Background and challenges
An outsourced drug compounder was struggling to remain cost competitive in a price-sensitive market. The company engaged L.E.K. Consulting to scrutinize its current spend profile and identify specific actions that would help it establish a more competitive cost position in the market. The company had a limited history of undertaking such systematic spend reviews, dissuaded by limited supply base optionality as well as the complexity of navigating change in a highly regulated production environment.
Approach
L.E.K. leveraged the company’s existing data to build a systemic view of spend across key categories and identify levers to improve its cost base:
- Evaluated group purchasing organizations (GPOs) for molecules and active pharmaceutical ingredients, finding that GPOs could provide current formulations at a lower cost
- Analyzed historical instances of supply disruptions and proposed changes in supplier mix to build a more secure base, thereby increasing supply security and minimizing instances of paying premium prices to guarantee product availability
- Assessed spending on primary packaging against prevailing market prices and introduced the client to new channel partners that could provide current products at lower prices
- Identified further alternatives for primary packaging and consumables that could deliver additional savings but required regulatory certification
- Analyzed freight and other services’ spend to identify immediate savings
Following the identification of the change opportunities, L.E.K. focused on aligning the findings with the needs of internal stakeholders. The resulting plan detailed implementation requirements, including any regulatory changes, and aligned cross-functional stakeholders for execution.
Results
The sourcing strategies enabled the client to improve supply availability and reduce the addressable spend by 10%, including:
- A 5% cost reduction in pharmaceutical molecules
- A 15%-20% cost reduction in primary packaging and consumables
- A 10% cost reduction in freight and other services
This project highlights both the importance of procurement optimization in controlling costs to boost market competitiveness and the achievability of expense reduction, even with change constraints.
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