Strategic Value Beyond Savings

(1)

Strategic Value Beyond Savings

Procurement & Supply Chains Role in Delivering Sustainable

Business Success

Paula Gildert BSc(Hons) FRSA FCIPS MIET CEng

VP Head Global Development Strategic Sourcing, Novartis

Copenhagen 28

th

_{October 2014}

(2)

Tesco procurement practices exposed and it’s not pretty

Posted onSeptember 29 2014byDavid Atkinson

Posted on September 29, 2014by David Atkinson

“For years we have been bullied and browbeaten by Tesco’s

b

h d

d

l

b ll

i

f

d th

k

buyers, who demand a lowball price for our goods then keep

screwing us for more as the contract goes on.”

“No

compare that

ith Aldi Don’t get me

rong Aldi dri es a er

“Now compare that with Aldi. Don’t get me wrong, Aldi drives a very

hard bargain, but once you’ve agreed a deal for a year, it sticks for a

year. They don’t come back demanding new bonuses, discounts

and every other trick ”

and every other trick.

“As a result – and this news will not go down well at Tesco HQ –

we’ll offer Aldi a better price at the outset Yes that’s right: for all its

we ll offer Aldi a better price at the outset. Yes, that s right: for all its

aggressive behaviour and demands for retrospective rebates and

discounts, Tesco actually gets charged more than its bitterest

rivals.”

| Strategic Value Beyond Savings | Paula Gildert | 28th October 2014 | Den Danske Logistikkonference SCM 2

(3)

(4)

Strategic Value Beyond Savings

P

t & S

l Ch i P f

i

l d i i

t i

bl b

i

Procurement & Supply Chain Professionals driving sustainable business



Why future business success depends on strategic

y

p

g

sourcing & supply chain performance



What do we need to do differently going forward



How can we make it happen

(5)

Our focus is on patients

Our purpose is to care and cure.

We provide medicines to treat and prevent diseases

We provide medicines to treat and prevent diseases,

(6)

14 years and >2 billion USD to develop one drug

Overview of drug development process

(7)

Pharma Sourcing have a strong track record in

delivery : $2 6Bn since 2010 at ~7% per annum

delivery : $2.6Bn since 2010 at ~7% per annum

Significant Savings

are reinvested into:



Development &

Manufacturing

(“pipeline”)



Marketing



Corporate Spend

6.3%

8.5%

7.4%

7.3%

Cost reduction

Actual %

(8)

What does Value Beyond Savings look like?

y

g

Corporate

responsibility

Quality &

Service

Assurance

of supply &

risk

iti

ti

responsibility

Innovation &

Insight

mitigation

Cost

(9)

Biologics Bags – a complex solution

(10)

Bags to Bottles – a $m value decision

P

k

i

& l

i ti

d

i

t t ll

i

d

Packaging & logistics design was totally re-engineered

Freezing at - 60C

_{Ship under Dry Ice}

Thawed in situ

(11)

Bags to Bottles – a $m value decision

T t l P d

t C

t R d

d b

$140

Total Product Cost Reduced by over $140m

Challenge

Solution



New Drug Substance primary

packaging in Bags had high failure

rate, high unit cost & complexity



Change of process & materials from

Bags to Bottles



Identified new process for filling, freezing,



10 out of 21 bags thawed leaked



45% of thawed material lost ($2.7m

shipping, thawing & storing product



Material loss reduced from 45% to 0%



Reduced campaign size by improving

per batch)



Single sourced with high equipment

& consumable costs

p g

y

p

g

campaign efficiency



Elimination of bag freezing, thawing &

storing equipment & consumables



Set new standard for future projects

(12)

New Oncology Drug – High Risk & Cost

Sourcing & Business re-engineered chemistry working with new

suppliers to reduce Target Product Price by 500%

Chemistry Team

Pharmaceutical Development Team

Drug Supply Team

Clinical Trial Team

Drug

Substance

Drug

_Product

Packaging and

_Distribution

Patients

Raw

Materials

Chemistry Team

Pharmaceutical Development Team

Drug Supply Team

Clinical Trial Team

Sourcing Team

(13)

New Oncology Drug – High Risk & Cost

Sourcing & Business re-engineered chemistry working with new

suppliers to reduce Target Product Price by 500%

Chemistry Team

Pharmaceutical Development Team

Drug Supply Team

Clinical Trial Team

Drug

Substance

Drug

_Product

Packaging and

_Distribution

Patients

Raw

Materials

Chemistry Team

Pharmaceutical Development Team

Drug Supply Team

Clinical Trial Team

Sourcing Team

Challenge

Solution



Initial cost of drug substance was

>$750m (peak sales)



Custom molecule – opportunity to

develop new market / new suppliers



Cost Optimization by developing simpler route of

synthesis with cheaper raw materials & IP – process

cost reduction >40%

develop new market / new suppliers



On-time Drug Substance Supply to Meet Clinical

Demand



Reduced supply-chain risk (technical &

Reduced supply chain risk (technical &

geographical)



Built a diverse, quality supply chain for commercial

supplies

(14)

