Fighting friction in Pharma
A recent webinar provided a fascinating look at the P2P friction under which pharmaceutical companies are operating, and surveyed the road ahead for them.
Ruud van Hilten, SVP, Strategic Business Development at Tungsten Network, spoke with Mark Brousseau, Managing Director, Advisory Services at IOFM on the hour-long episode, which featured IOFM research conducted with pharmaceutical companies earlier this year.
The drug industry is unique in a number of ways that are now causing it to take a hard look at its P2P processes, perhaps more so than any other industry, according to Ruud. Tremendous R&D costs, pressure from regulators, and constant risks like IP infringement and adverse side effects from new drugs, not to mention a limited window in which to convert costs thanks to a shortened patent process, have created a “hypercompetitive” environment with immense demands on working capital. Moreover, producing new drugs often necessitates working with a new supply chain with unfamiliar vendors that come with their own “idiosyncrasies” that can create process compatibility issues, furthering the friction.
With these pressures, managing spend is critical, but pharmaceutical companies have had uneven success in this area. While spending on production of drugs is under tight management and control, outside of the production environment it’s common to come across invoices without purchase orders.
Unsurprisingly, pharma CFOs are feeling the financial urgency, with 70% focused on capturing early payment discounts, according to IOFM research. Mark observed that such discounts are, unfortunately, nearly impossible to get in a manual or semi-automated invoicing environment, in which 82% of businesses take 3 days or more to approve an invoice, and 36% take over 6 days.
However, he pointed out that the reality is likely to be even more problematic, since many respondents are likely to count PDF invoices as electronic rather than paper invoices. The distinction is somewhat trivial, given that while PDF invoices can be submitted electronically, they still require significant handling once they’re received. True, straight-through processing, under which Buyers can receive an invoice and have it post to an ERP without any operator intervention, is still beyond the reach of the vast majority of the businesses surveyed.
The decisive factor for these organizations is likely to be cost. Two-thirds of those surveyed indicated that invoices are costing them $3-6 or more per invoice to process, and a quarter reported an expense between $6 and 12. For a business that processes 10,000 invoices, those costs add up quickly.
Fortunately, the solution is at hand—true e-invoicing—and with it, the ability to achieve straight-through processing. Pharmaceutical businesses that have adopted the technology are already reaping the benefits, and have the numbers to show for it: 66% can process an electronic invoice in 3 days or less. Of course that savings in times translates directly into cost savings: 41% can process an electronic invoice for under $1, and 75% can do it for less than $3.
With only 21% of pharma AP departments receiving the majority of their invoices electronically, the industry has a long way in eliminating P2P friction. But with the health of their businesses at stake—not to mention the health of patients—there’s every reason to act now.
For more insights on the P2P friction and the pharmaceutical industry, watch the archived webinar.