Case Study: Facing a million-dollar profit hit? How Collaborative Sourcing delivered a multi-million dollar turnaround.

The Challenge: A $1.2 Million Profit Erosion Threat

Our client, a global pharmaceutical company, was facing a significant financial challenge. Unforeseen and substantial cost increases from their primary Active Pharmaceutical Ingredient (API) supplier were projected to erode their profits by a staggering $1.2 million within the current financial year. This pressure threatened their margins and necessitated immediate, decisive action.

Their existing procurement strategy, while functional, lacked deep market intelligence and a proactive approach to supplier diversification. They were heavily reliant on a single API source for many key products and markets, leaving them vulnerable to price hikes and potential supply disruptions. Furthermore, the complexity of their global regulatory landscape, with approvals spanning over 150 markets, created a significant barrier to onboarding new suppliers due to the anticipated high validation and regulatory costs.

Collaborative Sourcing's Approach: Strategic Analysis and Targeted Collaboration

With the support of our client and their team we addressed this critical situation through a multi-pronged approach:

1. Immediate Negotiation Support:

Our team immediately embedded with the client’s procurement team to provide expert negotiation support with the existing API supplier. By leveraging our market knowledge and negotiation best practices, we were able to secure a revised pricing agreement that reduced the in-year financial impact of the cost increases by $750,000. This provided immediate relief and bought crucial time for a longer-term solution.

2. Robust Market Analysis for Alternative Sourcing:

Recognising the inherent risks of single-source dependency, we conducted a comprehensive market analysis to identify potential alternative API suppliers. This in-depth research considered factors such as supplier capabilities, quality standards, regulatory compliance, and cost competitiveness. Our analysis identified a promising alternative supplier with the potential to deliver annual cost savings of $1.5 million compared to the original supplier's increased pricing.

3. Strategic Market Prioritisation for Efficient Qualification:

Understanding the client’s challenge with high validation and regulatory costs across numerous markets, we collaborated closely with their regulatory and quality teams. We proposed a strategic approach to focus the qualification efforts on just two key strategic markets that collectively represented 50% of their product volume and revenue.

By concentrating the initial validation and regulatory work on these two pivotal markets, we significantly reduced the upfront cost of onboarding the new supplier to an estimated $70,000. This targeted approach made the diversification project financially viable and accelerated the timeline for implementation.

4. Facilitating Collaborative Supplier Onboarding:

We played a crucial role in facilitating early and transparent collaboration between our client and the identified alternative API supplier. This included:

• Introduction and Alignment: Clearly outlining the client’s needs and the strategic rationale for diversification.

• Joint Planning: Collaboratively developing a qualification plan focused on the two key markets, ensuring alignment on timelines and responsibilities.

• Knowledge Transfer: Facilitating the exchange of necessary technical and regulatory information.

The Results: Enhanced Resilience, Significant Savings, and Strategic Partnership

The collaborative efforts between Collaborative Sourcing and our client yielded significant positive outcomes:

• Immediate Cost Mitigation: The in-year financial impact of the API price increase was reduced by $750,000.

• Significant Future Savings: Identification of an alternative supplier with the potential to deliver $1.5 million in annual cost savings.

• Reduced Qualification Costs: Strategic market prioritization lowered the initial supplier qualification costs to just $70,000.

• Accelerated Timeline: Focusing on two key markets enabled the qualification process to commence immediately with a target completion within 12 months.

• Enhanced Supply Chain Resilience: Reduced reliance on a single supplier, mitigating supply and financial risks.

• Strategic Partnership Development: The foundation was laid for a strong, collaborative relationship with a new, cost-effective API supplier, opening doors for future innovation and mutual growth.

• Improved Operational Performance: The increased supply security from the new supplier will contribute to more stable production schedules and reduced downtime.

Conclusion: A Strategic Shift Towards Resilience and Value

This case study demonstrates the power of a strategic, data-driven, and collaborative approach to procurement. By moving beyond traditional spend analysis and focusing on criticality and targeted market strategies, Collaborative Sourcing helped our client not only mitigate a significant financial threat but also build a more resilient supply chain and forge a valuable new partnership. This proactive approach has positioned our client for greater stability, cost competitiveness, and future success.