The right prescription: How pharmaceutical companies improve margins & supply chain health

 

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Innovation is the lifeblood of pharmaceutical companies, so it’s logical that procurement leaders in the industry seek innovative approaches to supporting their supply chains. At the same time, finance and treasury professionals in the pharmaceutical field adopt cutting-edge margin improvement and capital allocation strategies. Many other industries can also benefit from the solutions that these pharmaceutical executives choose to address their needs.

Meeting cost challenges

Getting a new pharmaceutical product into the hands of patients is a lengthy and expensive process. The timeline from research and development (R&D) through testing and regulatory approval to market can extend over many years, and success is never guaranteed.

Once a product is approved for sale, there may be legal constraints on pricing. This significant up-front expense and built-in uncertainty lead to volatile growth metrics within the industry.

The pharmaceutical industry is always looking for cost-savings initiatives, and they have a strong opportunity within their accounts payable (A/P) for accelerated payments to suppliers via a market-based dynamic discounting program.

The Deloitte Global CPO Survey 2016 cited cost reduction as the goal of 82% of CPOs in the life sciences industry. CPOs in this industry are also more likely than their peers in other industries to seek out technology solutions to solve their organizational challenges.

Supporting a large and diverse supply chain

Large pharmaceutical companies have extensive supply chains made up of companies across the globe. Many of their suppliers are small to medium-sized enterprises (SMEs) that have experienced working capital and cash flow challenges since the global financial crisis.

Multinational pharmaceutical companies may have cash sitting stagnant in markets with low, zero or negative interest rates. Collaborating with suppliers to provide early payment programs allows that cash to support the suppliers in those countries and gain margin improvements for the buyer companies at the same time.

Smaller suppliers often need additional cash flow to maintain and grow their business. Large suppliers may require strategic increases in working capital for balance sheet optimization, often at quarter end and year end. In either case, the pharmaceutical buyer who can provide cash flow to suppliers in exchange for invoice discounts benefits from cost savings – and by extension, increased EBITDA, improved margins, and higher EPS – while the suppliers address their own working capital needs.

Large and complex pharmaceutical supply chains are a challenge to maintain and optimize, which is why the Health Industry Distribution Association recommended in a recent white paper that companies implement improvements to “increase automation, standardize and simplify processes to reduce transaction costs between manufacturers, distributors, and providers.”

A single solution for cost savings and supply chain optimization

C2FO is a tool that can help increase supply chain efficiency and strength by providing an avenue for suppliers to access cash from their buyers at a rate that works for both.

The C2FO market is a turnkey, risk-free solution that:

  • Requires only a simple file exchange to operate
  • Is supplier-centric and complements existing early payment programs
  • Reaches a broad range of suppliers without any additional work on the part of the buyer company
  • Delivers ongoing margin improvements and steady, year-over-year program growth

One global-ranked pharmaceutical company using C2FO reports that the income from their accelerated payment program pays for their entire treasury staff.

It’s the cure for many of the working capital and supply chain challenges affecting procurement and finance professionals in the pharmaceutical industry and other industries as well.