Supplier relationships are important in just about every type of industry. But for pharmaceutical manufacturers that often must rely on sole-source suppliers for key materials, preserving those relationships is absolutely critical.
At the same time, supplier invoicing errors and contractual noncompliance can cause substantial profit leakage. With pricing pressures from government agencies and patient advocate groups mounting, pharmaceutical companies need to hang on to every last drop of profit they can. Conducting an accounts payable recovery audit or contract compliance audit is essential to getting back money lost in the source-to-pay cycle, but how do you do it without causing friction with suppliers?
Here are three ways pharmaceutical manufacturers can maximize profit recovery without jeopardizing supplier relationships:
Buyer-supplier relationships are built on a process of active and ongoing negotiations. Recovery audits have become an accepted best practice to ensure the results of those negotiations are executed and billed correctly. But the process of claiming back lost funds can still lead to friction with your suppliers.
Transparency is key. In fact, the more transparency there is around the audit, the less friction results from it. Engage with your suppliers from the beginning. Let them know that you will be conducting an audit and what the process will entail. Set clear expectations regarding timing and workload. And, as claims develop, give your suppliers access to them so they can review the details themselves. Providing that visibility can save time, proactively resolve concerns and promote faster recoveries.
Stick to a schedule
Your suppliers’ time is valuable – and the more of it you require they spend on an audit, the more friction is likely to develop. Vague, open-ended timelines lead to delays that create opportunities for debate, cause frustration and resentment, and require multiple follow-ups that cost everyone involved more time and money.
Setting a schedule and adhering to it shows your suppliers you respect them and are committed to efficiency. If possible, accelerate the process as close to real-time as you can. That makes it easier to access needed information and reduce surprises. In addition, establish governance programs within the schedule to identify issues before they occur, provide real-time compliance processes and accelerate quality reviews.
Leverage an outside audit provider
A recovery audit is as much about people as it is about numbers, and an experienced audit team will be skilled at deftly managing sensitive supplier relationships. Choose an audit partner with proven, established protocols for documentation and review and recovery procedures that promote transparency. And make sure they have the advanced technology to quickly analyze data and deliver results without disrupting critical business activities.
Another benefit of engaging a third-party provider is that it keeps the audit neutral. Your suppliers won’t view it as you questioning or not trusting them, but rather as a standard business practice with no agenda other than to achieve accurate results.
At PRGX, we believe there’s a science and an art to recovery audits. The science is quickly analyzing massive amounts of data and uncovering hidden value in it. The art is successfully securing supplier agreement on recoveries. By combining decades of experience with the latest technology tools, we’re uniquely positioned to do both.