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From insights come answers.

A series of articles from the Insider Pro consultancy team.

Real examples that show how we orchestrate supply chains and operations to remove constraints to growth, eliminate risks and improve profitability.

Speed to value  for a healthy future

Posted by Jeremy Bowley
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Covid-19 is accelerating business transformation in the Healthcare and Lifescience sectors. The businesses which will be successful in this period of uncertainty are those which are able to embrace innovation and bring new propositions to market despite challenging headwinds on funding, working capital and supply chain integrity. Even before the pandemic, both sectors were facing a compelling need for change. The pressures on the NHS were well documented and the social care sector required new thinking. Drug regulation and long sales cycles created complexity and the fast pace of innovation added further challenges. Businesses involved in developing or producing pharmaceutical, medtech or digital health products faced many questions linked to patient experience including:
  • new technology such as robotic surgery
  • improving clinical trial outcomes
  • ensuring greater participation including women, minorities and older patients
  • and ensuring improved access to and better use of data.

In the UK, the life science industry grew significantly over the past 5 years, creating more than 500 new businesses, employing nearly 100,000 people and growing revenues to more than £20 billion. In the same period, Private Equity has increasingly invested in the Contract Development and Manufacturing businesses (CMO/CDMO), acquiring 30 CDMOs for an aggregate value of over $13.5bn. These businesses strive for growth and an increase in enterprise value so that they can ultimately exit. Whether the exit is through straight sale, merger or acquisition, the key measures of EBITDA and forward multiples are what count. CDMOs with a diversified product mix are most in demand, and over the last 5 years, average forward EBITDA multiples have increased from 11.9x to 20.8x, reflecting investors confidence in the sector

But diversified revenue alone is not enough to ensure satisfactory Return on Capital and value creation since pricing pressure and lower R&D productivity are still issues. Whether delivering healthcare services in hospitals or care homes, or developing, manufacturing or distributing pharmaceutical products, businesses need to review their supply chains, consider re-engineering and re-orchestrating to accelerate benefits for the business.

Check list to consider and act upon

  • Map and fully interrogate your supply chain at all levels – are you using the optimal mix of suppliers? Challenge them to ensure you are getting best value from trends in commodity pricing, innovation, etc
  • Review supply chain disruption (including the impact of Covid-19) and assess whether more local sourcing would mitigate risk
  • Understand the true cost of distribution – would it make sense to source closer to the major market(s) you are selling into? More local sourcing? Near-shoring?
  • Logistics – review your shipments and ensure you are optimising supply security and working capital?
  • Review make versus buy options and cost out the alternatives
  • Look at the data. Can deep data analytics and digital solutions help to focus on more efficient processes in R&D and manufacturing?
  • How can new technology or digital solutions increase efficiency and reduce costs? IOT, machine learning, additive manufacturing, augmented reality are all available.
  • Reduced travel / more collaboration – with the significant reduction in travel are your IT servers set up to be able to collaborate correctly? Especially where large data files and sensitive data need to be shared.
  • Packaging – is it sustainable, are there more sustainable and more cost-effective ways to meet the packaging requirements?

The challenges facing the sector are even more stark now that there is urgency to find a vaccine and understand how we protect the more vulnerable groups in our society. But with challenge comes opportunity. Data driven and disruptive approaches provide the opportunity to create value across manufacturing, the supply chain and the entire health care eco-system.

Further reading, see Insider Pro’s guide to Disruptive procurement or useful papers:

https://documents.deloitte.com/insights/2020globallifesciencesoutlook

https://www.bcg.com/publications/2020/coronavirus-critical-priorities-pharma-medtech-response?psRec=true&psLoc=mainNavigation&psReqRecID=meta-abtest-recs&psResRecID=87c05&redir=true

Topics: Disruptive Procurement