PUR03041bms.qxd 5/11/2004 4:17 PM Page 1 High-hanging fruit · So, with its low hanging fruit largely harvested, GSS is beginning to implement strategies for delivering a big return

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A great danger for top purchas-ing execs is that successbreeds high expectations.Bank $250 million worth ofsavings one year

and top brass will be lookingfor $300 million the next.

Bristol-Myers Squibb hasbeen sourcing strategicallysince 1996. Between 1996and 2002, the company’sGlobal Strategic Sourcing(GSS) group delivered $1.6billion worth of savings on atotal corporate outlay thatcan approach $10 billioneach year. The group hasleveraged—to a great ex-tent—the company’s spend-ing for such categories aschemicals; packaging andprint; contract manufactur-ing; lab supplies, equipmentand services; IT hardware,software, and professionalservices; facilities mainte-nance, repair and operations(MRO); creative services andadvertising; market research;medical education; events;clinical trials; diagnosticservices; telecommunica-tions; consulting services;many human-resource relat-ed buys, and more.

So, with its low hangingfruit largely harvested, GSS

is beginning to implement strategies fordelivering a big return on investment inthe 2003-2005 period.

Anthony Santiago, vice president of

global strategic sourcing and financialshared services at Bristol-Myers Squibb,credits much of the group’s early suc-cess to both “method and people.”

He says the group workedwith a well-known manage-ment consulting company todevelop a six-step sourcingmethodology. “We foundthat we didn’t have the levelof rigor that we needed in oursourcing process. In manycases, we were just placingorders rather than sourcing.The consulting company wasvery helpful with methodol-ogy. They also provided thehuman resources we neededto go through our initialwaves of sourcing in order toprove there were benefits topursuing leverage. As webuilt our business cases, westarted using fewer consult-ants and hiring more peo-ple,” Santiago says.

He notes that Bristol-Myers Squibb invested sub-stantially in upgrading theexpertise of professionals itdedicates to strategic sourc-ing through a combinationof new hiring practices, inter-nal recruitment from otherfunctions, and plenty of pro-fessional training for GSSemployees. “Our biggest

sourcing strategy

High-hanging fruit

How the Global Strategic Sourcing organization at Bristol-Myers Squibb plans to deliver its next billion in cost savings.

BY ANNE MILLEN PORTER

“Supplier relationship management will become our battle cryfor the next 5-10 years,” says Anthony Santiago, Vice Presidentof Global Strategic Sourcing and Financial Shared Services.

Marc Berlow

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sourcing strategy

asset is our people. GSS now comprisespeople with backgrounds in businessprocess reengineering, financial analy-sis, procurement, plus many subjectmatter experts from Bristol-MyersSquibb organizations including con-tract research, advertising, marketing,chemistry, information technology andpackaging,” Santiago says. “We’vebrought people in from other organiza-tions and taught them our methods ofsourcing. Because they’re experts, theyhave immediate rapport and instantcredibility with our internal clients.”

Kathleen Millsap is a good exampleof this. She is a microbiologist and wasa bench scientist for Bristol-MyersSquibb before joining the productivityinitiative that became Global StrategicSourcing in 1996. “They loaned out sci-entists to support the productivity ini-tiative because they wanted subjectmatter experts who knew what we need-ed from suppliers to be making the rec-ommendations for which suppliers wewould be using,” Millsap says. Millsapwho was initially the category leader forsourcing laboratory supplies is nowassociate director in Global StrategicSourcing, supporting the marketing

and services categories. In years three and four of the group’s

existence, Santiago notes that GSS hitsomewhat of a plateau where annualsavings diminished—from $252 mil-lion in 1997 to approximately $200million in 1998 and 1999. Thisinspired the group to shift its focus toboth “alignment and technology,”according to Santiago.

GSS reorganized to create “singlepoints of contact” with Bristol-MyersSquibb business units. Says Santiago:“We moved more of our people nearerto our internal clients and made it easi-er for them to interact with us.”

At the same time, the general pro-curement group at Bristol-MyersSquibb made a move to specialize itsbuyers around categories rather thansites. “This helped the buyers tobecome more aligned with our cate-gory leaders,” says Bill Stirling, seniordirector, general procurement andfulfillment for GSS. “The buyersbecame experts who could really helpclients as opposed to simply placingorders.”

