Purchasing and Strategic Supply Chain Management

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Introduction

Supply chain management consists of all the activities involved in planning and management in regard to procurement and sourcing, and the general management of logistics activities. Of most significance, it encompasses collaboration and coordination with partners of the channel that may include those who supply, the intermediaries, the providers of services of the third party and the clients. In general terms, SCM carries out demand and supply management in the companies and across the companies (Council of supply chain management professionals: CSCMP Supply Chain Management Definitions, 2010).

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According to Kremers (2008), basing on history, the companies in the pharmaceutical industry have not been giving consideration to supply chain management as something of strategic value and they have been putting their focus much on the world-class research and development together with sales and marketing. This has caused the companies in the pharmaceutical industry to remain behind in comparison with the companies in other industries in regard to the adoption of the high quality practices associated with the supply chain management (Parsons, 2007).

This is also clear in the slow pace of adoption of some concepts like the operations and sales planning together with forecasting and collaborative planning. More so, the companies in this industry are encountering extraordinary challenges to the models of their businesses that emphasize on the capabilities of the supply chains they have in place. The companies in this industry that realize this change and turn out to be experts in carrying out the management of the supply chains they have in place would achieve a competitive advantage (Kremers, 2008).

This paper is going to look at the strategic supply chain management in regard to the Hospira pharmaceutical company taking over the Orchid Company generic pharmaceutical injectables business. There is going to be consideration of the future integration of the Supply Chain management issues of the takeover in to the strategic supply chain strategy of the Hospira Company. But the starting point will be to look at each of these two companies in terms of the operations they engage in.

Hospira Company

This company is a worldwide specialty pharmaceutical and medication delivery company whose trademark is Advancing Wellness (Anonymous: Hospira, 2010). This company is a world leader in specialty generic injectable pharmaceuticals. It provides one of the widest generic acute-care portfolios and oncology injectables together with medication management solutions as well as integrated infusion therapy. By way of the use of the products of this company, the company assists in the improvement of the safety as well as the productivity of care of patients and cost. The company’s headquarters are in the United States of America, in Lake Forest III. The number of the employees in the company is about 14000.

Orchid Company

This company is a leading pharmaceutical company in Chennai, India. The company is engaged in the manufacture as well as development and marketing of various bulk actives, neutraceuticals and also formulations. This company is the largest manufacturer and exporter of cephalosporin bulk actives in India and is among the top five producers of cephalosporin in the whole world (Anonymous, Orchid chemicals and pharmaceuticals Ltd., 2010).

Hospira Company acquiring the Orchid pharmaceutical injectables business and its strategic supply chain management

There has been an agreement between these two companies in which the Hospira Company wants to acquire the Orchid’s generic injectable pharmaceutical business at a cost of about 400 US dollars (Anonymous, Hospira takeover of Orchid’s injectables to complete in March, 2010).

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This acquisition involves the beta-lactam antibiotics manufacturing complex of the Orchid Company as well as the pharmaceutical research and development facility that is in Irungattukottai in Chennai. More so, the acquisition involves the injectable product portfolio and pipeline of the Orchid Company. The beta-lactam antibiotics that consist of penicillin, carbapenem, and cephalosporin facilities give a representation of a drug class having a broader range of antibacterial activity.

More so, there was signing of an agreement that was long-term and exclusive by the two companies in which the Orchid Company is required to engage in the supply of “active pharmaceuticals ingredients which are simply referred to as APIs for generic injectable business that would have been acquired. This agreement provides for building on the existing product development and the commercialization relationship between the two companies.

According to Anonymous (Hospira to acquire orchid’s pharmaceutical injectables business. 2009), by the Hospira company acquiring the Orchid’s pharmaceutical injectables, the company will be able to acquire a cost-competitive and proven quality injectables manufacturing site since it has received approval from the regulatory authorities that are international and among them being the Food and Drug administration of the United States of America. It will also have to acquire the Research and Development facility associated with it and a base of the employees who have talents and committed to the production as well as development of the beta-lactam antibiotics.

More so, through the transaction to be settled between the Hospira Company and the Orchid Company, there will be securing of full ownership of the primary beta-lactam portfolio and pipeline of the Hospira Company by the company itself that were earlier on a portion of the commercialization agreement with the Orchid Company. More so, the Hospira Company will be able to establish a direct presence in India, offering a stage for commercial growth in time to come.

The taking over of the Orchid’s pharmaceutical injectables business by the Hospira Company goes in line in a perfect way with the Hospira Company‘s strategy to bring up the level of the company’s margins as well as the cash flow by bringing down the cost position of the company for a key product line, and to make investment for growth by carrying out the expansion of the company’s presence worldwide and reinforcing the leadership position in generic injectables. This goes in line with what Kremers (2008), points out. He points out that the companies in the pharmaceutical industry are trying to find the ways of bringing down the costs all through all the parts of the supply chain. According to him, until now there has been mostly focusing on outsourcing manufacturing of drugs to the countries where there are low costs and especially in Asia and of course India being among these countries. He however suggests that looking at supply chain management as an absolutely tactical means to bring down the costs does not mean using adequately the gains and the potential developments a strategic move to supply chain management could enable to be realized.

There will be a great need for the operations manager to be responsible for the enterprise-wide supply chain operations which comprise of planning of demand and supply, putting in place sourcing and supplier management, transportation management, procurement, distribution operations and materials and production planning (Anonymous, Hospira names Brian Meadows supply chain chief, 2009).

