Arm-in-Arm or Arm’s Length?
The evolving challenge of cross-functional working in pharmaceuticals
The pharma industry has long understood the need for close collaboration between key functions to drive business success – with profitable innovation demanding close partnership between R&D and Commercial functions, and effective campaign execution drawing on an effective Marketing and Sales collaboration.
However, the winning formula in the pharma sector has developed over the last five years and this has already led to new demands for cross-functional working – for example;
A compelling market access strategy is now clearly acknowledged as the foundation for commercial success. This means that a joined-up approach is needed across the organisation going right back to the early phases of clinical trials. Building that strategy still needs to draw on the combined insights and capabilities of R&D, Regulatory and Marketing teams but is now heavily dependent on the expertise of Health Economists to shape clinical trial designs which will produce usable and practical health outcomes data points that payers understand, recognise and value. As a product progresses through the development pipeline, further cross-functional partnership is needed to effectively engage the Sales and Account Management functions in a new product’s dossier and to ensure that the deep knowledge demanded by both payers and prescribers is well embedded in these customer-facing roles.
The accelerating emergence of digital health technologies is creating new opportunities for organisations that can apply cross-disciplinary expertise. For example, Mobile health (“mHealth”) in which the data connectivity and capabilities provided my mobile devices or wearables present both opportunities and threats to the traditional pharma business model. Organisations that can marshal combined capabilities for example in IT, Marketing and Medical functions will find ways to add significant value in providing feedback and support to patients, facilitate prescribing interventions and enable reliable payer valuations of outcomes. Conversely, businesses unable to do this may find themselves displaced or relegated in the value chain by intermediaries that can drive value from the healthcare system through their expertise in the digital infrastructure in a similar manner to that seen in the last 10 years in the music distribution business.
However, more recently a further driver for cross-functional working has emerged in the form of a greater focus on the role of supply chain strategy and operations in achieving strategic goals and in particular the process of Sales & Operations Planning (S&OP) or Integrated Business Planning (IBP).
Traditionally, there has often been limited genuine cross-functional working between Supply Chain and Commercial functions in the R&D-based pharma industry but the need for this has developed as a result of four factors;
Increasing erosion of margins – the effect of austerity and price controls deployed by government payers combined with generic erosion and the decreasing productivity of R&D has led to significantly increased pressure on margins. This, in turn, has driven increased focus on costs in an industry where traditionally much more focus has been applied to growing top-line sales than ruthlessly driving cost efficiency. The supply chain, as a substantial contributor to operating expense, is now required to reduce costs whilst still delivering high quality support to strategic business goals such as excellent product launch and high customer service levels for in-market products.
Increasing pressure on working capital – these same pressures driving margin erosion have also led to a much-increased focus on management of working capital. For supply chain strategy and management, this means for example that buffering inadequate supply chain forecasting or planning with excess inventory is no longer viable.
Focus on Emerging Markets – the stagnation of US and European market growth means that Emerging Markets in particular remain a key source of business expansion for many pharma companies. The resulting stretch and complexity in global supply chains requires more sophisticated and reliable supply chain planning.
Rapid Global Launches – successful and rapid commercialisation of new products has always been a key success factor for the pharma industry. However, historically this could be largely achieved by success in a small number of large, high-margin markets (such as the US, Europe and Japan). The increased importance of other regions as outlined above now demands a broader geographical launch profile. The increased R&D investment per commercialised product also requires that new product introduction is executed in parallel across global markets in order to accelerate payback schedules. Achieving reliable and high quality product introductions on a truly global scale clearly requires more advanced and disciplined approaches to planning.
Consideration of these emerging issues highlights very clearly that none of them can be successfully addressed by the Supply Chain function alone. Supply Chain leaders have actively managed strategies to reduce operating expense or working capital but there is a limit to how far these can be pursued before they materially impact the commercial drivers of the business (for example, reducing costs will ultimately impact on service levels). Improving customer service levels, reliability of product supply and launch execution also need disciplined and accurate demand forecasting from the Commercial function that goes beyond pure provision of data. These challenges clearly point to the need for a step-change in the quantity and quality of cross-functional working in this area.
The key stakeholders in this are the Supply Chain, Commercial and Finance functions and building a strong and dynamic cross-functional capability in this area requires concerted attention. The industry has focused for many years on optimising the partnership between Medical, Marketing and Sales functions and continues to refine this and has also started to apply this same approach to Market Access themes.
However, it must now turn its attention to how it can build the productive relationships it needs between Commercial, Finance and Supply Chain functions – and in doing so make it arm-in-arm rather than arms-length.