Welcome back to part two in our conversation with Brian Shanahan.
As you know, our customers are life science organizations, anything from an emerging venture-funded biotech to a multinational top 50 pharma. What do your instincts tell you about the challenges these types of companies are facing?
Talk about COVID testing kits. They're made in India and China, which have had a massive bottleneck because the demand for them has gone up ridiculously in the same way as happened with ventilators and PPE, as well.
I think another aspect is, in the scientific community, people tend to be quite specific about specification. Because they know, if you're conducting some kind of an experiment the equipment, at various stages, has to be of a certain level of specifications or else it simply won't work properly.
As I said earlier, quality is paramount. So there's no point having a test tube, that's so brittle, it breaks half the time. You have to have a quality product, that is going to work every time.
Now, that's good in terms of understanding those specifications, but what you can get is people getting into what I call unofficial procurement. So, the guy in the lab knows exactly what he wants. It's very easy to pick up the phone to a local supplier and say, can I have 10 test tubes, please?
That's where it's going wrong and that's where proper procurement should be intervening to understand, what that specification is because they should be able to do a better job of these things.
Now, to your company's strength, is the whole idea of what I'll call spend catalogs.
...do I really want people in the coalface of these operations trying to get three quotes, and what's the best price? That's largely a waste of time and takes them away from the actual job that they're supposed to do.
So, in these labs, you're going to be buying sundry items. Hundreds and thousands of all sorts of different things. Some of them are big and expensive, many of them are small and inexpensive but routinely used. So, do I really want people in the coalface of these operations trying to get three quotes, and what's the best price? That's largely a waste of time and takes them away from the actual job that they're supposed to do. And this is where a proper procurement process can help them to say, in a case like that, why can't I just have a catalog of products?
The guy on the front line knows what he wants. He just goes online and says, test tube...thank you... it's here on Wednesday... perfect. That's all I need to know; that someone else has taken care of the price and the quality and all those good things like a good procurement function should do.
You know, that's a perfect segue because in life science we see an imbalance in the relationship between users and the larger, market-leading suppliers. It usually centers around a pattern of list, prices, markups, and discounts, which can be very confusing to customers.
Now, as far as ZAGENO's concerned, the more supplier SKUs in our marketplace, the more products we can offer customers, and ultimately the more the issue of supply availability and price, being determined by the customer the better.
So to this point, can you speak to this supplier customer-relationship?
Let me make two points on this. One about the number of suppliers and the other about the price that gets charged.
You might remember, many years ago, there was a series of lawsuits in the UK about the price being charged for CDs. Basically, they were charging £14 or £15 for a CD in London and exactly the same thing in New York cost $14 or $15 when the exchange rate at the time was like, 1.5 to 1. So, clearly, American consumers were getting this much cheaper but the only reason there was a price difference because, in the UK, people were prepared to pay that price, and in the U.S. people were not prepared to pay that price.
So, the price being charged had nothing to do with its manufacturing process or marketing costs. It was based on what is the market going to bear.
You see this in healthcare where price might not always be the number one consideration because of safety concerns; that leaves it open to that kind of price manipulation. So, if everyone knows, this isn't really my money anyway, people don't feel personally responsible for it and the bigger the budget the more everything costs in this particular sector.
Now, you mentioned about the number of suppliers. I remember going to a client many years ago - this was in aerospace - and they were very proud that they'd gone from 800 suppliers down to 500 suppliers, for their aircraft engines. And I said, that's really good, only 500 suppliers for this huge multi-billion-dollar company but it turns out that their numbers were wrong.
In fact, they had more than 8,000 suppliers because the only ones they've counted were those bringing supplies-in directly for the engine. They hadn't included everything from the accountants, the window cleaner, who does the cleaning, of the offices at night, et cetera.
There's a history in this because where all this started was in the automotive industry. I think the average Chevrolet, in the ‘70s, required some two and a half thousand parts to make a car. Eventually, Toyota and Honda came in; they could build a car with basically 60 pieces to assemble, which they still do to this day. But of course, they have a whole tiering approach.
So, it doesn't mean that all the suppliers have gone away it just means that the automotive supplier only deals with what they call the tier ones, the people who are directly supplying them. But they have tier twos and then tier threes, who are supplying the lower down tiers, that they never see.
...in reality, there's thousands of suppliers because effectively ZAGENO is coming in as a tier, which is making it simpler for the client to actually get what they want without having to bother with the whole process.
So for instance, I can say, isn't it great that I've only got one supplier for all my laboratory equipment because I use ZAGENO. That's great news, but in reality, there's thousands of suppliers because effectively ZAGENO is coming in as a tier, which is making it simpler for the client to actually get what they want without having to bother with the whole process. But the reality is all the suppliers are still there anyway. It's only a question of how we deal with them.
That's really interesting. I've never thought of us as a tier, but that really makes sense.
I'd like your perspective on why a supplier would be interested in having a standalone eCommerce website to manage transactions with customers, but also include product SKUs or services in a marketplace, as well?
I think in B2B situations, it's being determined by the company itself, how they want to buy. But do they want to buy through one catalog or do they want to deal with 5,000 suppliers? That's a choice and normally that's a choice which will be driven by efficiency considerations.
In your industry, quality is a big thing. I want to know if I do go to a catalog or a website that, if I'm going to get something, as long as I know it's safe, it should be fine. And that's where you guys can negotiate price discounts with the original suppliers, which means that the end consumer gets a better deal, as well. Not just, being assured of a quality product. It takes a lot of workload out. This is a specialty that you guys have perfected and can make an efficient process in the way that all these other individual companies can't. Now, that's something that makes sense.
