Industry regulations and increasing competition were forcing a rapidly expanding company to reduce its operating costs. Part of the approach was to create a best-in-class, centralized Procurement group charged with promoting smarter and more effective spending habits through “actively managed” spend. This group would help meet cost reduction goals while delivering greater value to the business. The transformation would not be easy, however. For one thing, company culture, accustomed to “old pharma” spending habits short on control and oversight, was resistant to change. Spend categories were not strategically sourced and most supplier relationships were deeply entrenched in the lines of business. Many key suppliers perceived to offer high value were not, in fact, competitive with their pricing and service. The company’s multiple acquisitions had led to many inconsistent policies and procedures in play. The existing Procurement group required a shift in focus from transactional to strategic activities.
Approach: Think + Do
We began by assessing the existing Procurement function to measure effectiveness and identify performance gaps. Next we developed a strategic plan to build and deploy enhanced capabilities focused on strategic sourcing, supplier management, and continuous improvement. We created a centralized Procurement function from the ground up, demonstrating immediate value in 12 high-impact spend categories through strategic sourcing best practices. We launched 43 sourcing initiatives, and helped define consistent policies and procedures across all corporate entities to support centralized procurement.
Our tailored approach to procurement development achieved a hard-dollar cost savings of $16.5 million out of an initial $140 million addressable spend, and increased spend under management by 25% in year one. We established Procurement as a center of excellence and proven partner to the lines of business, all while instilling a cost-conscious culture with formalized purchasing procedures. Finally, we enabled self-sustainability of the new group in a seamless transition of knowledge.