Team approach cuts costs at Genentech
Savings reached 20% on a bulk container, not counting enhancements in quality and efficiency.
By -- Purchasing, 2/8/2001 2:00:00 AM
Buyers have a tough job sourcing materials and services in the biotechnology market.
Biotech companies' lifeblood is the development of new drugs and other medical products. Because of this, buyers are called upon to source often obscure, low-volume, high-priced and difficult-to-find materials, all the while trying to reduce cost, maximize quality, and add value to their relationships with suppliers.
Biotech raw material buyers also have the fortune of working in a market that, along with pharmaceuticals, is the most highly regulated by government environmental health and safety organizations. Raw materials purchased for use in biopharmaceutical products must adhere to good manufacturing process (GMP) standards of quality and safety. These regulations require time-consuming documentation practices of each step of production. In addition, finished products must pass the U.S. Food and Drug Administration's tough clinical trials before they may enter the marketplace. And despite a large investment in research and development, there's no guarantee that new products will pass the trials.
With the clock ticking, buyers are forced to spread their focus over a wide variety of technologies and purchasing areas and to wear many hats when dealing with other internal functions as well as with suppliers.
According to Jim Latimer, director of purchasing at Genentech Inc., based in San Francisco, Calif., the solution to the challenges of sourcing in this fast-paced, highly specialized, rapidly changing field within the CPI is to develop a cross-functional team approach to buying.
Team building
Usually led by purchasing, the teams are made up of members of the following functions: quality assurance, quality control, manufacturing, process development, process sciences, inventory, materials planning, production planning and top management. While purchasing assumes a leadership role, other functions can lead the teams where appropriate.
The makeup of cross-functional teams at Genentech can vary widely and often depends upon the type of purchases necessary or specific initiatives implemented by the company. However, most fall into formal and informal categories. Formal teams are in place to discuss performance of existing suppliers and to work toward continuous process improvement, while the less formal are often formed to handle new projects or sourcing of a new raw material.
Formal teams meet weekly to review the performance of certain suppliers (usually those with whom high-volume or single-source agreements have been made) and to discuss specific incidents of nonconformance of raw materials and delivery. According to Margaret Hauter, manager of GMP raw materials procurement, an example of an incident of nonconformance is when a material delivery is received (such as a sugar used to grow a biopharmaceutical intermediate) and a foreign material is discovered in one of the containers.
At that point the team discusses whether an investigation is necessary to determine the extent of the nonconformance. "Decisions must be made, and in almost every case, we ask the supplier to help us evaluate the problem," Hauter says.
"The advantage of having a formal team that meets regularly is that you can get a focus on the issues that concern the various functions within our organization and how they apply to or influence purchasing decisions," Latimer says. "If you don't get together and meet regularly in a team process, decisions can be made without input and immediate feedback from the specific functions involved. This can result in missed opportunities for cost reduction, process improvements or new product development," he adds.
In addition to the formal teams, Genentech also has developed a more informal or ad-hoc system designed to bring together a variety of different functional perspectives to purchasing's attention on an as-needed basis.
For instance, when a new raw material is being considered for purchase, purchasing forms a cross-functional team comprising quality control, inventory control, and the representative from the product development group.
"Research and development may or may not have a source in mind for the specific raw material, but they know that they're going to need it," says Margaret Hauter. "Our goal is to get the GMP-approved material into their hands as quickly as possible."
According to Hauter, several things must happen in order to achieve that goal. "You have to determine who will write the specification and how you'll get that specification into the documentation process and through the system, in addition to sourcing the material and from whom," she says.
"Our initial cross-functional team meeting answers these questions and determines the order of events that will follow," Hauter says. "And determining the order is as important as actually completing the steps."
Hauter explains that for most new projects, quality-assurance people are included in the teams if sourcing the material involves a new supplier. "In this case, they would have to visit the supplier's facilities and perform an audit," she says. Also, if the material to be sourced is a chemical, a quality-control raw materials representative would be included to determine testing needs and to write the specification. Purchasing deals with determining the availability of the product, negotiating the price of the material, commercial terms, and finally selecting the supplier.
Of all the steps, Hauter says that one involving the company's complex computerized documentation process is the most time-consuming. "Here's where the team approach can be most effective, because if you sit around waiting for the project to clear the documentation stage, it will be too late," she says.
The team creates and approves a preliminary specification to allow materials to be purchased and delivered while the finalized specifications are clearing the documentation and approval system. "No raw materials are used in production until they are released by our GMP system," Hauter says.
For both formal and informal teams, purchasing's role is critical. Purchasing has the final say of where to buy the raw materials.
"In order to get the project done, leadership from purchasing is necessary," Hauter says. "Sometimes, you just come to a point where purchasing must take over leadership of the project."
Another part of purchasing's leadership role is as a facilitator of information between supplier representatives and the corresponding functions within Genentech. "Our philosophy of supplier management is to disseminate information and to promote direct interaction and communication between the suppliers' technical people and our research and development people," Latimer says. "Purchasing takes an active role within the teams and adds value to relationships with suppliers," he says.