The company will have to improve on the existing operations in order for it to realize improved general performance of the company and continue holding market leadership. For instance, according to Koester and Rash (2005), for those companies who will turn out to be market winners in time to come, they have to adopt three basic practices. These practices include rationalized global production networks, changeover competence and smaller batch production, and compliance management.

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Considering global network rationalization, according to Koester and Rash (2005), while the companies in the pharmaceutical industry have achieved global reach, their capacity of production and the resulting networks have turned out to be ungainly. The issues that need to be addressed with urgency are such issues as those in regard to where to continue operating and where to divest, which area to manufacture what products and which is the best way possible to offer support to long-term product strategy.

Such factors as labor skills as well as costs, profitability, compliance and the equipment age are the main factors in the process of coming up with the decisions. The liveliness in these key factors has direct effects on growth and return on investment. Therefore those companies that are in for achieving market leadership in the pharmaceutical industry are supposed to recognize the need for proficiency in worldwide siting as rationalization in production network. More so, growth by acquiring other companies will in the future look for giving a definition to a method that is streamlined to, on a non-stop basis; carry out the evaluation of the production network as a component of the post-merger integration.

In considering the issue of changeovers and smaller batch production, the current manufacturing plants in the pharmaceutical industry were set up to manufacture a specific class drugs. Thus, asset use and the fulfillment of the high demand products are the problems that are systematic. In addition the genome innovation in time to come will enable the companies in the pharmaceutical industry to come up with the drugs that are profile-specific and there are some predictions about drug tailoring for custom batches made by some analysts (Koester and Rash, 2005).

There is necessitating of faster changeovers and the small production runs by the pharmaceutical environment. Making the changeovers simply and ensuring the batches sizes are cleared down will possibly call for the need to change the layout of plants and the storage of inventory as well as material. Just like planning and forecasting, the configuring again of the process of manufacturing as well as the facilities to set up changeover proficiency and to carry out the running of the batches that are smaller will have to consume more time. The companies that engage themselves in manufacturing are supposed to commence dealing with changeovers and the shifts that will come up in the time to come in demand because it will take up to about three years to rise up the changeover performance that is reliable as well as one that is consistent (Anonymous, JDA software helps pharmaceutical companies enhance supply-chain management, 2009).

Considering compliance management, compliance is supposed to be integrated in all the processes of manufacturing as well as the touch points. It involves passing over information in regard to the regulatory changes, integration in the processes, documentation of operating procedures that are standardized as well as the ongoing training. The MESs (manufacturing execution systems) enable the manufacturing companies to carry out the optimization of the production changeovers as well as runs in an environment that is complex having rules and regulations that are strict. The moment a strategy in regard to compliance is implemented, there should be considering of an MES as an enabler of technology. Compliance management that succeeds engages an oversight council as well as the cross-functional teams which give a definition to an integration strategy, carry out the evaluation of the enabling technology and introduce measures of performance that are supported by the audits carried out periodically.

The operations manager will have to consider these three issues in order to realize effective carrying of the operations of the Hospira Company especially after making a move to acquire the Orchid company pharmaceutical injectables business.

Conclusion

As it has been looked at, the Hospira Company will have to develop on the existing strategies of supply management in order to operate effectively after the taking over of the Orchid Company pharmaceutical injectables business. Among the benefits the Hospira Company will have to derive through the takeover is that, there will be securing of full ownership of the primary beta-lactam portfolio and pipeline of the Hospira Company by the company itself that were earlier on a portion of the commercialization agreement with the Orchid Company. More so, the Hospira Company will be able to establish a direct presence in India, offering a stage for commercial growth in time to come.

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More so, the taking over of the Orchid’s pharmaceutical injectables business by the Hospira Company goes in line in a perfect way with the Hospira Company‘s strategy to bring up the level of the company’s margins as well as the cash flow by bringing down the cost position of the company for a key product line, and to make investment for growth by carrying out the expansion of the company’s presence worldwide and reinforcing the leadership position in generic injectables. In order to realize these, the operations manager will have to consider three basic practices which include rationalized global production networks, changeover competence and smaller batch production, and compliance management.

Reference

Anonymous, (2010) Hospira [Online]. Hospira, Inc. Web.

Anonymous, (2010) Shaping A Dream [Online]. Orchid chemicals and pharmaceuticals Ltd. Web.

Anonymous, (2010) Hospira takeover of Orchid’s injectables to complete in March [Online]. Decision News Media SAS. Web.

Anonymous, (2009) Hospira names Brian Meadows supply chain chief [Online]. Hospira, Inc. Web.

Anonymous, (2009) JDA software helps pharmaceutical companies enhance supply-chain management [Online]. The Medical News. Web.

Anonymous, (2009) Hospira to acquire Orchid’s injectable pharmaceuticals business [Online]. Hospira, Inc. Web.

Council of supply chain management professionals, (2010) CSCMP Supply Chain Management Definitions [Online]. CSCMP. Web.

Koester L. and Rash K., (2005) Building supply chain capabilities in the pharmaceutical industry [Online]. United Parcel Service of America. Web.

Kremers Luc, (2008) The strategic importance of supply chain management in Asia Pacific [Online]. Ten Alps Communications Asia. Web.

Parsons H., (2007) operations management: career management for the 21st century [Online]. Digital Magazine. Web.

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