Supplier Capabilities Underscore Their Value Creation Potential

By Dr. Nick Hutchinson

The introduction of single-use technologies into biomanufacturing process increasingly requires the industry to operate as a cohesive network of organizations that function across all levels of the supply chain to ensure the safe and efficient production of biopharmaceuticals.

Biomanufacturers engage in a variety of activities that require them to work with suppliers ranging from the replacement of existing production equipment in established processes through to the development, manufacture and introduction of innovative, new-to-world biologics products. The nature of these projects influences the type of relationship that biomanufacturers will seek from their suppliers

KE Kristian Möller and Pekka Törrönen, working at the Helsinki School of Economic and Business Administration, published an article describing a spectrum on which a business’ projects may sit (Möller & Pekka, 2003). At one end of the spectrum lie projects in which firms are attempting to gain maximum efficiency from existing resources and technology and require a low level of relational complexity with their suppliers. At the opposite end of the spectrum are those future-orientated partnerships in which actors in the network co-create value and can lead to radical innovations that open up new business opportunities.

Four categories of value creation in a supplier-customer relationship

Möller and Törrönen argue that the ability of a supplier to support projects across this spectrum of relational value depends on the suppliers different capability bases. These can be broken down into four categories of value production as follows:

  • Efficient and flexible delivery of products or services

A supplier’s production and delivery capabilities underpin their ability to provide core-value production in a customer-relationship. A supplier’s production facilities, workforce and their documented process records of capacity, speed and quality are indicators of these capabilities. Suppliers often have a ’track-record’ that demonstrates their ability to continuously improve their production and delivery capability that is valued by customers.

  • Incremental innovations that improve efficiency

Companies may find that they achieve greater efficiencies within their operations through both the product improvements that suppliers are able to provide and a supplier’s ability to form relationships with their customers through account management initiatives and inter-organization team working skills.

In the biopharmaceutical industry, having qualified and committed technical support personnel that are able to see things from the perspective of the customer and make recommendations to improve their biomanufacturing operations is often a signal of the strength of a supplier’s ability to add value through a business relationship.

  • Innovations and new solutions that support the customers’ business

The networks that a supplier holds and is able to maintain, in partnership with their customers, can indicate their ability to deliver more significant innovations that will have a more significant impact on their customer’s operations. Networks within the supplier chain can be multi-level, multi-functional, and driven to support joint goals. Effective communications between the actors within the network predicates the success of these networks in facilitating higher levels of business innovation.

  • Radical innovations that open up new business opportunities for customers

Future-orientated value production through radical innovation between partners that form part of complex network occurs at the extreme end of the relational value spectrum. A supplier’s ability to contribute to these activities depends on their radical innovation capability. This can potentially be evaluated through a supplier’s R&D achievements, the qualifications of its personnel, its relationships with research organizations and other experts.

Furthermore, Möller and Törrönen propose that the strength of a supplier’s capability to master their customer’s business is a significant determinant of the likelihood a relationship with a supplier will lead to radical innovation occurring. Indicators of this capability include having a track-record of proposing major suggestions that lead to business improvement and the capability to offer the outsourcing of key business processes.

Joint value creation and networking

Joint value creation and networking is becoming increasingly important in a variety of sectors and the biopharmaceutical industry is no exception. Developers and manufacturers of biopharmaceuticals are increasingly focussing on their core business competencies and outsourcing the rest to their network of suppliers. This requires the formation of strong relationships with those critical suppliers with high strategic relevance.

While companies find assessing providers of core value more straightforward, future value creation projects are more difficult to gauge because they depend on capabilities that are difficult to benchmark and need the co-ordinated activities are various stakeholders in a network.

According to Möller and Törrönen work, a biomanufacturer wishing to execute a specific project may be able to use the current capability profile of a supplier to indicate their suitability for the project.

 

Möller, K., E., K. & Törrönen P. (2003) Business suppliers‘ value creation potential. A capability-based analysis. Industrial Marketing Methods. 32. p109-118.

 

About the author: Nick Hutchinson is a Technical Content Marketing Manager at Sartorius Stedim Biotech.

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