Hidden Cost of a Supplier

Pascal Reyntjens

Agenda

Return on Supply Management Assets

Supplier Integration

Q&A

Procurement Value Creation or Hidden Cost

Conclusion

Procurement Structure & Maturity

PROCUREMENT MISSION?

300 Month 0000Presentation title in footer

Return on Supply Management Assets

400 Month 0000Presentation title in footer

Agenda

Return on Supply Management Assets

Supplier Integration

Q&A

Procurement Value Creation or Hidden Cost

Conclusion

Procurement Structure & Maturity

Return on Supply Management Assets

600 Month 0000Presentation title in footer

7

Structure

Capabilities

Robust Processes led by skilled People

Supported by efficient system

Pre-requisite: Procurement Structure & Capabilities

• Procurement reporting line (CEO, Manufacturing, Finance, Supply chain,…)

• Procurement Structure, skills and seniority level

• Procurement Processes & Systems

• Procurement part of the leadership team of the Mkt, IT, Manufacturing,

R&D,….

• Procurement practices embedded in the company WOW and supported by

CEO

• Procurement owner of the Supplier relationship

• Get lowest price

from given

suppliers

• Support business units

• Facilitate

improvements

• Optimize total cost

• Optimize Value for

Money

• Achieve full potential

from external

resources

Mission

Mandate • Provide transaction

services

• Manage all sourcing

decisions including make vs.

buy

• Accountable for third party

relationship management

• Negotiate with

suppliers for all BU’s

• Ensure compliance

• Buy specified

products at lowest

price

• Select suppliers

by total cost

• Challenge

• Ensure reliable

& cheap supply

The role of Procurement in the organization

Increasing sophistication of existing processes, systems & capabilities, leadership & soft skills leverage

capabilities

Unit ServerUnit

optimizerService provider Sparring partner

World-class business

partner

High level of synergies across BUs

High value from BUs focusHow we buy? What we buy?

Agenda

Return on Supply Management Assets

Supplier Integration

Q&A

Procurement Value Creation or Hidden Cost

Conclusion

Procurement Structure & Maturity

Return on Supply Management Assets

1000 Month 0000Presentation title in footer

GMP

Eudralex

Canada

WHO

EP

Japan

JP

Brazil

China

CFRAustralia

USP

PPRC

Importance of documentation: Pharma industry under complex regulations

governing GMP

Return on Supply Management AssetsBeing Compliance is the license to Operate but has a cost

Return on Supply Management Assets

1200 Month 0000Presentation title in footer

• How fast the procurement organization is capable to take benefits of Market

Capabilities

• Take benefits of Business Growth, R&D leverage, Company Image/reputation

• Take benefits of Market structure modification ( new entrants, capacity change,

….)

Return on Supply Management Assets

1300 Month 0000Presentation title in footer

Value Creation through Supplier or

Cost impact in case of change

• Make or buy: Outsourced non core activities:

• Non Core activities

• Material Testing

• Logistic operations

• Internal distribution

• Material assembly

• Validation works….

• Competitive dimension:

• Use supplier knowledge through SRM

• Benchmark organisational design through Supplier

• Use Discovery Survey Program from Suppliers

• Deploy competitive features from Suppliers

• Reduce Cost per unit:

• Increase Material quality & reliability

• Transfer activities to Suppliers

• Push Investment to supplier base

• Leverage supplier innovation

• Improve throughput & throughput time:

• Increase efficiency (material spec)

• Reduce material lead time

• Reduce IM testing time

• Increase supplier flexibility

Procurement Contribution

• Mindset change:

• Supplier is part of supply chain

• Supplier is more than material provider

• Accept supplier knowhow & expertise

• If it is non core, does GSK need to invest

• Give opportunity to supplier to bring his value

• Supplier is source of Benchmark

• Material Management

• Business Rules

• Testing Regime

• Animal free, Halal, …

• Sustainability

• Stock Management

• Source of simplification, rationalisation

• Technologies used

• Inbound Supply chain Infrastructure:

• Warehousing

• QC testing

• Supplier Network

• Supplier location

Procurement Contribution

Value Creation through Supplier or

Cost impact in case of change

Kraljic model. To position the need versus business risk

• High cost for change are :

– Leverage items:

• level of additional services or integration could be

high

• Supplier is interested to keep his customer

• Customer is interested to increase value for money

– Strategic items:

• Level of integration could be high to increase service

level, reducing waste & TCO

• Both company have interest to increase their

collaboration

• Middle cost for change:

– Critical items – no internal support for integration or

additional services. Securisation should be external

(BCP at supplier level)

• Low cost for change:

– Non-critical items – on the shelf items – no internal

support for integration or deep collaboration

Leverage Items

Exploiting of purchasing power.

Strategic Items

Diversify, balance, or exploit.

Non-critical Items

Efficient Processing.

Critical

Capacity assurance

Project deadline

Low High

High

Supply risk

Imp

ort

ance o

f th

e Ite

ms

in th

e o

rga

niz

ation

Balance of power

Kraljic model to identify high hidden cost or value opportunity

Hidden Costs are linked to Value Opportunities

Innovation

Supplier IntegrationSpec Review

Make or buy Inventory Level Reduction

Sourcing & Contract

ManagementEHS/ Risk Management

Innovation

Supplier IntegrationSpec Review

Make or buy

Inventory Reduction

Sourcing & Contract

ManagementEHS/ Risk Management

• Reduce Testing

• Delegation of testing

• Vendor Manage Inventory

• Use supplier resources for training,

• Validation, project management

• Shared development Platform

• Batch size

• Spec evolution

• Yield criteria

• Acceptance criteria

• Standardization / Harmonization

• Packaging waste reduction

• Working with Leading or follower supplier?

