Success in Partnerships
A practical guide for suppliers & service providers
By Pedram Alaedini and Howard Kim
The pharmaceutical industry is in the process of an unprecedented evolution. It’s been said over and over that pharmaceutical companies must change the way they do business if they want to remain profitable. This evolution is bound to create many still unforeseen opportunities for suppliers and service providers to the pharmaceutical industry.
The drug industry is very large and profitable, but the centers of this wealth might be changing rapidly. The major pharma companies now rely on a small number of drugs for a large portion of their revenue, but the patents on many of these drugs will expire in the next several years. At the same time, the new drug development pipeline at most major companies seems incapable of replacing the revenue historically generated by these soon-to-expire drugs.
Perhaps the most vigorous force in the industry is its swift globalization. What had traditionally been a U.S.- and EU-centered business is now shifting to developing countries for the development of new treatments, supplying of sophisticated raw material and excipients, providing clinical, research, manufacturing and consulting services, as well as potential markets for products. In recent years, pharmaceutical companies in Asia, particularly in China, South Korea and India, have been to some degree successful mostly due to their ability to retain their cost advantage while matching the quality standards of the west.
This situation will certainly create a fertile ground for suppliers from developing countries to interface more frequently and directly with purchasing and business development personnel at the Western pharmaceutical companies. To date, however, there has been little published on what these ongoing developments will mean for suppliers of raw materials and service providers to the pharmaceutical industry. Likewise, there is a lack of information on what these individuals can do to prepare for the new environment in which they find themselves.
We hope to provide some practical advice for the industry based on our first-hand experience working for large and small U.S. and European pharmaceutical companies. We believe following these basic principals will enable suppliers from developing countries to be more competitive and successful in their business endeavors.
It is important to note that although most of these principals could easily be adapted to other industries, the pharmaceutical industry has unique challenges and opportunities. These challenges mostly arise from the fact that the industry is highly regulated and at the same time very technical and complex.
Know Your Customer and the Industry
In order to sell products and services or to establish partnerships with pharmaceutical companies, it is important to know as much as possible about the company with which one intends to do business. Nowadays, through the Internet, it is relatively easy to find out the background of a company, its financial status, most recent news, and the names of key decision makers. If the company has done anything of note recently, then thoroughly research it and bring it up in the conversation during your meeting with them. However, you should be aware that there are several sides to a story, and the media focus can be misleading. If there is a negative story about the company in the news, and the Business Development person senses that you are taking a negative position, the likelihood of business proceeding favorably is very low. On the other hand, if the Purchasing person feels your support, then business discussions should move more favorably. Also, if your customer has published papers or patents, be aware of them and perhaps be prepared to talk knowledgably about them. This will impress the Purchasing agent and his or her technical colleagues.
As you develop a closer working relationship with your customer, it is critical to understand what the company needs and why. You also need to understand how it uses the product or technology. You need to figure out what can you offer that will help the customer, so you must think beyond just supplying the product alone.
Find out how your customer uses the product. This is very important in the pharmaceutical industry due to its regulated nature and technical challenges. For example, some customers may have packaging size requirements for easier handling in the plant or due to equipment specifications. So make your packages easier to handle and in the right size. The plant personnel and engineers will appreciate the added value, and will pass on the appreciation to Purchasing. This makes it more difficult for Purchasing to switch to another supplier.
Provide Value to Customers
Competition can be fierce, especially when you are selling commodity products. Assuming that you are equal on quality, service, etc., it may be difficult to become a preferred supplier. There are several ways you can persuade your customer, sometimes without even having to lower your price:
- If you sell more than one product, then offer to link the sales together and suggest that logistics, transport, etc. could be reduced, creating a functional discount; push for at least an annual contract.
- If the volumes justify it, instead of supplying a Certificate of Analysis for each lot or shipment, move toward a Certificate of Compliance. This involves the Customers’ Quality Assurance teams from both companies working together to reduce or synchronize the testing process for product quality, thus reducing costs by lowering your testing needs; this saving could be passed on to the customer.
