In a growing global marketplace with an increasingly complex supply chain and pricing pressures, sourcing and procurement of materials has taken on a more strategic approach. With increased quality concerns and regulatory scrutiny, there is a greater need for investment in the role of procurement to help address complexities.

Joe Sutton, global director, sourcing with Eli Lilly and Company and president of the Drug, Chemical and Associated Technologies Association (DCAT) discusses the role and challenges of the procurement organization in relation to direct materials as well as key trends facing the industry. Mr. Sutton has more than 27 years of experience with Eli Lilly and Company, having held various roles in support of the manufacturing organization, including IT, supply chain operations, finance and procurement. He is responsible for developing and implementing the global sourcing strategies for API and dry product manufacturing, facilities management and utilities, as well as health, wellness and benefit programs, recruiting services and learning and development services.

Contract Pharma: How has the role of sourcing and procurement for direct materials evolved over the past five years? What overall industry trends have influenced these functions the most?

Joe Sutton: At the corporate level, I believe there is a greater appreciation that direct material procurement can be an enabler of much more than just controlling costs. Miscues in supply chains have cost companies dearly and with that has come an increased recognition that as supply chains become more global and complex, doing procurement well becomes vital to sustaining the business.

I see a greater investment in people and tools to elevate the procurement function. In many cases, procurement functions as the eyes and ears for a corporation to understand what is going on in the market place. Innovation frequently comes from outside and procurement is often the doorkeeper for that process. Direct material procurement has earned a seat at the manufacturing table and is viewed as a valuable business partner.

Industry trends of globalization and pricing pressures have driven procurement to be more of a strategic function. Technology continues to drive down the transactional costs of buying and paying for things and has improved sourcing systems to manage the bid and contract process more efficiently across a global supply chain. These resource gains in transactional work have freed up sourcing staff to focus on the more important tasks of increasing their market knowledge and building supplier relationships. Making that transition is what makes a good procurement organization great.

CP: From an industry view, what do you see as the biggest challenges facing procurement/sourcing professionals today as it relates to the supply of direct materials?

JS: The basic challenges have not changed—don’t run out, spend money wisely, and above all, never sacrifice quality.

The challenges now arise more from “how” procurement gets done and “how fast” it needs to be done. As to ‘how’ procurement gets done, we are still very reliant on two things: information and relationships. Technology can assist in the first one but there inevitably comes a time when our ability to sit down face-to-face with a supplier and make a deal or resolve a problem is what makes or breaks the business. I believe the personal aspects of managing procurement will always be a challenge to do well. As pharma tries to shorten the timeline to get a product to market, the procurement process has to happen much faster. We have to know our supply markets better and establish relationships sooner so that as products move through the pipeline we are not on the critical path.

Procurement done well requires a lot of preparatory work—knowing the market, building relationships, and establishing a solid legal and commercial framework for doing business.

CP: There’s talk about the coming “industrial digital revolution,” from Big Data to 3D printing. What technological innovations do you see having the biggest impact on sourcing/procurement professionals going forward overall and specifically for direct materials? 

JS: I think Big Data will help companies that truly learn how to employ it, especially in their interactions with customers. In the sourcing and procurement areas, I expect it will help us internally to better analyze and understand our global spend—who is buying what, where, and from whom. As we interface with the direct materials market, I hope it will increase the level of transparency by better defining specific market segments. If it helps us benchmark and better direct resources I am excited about it.

In our device business, 3D printing is already a topic of interest and may have great potential to make high quality components for less cost. It may lead to bringing production of components in-house where we might have been reliant on external suppliers—that remains to be seen—but whomever makes the products will see dramatic improvements in cost and consistency.

CP: Part of your role at Lilly is the global sourcing for HR, including health and wellness, recruiting, and training and development services. By 2025 it is expected that Millennials and Gen Z will make up 75% of the work force. What trends in HR services do you see in attracting and retaining young talent? In addition, how do you see the skill set of sourcing and procurement professionals evolving to meet future demand?

JS: I think all companies are adapting to the changing demographics and the rare occurrence of having so many generations all in the workforce at the same time. Companies are revisiting the value proposition between company and employee—what is the pact we make with them and what do we expect in return? With each generation entering the workforce, adaptations are made and we are seeing that. The Millennial and Gen Z workers seem to want more flexibility in where and when their jobs can be performed and we have responded to that with more flexible workspaces and flexible hours. We see them wanting a wider variety of job experiences rather than deeper expertise in a single role so we are rotating them sooner than we would have with earlier generations. They also like to have mentors from earlier generations to help them gain knowledge faster. The expectation that they have the most current technology is also widely understood and accommodated.

The basic skills of procurement are still required, but we are seeing an increase in the need for learning agility as sourcing professionals move from category to category faster. The ability to find and interpret market data from web-based sources is also a growing need. We need them to spend less time searching the market and more time interpreting its trends.

CP: Looking ahead over the next five years, what do you see as the three top issues that will impact the sourcing and procurement of direct materials?

JS: Look for increased expectations further down the supply chain for one. The quality requirements on drug products and drug substances will be pushed down to second tier suppliers and beyond.

Next, the ‘best’ market in which to buy will continue to shift geographically.

Lastly, I expect we will see continued consolidation in the supply market with more companies combining to increase their capabilities and become less dependent on a single product or technology. Diversification will become more prevalent. 

The Drug, Chemical & Associated Technologies Association (DCAT) is a not-for-profit, global business development association whose unique membership model integrates both innovator and generic drug manufacturers and suppliers of ingredients, development and manufacturing services, and related technologies. For more info turn to page 62 of this issue for a preview of DCAT Week ’18, March 19-22, 2018, New York City; www.dcatweek.org.