Where buyers at Bristol-MyersSquibb were once dedicated to specific

sites, Stirling says technology alsoallowed them to become more virtual.“It no longer matters where the buyerresides. Today, a buyer may purchase awhole family of commodities or servic-es for an entire location or country.”

Also in 1996-1997, Bristol-MyersSquibb undertook a single enterprise-wide implementation of SAP’s Enter-prise Resource Planning (ERP) soft-ware. That made it possible for GSS tobuild a data warehouse—called Busi-ness Warehouse—that provides a con-stant stream of accurate spend datainstead of engaging in time-consumingone-off analyses for sourcing projects.

In 1999, a “Web EDI” implementa-tion using technology from ECOutlookallowed some 4,000 Bristol-MyersSquibb suppliers to begin receiving pur-chase orders electronically and then“flipping” them automatically intoinvoices. That, according to Santiago,cleaned up the payment process, mak-ing it feasible for GSS to take advantageof supplier discounts for early or on-time payments and took a great deal ofpaper out of the system.

Tom Spak, director of sourcing effec-tiveness notes that, taken together, theSAP and ECOutlook investmentsenabled a basic, but very important,policy change that would allow Bristol-Myers Squibb to exert more controlover its highly decentralized spend.“Before that time, we did not have auniform policy requiring a purchaseorder before an invoice could be paid,”Spak notes. “It was a policy we hadbeen wanting for years, but, finally, thestars were lining up. We were able to goto senior management and say, ‘Thegood news is that we have alreadymade all the necessary informationtechnology investments to support thispolicy. The bad news is that we aren’tusing the technology fully’.”

At the time, GSS estimated purchas-ing bypass—dollars being spent with-out purchasing’s influence—at around$1.8 billion of indirect spend in theU.S. “Because the systems were in place,the purchase order policy was an easysell,” Spak says. “After a thorough com-munications and change managementprocess, we started rejecting invoicesthat didn’t have purchase orders.”

The policy had the added benefit,

$500

$400

$300

$200

$100

$0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

$96

$252

$198

$225 $249

$291 $300

$450

GSS plots future directions(annual savings, $ millions)

Policy = +40SRM = +70Online bidding = +40

Policy

SRM*

Online bidding

* SRM: Supplier partnering/Breakthrough ideas

Sourcingmethodology

Technology andalignment

Policy, supplierrelationship management

and online bidding

SOURCE: BRISTOL-MYERS SQUIBB

To keep its savings trend sloping upward, GSS is implementing stricter purchasing policies and working with suppliers to identify process improvement opportunities.



sourcing strategy

Spak says, of increasing procurementcard use as people balked at using POsfor low dollar, high volume buys. AnAriba e-procurement installation alsomade it easier to promote, track andenforce compliance to strategic supplycontracts at Bristol-Myers Squibb,according to Spak.

These alignment, purchase orderpolicy and technology moves succeed-ed in placing the GSS savings trend lineback on an upward-sloping curve,according to Santiago. Now, to keep theline tracking steadily upward, the groupis working on several new initiatives:

• An early involvement policy,• An implementation of Frictionless

Commerce software for automatingand tracking the strategic sourcingprocess,

• A push into “Express Proposals”,which is Bristol-Myers Squibb-speak forelectronic auctions, and

• Greater emphasis on supplier rela-tionship management, including plansfor partnering and active solicitation ofcost savings, productivity and innova-tive technology ideas from suppliers,

“Supplier relationship managementwill become our battle cry for the nextfive to ten years,” Santiago says.

Early involvementIn the same way its purchase order pol-icy went after an estimated $1.8 billionworth of nonproduction expenses thatwere bypassing the purchasing groupeach year, GSS at Bristol-Myers Squibbis now setting its sights on an estimated$1.6 billion worth of spending that, it

feels, is coming to purchasing too latein the decision cycle to achieve maxi-mum sourcing effectiveness. “Requiringpurchase orders got us part of the way,but it didn’t get us early involvement,”Spak says.

Timing is everything, however. “In acompany of this size,” Santiago says,“you have to time big policy changescarefully. At Bristol-Myers Squibb, we

had seen some significant growth overtime. Then the economy turned for theworse, so we felt the time was right fora more stringent purchasing policy. Wesaw an opportunity to go to manage-ment and say, ‘There is more we cando.’”

