear, immediate information on how much is being purchased, which is critical in enhancing overall spend management.

The spend management mandate in pharmaceutical companies

Ariba allows pharmaceutical companies to efficiently procure goods or services such as lab suppliers, marketing materials or service, etc. from existing contracts to ensure full advantage of negotiated services agreements and preferred terms. Additionally, the Ariba solution includes automated controls that influence buyers towards preferred suppliers and flag non-compliant purchases. By using Ariba Invoice and Ariba Supplier Network, pharmaceutical companies have the ability to receive electronic invoices for goods and services. These supplier invoices are tracked for pricing accuracy to negotiated agreements, making compliance an achievable goal even for non-PO orders. With the ability to streamline the reconciliation process, pharmaceutical organisations can achieve maximum services spend compliance.

SM vis-à-vis traditional enterprise applications

SM applications have an end-to-end focus. As they are created with an overall process such as order-to-cash or product lifecycle management in mind that does cross departments, they have a different footprint that is focused around the need to deliver an application that can go from one end of the organisation to another. They also extend to suppliers and customers with different functions to facilitate intra-company collaborations, workflow enabled relationships and transactions. Often they will have in common certain functions of a traditional application, such as ERP, but will have other extended capabilities that fall outside the traditional realm.

Taking a seat in the boardroom

SM has enabled companies to achieve larger business objectives globally. With the growing prominence of procurement, what started as a secondary automation process has now gained high visibility and buy-in among the top management within enterprises. It is gradually expanding beyond the purchasing departments/CXOs and acquiring significance as a key business mandate of businesses today. The root cause behind this executive interest and enthusiasm for procurement often came from the success many companies realised by targeting specific areas like strategic sourcing and purchasing control through enhanced compliance. Companies driving SM have benefited with speed-rapid results, sustainability-expertise and knowledge to build self sufficiency and coverage-across categories and systems.

Though India is at a nascent stage of SM adoption, with the rapid advancements and growing challenges in businesses, companies are soon expected to adopt a singular streamlined approach to identify spends and make way for operational efficiency and improved margins.

The writer is group director, Ariba India.

E-mail: akharbanda@ariba.com