Transforming pharmaceutical construction through data benchmarking
The global pharmaceutical industry is booming, with unprecedented levels of investment and a rapid acceleration of construction projects.
Against the backdrop of COVID-19, investment in both lab and manufacturing space is continuing to soar as the industry seeks to support both new product development and ‘business as usual’ projects.
The nature of the pandemic, alongside accelerating healthcare challenges and widespread supply-chain disruption, means that the pharmaceutical industry is being driven to build an increasingly international footprint.
With investment showing no signs of abating, clients recognise the need to engage in ever-closer partnerships with their peers to bring essential products to market quickly.
The same trend is being seen in construction, with new, previously untapped avenues for collaboration emerging through project benchmarking, development of progressive data-sharing models and engagement in best practice discussion groups.
Global trends reshaping pharmaceutical construction
One year on from our 2021 pharmaceutical manufacturing benchmarking report, clients are still looking to overcome similar challenges. Risks to cost and schedule continue to be driven by labour shortages, supply-chain disruption and constraints on material availability. Despite these limitations, the ‘need for speed’ has never been greater.
When it comes to developing manufacturing space, the drive to get facilities into operation as quickly as possible continues to cause clients to rush through early planning stages. The issue of relying too heavily on internal benchmarks of past performance persists.
Schedule slippage early in a project typically results in an attempt to accelerate the commissioning, qualification and validation (CQV) phase – at which point additional resource doesn’t necessarily save time.
Tackling these ongoing challenges relies on the wider industry working together more effectively to gain a clearer shared understanding of market dynamics and data benchmarks.
Increasing efficiency in pharmaceutical construction schedules
Large pharmaceutical organisations have heeded the call for greater transparency with their peers, sharing more information and collaborating more closely. This approach is essential to overcoming the sector’s challenges, by saving time and resource while increasing the efficiency of construction schedules.
Speed to market remains the number one industry driver for new pharmaceutical construction projects, creating the continued risk of compressed planning and CQV timescales as the sector continues to accelerate through 2022 and beyond.
Meanwhile market capacity is stretched in all regions, driving increased costs and fiercer competition for construction resource.
This is compounded by COVID-19 transforming the pharmaceutical model permanently and creating the need to prepare for future pandemics, meaning that continuity and business resilience are now a priority – with a strong desire to minimise supply risks wherever possible.
Schedules face sustained disruption and the industry is dealing with ongoing backlogs and delays, leading to a typical increase in project contingency costs from 10-20 percent at the early planning stages, to levels that are reaching 30 percent contingency allowances.
Depending on the type of project, between 20 and 60 percent of the total project costs are process-related, with most of this accounting for process equipment and piping (see Figure 1).
We are seeing a significant portion of contingency and escalation allowances drawn down from process-related scope such as process equipment, piping and automation.
Materials costs continue to rise due to supply-chain disruption, and certain specialist equipment is in shortage due to a limited pool of suppliers with the expertise to produce it. After delays to the delivery of major equipment during the height of the pandemic, as we now move into the endemic phase these delays can still reach 8-12 months.
Despite construction costs rising in all global markets, investor appetite remains significant and we do not anticipate the industry reaching a tipping point where construction costs become a barrier to investment.
However, investors and shareholders expect costs and schedules to be effectively managed through implementation of market best practice.
Pooling expertise in pharmaceutical construction
The scale of current challenges requires an industry level response, since the majority of organisations simply don’t have the pool of data available to benchmark project costs internally.
Such has been the transformative impact of COVID-19, businesses in the sector are more open to partnerships and collaboration than ever before. The development of vaccines, for instance, has demonstrated the benefits of collaboration to accelerate the development of products.
We are increasingly seeing clients using our benchmarking services to give leadership groups confidence in their business cases, and project delivery expertise to ensure time and cost for a project are carefully controlled.
Given the variety in scope and scale of projects globally, an industry-wide data sharing model is the only practical way for parallels to be drawn between similar projects. We are working with clients to identify how we can create a platform for anonymised data sharing using the Hive. The Hive is our cloud-based delivery platform, where global construction data can be effectively stored and interrogated.
The power of new supply-chain partnerships in procurement
To unblock cost and schedule issues in the supply chain, pharmaceutical companies are increasingly adopting a single-source approach to procurement, through strategic partnerships and ‘smart deals’. By closely scrutinising and understanding their cost performance, they can identify ways to control supplier costs more acutely.
There is a clear appetite to reduce the number of individual contracts with lots of different suppliers, and instead engage through managed service and single-source procurement models.
Pharmaceutical companies recognise that close partnerships with preferential terms are the best way to streamline schedules and increase efficiencies. Increasingly, price lock-ins are being established to remove the risk of market volatility.
Many peer organisations are now also embarking on partnerships through site sharing to start manufacturing products as early as possible. By ordering products ahead of time – moving from a ‘just in time’ philosophy to a ‘just in case’ model – clients are bolstering their resilience to supply-chain shocks.
The key for the sector is to ensure that new partnerships are carefully planned, and that time is taken to agree terms that will deliver on long-term objectives as well as immediate needs.
Effective external benchmarking will enable clients to understand where their costs and schedules sit versus their peers, and design supply chain strategies to carefully select the most appropriate partnerships to meet their objectives.