What SANTO is doing to increase reliability of its procurement system
The COVID pandemic, disruption of traditional supply chains and geopolitical tensions have combined to become a serious test for the pharmaceutical industry in Kazakhstan and one of its leaders, SANTO. In the interview with Kursiv.Media Valeria Markova, regional procurement director in SANTO, revealed what helps the company cope with the challenges of our time.
– The first thing I’d like to know what differences there are between procurement in the pharmaceutical industry and procurement in other sectors, if any.
– The key feature of our procurement department is that we strictly follow rules adopted in the pharmaceutical industry. First of all, I mean the pharmaceutical quality system of SANTO. And procurement is an integral part of this system. In turn, the pharmaceutical quality system is based on the rules of good manufacturing practice (GMP). Key principles of GMP are safety, efficiency, high quality of manufactured products and continuous improvement of processes. The procurement system in the pharmaceutical industry follows the same principles. I mean everything we do must meet these principles.
– Is it correct to say that GMP rules also regulate relationships between SANTO and its suppliers?
– That’s right. GMP rules are very broad and also cover procurement procedures. For example, it is very important that personnel involved in the procurement of raw materials and goods for pharmaceutical manufacturing are qualified, well-informed about how supply chains work and know how to communicate with suppliers and what risks might be associated with all of this.
Moreover, given the specifics of the pharmaceutical business, our suppliers should also follow GMP rules in their day-to-day work, especially when it comes to active pharmaceutical ingredients. Suppliers of such materials must be certified under GMP standards and have a license to ensure that their indoor quality control system complies with GMP.
When we hire a transportation company to transport raw materials and ready-to-use medicines, it is extremely important that such a company comply with crucial requirements for transportation like temperature, for example. In this regard, our suppliers are direct participants of our quality control system, because any fault of a supplier would be our fault as a manufacturer.
– Does SANTO follow some kind of a procurement algorithm, or is each procurement something unique?
– For us, procurement is an ongoing process, which is based on a strategy aimed at the execution of three key tasks. First, it is important to provide the company with affordable sources of procurement. Secondly, we must find the best commercial offer and thirdly, analyze and mitigate all potential risks.
As we’ve learned from the COVID-19 pandemic, the post-COVID period of recovery and the recent geopolitical turbulence, the procurement department must be prepared for everything. Given that we work directly with SK-Pharmacy, a government-owned company responsible for providing the country’s population with necessary medicines, SANTO is also responsible for ensuring that the nation has enough drugs to treat its citizens. We must know what is happening in the market and have a clear understanding of what must be done to ensure our manufacturing site has everything it needs no matter what external conditions there are.
In addition, we need to be prepared for several scenarios in order to better understand how to respond to different situations. This work must be proactive. I mean, it must be done before there is a real need for action.
– What kind of procurement categories do you have in your department?
– There are four divisions in the procurement department: non-production procurement, technical procurement, resource provision, and material and technical support. The latter division is responsible for the commercial supply of raw materials and other stuff.
All these divisions used to operate separately, but in 2020 they were merged by SANTO into one department. Its members are real professionals who know the market and believe in what they are doing. Of course, they are highly valued in the company.
– In other words, the company bets on the professionalism of certain specialists, right?
– There is not much room for creativity in the pharmaceutical industry, since many aspects of our work are strictly regulated by GMP rules, Kazakhstan’s legislation and our internal requirements. All processes and tasks are also well-described in our strategy. However, as experience shows, it is hard to overestimate the value of an experienced specialist. Our market is small and there are just a few good procurement specialists with expertise in the pharmaceutical industry. Therefore, we pay great attention to the development of necessary skills of our employees.
SANTO buyers must be able to think outside the box, be proactive and make decisions quickly. In this regard, the very atmosphere in the company contributes to the development of this way of thinking. SANTO is a fast-developing company and its top executives are a good example of what great success may be achieved thanks to focus and good knowledge of your area of responsibility.
In this regard, we strive to develop an ownership mindset among our buyers. It is important that every specialist in the procurement department clearly understands how the company’s business works. Moreover, they shouldn’t be indifferent to what is happening in the company. They should be aware of their responsibility to the end user of the medicines that SANTO produces.
In order to achieve this goal, the buyer must be fully integrated into the company’s business and actively engage in cross-functional collaboration with both the commercial department and manufacturing site. Buyers must know the internal processes they work for. This is necessary to better understand the specifics of the materials and services we procure for manufacturing purposes and meet the expectations of those who are involved in the manufacturing. For example, they delve into the operation of production lines or review the operation of auxiliary manufacturing systems. They have to know all the requirements, they must see how the manufacturing process is occurring and they can talk to specialists on the site.
