Learn lessons from some of the leading companies in China

By Russel Beron

Innovation is a word we are hearing a lot more of in China these days. The consensus is that as manufacturing costs in China continue to rise and supply chain complexity increases, so companies have to innovate both to save money and to increase efficiency.

In this story we take a deeper look into what a few companies and individuals in China, both foreign and Chinese are doing to lead the way in service, supplier management, IT implementation, as well as cost and process efficiency. These companies and individuals were all winners of awards at the November 2007 CHaINA Summit.

Advances across the supply chain in China are taking the form of new IT implementations, greater levels of service through 3PL’s, better supplier management, strategic location of operations and an increased focus on domestic R&D and development of local human and other resources.

The human edge of the pharmaceutical supply chain

In the fast changing corporate world it is rare these days to find someone who has made one company practically his entire career. This is especially true in China where supply chain management expertise is in incredibly high demand and executives can have their pick of jobs. “I love Bayer,” proclaims Dittmar Nerger in an interview with CHaINA Magazine, speaking enthusiastically of the company he has worked at for 25 years in various capacities and in different countries including Germany, the US, Korea and China.

Nerger was the recipient of China’s Supply Chain Executive of the Year award at the November 2007 CHaINA Summit Awards. His team of four people is responsible for sourcing raw materials and services for much of Bayer’s global production of drugs. From their Shanghai office overlooking the old Bund and the busy freight traffic of the Huangpu river, Nerger’s team develops sophisticated sourcing strategies and evaluates and manages suppliers from across Greater China.

In 1994, Nerger transferred to Bayer in Korea to take responsibility for Technical Operations of animal health, pharmaceutical and vaccines products. After being responsible for the global Technical Operations of one of Bayer Healthcare’s Divisions in Germany from 1998-2002, he moved to Chengdu, in the capacity of General Manager of Bayer’s JV, where he still serves as Chairman. Nerger received the Bayer Healthcare Asia Pacific Star Award in 2005 for his efforts in turning around the business and profitability of this venture. In 2004, Dr. Nerger accepted the task to establish a new department in Shanghai for Sourcing for Bayer HealthCare’s Global Divisions.

Sourcing pharmaceuticals isn’t easy

“Pharmaceutical supply chains can be very complex,” says Nerger. “With the supply chain we have to warrant compliance and quality and at the same time ensure a competitive, flexible and timely supply. We have to remember that the money that we get comes from our customer and we need to deliver the best product at the best price.”

Unlike other types of sourcing, Angela Ye, one of Nerger’s team members adds, “With pharmaceutical sourcing the procedure is more complicated and time consuming mainly because the industry is so highly regulated. We source everything related to the drug: the raw material intermediate and the Active Pharmaceutical Ingredient (API) and increasingly the packaging and services.”

For one finished dosage, Nerger’s team might have to screen an initial 300 manufacturers, select about 100, then further reduce these to 10 or 20, before doing the RFP, RFI, RFQ, and selecting a final 3 companies to start the bidding and develop the supplier to Bayer’s required standards. This process can take up to 3 years.

Pharmaceutical transportation also brings its own challenges, says Richard Li, another of Nerger’s team. “We have to educate the local suppliers about safe handling and transport. The guiding principle is that package must be safe as well as operator friendly, so that the product is not contaminated, international rules and our customer’s requirements are followed.”

Why China?

Increasingly, Nerger’s team involves R&D in the sourcing process at an early stage, which allows the sourcing team to give input right at the research stage, which makes sense in terms of building in cost savings.

Why is China the right place for pharmaceutical sourcing, you might wonder? Isn’t China the place where companies come to do low cost, low value large manufacturing runs? Apparently things are changing.

“China offers a number of advantages, says Nerger. “The Chinese fine chemical industry is very fragmented, which makes it competitive and in certain cases also innovative. They also have access to certain raw materials in China. The major reason why it is effective to source pharmaceutical ingredients from China is that labour costs are lower, depreciation costs are lower and also structural costs are lower.

“Another major reason for being in China,” says Nerger, “is in terms of Clinical R&D, you can do a lot more in China with your research budget.”

Russel Beron, Chaina Magazine  www.Chainaonline.com

This is the first part of the Chaina article “Learn lessons from some of the leading companies in China”. Next week we will publish the second part.