- Look for a local storage facility and ship in bulk quantities, or full container-loads. This will reduce costs, and allow you to give much better service to the customer, enabling you to ship to your customer with just a day’s notice. This may not reduce your costs due to the added storage expenses; in fact, it may add to your cost. However, this method provides a significant advantage over the competition and potentially will help you keep the business long-term.
- Consider to offer consignment stock, which means the customer only pays for the material used from the warehouse.
- Offer a rebate for a certain volume take off at the end of the year, similar to the rebates offered by credit card companies. This will only be payable if the client takes the predetermined and desired volume. This method provides incentives for the purchasing department to consolidate more volume to your business.
- If possible, extend the payment terms. This is a major benefit to smaller companies, and even larger multinational companies are demanding longer payment terms.
- If appropriate, provide technical assistance to the customers in qualifying new raw material or API, validating processes, scaling up production, or troubleshooting and problem solving.
Know What Makes Purchasing People Tick
In general, Purchasing people tend to be, well, introverted. If they were extroverted, they would probably be in Sales! However, the work between Purchasing and Sales must be dove-tailed for procurement to happen.
Most people in Purchasing have savings objectives. They seek savings opportunities to make them look good to their management. However, it is often better to lower the prices over a three-year period rather than all at once. This is beneficial for the Sales side as well.
Securing on-going supply is critical to Purchasing. Purchasing must produce the necessary materials at the necessary time. Both sides must anticipate any and all problems to ensure that there will not be any impediments to this process. If Purchasing people constantly have to focus on obtaining materials for the company, critical Resources are being spent to take care of these problems. Product quality problem is similar to security of supply; in other words, it is another problem to deal with, rather than an opportunity to focus on savings.
Servicing internal customers of the company is the critical function of Purchasing, but, these days, many Purchasing organizations are driven by the savings targets. To obtain these potential savings goals, purchasing personnel will drive the projects and make necessary changes through the organizations on your behalf. Many companies have realized the contributions of the Purchasing department. Thus, this group’s profile and exposures to the senior management have been rising for years.
Many companies are operating on very low margins. For this reasons, there is much emphasis on savings from Purchasing. If a supplier can offer savings opportunities, the Purchasing people will spend the time to listen to their proposal, (provided that the cost of changing suppliers, and qualifying you as a supplier, does not exceed the potential savings).
Define whether your Purchasing contact is interested in cost savings, understand his motivation (does he get a bonus, does he have targets to meet that may impact his future?) and understand where he is in his goals and objectives and how serious these activities are. Understand the hurdles and help him overcome them using quality, geography, service, buffer stock, price, payment terms, and provide incentives for his purchase.
Know Who the Decision Maker Is
Many people on the outside believe that Purchasing makes all the buying decisions. That is absolutely not true! Nowadays, Purchasing tries to move away from day-to-day buying, and towards Strategic Sourcing.
In the past, purchasing people may have had choices of approved suppliers; they would negotiate the best price and issue purchase orders. These days, even the commodity items are combined and given to the preferred suppliers that have a history of excellent service and best prices. The typical categories are office supplies, laboratory supplies, maintenance related items, etc. Once these are combined and are under contracts, it is not easy to change to other suppliers. In order to change such suppliers, Purchasing needs to work with its internal consumers to ensure their satisfaction.
On more complicated products and services for large organizations, a team is always involved in the purchasing decision. In these types of sourcing scenarios, R&D, Production, Regulatory, Finance, Technical Services, Strategic Planning, and more may be involved in the decision. Therefore, in order to recommend a new supplier in the organization, a Purchasing contact becomes a sales champion for your company to convince each department why your company is the best.
Therefore, for commodity types of product sales, the purchasing power resides with the buyers, senior buyers, and Purchasing managers. For sales of more complicated products/services, and to gain support, so you can have an internal sales champion for your company, you will need the support of directors or vice president of Purchasing, too.
Beware of Pursuing Famous Companies
It may be attractive to target well-known companies because people around you would recognize your accomplishments (and it could also help boost your company’s stock price!). However, it is sometimes better not to pursue these large and famous companies as clients.
First of all, many competitors try all they can to obtain businesses from these companies. Therefore, the competition is very fierce. Moreover, these large companies have experienced professional purchasing people that are paid very well to know the markets and push the suppliers to the point of making very little profit.
