News

Posted On: 01/06/2005

Customer Demand, Supply Chain Integration Drive IT Spending

A recent pharmaceutical industry IT spending report suggests that, while compliance is king among current investment drivers, customer demand, supply-chain integration and outsourcing will figure more prominently in IT budgets for 2005 and beyond. The report by AMR Research, Inc. (Boston) canvassed 99 firms with more than 500 employees.

For 2004, compliance (such as Sarbanes-Oxley-linked initiatives) was the top investment priority, with 21% of respondents ranking it as their number one driver. That’s a little deceptive, however, notes Roddy Martin, one of the report’s authors. Most firms have spotty approaches to compliance, he says. Only a few — Pfizer, GlaxoSmithKline, Merck, Novartis, among others — have truly integrated approaches and are leveraging compliance for improved operations efficiency. The lesson: even small start-ups should have a compliance road map in place, Martin believes.

While a significant number of companies were implementing compliance-related IT initiatives in 2004, many were also beginning to spend on tools for managing customers and distribution channels. Other key drivers for 2004 included cost containment and outsourcing.

Furthermore, some spending considerations barely on budgeters’ radar screens in 2004 are already attracting significantly more attention and dollars. While a mere 2% of companies reported that spending on IT tied to Lean Manufacturing was their number one priority last year, 16% had planned to implement some sort of Lean initiative last year, while still more firms were in the process of evaluating Lean for future IT outlays. Supply-chain-related initiatives were top priority for only 9% of IT budgets last year; nevertheless, many companies indicated they are making room for spending on RFID and logistics. Demand-driven Supply Networks (DDSNs) are taking root, Martin says.

Not surprisingly, IT budgeters are keeping an eye on the bottom line. IT cost containment, outsourcing, and IT governance initiatives are also on the rise. “Companies are surprisingly more focused on cost than what I’ve seen in the past,” says Martin. Drug pipelines are drying up while firms are allocating resources for global product management capabilities, he says.

Outsourcing is still more about R&D than it is IT, Martin notes. R&D is easier. “Pharma companies still haven’t developed the compliance skills for outsourcing that they need to,” Martin says.

Another surprise for Martin was the fact that more companies are not committing themselves to product lifecycle management (PLM) technologies. “Given the fact that the pharmaceutical industry’s health and wealth is based on getting product to market, I would have thought this would have translated into more clear PLM investment and integrated IT,” he says. Too many companies operate on a silo system, he notes, which continues to be reflected in IT spending.

Other key findings: smaller firms and biotechs, often one and the same, spend nearly twice as much on IT as do larger companies. Biotechs in particular, Martin says, traditionally myopic in their need to just get a product to market, are now maturing and branching out into supply-chain considerations and consolidating back-end business processes.

Looking forward, Martin believes the big issue will be whether or not firms can centralize their IT spending and integrate their data and technology infrastructure to meet cross-functional, global challenges. “IT has to help pharmaceutical manufacturers reduce the risk in taking the product to the marketplace,” he says. Martin points to Pfizer’s "Right First Time" project as one of the first initiatives to address this challenge.