However, it is important to note the difference between a facilitator of information and a "gatekeeper." Latimer warns that if purchasing acts as a gatekeeper of a team's communications with suppliers, "an information-filtering process can occur that, again, can result in missed opportunities," he says.
Collaboration can pay off
Last year, when Genentech started up a new production facility located in Vacaville, Calif., Hauter says that the company decided to make some changes to the way it was operating in order to improve efficiencies. "We began getting into a few technologies with which no one within our organization was familiar," Hauter says. But through the company's team process of qualifying, selecting and working together with suppliers, Genentech was able to reduce the total cost of one of its packaging materials by about 20% while greatly improving quality and operating efficiency at the plant.
Hauter explains that the Vacaville plant had been using a process to pack 600 to 800 kilos of certain mixes of powdered raw materials into flexible intermediate bulk containers (FIBCs) as part of a kitting operation.
Problems centering on FIBC material quality, however, and disputes over the country of origin where the resins used in the FIBCs were produced, led the company to look for another supplier that would customize a product to fit Genentech's operations.
Hauter says that her company was looking to mix certain raw materials received from suppliers and have them stored in custom FIBCs, so that they could be easily added to the production processes. The challenge facing purchasing and a cross-functional team assigned to the project was to determine the type of FIBC needed and identify a supplier that could customize it, yet comply with U.S. Food and Drug Administration (FDA) requirements.
"At first, identifying a supplier that could handle the company's requests was difficult," says Hauter. "We weren't looking to source a standard product," she says, "And few suppliers offered custom product design capabilities." Hauter says that most of the FIBC manufacturers concentrated their business on non-FDA regulated markets in the CPI, so the company was forced to choose from a limited supply base.
Genentech had several specific requirements for the FIBC manufacturer. Material construction of the FIBCs had to be compatible with the powders and materials that would be stored in them. Specialized spouts and other options were taken into consideration, including the specific size and shape of the containers needed. "We wanted the FIBCs to be developed with 'ears,' so that we could hang them on a frame above our process tanks," Hauter says. "So we brought the suppliers' engineers together with engineers at our facility, and together, they were able to write specifications for the product based on our facility's needs."
Besides purchasing and engineering, other functions, including quality control and quality assurance and operations were involved in writing the specs for the FIBCs, auditing the supplier's facilities, actually putting the products into service and monitoring performance.
Hauter says that the back-and-forth collaboration and teamwork between personnel at Genentech and within the suppliers' organization was highly effective in resolving problems that arose during the project. For example, Hauter says that during a trial run, the customized FIBCs weren't performing to Genentech's expectations.
A quality-assurance inspection revealed a problem with the FIBC design, resulting from a misinterpretation of the product specifications. It was determined that the product delivery mechanism was too small, which slowed the powder delivery process. "Genentech was measuring outside the heat seal, while the manufacturer was measuring from inside the heat seal," Hauter says. "By getting the quality-assurance inspection people together with the corresponding functions within the supplier's organization, we were eventually able to solve the problem and rewrite the specs," she says.
Choosing the right team
Cross-functional purchasing teams at Genentech aren't confined to buying raw materials. Teamwork is also an important part of sourcing construction-, architectural- and engineering-related services for the development of new research labs and manufacturing plants.
This has been a sustained area of importance for the company, because outstanding growth in the biotech markets in recent years along with Genentech's ability to bring new products to market has translated to growth of the company. In fact, Latimer says that in the past year, purchasing executed two plant additions, and three or four major facility modifications are expected in the coming year.
To select suppliers of these services, Latimer emphasizes the importance of choosing the right external team of people to work with. When narrowing its list of potential service providers down to a group of about three, Latimer says that purchasing heads a pre-bid conference, which includes Genentech's cross-functional team assigned to the project, as well as the corresponding functions and management of the supplier's firm.
The purpose of the pre-bid conference is to ensure that all the necessary information has been delivered, and suppliers are apprised of the requirements of the project. Once bids are received, purchasing prepares a commercial analysis and weighted criteria rating sheet, distributes these to other team members, and purchasing schedules meetings with the top two or three bidders. A post-bid meeting then provides the team an opportunity to review bids and clarify issues prior to supplier selection.
But perhaps more important, Latimer says that the meeting is also an opportunity for the procurement team to interact with their counterparts within the supplier organization. Latimer explains: "One of the things that is most critical when you select a contract engineering firm is the people involved. People make a project successful-and we want to get to know them and how well they will fit together with our teams in the future," he says.
Genentech Inc. at-a-glance
2000 total revenues: $1.7 billion
2000 sales: $1.3 billion
Total purchasing spend: about $600 million
Raw materials spend: about $40 million
Procurement staff: 32 (administrative purchasing is part of production/operations).
Headquarters: San Francisco, Calif.
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