Strategic Value Beyond Savings

P

t & S

l Ch i P f

i

l d i i

t i

bl b

i

Procurement & Supply Chain Professionals driving sustainable business



Why future business success depends on strategic

y

p

g

sourcing & supply chain performance



What do we need to do differently going forward



How can we make it happen

(15)

Being a Partner is at Heart of the Challenge

Ph

d 400+ S

i

A

i t

t

d

t

d th i

lit

Pharma surveyed 400+ Sourcing Associates to understand their reality

90% Sourcing associates are doing business

partnering > 68% on a daily basis

54% have not had any training in business

partnering. 9% had training in last year; 14% in the

past three years

32% have one significant relationship

68% have multiple relationships

past three years

Lack of easily accessible, well-understood tools,

systems and processes

Misaligned objectives

S

i

b h

i

i d i

b

l th t

b

t

55% of interactions are with a ‘business role’ rather than

an individual person

Sourcing behavior is driven by goals that may be counter

to good business partnering

Weak communication of a compelling ‘Sourcing Value

Proposition’

7% usually interact with a specific individual & 37% work

with a continually shifting mix of people and roles

Sourcing professionals believe they depend on their

Lack of time and resource

g p

y

p

Functional Business partners more than the partners

depend on them

(16)

What they wanted was...



77% want a compelling, easily

p

g

y

communicated ‘value proposition for

Sourcing’



74% want more formal training in

business partnering

3%

‘B

P

i

lki ’



73% want a ‘Best Practice toolkit’



Improve business knowledge, e.g.

th

h j b

t ti

d ‘ h d

i

’

through job rotations and ‘shadowing’

(17)

Supplier Relationship Management Global Survey

S

f 425

i

ti

d 522 i di id

l i 2013

Survey of 425 organisations and 522 individuals in 2013

‘A discipline of working collaboratively with those

A discipline of working collaboratively with those

suppliers (and business leaders) that are vital to the

success of the organisation, to build trust and maximise

the mutual value of those relationships’

(18)

Supplier Relationship Management Global Survey

S

f 425

i

ti

d 522 i di id

l i 2013

Survey of 425 organisations and 522 individuals in 2013

• Risk

• Cost reduction

• Cost avoidance

• Customer of Choice

• 34% Leaders see >+6-8% of the contract value

(19)

Supplier Relationship Management Global Survey

S

f 425

i

ti

d 522 i di id

l i 2013

Survey of 425 organisations and 522 individuals in 2013

• 43% respondents have a value proposition

expressed but only 14% have communicated

this

• Not even Leaders have >50% engagement

Not even Leaders have >50% engagement

across executive , senior or operational

stakeholders or suppliers

(20)

Supplier Relationship Management Global Survey

S

f 425

i

ti

d 522 i di id

l i 2013

Survey of 425 organisations and 522 individuals in 2013

• Increasingly single point accountability for development & implementation

of SRM through appointment of process owners

• Supplier segmentation & increasing proportion of external spend is within

scope of SRM (typically half of spend)

• Robust supplier performance & contract management is still missing for

52% of respondents

(21)

Supplier Relationship Management Global Survey

S

f 425

i

ti

d 522 i di id

l i 2013

Survey of 425 organisations and 522 individuals in 2013

• Investment in training & development for talent and organisation is still a

major challenge

• Nearly 7/10 buy-side organisations use cross functional teams to

manage key supplier relationships

• Biggest gaps are in relationship management: influencing,

communication & strategic thinking

(22)

Supplier Relationship Management Global Survey

S

f 425

i

ti

d 522 i di id

l i 2013

Survey of 425 organisations and 522 individuals in 2013

• Technology: systems software or applications as a key enabler

• Technology: systems, software or applications as a key enabler

remains a concern

• FCMG companies appear to b making most use of IT

• High Tech and IT sector making the least use

High Tech and IT sector making the least use

(23)

Supplier Relationship Management Global Survey

S

f 425

i

ti

d 522 i di id

l i 2013

Survey of 425 organisations and 522 individuals in 2013

• Truly innovative relationships are rare

• Successful relationships are described as being open, transparent, innovative,

strategically & culturally aligned, trusting , collaborative & behaviourally

mature. Trust being identified as most important attribute

• The type of information being most openly shared is operational

• Yet Innovation remains one of most important elements of the SRM value

proposition

L

th

1 i 5

360 d

l ti

hi

t t

l t b

li

&

• Less than 1 in 5 use 360 degree relationship assessment tools to baseline &

improve

(24)

Strategic Value Beyond Savings

P

t & S

l Ch i P f

i

l d i i

t i

bl b

i

Procurement & Supply Chain Professionals driving sustainable business



Why future business success depends on strategic

y

p

g

sourcing & supply chain performance



What do we need to do differently going forward



How can we make it happen

(25)

(26)

“From being Procurement people who happen to be in Business to

being Business people who happen to be in Procurement”

• Stand as equals – belief and confidence

P

i

d

being Business people who happen to be in Procurement

• Seeing and committing what it takes to be a Trusted Business partner

• Show up as expert through entire cycle of identification of opportunity,

contracting through to delivery

Permission and

Confidence

Change Agency

• Supporting the business in a new way of working - ‘blow’ up the conventional