Achieving Cross-Functional Supplier Integration: A Case-Study Analysis - Pharmaceutical Technology

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Achieving Cross-Functional Supplier Integration: A Case-Study Analysis
The article examines a cross-functional supplier integration model to facilitate project management.

Pharmaceutical Technology
Volume 35, pp. s54-s58

Broader market trends

The need to form collaborative business models and better integrate internal and external resources is a situation not only confronting suppliers to the pharmaceutical industry, but pharmaceutical companies themselves. In a recent analysis, the consulting firm PwC asserts that over the next decade, many companies will be required to strategically reassess and change their manufacturing and distribution model by having to increasingly manage a vast network of service providers as well as manufacture and distribute their own products (1).

"The most successful pharma companies will be those that now recognize the underlying value locked in their supply chain and can leverage it as a value and brand differentiator rather than just a cost," said Steve Arlington, global advisory pharmaceutical and life sciences leader at PwC, in a Feb. 21, 2011 PwC, press release (1). Offering an end-market view, by 2020, PwC asserts that the management of information transfer between the pharmaceutical company, the patient, and healthcare provider will be as important as the movement of products.

This need for integration and better collaboration is also evident in other pharmaceutical operations, namely in research and development. "Efficiency is the name of the game, and the adoption of a more collaborative approach could just be the key to unlocking this potential," said Jo Pisani, partner of global pharmaceuticals and life sciences at PwC, in a Nov. 8, 2010, PwC press release (2). "Working with others accelerates and facilitates innovation, discovery, and development, which in turn can reduce costs and benefit both large and smaller companies. Even small changes could yield significant savings." According to PwC research, given average development costs and lead times, a 5% increase in success rates for each phase transition and a 5% reduction in development times could cut research and developments costs by about $160 million as well as accelerate market launch by nearly five months. Given average development costs and lead times, the $160-million estimate is based on a projected 5% reduction in development times and success rates for each stage of transition (2).

Earlier this year, John C. Lechleiter, chairman, president and CEO of Eli Lilly, underscored the importance of collaborative business models for research-based pharmaceutical companies. "... The imperative to reinvent invention extends well beyond our walls," he said. "In fact, the changes that are absolutely essential for companies like Lilly are transforming the research-based pharmaceutical industry into one that is more networked,... global,... and entrepreneurial than ever before" (3).

He explained the transformation of Lilly from a fully integrated pharmaceutical company, or FIPCO, in which the company owned every part of its value chain, to a fully integrated pharmaceutical network, or FIPNet. "We're using FIPNet to build additional R&D capacity and capabilities that leverage what we do well while attracting molecules, funding, and expertise from partners," he said. "Through FIPNet, we can share investment, risk and reward."

To illustrate that network strategy, he offered the example of Chorus, a virtual drug-development network established in 2002 as a small, cross-disciplinary group of Lilly scientists who design, oversee, and interpret early-stage development work through a network of organizations outside the company. Chorus manages some 15 molecule programs with a dedicated staff of only 29 scientists and has been able to reach clinical proof of concept about 12 months earlier and at half the cost than current industry models (3).

Earlier this year, Eli Lilly reported on the Mirror Portfolio, which establishes investment funds for early-stage research, and which will work with the Chorus project. Lilly has committed to invest as much as 20% of the capital for these funds, or a total of $150 million. In addition to financial resources, Lilly will offer to out-license molecules to these funds. For its investments of time and capital, Lilly will receive preferential access to molecules managed by the funds. Lilly retains the rights to purchase all molecules licensed from Lilly through the Mirror Portfolio as well as to evaluate and acquire a limited number of externally sourced compounds, all at fair market value (4).

Lechleiter sums up the benefit of such collaborative approaches. "Our Mirror Portfolio strategy is just one example of a broad range of initiatives that research-based companies like ours must pursue to rebuild our R&D engine ... and thus reshape the research-based pharmaceutical industry of the future."


1. PwC, "Patient Over Product: Pharma Needs to Prepare for the Future, Warns PwC," Press Release (London, Feb. 21, 2011).

2. PwC, "Global Biotech Industry Must Reivent Itself to Survive Warns PwC," Press Release (London, Nov. 8, 2010).

3. J. Lechleiter, Pharma Summit 2011, London, Feb. 20, 2011,, accessed July 12, 2011.

4. Eli Lilly, "Lilly Marks Major Milestone for Mirror Portfolio with Agreement by Independent Fund to License First Two Investigational Medicine," Press Release (Indianapolis, IN, Feb. 15, 2011).


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