How can streamlined procurement reduce clinical trial overheads? Procurement costs can become a rugged terrain to navigate. Here, we identify some core procurement costs of centralized and decentralized procurement strategies and explore how each approach can benefit clinical trials.
Short Cuts
In the intricate landscape of clinical trials, where precision and efficiency are paramount, the art of cutting costs emerges as a strategic imperative. One of the key domains where cost reduction can significantly impact the bottom line is procurement. This article delves into the nuanced realm of procurement costs in clinical trials, dissecting the challenges and opportunities associated with both centralized and local procurement strategies.
Some Of the Core Procurement Costs in Clinical Trials Include:
1. Exchange Rate Costs
Exchange rate costs will impact most multinational companies in some way or another however depending on your procurement models the impacts are felt in different ways. Furthermore, these costs can play a significant role in the financial management of clinical trials, particularly for those involving multiple countries and currencies.
Centralized procurement commonly incurs very few exchange rate costs. By utilizing effective currency management strategies, centralized procurement is typically more efficient in this respect, with less risk of forex costs.
For example, currency hedging, utilizing centralized payment methods, can significantly reduce costs such as bank fees, commissions, and spreads for converting currencies. Additionally, it’s less administratively intensive for the institution as only one purchase order needs to be raised per localized transaction.
Conversely, decentralized procurement is impacted by various exchange rate costs, including higher transaction, hedging, and translation costs associated with multiple international transactions. Additionally, these transactions are more administratively intensive as they require multiple purchase orders and account reconciliations.
Ultimately, when it comes to exchange rate costs, central procurement is simpler and less risky than decentralized procurement.
2. Personnel Costs
This refers to the expenses incurred by an organization in acquiring and retaining employees and are a significant portion of the overall cost of conducting clinical trials. Personnel costs for clinical trials typically include two main segments: salary and training costs.
In general, centralized procurement can help to reduce salary expenses by consolidating roles and functions. Local procurement, on the other hand, can lead to higher personnel costs, as roles are duplicated for each location.
Additionally, local personnel may not have the same access to specialized expertise as centralized organizations, leading to intrinsic errors such as less efficient and more costly procurement practices. Furthermore, where skills are locally available, they can tend to be more expensive.
Personnel training costs can also be higher in local versus centralized procurement because of the additional requirements of training staff for multiple offices versus one or two centralized headquarters.
3. Inventory Costs
Typical inventory costs include two main sub-categories: carrying costs – including storage costs, inventory obsolescence, and shrinkage – and ordering costs – Including processing and handling costs.
Decentralized procurement may lead to higher inventory levels at individual locations due to a lack of coordination and aggregation of demand, and consequently, carrying costs are higher. This leaves the sites at risk of higher storage costs, inventory obsolescence, and shrinkage.
Carrying costs are typically more efficient using centralized procurement due to a more centralized aggregation of demand and more efficient administration of details such as inventory management. Centralized procurement promotes standardized inventory management practices across the organization, ensuring consistency and efficiency. Strategies and inventory management systems such as Just-in-time (JIT) delivery, demand forecasting, Inventory management software, and favorable partner relationships can save costs and streamline efficiency. This means lower inventory levels, storage costs, shrinkage, obsolescence, and consequently lower carrying costs.
Ordering costs in centralized procurement include centralized management of the labor and software associated with placing orders. The collective order placing, purchase order generation, and order tracking of centralized procurement help reduce ordering costs by decreasing processing and handling costs.
Conversely, ordering costs with decentralized procurement processes can be higher if tight controls are not implemented, leading to stockouts, or overstocking, which can be costly for the trials.
Additionally, factors such as maverick spending and corruption are far more prolific in local procurement settings, requiring an additional level of management.
4. Risk Management Costs
Procurement is a risky business! Particularly for international multi-site clinical trials. The stakes are high when it comes to managing the supply chain for so many stakeholders around the world. Risk management is a function of this scale’s complexities and consequent risks of inefficient procurement. This requires organizations to implement robust risk management controls.
Primarily, decentralized procurement can lack process coordination and visibility, making tracking inventory levels, ensuring compliance with regulatory requirements, and identifying and mitigating risks difficult. Consequently, costs are difficult to control and monitor, and risk management requirements are more intensive.
For centralized purchasing, the significant risks and associated management costs are linked to process administration at scale. Managing large-scale central procurement and ensuring its smooth running is a tall order. So, risk management leans heavily on ensuring the smooth running of all moving parts of a large-scale, logistically heavy clinical trial. Relying on inventory management is one of the significant risk management tools for centralized clinical trials. Additionally, facilitating highly efficient and functional partnerships further assists with managing risk by transferring some of the operational responsibilities onto reliable partners and service providers.
Key Takeaways
The strategic implementation of streamlined procurement processes in clinical trials serves as a pivotal strategy for reducing overhead costs and enhancing operational efficiency. By centralizing procurement, organizations can navigate the intricate terrain of cost management and risk mitigation, leading to more sustainable and effective clinical trial operations.
Through a comprehensive assessment of the core procurement costs associated with centralized and local procurement strategies, it becomes evident that each approach presents its own challenges and opportunities. While centralized procurement demonstrates its efficacy in mitigating exchange rate costs, streamlining personnel expenses, optimizing inventory management, and bolstering risk management, it also necessitates robust strategies to manage large-scale operations and ensure seamless execution.
Alternatively, local procurement bears the risk of inflated exchange rate costs, increased personnel expenses due to duplicated roles, elevated inventory carrying and ordering costs, and intensified risk management requirements at multiple sites. These drawbacks emphasize the need for stringent oversight and coordination in decentralized procurement models.
Ultimately, the success of cost-cutting initiatives in clinical trial procurement lies in integrating best practices, efficient inventory management systems , favorable partnerships, and robust risk management protocols. By carefully considering the nuances of each procurement approach and implementing tailored strategies to address specific challenges, organizations can achieve sustainable cost reductions and ensure the smooth execution of clinical trials on a global scale.