Take my aerospace example. They're not in the business of contracting cleaners for the 60 offices they have, that's not their core business. They make aircraft engines. So, why should they be good at this other thing? And if they were good at this other thing, I'd be worried because I'd be looking at the window to see if planes are falling out of the sky.
That's the reality of the world we live in. That's why we have specialisms because hopefully, the specialist can do a much better job than the jack of all trades.
...that's where you guys can negotiate price discounts with the original suppliers, which means that the end consumer gets a better deal, as well. It takes a lot of workload out. This is a specialty that you guys have perfected and can make an efficient process in the way that all these other individual companies can't. Now, that's something that makes sense.
Your answer hearkens back to that single-use device mentality, which still works in some perspectives, especially when there is a specialty around customer experience. Obviously, not all suppliers are giving customers the best experience.
I'd like to address the intersection of COVID-19 and the supply chain. As you know, much is being shared about the pursuit of therapies and vaccines from companies like CureVac in Germany or Moderna in the United States and we all hope that soon there will be a successful trial and approved treatments that then need to be distributed globally.
So, let's assume for argument's sake that this has occurred and you are contacted by a government organization to design a blueprint for a successful, speedy, and equitable distribution of a vaccine. How would you respond to that?
Okay, I think this is going to be extremely difficult. Let me explain just two points, which create big difficulty in this.
The first one is manufacturing capacity.
The largest number of vaccines produced every year is usually the variants of the flu vaccine that we get. My understanding is that there's roughly, in a normal year, about 600 million doses of this vaccine produced, globally. That's massive.
Vaccines are difficult to make; it's a very technical, intricate business. You simply don't build some huge factory that can build two or three billion doses of a COVID-19 vaccine. That's an enormous feet, just to get that manufacturing capacity in place.
The danger, if you're the person who's being asked to manufacture this, is when COVID goes away what are they going to do with that capacity? Because it probably won't be needed maybe for another century. So, that's going to be a huge problem.
Now, the second problem is the physical distribution of this.
I was reading that one of these vaccines has to be transported -94 degrees centigrade. Now, that might be fine if I'm in the middle of New York City, and have a whole infrastructure around me...trucks, electricity ...to allow that to happen. But what happens if I'm in a less developed part of the world? What if I'm in central Africa, where there is no highway, there is no electricity?
That means that these things are going to be extremely difficult to get to many millions of people across the world. Once this comes out we're going to be somewhere between two and three billion people who need to be vaccinated. That's an enormous number but there's going to be a massive question of who comes first. If you're not elderly, and not in any of the risk groups, how long are you going to have to wait for this?
This is going to be an enormously difficult thing in 2021.
Yeah, I get what you mean. In devising that question, it does seem there's a step one, step two, step three but as you uncover all the complexities to it, I start to see how overwhelming that could be.
If I could, I'd just like to pick your brain again. This time, on behalf of those life science organizations that we represent that may want to be rethinking procurement. What advice are you likely to give an organization that would like to oversee changes to the way they procure lab supply?
I think the first thing, Greg, is that, in any organization, there will be a specific procurement culture related to that company and that can be something that's quite difficult to change. So for instance, if we were in a place that's price motivated or service motivated then striking a different balance in those things is going to be different because people are trained in a certain way of doing things and they have a habit of repeating the things that they know work.
Without experimenting with things that could be better in terms of the products, the service, the prices they might be getting, it's like, it's okay. Everyone seems to be okay with it, so I'll just keep doing it. For that reason, change can be a difficult thing to do.
The second thing, different from procurement departments than other parts of the administration of a business, is that many senior people in procurement - they're used to negotiating. They're used to being fairly hardheaded oftentimes about what they do. That also means that they can actually be quite, shall we say, transactional, that when someone says, listen, I want you to go and change to do this rather than this, that they have the mental tools to negotiate with you, which can actually make the change more difficult to happen. That's just the nature of the beast.
What it should also mean is that any change that you're trying to implement is properly interrogated by these people because, if it doesn't make common sense, it's going to be pretty difficult and maybe it should be pretty difficult to if it's not common sense.
...we need to get away from is this whole idea of global, single sourcing, as the answer to everything, because it isn't. We've seen that with 2020 and the supply chain disruptions because of COVID.
Where we need to get away from is this whole idea of global, single sourcing, as the answer to everything, because it isn't. We've seen that with 2020 and the supply chain disruptions because of COVID and all the related things that have happened.
So, we have to get out of that mindset and learn skills, which are probably decades old, and look at what those methodologies were and how can we do that in a modern environment with big ERP systems and reporting tools and so on.
So, I think from a procurement perspective, that's where it needs to head and it is going to be very technology-driven because anyone in procurement will tell you that it's very difficult to do any kind of a deal if you don't have quality data to start off exactly what your process is.
I'm connected to you in social media circles and you have invited me to join a group of yours called COVID Positives.
So my final question, Brian is what makes you optimistic?
Every new day is a new opportunity to do something better.
I think this is an important message, this year especially, because us humans we're tribal animals in the same sense as our family, our football team, but equally where we go to work. For so many people who've been working from home and feeling isolated, that's been a massive problem.
There's also many opportunities out there. This is a time to innovate because lots of people who lost their jobs, lost their businesses, had to refocus their businesses - innovation is required in these times, and it's very difficult to innovate and then act on that innovation if you can't think in a positive way.
So, it's very important to have a positive outlook on life, or else you're never going to try anything new and if you never try anything new, nothing will ever get better.
There's also many opportunities out there. This is a time to innovate...
That is so great and uplifting. Brian, thank you very much for spending time with us and sharing your expertise with our community.
Greg, my pleasure. Thank you for inviting me.