– What do you mean by the ownership mindset?
– Buyers in SANTO behave like the owners of the company. Each procurement specialist has a list of materials, divided into different categories, which he must provide in the most efficient way. In order to understand how to deliver this task, the buyer should look at these categories from different perspectives of the business and take into account different factors. He must analyze consumption volumes, requirements for quality of materials, customer expectations, tasks that must be solved by a specific procurement, other internal and external factors, and risks that may affect the availability or cost of materials.
Good knowledge of the market and suppliers is also required. This factor has become especially important amid geopolitical tensions that affected global supply chains. Our buyer is expected to take all these internal and external factors into account. He should be able to use the risk analysis methodology developed by the department and identify priorities, develop an action plan and implement a procurement management strategy. This strategy may be developed for a year, for three years, and even for five years. As the procurement department, we have to understand what we are going to do during each period in order to meet the needs of our manufacturing division and the company’s business in general.
The ownership mindset helps us take all the details into account and keep in view the important aspects of the company’s business even beyond the scope of the buyer’s job responsibilities. There is no doubt that such an approach improves not only the efficacy of the procurement process but also gives the company other benefits.
– How does the procurement department interact with other departments within the company?
– The internal interaction is very tight because we want our department to be fully integrated into the company’s business. We also focus on meeting the needs of our internal customers, which are our colleagues from other departments like the manufacturing site factory, our commercial department and representative offices of SANTO in Uzbekistan and Kyrgyzstan.
Like any other procurement department, we are focused on finding affordable sources for the procurement of raw materials, goods and services that the company needs at specific times. Availability and money – these are the key features of any procurement.
– You said that the importance of the procurement department has increased over the past several years. What did you mean?
– Our department has always played an important role in SANTO. However, in 2020, after the COVID-19 pandemic hit the region, the authority, let’s say, the weight of our department grew significantly and this trend can be observed across the entire pharmaceutical industry globally. It is obvious now, more than ever, that procurement should be carried out by professionals who know the market and suppliers well. Only professionals can provide the manufacturing division with the necessary raw materials and goods even amid uncertainty.
For example, when China, one of the biggest markets we acquire materials from, closed its borders during the pandemic, we were forced to think outside the box. We had to make everything possible to get the materials our manufacturing site needed. Therefore, we were looking for every option to deliver this obligation. Of course, Kazakhstan’s government also gave us a hand. They opened green corridors for us at the border, for example. However, our buyers and long-term suppliers played a crucial role. A good supplier is a real professional in a specific field who can always offer the best delivery option.
In this regard, it is very important for us to be able to look at 360 degrees. For instance, supply chains from Europe are still experiencing difficulties, and the risk of secondary sanctions is on the horizon. This situation can potentially cause delays in deliveries, so we have to be prepared for any possible scenario.
– What is the key selection criteria for you if there are several suppliers who are basically on the same page?
– When it comes to selecting a supplier, of course, we are looking for a supplier that specializes in the materials and services that he offers to us. This supports our trust in such a supplier because we know that he will be able to find a suitable solution for every problem like he did during the pandemic.
The trustworthiness of the supplier, his reputation and the quality of goods and services he offers us are very important. Moreover, when it comes to materials for the manufacturing site, a supplier must meet GMP requirements, although non-manufacturing purchases are mainly regulated by rules not related to GMP.
– Are you looking for suppliers within Kazakhstan or abroad?
– In terms of geography, we are ready to work with partners from any country, but the priority is given to local companies. In terms of value, 40% of our procurement comes from Kazakhstani companies. In quantitative terms, local suppliers account for 60% of SANTO’s purchases.
We would prefer to have all the necessary raw materials and goods at hand, but the reality is different. We have to import substances and components from other countries like China, the EU countries, India and the CIS countries. We also acquire some materials from the U.S. but we usually do this indirectly through European traders. Even though quality is our top priority and all materials that we procure should meet strict requirements, we also have to take logistics into account.
We have partners in the Central Asian region as well. For example, there are some companies in Uzbekistan and Kyrgyzstan that we can work with because of good prices and no problems with logistics. However, in general, there is a handful of manufacturing companies in the region.
In addition, we have a long process of preliminary assessment of a potential supplier, including review of the quality of raw materials and goods. For example, when it comes to packaging, we study the samples and examine whether the material is compatible with our production line.
On the other hand, those companies that work with us, again due to the specific requirements in the pharmaceutical industry, have gained a lot of experience. We openly share our expectations, best practices and requirements with suppliers as we do believe that this interaction and the feedback help them to improve their business processes, which is beneficial for both sides.