How procurement can play a critical role in enabling reshoring
If the assessment results in the decision to reshore while avoiding capital investments by seeking domestic and regional partnerships, procurement can play a critical role in establishing the necessary supply chain resiliency, as well as making sure of the sustainability of the benefits from reshoring by identifying the right partners, establishing relationships and securing contracts.
An alternate approach to constructing new or upgrading existing facilities while potentially accelerating implementation of reshoring is for life science companies to better leverage contract manufacturing organizations (CMOs). Several leading CMOs have each invested or announced plans to invest $10m–$90m in expanding some of their US manufacturing facilities. Others have more than doubled their US manufacturing capacity within the past three years.
To establish an optimal pool of strategic partners, procurement will not only need to assess CMOs’ capabilities, capacities and manufacturing footprint, but also evaluate how new technologies can best be utilized to enhance manufacturing efficiencies. Procurement may be critical in not just negotiating supply contracts but also in licensing contracts with new technology vendors that could potentially accelerate onshoring efforts and help reduce costs.
Using a purchasing consortium to facilitate reshoring
Establishing a procurement-related consortium that links life science companies with key ecosystem partners, such as CMOs, contracting packaging organizations (CPOs) and third-party logistics providers could further help drive sourcing and manufacturing efficiencies. A consortium consists of two or more independent organizations that join to collaboratively increase buying power and leverage economies of scale on materials, services and solutions offered by vendors. It can be set up by a third-party manager that aggregates volume across members or be established directly by a life sciences company as the sponsor before being pitched to other potential members. Based on EY experience and public sources, the top benefits of consortiums are risk sharing, accelerated learning and cost savings. In the medical industry, 75% of all medical and surgical supply dollars and 82% of pharmaceutical supply expenditures are already negotiated through influential purchasing consortiums.
Consortiums across a broad array of industries and applications have proven to be a very successful model for attaining procurement efficiencies and improving security of supply.
Adopt contract manufacturing agreements to incentivize SNS contractual obligations
The pandemic highlighted the need to build up the strategic national stockpile of essential medicines, sparking a bi-partisan push to make sure the SNS is well stocked for future emergencies.
Given CMO margin pressures coupled with uncertainty of essential medicine volume requirements, CMOs may deprioritize capacity. Due to the criticality of SNS essential medicines, robust and differentiating contract manufacturing agreements can further incentivize, enhance partnerships and reduce risk with CMOs. Procurement plays an essential role in thoughtfully setting up these CMO contracts to meet domestic manufacturing requirements and secure proper fulfillment to satisfy SNS obligations (Figure 3).