YouTube Facebook LinkedIn Google+ Twitter Xinginstagram rss  

Maximizing Success from Vendor Consolidation

By Krish Venkat  
July 3, 2014 | Guest Commentary | The global pharmaceutical industry witnessed phenomenal growth from the 1990s through mid-2000s on the backs of several first-in-class blockbuster therapies. Yet, regulatory and structural changes at play over the last 7 to 8 years have left the industry staring at challenges that require it to look beyond the status quo and develop a fresh transformative vision for the future.
Changing Industry Dynamic 
Drugs worth a whopping $170 billion are estimated to go off patent by 2015. Around 50,000 positions in the pharmaceutical industry are likely to be displaced over the next decade. R&D productivity in the industry has been sluggish for well over 15 years. Even as R&D expenditure doubled from 1995 through 2008, new molecular entities—molecules developed in the early stages of drug discovery and therefore considered the first step of drug development—plunged by 40%. 
Over the last decade alone, the industry has spent $1.1 trillion in R&D. Even so, pharmaceutical companies, which earlier introduced three to four new drugs in the market every year, now seem to be struggling to produce even one. The inverse correlation between R&D spending and productivity is indicative of the enormous pressure on today’s R&D pipeline. The imperative to produce a consistent stream of innovative drugs has profound cost implications.
To cope with the changing industry dynamic, Big Pharma has turned to mergers and acquisitions (M&As). According to Thomson Reuters, pharmaceutical and biotechnology transactions totaled $103.9 billion in 2011, up from $99.4 billion the previous year. After a brief lull in 2012 and 2013, M&A activity has made a comeback in 2014, with several large companies including Novartis, Actavis, Bayer, Eli Lilly, and GSK engaging in large, industry-shaping mergers and divestitures. 
Drivers for Vendor Consolidation 
Emerging challenges have forced most leading biopharma companies to embark on extensive restructuring and cost reduction efforts. As CXOs turn to their service providers to optimize costs and improve productivity, it is clear that the overarching need for productivity is a primary driver for vendor consolidation in not just IT, but also business process services.
There are several other drivers too. M&A integration, with its attendant cost synergies, has led major acquirers to systematically rationalize their vendor portfolios across hardware, software, and services. Pharmaceutical companies are increasingly required to meet complex compliance requirements, such as validated systems, 21CFR Part 11, GxP guidelines, and data privacy laws, and are often subject to surprise audits by regulatory authorities. Obviously, staying compliant in a fragmented landscape of IT and business process service providers is challenging. For smaller vendors, it is often hard to sustain the level of investment needed to support compliance obligations to their customers.
Despite the advent of new technologies such as autonomics (for example, IP SOFT) to drive productivity, only a few large vendors have been able to invest ahead of the curve. These vendors, in turn, have been able to deliver outsized productivity improvements when compared to smaller, niche vendors. For CXOs, maintaining a long list of vendors significantly increases operational complexity and management overheads, including multiple governance meetings for IT leaders, and a larger than optimal vendor management organization. The inability to use automation technologies and significant management overheads resulting from the operational complexity of working with multiple vendors can not only burden the finance and administrative functions, but also reduce the synergies and productivity gains across related processes that can drive costs down further and improve efficiency. Besides, sub-scale partnerships can also mean that vendors do not treat all customers as strategic partners. This has knock-on effects on the talent pool that serves the customers, the ability and willingness of providers to invest in the relationships, and the overall levels of innovation realized by the engagements.  
Best Practices in Vendor Consolidation 
Transformational vendor consolidation in the life sciences industry has yielded some best practices. 
  • Develop a focused sourcing strategy: Having a clear end-state sourcing strategy that acts as the guidepost to vendor consolidation is a critical first step. While there is no one-size-fits-all model, companies have worked to define strategies around select strategic partners. The allocation of portfolio to vendors has taken on multiple forms.
    • By functional domains (for example, R&D, S&M, manufacturing and supply chain, enabling functions)  
    • By major technology domains (for example, enterprise applications, data warehousing, collaboration, IT infrastructure)  
    • By service type consolidation (for example, infrastructure partners, application development partners, application management partners and business process service partners) 
  • Obtain executive commitment on vendor consolidation: Most pharmaceutical companies have different business or functional units that traditionally maintain autonomous relationships with different vendors. It is important to secure executive commitment on vendor consolidation with the divisional or functional CXOs. 
  • Identify, plan and manage vendor-to-vendor transitions: These transitions can be tricky and pose multiple challenges, making strong oversight and leadership from the client important. 
  • Enhance the sourcing process: The sourcing process must be made robust and disciplined and the time spent on evaluating the suppliers must be minimized. It is important to down-select preferred suppliers quickly, and invest more time and effort in establishing and building partnerships with the preferred vendors through such means as transition plans, transformation plans, and governance models. 
  • Establish a vendor governance model: Put in place and streamline a common core vendor governance model to build long-lasting relationships with the preferred vendors. It is imperative to set a structured vendor consolidation process across the operational, managerial, and executive layers in the organization. 
The last 24 months have seen a spate of large-scale vendor consolidation efforts in the life sciences industry. Companies that have gone through the journey are reaping considerable benefits across critical parameters ranging from cost and innovation, to quality and compliance, while also building deeper, more meaningful relationships with vendors. A systematic approach to vendor consolidation is key to unleashing the full transformative potential of strategic partnerships.  
Krish Venkat is President, Healthcare and Life Sciences, Cognizant. He can be reached at  
View Next Related Story
Click here to login and leave a comment.  


Add Comment

Text Only 2000 character limit

Page 1 of 1

For reprints and/or copyright permission, please contact Angela Parsons, 781.972.5467.