In addition, these large companies employ professionals who are constantly moving from company to company. Therefore, after working with certain business development or purchasing person for a number of years, you may be faced with someone new and have to start from the beginning. Or, while you start enjoying the business for a long qualification process, a new purchasing person will come in and may want to bring in his or her favorite supplier, not knowing — or caring about — what you have gone through to secure the business.
We strongly suggest working with small to medium-sized companies, especially if your own firm is not a major multi-national. In smaller companies, people in key management positions often will make the sourcing decisions. Sometimes, the president of the company will be involved in the decision-making process. In these smaller companies, there may not be professional Purchasing staff with the single-minded imperative to drive down your prices. If your company understands the market and your product could benefit your customer, the customer will appreciate your services that much more. Moreover, if you have helped in the success of the company, the management at these companies will make sure that your company will not be replaced by a new supplier that is offering lower prices. Therefore, you can enjoy higher profit margins. You will also have a better chance to discuss new business opportunities to grow both your business and your customers’.
Unless you build relationships with key Purchasing personnel, you will never get the best projects or the best businesses that will make your company more profitable. If you choose to operate impersonally, your company will certainly receive only marginal businesses. Relationship-building is critical to your business.
Building a relationship is a long-term process. You start with telephone calls, e-mails, etc., then progress to meeting on neutral ground, such as seminars, conventions, or exhibitions. After such meetings, it is much easier to visit the customer. It is very difficult to refuse a meeting after you have met in person. Then, you must make the effort to go see the company. At this time, doing some homework is very important. You should know more about the customer’s company and its products than your Purchasing contact does, so that in the future, he or she can rely on you for information.
Some companies have policies against accepting dinner invitations. Besides, many people prefer to go home to their families after a hard day’s work. They do not wish to extend their day for dinner meetings. However, things are different at offsite conventions or exhibitions. Many accept dinner invitations. One major advantage of dinner over lunch is that there fewer no time constraints. Therefore, people tend to be more relaxed and the conversation — as well as the information that you share — tends to be more cordial and more amenable.
If building relationships makes you uncomfortable, especially when it involves people from other countries, then it is best to use agents that specialize in your industry. Many agents have good working and personal relationships with purchasing people in various companies. These agents apply different methods in dealing with different companies. Many of the agents have worked in Purchasing, therefore, it is best to learn their methods by working closely with them, making sure you are working as a team. If there are any conflicts between the manufacturer and the agent, the Purchasing people will sense it, and business will not materialize.
Customer Management At All Levels
As you start working with purchasing people, it is critical to expand communications at many levels, and to adjacent departments. Especially in larger companies, Purchasing staff often get promoted, demoted or fired, or leave the company, retire, take a leave of absence, go on maternity leave, etc.
As communication increases with Purchasing, it is a good idea to expand your communications with other departments. For example, communicating with Accounts Payable may help your invoices get paid faster. The Quality Control department will work with you to ensure that your products pass their quality requirements. The Business Development department may be interested in your new products. Working with the Production department can also help your products run more smoothly.
These communications are critical, especially when your primary contact in purchasing changes for the reasons mentioned above. When your purchasing contact changes, the people in other departments can remain your allies to ensure your business is protected. This is more true in larger companies these days, given the tumult of layoffs.
In today’s competitive and diverse business environment, many people in Purchasing and Business Development work on a global basis. Therefore, it is more difficult to work traditional office hours, especially if one needs to work in multiple time zones at once. Moreover, it is common to find Business Dev-elopment people traveling abroad frequently and regularly. With today’s ease of travel, electronic communications and breaking down of language barriers, the working day is now so extended that one could work 24 hours a day (if one wanted to).
Still, much better responses are received when overseas customers or suppliers are contacted during their normal business hours. This means contacting companies during your evenings, or even at 1 or 2 in the morning, depending upon where you are and the time zone in which your contact resides. This would show the importance and seriousness of the conversations to companies. They see the effort you make and the inconvenience you suffer and responses tend to be immediate and very well thought out, so the information can be used quickly and effectively to push the job forward in a timelier manner.
Ensure Your Visibility
In selling your products, information about your products and your company should be readily available. In the past, this was a major task, but in our Age of Information, your website is one of the most effective means of communication to customers.