• Access to supplier R&D?

• Co-Investment/Co-development

• Pre-Assembly

• Contingent Worker services, website,…

• Non core business (eg: 4PL, Spare Parts stock

Management, on site distribution…)

• OTIF performance

• Lead-time performance

• PreDelivery Sample, supplier safety stock,…

• VMI, Consignment Stock

• Collaborative Planning

• Contract negotiation

• Liabilities & Penalties negotiation

• Claim Management

• Service Level performance

• Quality Improvement

• Supplier base rationalization

• DPO performance

• Incoming Material Securisation:

Key IM

Mono/Single sourcing

Critical

• Ergonomic impact on your worker

• Carbon Footprint strategy

Agenda

Return on Supply Management Assets

Supplier Integration

Q&A

Procurement Value Creation or Hidden Cost

Conclusion

Procurement Structure & Maturity

21

How deeply your supplier is integrated within your company?

4 dimensions to manage

How your supplier base is contribting to the Strategy / Objectives

of the Company

Time Line

Partnership

Supplier Evaluation

Ma

turi

ty

Segmentation &

SRM

Supplier

Capability

Innovation mgt

Supplier

Forum

23

Based on hard and soft critieriasSupplier Segmentation

Level 1

PARTNERS

Level 2

STRATEGIC

VENDORS

Level 3

KEY VENDORS

Level 4

TRANSACTIONAL

# Suppliers

10

100

1000

6000

High level Selection Criteria

Valu

e P

ote

nti

al

Su

pp

lier

Cap

ab

ilit

y

Su

pp

lier

Perf

orm

an

ce

Ris

k

Imp

act

Att

itu

de /

Wil

lin

gn

ess

SRM Tools

SRM needs your support GOP

Dec 2013

Strategic

Partnership

Governance Model

SPE, BRM

Ad-Hoc Interactions,

meetings

Ponctual contacts,

e-Catalog,

Supplier Portal

Global SRM Governance model

BRM

TRM

Steering

Comittee

Quality Steering

Commitee

Supplier Performance Evaluation

Innovation –Technology Day

Local and global Operational Review Meetings

Performance and project follow up

(Logistics, Quality, Commercial & Risk, etc.)

• Strategy sharing from both Companies

• Business optimization and synergy opportunities

• projects prioritization and Resources allocation

• Potential additional business

• Total Cost reduction plan

• “Voice of the customer”

• Quality Trends analysis and supplier capability

• Supplier Key parameters analysis

• Supplier QMS evolution

• GSK Quality expectation evolution

• Quality Improvement plan

• Supplier performance on logistic, Quality, Risk, competitiveness and

project management

• Fix performance target for the next year

• Supplier performance on logistic, Quality, competitiveness and project

management

• Ensure assurance of supply

• Drive Supplier performance

• Supplier Technology Road Map

• GSK Bi expectation for future business

Master Data Alignment

VET / IOLT Relationship

Sponsorship

Co-development

Joint IPFit for purpose Specifications

Full Certification

Release by supplier

Inventory visibility OTIF improvement program

Collaborative Quality

Management

Lead-time reduction

program

Collaborative Risk

Mitigation

e-Procure to Pay Process /

EDI

Supplier Capability Evaluation /

Monitoring

SLA/ Balanced Scorecard VMI/Collaborative Inventory,

Capacity Planning & ForecastingStructured SRM governance

Collaborative TCO

Reduction Program

Reduced

QC Testing

Knowledge transfer by

suppliers to GSK

GSK Process

improvements

Level 1

PARTNERS

Level 3

KEY VENDORS

Level 2

STRATEGIC

VENDORS

“Supplier Integration” is a structured, progressive and merit-based approach focused on mutual value

generation

Level 4

TRANSACTIONAL / OCCASIONAL BUSINESS

26

How deeply your supplier is integrated within your company?

4 dimensions to manage

Procurement

Suppliers

Operations - Procurement collaboration model

Operations

?

Operations

Procurement

Governance

Suppliers

28

How deeply your supplier is integrated within your company?

4 dimensions to manage

Global-Local Supplier Integration & Collaboration

Time Line

Succesful Organisation

Mindset & Behaviour

Ma

turi

ty

Alignement

Team build up

Team Work

UNCLASSIFIED

Supplier Presence at Company level

Objectives Sharing

UNCLASSIFIED

Common Objectives

Supplier Presence at Company level

Agenda

Return on Supply Management Assets

Supplier Integration

Q&A

Procurement Value Creation or Hidden Cost

Conclusion

Procurement Structure & Maturity

The Future?

UNCLASSIFIED

Manufacturing Strategy: Activity & Network

Operations Yield & Performance

Boost innovation & competitive advantage

Leverage supplier capabilities: Validation, Project mgt, Supply,

Inventory, testing,….

Internal resources impact

Cirisis Management

Throughput time, WorkingCapital

Internal company structure

Cost & Profit

Supplier Impact on Company strategie

Value Creation/Ihidden costs identification should be used to

better manage the change and better negotiate with supplier base.

Not to avoid the change