Transforming Procurement: Real Stories, Real Results

Business in Dynamics

“First, I will tell you briefly about the company I joined.

Petrovax Pharm is a large company specializing in the development and production of innovative pharmaceutical products and vaccines. It was founded in 1996 by a group of scientists. The company is one of the leaders in the field of biopharmaceuticals and has considerable experience in the production of original pharmaceuticals and vaccines.

The company has a modern production complex complying with international GMP standards of the EAEU and the EU. Annual production capacity is 160 million doses. Petrovax cooperates with major international pharmaceutical companies such as Pfizer, Abbott, ISU ABXIS, Adimmune and Hengrui

• During the year, the company accounted for 642 open purchases in the form of electronic auctions (one-stage and less frequently two-stage).
• 602 contracts were signed
• 548 purchases were made with the participation of more than three suppliers.
• The average procurement savings amounted to 13.9%

In previous years, indirect procurement at Petrovax followed the classic scheme:

• requesting commercial offers from suppliers by phone;
• sending offers to the manager's e-mail;
• comparing offers without holding auctions;
• selection of a supplier;
• conclusion of the contract.

The main problem was the need to spend an inordinate amount of time for small teil purchases. The need to group items significantly reduced the speed and flexibility of delivery. This approach made it extremely difficult to meet the demands of a dynamic business.

Method of persuasion

It was necessary to achieve additional savings, clearer organization of the process at all stages of procurement and reduce the burden on managers. The idea emerged to switch to electronic auctions for most indirect purchases when there is no unique strategic partner. Firstly, the selection of suppliers becomes more objective, and secondly, bidding for one category of goods takes place in several stages.

Previously, with the telephone mode of information collection, even for large purchases, we did not conduct more than two or three stages of bidding. It seemed that the transition to electronic auctions would be a painful procedure. In commercial procurement, not only the availability, but also the number of suppliers, as well as the timing of contracts are fundamentally important. There was a real opportunity to automate our procurement announcements and relieve managers' workload, but at the same time there was a problem with suppliers, for whom correspondence by mail, as it seemed to them, was more convenient.

Since I was a new person in the company, I had to simultaneously convince both the management and the whole team that it was necessary to change the approach to procurement. In practice, I would say that communication with colleagues in such a situation is usually harder and slower than with management: employees often choose familiar processes, even if they are more complicated than new ones.

At first, of course, there were objections: “We have pharma, a traditional market, new trading platforms are not for our segment”. My main argument was that it was worth a try, it would not require much effort and investment, and the effect could be optimization and acceleration of all processes. If there is no result, we close the question. We tried it, implemented it and immediately got the effect.

At first we evaluated various bidding options, the Zinit platform turned out to be the most suitable. Technically, it is a simple and clear platform for collecting commercial offers, but with the ability to arrange reductions and automate the evaluation of the offer by questionnaires. The full-fledged scoring platform has enough verified suppliers, but it is also convenient to add your partners - this procedure is free and takes only a few minutes.

The first significant advantage was the ease of implementation of the technology, which does not require significant investment. In addition, we were given free access to the site for two months to evaluate the efficiency in terms of saving resources.

First purchase

One of the first significant projects was the purchase of laptops. To test the site, we placed a tender in the evening and received 12 bids in the morning. The head of the IT department was pleasantly surprised. Previously, a similar process took an average of a week, including searching for options and receiving commercial offers. On the Zinit site, bids are automatically uploaded to XLSX. Now auctions for small purchases, such as stationery, take three days, with another day for preparation.

Categories of the bulk of purchases on the site:

• Small laboratory equipment and research consumables;
• spare parts and consumables for production equipment;
• IT equipment and software;
• promotional materials and printing services for the marketing department;
• minor repairs and construction tools.

Of course, there are categories in which there are few suppliers on the site, but promotional materials, IT equipment, stationery and the entire typical set of goods and services needed by businesses are very popular sections.

How does the site work in procurement? First, the buyer sends a clear terms of reference, then the site itself finds the required suppliers. If you make a questionnaire specifying delivery dates, payment terms and, for example, technical characteristics of the goods, the result is a report that can be immediately coordinated to select a counterparty. Automation avoids additional reminders and negotiations. The platform itself monitors deadlines and reminds suppliers of the need to perform the next action. If previously it was necessary to spend a lot of time on small, non-strategic purchases, thanks to the platform this time is freed up, and buyers can now develop as category managers.

Interim results

The next step was to transfer the authority to work on the platform from the buyers to the department of administrative support of business processes, and partially to the end customers within the company. They themselves form a purchase, put a request on the site, communicate with suppliers and receive the necessary goods - everything is transparent and open. For example, the IT department purchases everything it needs up to a certain budget independently, without contacting the business process support service. Other departments purchase goods less frequently, so it is unprofitable to train them to work on the site. In this case, a two-person Support Office acts as an intermediary - this Support Office aggregates all small, point purchases for different departments.

Moreover, a widget about the company's current purchases and long-term needs was built into the structure of Petrovax's official website. External contractors who would like to offer us their goods and services go straight to the Zinit site using the widget.

Thus, the strategic objectives of the department have been achieved: the process of indirect procurement has become more transparent and automated, the delivery time has been reduced, the departments themselves purchase everything urgent, small and non-critical for the business. This allows category managers to focus on selecting the best prices in their categories.

Control and business intelligence

We didn't stop at automating procurement and used the information on the site for business intelligence. All bids, bids sent to us and other available data using Power BI are uploaded into a common report. It's nice that the Zinit team was very quick to accommodate us. Thanks to end-to-end metrics, we can control the situation: measurement is the first step to control. We analyze a lot of things, but in the end we clearly understand who and what discounts are given, how much and what the company saves on. These reports appear in real time in the stakeholder dashboard. The savings compared to previous periods have been huge - about 13% of the current prices without taking inflation into account. We are now focusing on cost optimization for large deliveries, and all teil purchases have been transferred to the Zinit platform.

No longer does overpricing from a regular partner go unnoticed, every auction is a re-evaluation. If conditions deteriorate, we automatically purchase from another supplier at lower prices. In direct procurement, a new supplier company is checked for more than a year; stability and quality of raw materials are extremely important for pharmaceuticals. In indirect procurement, the requirements are more flexible: we only expect pens to write. Consequently, the terms of reference for indirect procurement are quite short, with few evaluation criteria. Even with rare mistakes in lots, the overall systemic effect of procurement is much higher.

If the product evaluation criteria are vague and difficult to formalize, we ask potential suppliers to send product samples in the first round. Our internal customer evaluates the quality of the goods, and if the feedback is positive, suppliers are allowed into the next round. A simple example: we saved about 5 thousand dollars a year on toilet paper for the office alone.

The situation is similar with services: for example, we order a lot of translations (the company's delivery geography includes 12 countries). We request a test translation of one page and show it to native speakers. The next round is for those companies that have done a high-quality translation. In the second round, the order may already be 5,000 pages.

In the requirements for the supplier, you can immediately ask for reference lists, i.e. visualizations, presentation concepts and questionnaires. All of this is passed on to the internal customer.

Our current suppliers have switched to the electronic trading platform without any difficulties. But many of them reduced the price of their goods or were replaced by other suppliers with more favorable conditions during the first tenders. Thus, thanks to the platform, suppliers remain in tone in the conditions of transparent competition.

In conclusion, it can be added that for successful interaction between business partners, the coincidence of values is very important. In their work, Zinit colleagues show responsibility, proactivity, openness, and readiness for constant feedback and cooperation, which we at Petrovax appreciate very much”.