Design, layout, content, contact information, ease of use, and product information are critical for a supplier’s website. Users must be able to obtain a sufficient amount of information there, and also be able to contact your company for more detailed information.
Many times, you contact potential customers, only to find the customers are not interested. On the other hand, when a customer contacts your company after visiting your site, he or she is interested in purchasing your product or services. The customer actually has spent the time exploring and looking for your product. That customer is interested in buying your product. Don’t let this potential customer get away!
There are directories that your customers use to look for products. You should ask your customers which directories they have used to search for your products. Once you find out, you need to make sure your product is on that directory. Nowadays, most Purchasing people use Yahoo or Google to search products. You should perform a search for yourself to see whether your company’s website appears in the search. If you don’t see your product in your search, how do you expect your customers to find your company and your products?
It is critical to work closely with your IT department to keep your website up-to-date, and make sure the website search engines find your company. As you meet potential customers at conventions, exhibitions, seminars, customer calls, etc., you can channel these customers to your website.
There are several key exhibitions and conferences for different branches of pharmaceutical industry several times a year. These are the perfect opportunities to meet potential new customers and partners. Since many potential customers have spent their company’s money and time to attend these exhibitions, they are potentially interested in your products, so make sure you capture these customers and do not let them get away easily. Immediate followup is critical after these meetings.
Exhibitions are an efficient way for customers and suppliers to meet. Imagine having to visit every potential customer at their facilities: the time and cost would be enormous! When at an exhibition, it is crucial to spend the time wisely by setting up key meetings with important customers, allowing sufficient time to browse the other booths, and keeping an open mind about new business opportunities. Make some key contacts, and use them to spawn other contacts; if you do well for them, they will not hesitate to recommend you to their acquaintances.
For companies from non-English speaking countries, it is absolutely critical to have someone in the organization who speaks English well to conduct business in the U.S. and in Europe. In the U.S., many people are not exposed to foreign languages and are not tolerant of foreigners speaking English with very heavy accents. In Europe, however, most Europeans speak multiple languages. Because of that, they seem to be more tolerant of people speaking English with an accent.
Ideally, business could benefit by having people in one’s organization who have lived in the U.S. or in Europe. They would not only understand the language, but also, the nuances, such as double meanings, colloquialisms, current trends, customs and jokes. Someone in your organization would add value by knowing the business and the technical aspects of the business. Good language skills are absolutely critical in building a good relationship.
No matter in which country you are doing business, there is no excuse for not knowing or not trying to learn the basic words of greetings and thank you. Most Purchasing or Busi-ness Development personnel in pharmaceutical companies do not know the greetings in different languages. These people do not need to know them, since they are in a buying position. However, when you are in a Sales position, knowing some greetings in different languages can break the ice, and help you in the negotiations.
People are the Same the World Over
As we travel more around the globe and meet people, we find that people are the same all around the world. We all get up early to go to the office. The commuting distances and methods may vary, but we all have to face some aggravation to get to the office. In the office, we must deal with office politics, and pressures to produce more, save more, while spending less. And we do it all to provide financial security for the family. We all want to save enough money for retirement and for our children’s education.
In our personal lives, we face similar issues in dealing with our spouses, our parents, our in-laws, and have similar problems and experiences in raising children. The differences and dynamics are fascinating to learn. But, underneath, the problems are the same.
Yes, the world is made up of many countries, cultures, languages, and beliefs, but if you are open to it, you will find that there are more similarities than differences. The similarities are even more evident for us in our industry since the people we meet all belong to the pharmaceutical industry and speak the “pharmaceutical language.” It is important to keep in mind that most of the superficial differences among us will immediately disappear when we start noticing the similarities among us, our jobs, our companies, and our goals.
With the changes that are roiling the pharmaceutical industry and the pressure on companies to achieve financial goals, the role of Purchasing and Business Development has grown in importance. It is through these people that suppliers and service providers can establish a foothold in the pharmaceutical companies and offer their products and services or establish partnerships. Therefore, it is of utmost importance for suppliers to ensure that they form a true and meaningful relationship and understanding with key personnel in these departments and that this relationship is based on shared goals and values, in order to benefit both parties.