To begin, there should be two processes for integrating tendering and global price management that lead to a harmonized governance routine, as at the end of the tendering procurement process. It’s about governing the tender bid price.
Clearly, tendering is becoming more important not only in European markets, but also globally. On the other side, the increased pricing pressure and the ever-expanding International Reference Pricing Framework underline the crucial aspect of Global Price Management processes. The two processes have multiple dependencies. As discussed previously, there are some International Reference Pricing (IRP) risks linked to tendering but that’s not the only connection between those two processes.
This blog discusses the way the two teams should work together to efficiently share resources where needed when trying to manage both list and net prices Ex-US. It starts by providing a high-level view of the Global Price Management scope and then details the integration points with the Tendering processes.
What price should I govern?
“All Prices” would be the obvious answer to the question: What price should I govern? Nevertheless, it’s easier said than done. From a conceptual perspective in Life Sciences, there are two “levels”: list prices and net prices. List prices are carrying the famous IRP risk, whereas net prices are those contract level prices and are regularly confidential. List prices create a baseline for net prices, so both levels are not entirely isolated.
Your global price management scope encompasses those two levels but should not be constructed similarly for both of them. There’s an aspect of volumes that cannot be avoided. There are more net prices than list price points. Given that all price points cannot be approved by all approvers, as it would be a definite loss of efficiency, time and resources. The more important task of the Global Pricing team is to govern the “trigger,” also called a threshold. The threshold is the price limit and once below it, it triggers additional approvals that are required.
The key role of Global Price Management (GPM) is not necessarily to be involved in all decisions linked to prices but more importantly to create the framework for all the stakeholders to play. Setting up and approving the correct trigger prices will enable an organization to focus on the price change or price launch that really matters, therefore, dedicating the appropriate level of attention. This is applicable to net price triggers and list price triggers. You could add categories around the product portfolio to emphasize this focus.
It can be a temptation for some companies to use the same triggers and approval flows for all pricing levels. However, this is not sustainable. The number of requests will explode. Time for contract level price approval will increase, thereby reducing the agility of the company. Most decisions would be based on incorrect data and for most of the companies, systems are not yet ready for this level of complexity.
Where does tendering fit?
Tendering is a set of activities that, ideally, follow a governance model that leads to propose a price, also referred to as a bid price. From a pricing governance standpoint, it’s nothing more than a net price request. Nevertheless, multiple aspects are so important to note for the net price governance for tendering:
- Potential risk of IRP
- Size of the tenders in volume and revenue/profit
- Potential ticket to entry in some markets
- Spill-over effect from tender to outside of tenders’ sales
In addition, it’s more of a company-cultural factor that is involved. Pricing and tendering are often assigned in the same department, which increases the interaction. Making sure the net prices coming from tenders are properly setup is one of the key aspects of GPM.
Why is it important?
The GPM process must govern the tender bid prices.
That’s a new way of pricing, as it’s not a list price and doesn’t necessarily involve IRP analysis, but it’s not a pure net price. There should be an intermediary process.
This alternative approach should function with a higher volume of requests than List Prices, which is the risk of IRPs and the size of some tenders. The trigger pricing and associated decisions should be designed appropriately in order to focus on the key tenders while shortening the approval time and providing governance.
The importance of creating appropriate triggers is underlined by this perspective. The triggers should only allow the affiliates to play within the framework and not extend the lead time to respond. It should also ensure that low price proposals are adequately documented and either confidently rejected, or ultimately supported by the strategic tender vision.