The future is transparent

June 11, 2019
The answer to today’s complexities lies in collaborative, sustainable supply chains

It’s no doubt an interesting time for pharma. Competition is fierce in the tight race for new drug discovery. Many leading companies are merging and acquiring where they can to fill gaps in product portfolios and R&D and more importantly, gain access to new markets — especially the U.S., which is considered one of the most profitable in the world.

Most recently, Takeda closed a $62 billion acquisition of Shire — the largest purchase by a Japanese company. Other notable changes in 2018 included Celgene’s announcement of a $7 billion acquisition of Impact Biomedicines, and the joint venture between GSK and Pfizer, which integrated their consumer health businesses with combined sales of $12.7 billion. And there’s no slowing down yet — a recent McKinsey study found that more M&A in pharma is to be expected, noting that the share of revenues from

innovation sourced outside the companies (acquisitions, partnerships, and licensing deals) has grown from 25 percent in 2001 to 50 percent in 2016.

As business models across the health and pharmaceutical industries continue to evolve and overlap, it makes sense for organizations to focus on shared needs, goals and opportunities, and act on them through the collective industry supply chain. Arguably the biggest shared need in the sector today: creating more sustainable supply chain operations.

When drugmakers and their suppliers collaborate and share information, the pharma industry can drive the levels of transparency and visibility required for ensuring that all practices reduce the prevalence of critical sustainability issues such as forced labor, negative environmental impacts, corruption, safety issues and more. This not only creates positive change for surrounding communities, but also operational and financial value for the pharma companies.

Partnering with peers on sustainability

As key industry players swap assets and consolidate, managing the sustainability — environmental, labor, and human rights, safety and ethical practices — of the underlying supply base gets increasingly more complex.

For suppliers, such as drug ingredient, equipment and chemical manufacturers, the overlap makes responding to sustainability demands of multiple customers a duplicative burden. For buyers, who in this case are drug manufacturers, suppliers’ performance on drug safety and compliance with critical regulations, such as the EU Falsified Medicine Directive or the U.S. Drug Quality and Security Act, increasingly become complicated to address and key points of vulnerability.

To navigate a changing industry landscape, many big pharma companies are scaling up their sustainable procurement programs and collaborating with peers and even competitors to increase their depth and breadth of supply chain visibility. GlaxoSmithKline, Teva and Takeda recently established the Responsible Health Initiative (RHI), an industry group designed to leverage collaboration and technology to improve transparency, efficiency and sustainability within the global health supply chain.

The initiative enables participating drug manufacturers to share knowledge, methodologies and best practices, and troubleshoot challenges together. This accelerates progress toward shared industry needs and lowers exposure to sustainability risks, such as forced labor, negative environmental impacts, and corruption. By acting in a precompetitive way, drugmakers in the sector initiative create value that trickles upstream to their suppliers and downstream to other supply chain participants, protecting reputation for all parties.

Maximizing potential through information-sharing

There’s power in numbers and sharing data. Peer collaboration has shown to be a proven model for enabling companies in any sector to drive better outcomes through raising the bar on sustainability performance.

With a standard assessment approach and platform, suppliers must only submit one sustainability/corporate social responsibility (CSR) assessment that gets shared with everyone in the collaborative, rather than conducting several different surveys unique to each buying organization. This harmonization reduces survey fatigue and creates visibility and efficiencies that free up employees to focus on the actual content of their sustainability initiatives, driving real business impact.

When companies create this type of synergy and standardization, it becomes easy to continually monitor progress across all sustainability factors because there’s a common platform for sharing performance, tools to boost engagement, actionable improvement plans, and reporting and benchmarks to show how the sector is performing.

In addition, industry-adapted ratings take the mystery out of determining performance and let buyers invest time in driving improvements instead of chasing responses or creating scoring systems. As a result, buyers have more confidence when they are making sourcing decisions that vendors won’t put their brand at risk and therefore can build positioning around innovative and sustainable product categories.

This type of collaboration also benefits a company’s bottom line: businesses with strong CSR programs are better positioned to attract investors and retain engaged employees, which leads to stronger organizational and financial performance.

This level of collaboration may feel counterintuitive, because it involves working with and sharing data with competitors. However, it’s collaboration that will enable the industry to work better. Collaboration doesn’t give just one company an advantage over another member organization. It helps all companies do better and work toward a more transparent supply chain that benefits all.

Collaboration fuels honesty, trust ,and leadership, which are driven by shared values, joint outcomes and peer-to-peer communication. And sector initiatives like the RHI enable this collaboration. If leaders can change the way they think about working with external partners and service providers, they will become closer to succeeding in the industry’s new direction. Transforming the supply chain through collaboration and visibility won’t only help businesses run better, either. It will help consumers get products they’re confident in, companies choose partners that align with their values, and leaders accomplish goals in a measurable way.

Moving toward a collaborative future

Imagine a future where the global pharma supply chain is on a common sustainability standard as described with RHI. This cohesiveness could reduce the integration headaches and “overhead” of industry consolidation by creating new levels of transparency and fueling critical decisions throughout the entire transaction. This type of sustainability intelligence is already a prime factor in investment decisions and could soon be an innovative factor in M&A planning. According to McKinsey, more than one-quarter of assets under management globally are now being invested according to the premise that environmental, social and governance (ESG) factors can materially affect a company’s performance and market value. As the pharma industry continues to consolidate, transparency and insight are only going to grow in value.

Sector initiatives aren’t just the future of the pharma industry ­— they are the direction in which all industries that rely on a complex, multi-party supply chains are moving. In the beauty sector, the Responsible Beauty Initiative helps member companies share best practices and common tools to drive sustainability throughout the entire supply chain. Railsponsible is a sector initiative focused on sustainable procurement, with the aim to continuously improve sustainability practices throughout the railway industry supply chain.

From beauty, to tech, to fast-moving consumer goods, industries are advancing to the next level through collaboration to offer better products, better customer experiences and better corporate results. It’s how companies are facing adversity and overcoming challenges to drive success like never before. It’s also how innovation happens — because powerful, positive change doesn’t happen by sticking within one’s comfort zone. Initiatives fueled by collaboration are the backbones of tomorrow’s pharma supply chain, and it’s important to start collaborating today.

Responsible Health Initiative (RHI) priorities
  1. Harmonizing industry standards for online corporate social responsibility (CSR) assessments, with reliable indicators and global benchmarks.
  2. Adopting a common platform to ease sharing of CSR performance among suppliers/third parties and RHI members.
  3. Implementing shared tools to boost supplier engagement and improvement plans.
  4. Working together to reduce risk and increase visibility in the supply chain.

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About the Author

Pierre-François Thaler Co-Founder and Co-CEO | EcoVadis