Sustainability In Life Sciences To Drive Revenue And Reduce Costs
By David Linich, principal, Deloitte Consulting LLP
If sustainability is not on a life sciences company’s radar screen, it really should be. No longer just a corporate responsibility issue, adopting sustainable business practices that decrease the amount of water, energy, and other resources used in R&D, manufacturing, and the transport of medical products has become a nuts-and-bolts financial issue.
In addition to being well aligned with the current budgetary belt-tightening of many corporations, sustainable business practices are now on the agenda of the major group purchasing organizations (GPOs), one of the most influential external stakeholders in the life sciences industry.
According to a 2012 research study commissioned by Johnson & Johnson, five of the largest GPOs (Amerinet, HealthTrust, MedAssets, Premier, and Novation), which each year collectively buy $135 billion of medical products for hospitals, pharmacies, and other end users, have adopted a sustainability scorecard — a standardized questionnaire to measure a life sciences company’s commitment to reducing the consumption of natural resources and production of carbon and waste during a medical product’s life cycle (i.e. from raw materials to end-oflife disposal). While the scorecard’s 13 questions initially are intended to motivate life sciences companies to reduce their waste, carbon footprint, and use of resources, there is no doubt that if GPOs decide to purchase from a competitor because it has a higher sustainability score, your company’s near-term revenue growth opportunities could be affected.
Despite its role in achieving cost savings, risk reductions, and revenue growth, sustainability has not yet been fully embraced in the life sciences industry as widely as it has been in the consumer products industry where stakeholders and consumers were more vocal and demanding. The GPOs’ sustainability scorecard provides a strong impetus for action in the industry.
As an advocate for sustainable business practices for Deloitte and its life sciences industry clients, I offer the following observations and considerations:
- Change the dialogue. Because many leaders are put off by the terms “sustainability,” “carbon,” and “green,” avoid using these and other polarizing words when communicating to C-suite executives and board members. The conversation instead should focus on the financial value. Emphasize the cost reduction and risk reduction benefits from being more efficient with scarce resources. Protecting and growing revenue also tends to resonate with leadership, and now that major customers are factoring financial value into their purchasing, it could provide a nice platform for gaining interest from leadership.
- Baseline your performance. An important first step should be to measure where you are today and uncover opportunities for improvement. Based on the results, an action plan and priorities should be identified and “blessed” by the C-suite and board. The company’s progress should be regularly monitored and reported, and new opportunities should be identified over time as improvements occur.
- Draw upon advanced analytics. Forwardlooking life sciences companies draw upon analytical techniques such as measuring greenhouse gas emissions (including scope 3 emissions) and conducting life cycle assessments (LCAs) to uncover the “low-hangingfruit” opportunities to advance sustainable practices in their organizations. LCAs measure the environmental impacts of a product from raw materials to end of the product’s life, and these analyses surface “hot spots” of opportunity that can unlock cost savings and product innovations that can drive revenue as well.
- Collaborate with suppliers. While LCAs often yield a few quick solutions that can be implemented readily, most of the major wins can require collaboration across functions and with suppliers. However, working with supply chain partners to identify and capture opportunities to develop more sustainable products can be tricky business. Few organizations actively collaborate with their suppliers, yet those that do benefit. A 2012 survey (Deloitte Consulting LLP, in conjunction with ASQ, Institute for Supply Management, and Corporate Responsibility Officer Association) of about 1,000 supply chain executives revealed that companies that engaged with suppliers at any tier were 38% more likely to achieve or surpass their expectations and reduce costs as a result of their initiatives.
- Elevate and expand the responsibility for results. Too often, responsibility for sustainability is delegated too low in the hierarchy and is confined to one particular function, and not surprisingly, the results are limited. Leading companies have equipped the board with oversight and instilled responsibility in the C-suite. Importantly, responsibility and goals for sustainability are cascaded into various functions throughout the organization.
- Capture value from green chemistry and product packaging. Green chemistry, also referred to as sustainable chemistry, is the design of products and processes that reduce the use and production of hazardous substances, by-products, and waste, particularly volatile organic solvents, not just during drug development but also at endof- life product disposal. Green chemistry, which also emphasizes the adoption of less energyand materials- intensive processes, can result in substantial cost savings and reduce a company’s negative impact on the environment.
PMI and Green Chemistry
Merck, which has received three annual Presidential Green Chemistry Awards from the U.S. Environmental Protection Agency, now calculates the process mass intensity (PMI) — the kilograms of raw materials used to produce one kilogram of pharmaceutically active product — as an indicator of process efficiency, according to a company news release. PMI is calculated for all steps, including those conducted by external suppliers in the development of medical products. The goal is to drive process intensification and waste minimization prior to the launch of new products. Measuring PMI also has become a standard sustainability practice of several other major pharmaceutical companies, including the members of the American Chemical Society’s Green Chemistry Institute Pharmaceutical Roundtable, established to create green chemistry tools and support research on applying green chemistry to pharmaceutical discovery and production processes.
In addition to green chemistry, product packaging is a hot button topic for life sciences companies. Large and costly amounts of plastic, foils, and cardboard traditionally have been used to protect drugs and other medical products and prevent spoilage and degradation during shipment. To minimize the use of insulated boxes and ice packs in the packaging of temperaturesensitive drugs during transport in France, Sanofi several years ago began shipping these products in refrigerated trucks. These vehicles, which carry products between +2° and +8°C., significantly reduced Sanofi’s packaging costs and the amount of time and money that customers had to spend to break down the boxes and dispose of material that could not be recycled.
Using temperature-controlled trucks instead of temperaturecontrolled packaging saved Sanofi $28 per package and decreased overall exterior package weight by 15 tons. It also reduced downstream inventory space and materials handling time.
Before switching to refrigerated trucks for transport of its temperature-sensitive drugs in France, Sanofi extensively evaluated various alternatives for reducing the packaging materials for these medications.
Deloitte helped another pharmaceutical company conduct a life cycle assessment in support of a shift in primary packaging from glass to plastic, which had a lower cost and environmental impact profile. In addition to the cost benefits, their sustainability focus generated a lot of positive buzz and visibility for the company.
Most sustainability efforts in life sciences to date have focused on energy efficiency within their “four walls,” with fairly noteworthy results. Pfizer recently issued a news release to report that it had achieved $85 million in cost savings during 2008 to 2012 by improving energy efficiency at its facilities. GlaxoSmithKline has announced that it will save $160 million annually in reduced energy, materials, and distribution costs as it works toward its goal of becoming a carbon neutral value chain by 2050.
Forward-looking life sciences companies are shifting their focus outside their four walls and are collaborating with others to improve packaging and product formulation. Not only are these companies poised to realize cost reductions, but they are also poised to protect and grow revenue by scoring well on the GPOs’ sustainability scorecard.