Consulting project: Pharma manufacturer Patheon cuts packaging
costs despite rising raw material prices
The world’s leading pharmaceutical contract manufacturer Patheon utilised INVERTO to augment their global procurement team, adding capacity, knowledge and expertise to drive additional savings from their global packaging spend.
Patheon has eight manufacturing sites spread across the world; from France, UK and Italy in Europe, and from Canada and the USA down to Puerto Rico in the Americas. The challenge was to support each factory with its own specific technical requirements and satisfy over 17 direct stakeholders as well as ensuring that a consistent global approach could be achieved when working with so many different cultures.
INVERTO supported this global client with an international team of consultants from Munich, Mumbai and London adding their expertise.
Pharmaceutical sector challenges
The pharmaceutical industry also poses some specific sourcing challenges. Firstly, a very high quality and cleanliness specification, even for secondary packaging material, as well as requirements for continuous external factory audits, which limit the range of suitable suppliers.
Secondly, there is a further challenge for a pharmaceutical contract manufacturer – meeting not only their own high quality and safety requirements but also the varying additional specific requirements of their end customers. The net result is that although packaging makes up only a small percentage of the product cost, associated with it is a perceived high risk and cost of change.
Underlying commodity inflation
Add to that, the fact that certain products require specifically designed packaging and also that the underlying raw material commodities – pulp and paper – have been subject to continuous price inflation over the last 18 months, and the category is not simple anymore.
Global approach with local sourcing
With the sourcing strategy driven by product and supply market attributes; corrugated cardboard – with a high percentage of air – is not a cost-efficient product to ship long-distance, and with high cleanliness and quality requirements limiting the potential supply base, the optimum approach was to take a global approach but with each factory cluster requirement sourced locally.
However, even with these challenges, deep supply market research proved that competition although limited was sufficient and a detailed and thorough tendering, negotiation and supplier approval process delivered a set of well-matched suppliers offering the necessary quality and cost competitiveness.
Savings, price stability and cost transparency
Through this four month assignment Patheon have achieved a range of savings from 19% up to 35% across their sites – and these results have been achieved in the face of a price increase of the underlying raw material of about 6%. With each site selecting their preferred supplier, agreements are in place which now fix prices for the next twelve months, delivering savings, immediate price stability and, going forward, price changes which are linked proportionately to the underlying raw material index.