The art of logistics provider selection for the Healthcare Industry
In the fast-paced world of pharmaceutical supply chain management, selecting the right service provider can make all the difference in ensuring the success of your business. However, this process can be complex and overwhelming, and requires an integrated, cross-functional approach to achieve optimal results.
In this article, we will explore the crucial step of detailing the user requirements, and how procurement and supply chain must work together to obtain the best results. We will also delve into the structured bid process, the importance of selecting the right consultancy support, and the critical factors to consider during the evaluation and final selection process. By following a structured approach to selecting the right logistics service provider, you can ensure the success and growth of your pharmaceutical business.
Let's dive into the process step by step:
- Define User Requirements
- Conduct the biding phase
- Do you need external expertise to facilitate and navigate the process?
- The actual evaluation
- Selecting the partner
- Moving into contracting
For the implementation phase onwards, explore our guide on logistics services providers. It also brings insights on governance and continuous developments.
The user requirements specification (URS) must be as detailed as possible if Procurement and indeed the LSP’s are to handle the bid correctly. As a minimum the user requirements should detail the scope of services, markets, products etc., but much of the content will be specific to the project and should be tailored accordingly.
Note that compliance standards such as GDP are an integral part of the URS and should never be compromised, no matter the project scope.
Selecting a service provider in the pharmaceutical supply chain typically involves a structured bid process. This process may include the following steps:
Request for Information (RFI) gathers basic information about potential LSP’s. This helps identify those that can meet the basic criteria.
Request for Proposal (RFP) is sent to shortlisted providers, outlining the specific URS, and requesting a detailed proposal. This allows for an in-depth evaluation of each provider's capabilities and offerings.
Request for Quotation (RFQ) is issued to obtain pricing information and assess the provider's cost competitiveness.
These phases of the selection process can be combined and/or fast tracked, especially if there is substantive knowledge of the service provider marketplace or that expertise is brought in. Despite significant merger activity over the last decade the LSP global market for health care remains fragmented with multiple choices:
Global vs. regional?
Regional vs. market specific?
Combination of any or all the above?
No single LSP will have the presence, never mind the best solution, for all markets and circumstances.
If the shipper does not have the expertise to manage a competitive bid process, then external help is readily available. The process can be complex and lengthy, and it is vital to the shipper’s business that it is carried out properly. There are myriad tales of disastrous logistics outsourcing, very few of which could be deemed due to totally unexpected black swan events, but often the inexperience and/or naivety of the shipper and a poor choice of partner.
Specialist as well as major management consultancies are available to assist, although it is important for the shipper to examine the credentials of the consultancy before they are engaged. Normal questions re project, logistics, industry experience need to be supplemented by:
- Does the consultancy demonstrate knowledge and experience of having managed such specific outsourcing projects?
- Has the consultancy experience with the specific geographic scope?
- Has the consultancy experience with the type of product e.g., OTC medicines vs. rare disease?
The right selection of consultancy support can facilitate not only the LSP selection, but also the implementation and set the framework for the operation.
This is best done by a multi-disciplinary team but led by the logistics team i.e., those who will manage the LSP and contract; such an approach helps to ensure proper stakeholder management and accountability. The process needs to be formalised i.e., the use of pre-determined criteria with score cards to enable a more objective assessment to be made. The score cards should always include all aspects deemed critical to the bid and their content and weighting of individual aspects agreed up front, as certain features of the evaluation criteria are more important than others. In the pharma/biotech world it is noteworthy that basic operational cost is rarely the key criterion; expertise, quality and solution are paramount.
LSP presentations of their proposals should be standard, but these meetings represent an opportunity to meet the LSP team and in particular the proposed Account Manager, undertake detailed Q & A sessions and ideally visit the proposed facilities.
Selecting the preferred bidder needs more than just a statistical evaluation of the scorecard results.
The shipper team needs to understand the culture and at the prospective LSP. A formal operational and quality audit of the preferred bidder and its facilities and systems should be undertaken. If there are critical failures, these must be immediately addressed. If there is no satisfactory resolution, the shipper should walk away and seek an alternative.
Systems and key processes should also be reviewed for adequacy and application. Any doubts need to be immediately raised. If there is not a satisfactory solution, the shipper should walk away.
Similarly, it is vital that the whole cross functional as well as the logistics team meets the LSP personnel involved. It is essential that proper rapport is built at the operational and account management level. If there are doubts re the LSP team, particularly the account manager, the shipper should ask for changes. If such changes are not forthcoming, the shipper should walk away.
Such an approach may appear brutal, but it is the shipper’s business that is at risk if the operation fails.
The contract should provide the basic framework for the engagement between the parties.
The negotiation can be fraught especially where there is considerable ambiguity over future business developments. However certain principles are critical from the shipper perspective to ensure a flexible workable structure.
There is insufficient space here to provide a detailed dos and don’ts re the contract, but as a minimum the document should detail: scope of services, geographic territories covered, the facilities and resources (including systems) to be used, organisation structure including any mechanisms for dispute resolution.
A Quality Technical Agreement (or equivalent) should be part of the contract agreement and formally detail roles and responsibilities and any associated actions with timings. Some companies like to keep QTA’s separate but the advantage of it being part of the contract is that it becomes an integral part of a legal agreement.
The contract should not however become a strait jacket and stifle creativity and including a formal incentive structure can help innovation, improve and/or maintain high performance with benefits to both shipper and LSP. Such structures can help give the shipper confidence and foster a mutual continuous improvement culture between the parties.
The life science industry can sometimes be accused of short termism, with the average length of contracts rarely being more than 3 years. This is significantly less than other industries where contract terms can be longer with 10-year terms not being unheard of in the automotive industry. Often the ambiguity and likely changes make the shipper reluctant to give long term commitments. Short term contracts can however be counter-productive and stifle innovation as there is little incentive for the LSP to invest resources, systems etc. in operational improvements if there is unlikely to be a return.
Following a structured approach to selecting the right logistics service provider is crucial for the success and growth of your pharmaceutical business.
By defining user requirements, conducting a competitive bid process, seeking external expertise if necessary, evaluating proposals, and selecting the right partner, you can ensure that your business is aligned with the best practices in the industry.
This approach not only sets the framework for the operation but also ensures that the partnership is built on a solid foundation of mutual understanding, shared goals, and effective communication. With the right LSP, your business can thrive in an ever-evolving and competitive market.
Listen to Chris talking about his experience related to LSP on our Podcast.
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