In the world of procurement, cost savings is typically the key driver in purchasing decisions, with value and quality considered secondary. While these financial-based decisions may look right on paper, in reality, they can negatively impact operations and everything that follows – resulting in product delays on the front end and potentially preventing patients from getting lifesaving treatments in the longer term. Despite the fact that business managers want to cut costs, they do not want this to impact reaching commercialization. In our industry, where speed to market is paramount, losing time as a result of cost-cutting assessments does not make good business sense.
With the ever-changing dynamics in today’s lab environment, it’s imperative for procurement teams to think more strategically, acknowledging the critical relationship between cost and value. By adopting this attitude, the entire process can be transformed, leading to increased lab discovery and overall success for the company as a whole.
Vendor selection is one area in which procurement can lead with a more strategic role – moving away from a strictly cost-oriented view and instead shifting their due diligence thinking to assess value, which can be defined in a number of different ways, all specific to the productivity goals within the lab itself.
For example, having a vendor who can ensure your lab instruments are working correctly – through consistent, preventative maintenance – means that these assets may perform longer, reducing your costs over time. In addition, working with a vendor who has explicit experience in lab asset management is fundamental. They understand the hidden value in underutilized equipment and can offer opinions on whether new assets need to be purchased. They should also offer real-time analytics and insights, such as the number of service calls and associated costs, to help you drive better decisions to keep the lab running efficiently.
However, service is just one primary component. It’s also about identifying a partner who will provide the right personnel – trusted individual contributors who become a strategic part of the team. A vested third-party will be able to provide industry-honed knowledge that will help optimize service spend, inform capital asset purchases and improve lab processes.
A strong partnership can stabilize the lab, as there is generally less turnover than working with a temporary staffing firm. Having this stability and expertise retained within the lab allows for a more optimized environment with streamlined workflows, freeing scientists to focus their time on making groundbreaking scientific discoveries.
While enlisting highly skilled lab technicians may increase upfront costs, in the long run, you are helping the entire organization by increasing stability and proficiency. Of course, this can lead to greater cost savings. In fact, according to a recent Lab Manager magazine report, enterprises that implement strategic sourcing methods and processes can see returns of five to ten times their original investment. High-performing sourcing and procurement functions save $82 for every $8 in cost to procure, according to Accenture – effectively saving more than 10 times the cost of the procurement function.1
Procurement teams should consider how these purchases will be felt across the entire organization and most importantly, how they will affect lab productivity.
The Consequences of Cost-only Decisions
When procurement teams lock themselves into a narrow focus during their vendor selection process and root purchasing decisions solely on cost, the consequences can be dreadful. While it’s essential to be mindful of hidden costs i.e. making sure vendors aren’t charging for unnecessary services or upgrades, “a price tag” shouldn’t be the one factor when making the final decision.
The following factors should be considered:
- Lack of flexibility and scalability to nimbly change a service program’s scope as the client’s needs change - Labs are dynamic places and as the biopharma industry continues to grow at an exponential rate, successful labs are the ones who can easily and quickly adapt to changing needs. Selecting a vendor who can provide scalability to expand, or contract, as your business needs change is a top consideration.
- Inferior products and services - An appealing price tag doesn’t always mean greater value. Mediocre instruments and under-producing lab services can be the result, stunting innovation and preventing labs from new discoveries because they aren’t using the best resources available.
- Lack of global capacity - Labs are in a constant race to discovery. Precious time is wasted if your vendor has insufficient capacity to keep pace with your scientists. To expand their bandwidth, some vendors serve their clients from multiple geographies. However, “global” or not, if their processes, workflows, and training are not stringently governed across all facilities, results can vary and inconsistencies will follow.
For example, if you have a local office in China but a main corporate office in the U.S. – unless your service provider is experienced and knowledgeable about producing in a cross-border, multi-lingual business environment – this can lead to real-time service gaps which could impact the bottom line.
- Lack of ability to react in a timely fashion - How a vendor responds when a technical setback occurs is critical to the success of the lab. Vendors who do not react quickly could negatively impact operations in the form of lost samples, time and money. When instruments are down and need servicing, your vendor should be reacting as quickly as possible to get your lab operations resumed. Geographically, this means having a verifiable local and cross-border process to get a repair technician on site ASAP.
- Insufficient critical mass to mobilize in an emergency - When disaster strikes, natural or otherwise, it is imperative that your lab solutions partner has support teams that can be assembled rapidly to mitigate a negative impact. Vendors may present their services at a lower cost, however, check to assure their service level agreement addresses large crisis situations. Lab downtime equates to discovery downtime. It is worth digging a little deeper to find out what resources they have and if an emergency arises that they have the staff and resources to get your lab back up as quickly as possible. It’s not enough to be on-site in an hour if the vendor is arriving unprepared and understaffed.
- Lack of relationships with other major vendors in the marketplace - To maximize lab uptime, you must procure a lab support vendor prepared to service all of the instruments in your lab, not only their own brand. If a vendor is not professionally connected to its peers throughout the industry, then they may not have the capabilities or broad technical resources to provide unparalleled and brand agnostic support. Having these unbiased relationships across the industry allows your vendor to bring new ideas to your lab, assist with the prediction of trends to further aid your lab teams to achieve their long-term goals.
- Inability to fit into the company culture - Vendors who do not align themselves with your company’s initiatives can become an unproductive hindrance to the success of a lab. If your vision is misunderstood, a missed opportunity to grow and innovate is created. A vendor should have a strong collaborative relationship with both the procurement manager and lab manager – everyone must be on the same page in terms of the mission of the lab. The best relationship is for the vendor to understand the objectives and targeted outcomes of the company they are servicing so they can fulfill their requirements and even fuel “what’s next.”
In addition, a true partnership is one in which all stakeholders feel responsible, are held accountable and share in the risks that are undertaken.
How to Determine the Right Fit
When evaluating companies, strategic relationships should be predicated upon experience. Can your vendor deliver on what they promise? How will they make it work? A strategic partner can anticipate your challenges and needs, helping to minimize your risks so your lab can avoid missteps. It is also imperative to get a clear understanding of their skills by looking at previous work and references.
From an organizational and geographical point of view, it’s crucial to have the right experts in the right place at the right time. Having a global partner who is able to deliver consistency across all lab sites, reduce redundancy, as well as bring better lab optimization to the entire company is the goal.
Adopting a More Strategic Role in Purchasing Decisions
How will a purchasing decision impact operations? It is important to reflect on the impact procurement will have on scientific productivity and lab optimization. Procurement teams should begin their due diligence by placing themselves in the lab manager’s shoes. This shift in thinking, as well as being armed with facts, information, and analysis, allows procurement to appreciate the greater lab picture – focusing first on value, evaluating the true worth of the service before calculating a tangible “price.”
Establishing a strategic partnership is much more beneficial than having a simple transactional agreement. By creating a strong partnership with your vendor, there is an implied long-term relationship that helps to stabilize the lab. This updated approach can dramatically transform the process and will lead to a more optimized environment, beyond saving time and money but advancing discovery.
Lastly, working from your organization’s mission statement can aid in the selection process. Although the role of procurement is specific, helping your company achieve both its mission and your own goals simultaneously can have a positive impact. If the goal is to improve people’s lives and bring drugs to market faster, everyone should be balancing individual tasks by trying to achieve the overarching corporate objective.
- 1High-Performance Sourcing and Procurement, Harvard Business Review. Retrieved from https://hbr.org/sponsored/2017/06/high-performance-sourcing-and-procurement