To make its case to senior manage-ment, GSS conducted a study of 100 dif-ferent sourcing projects it had workedon. What the group found was a directcorrelation between the level of savingsachieved and the timing of purchasing’sinvolvement in the sourcing process.

Says Santiago: “We were looking at sav-ings averages of 10-17% if we becameinvolved at the time the client was plan-ning strategy or initiating dialogue onbudgets. That compared to an averagesavings of only 0-5%—usually at thelow end of the range—if we werebecoming involved only for contractpreparation, after a supplier had beenselected.”

Santiago, Spak and others took theirresearch on the road, presenting it tokey executives including the company’sCEO and acting CFO. Says Spak: “Of the12 major executives we met with, noneobjected, although some expressedfears that an early involvement policymight slow projects down.”

Back in 1996, such fears might havebeen well founded, says Bill Eisenbrey,vice president of North American andEuropean indirect sourcing for GSS: “Inthe beginning when GSS was first beingestablished, we weren’t really ready fora policy on early involvement. At thetime,” he says, “we were busy gettingour infrastructure together, becominginvolved in different spend categories,obtaining results, and hiring peoplecategory by category. Today, we aremuch better equipped for this kind ofpolicy.”

Good fortune had Bristol-MyersSquibb’s corporate Code of Conductunder periodic revision at about thesame time GSS was winning executive-level support for its early involvementpolicy. “In fact,” says Spak, “we held upthe revision a bit, because we reallywanted to get our policy written intothe new code.” Adds Santiago: “Withpeople more aware of the policy, we are

! Budget review! Project identification! Market assessment

! Supplier identification! RFI/RFP

! Capabilities assessment! Supplier selection

! Contract negotiations and preparation

! Implementation

Early involvement matters(average savings %)

Pre-supplier selectionsavings of 10-17%

Post-supplier selectionsavings of 0-5%

SOURCE: GSS ANALYSIS OF 100 SALES AND MARKETING PROJECTS

20%

16%

12%

8%

4%

0%

Supplier selection line

This research helped Global Strategic Sourcing (GSS) to win executive support for apolicy that requires all Bristol-Myers Squibb employees making expenditures toconsult GSS personnel early in their spend decision processes.

GSS is now setting its sights on an estimated $1.6 billionworth of spending that—it feels—is coming to purchasing toolate to achieve maximum sourcing effectiveness.



sourcing strategy

receiving calls from people saying,‘We’re buying things. Now we’re com-ing to you.’ It has really generated a lotof new business for us.“

There’s more to this than the code ofconduct, however. GSS has also run acarefully orchestrated change manage-ment effort, complete with compliancemetrics, to ensure that the early involve-ment policy takes deep root in the Bris-tol-Myers Squibb culture.

According to Kathleen Millsap, GSSdeveloped a change management gridcomprising 18 tasks for introducing thepolicy to all business unit leaders, theirdirect reports and on down through theBristol-Myers Squibb corporate organi-zation. For each of the 18 steps, GSSdeveloped a communications “toolkit.” For example, it drafted standardand customized communications forsenior executives to distribute to theirstaffs. The group placed articles aboutthe policy in an employee Webzinecalled intouch@BMS, distributed cus-tomized post-it note pads, and alsomade sure the policy informationwould be incorporated into orientationpackages and training for new employ-ees. “We made the transition very userfriendly for our executives,” says Mill-sap. “We also ensured that the messagewould be very consistent from one busi-ness unit to the next.”

For compliance tracking, whichstarts this quarter, buyers will be codingpurchase and change orders of $50K orgreater with “1” for impact, meaningthe buyer has been involved through-out the sourcing process, or “2” for noimpact, meaning that purchasing hashad little or no participation in the sup-plier selection process. “We’ll enforcethe policy in a gradual way,” says Spak.“We’ll start with friendly reminders,then escalate enforcement with peoplewho are not following the policy con-sistently.” He adds that, “One of ourbusiness unit presidents has alreadysaid he wants us to tell him who in hisorganization is not coming to GSS earlyenough. He wants to explain to themwhy they need to adhere to the policyand make the transition to this new wayof working.”

Supplier partnering“One thing that we’ve talked about for

many years is the idea that we’re goingto run out of steam in terms of lever-age,” Santiago remarks. “So we want toshift our focus to making processes bet-ter as opposed to making bad processescheaper,” he says.

This thinking has given birth to aninitiative that GSS has named, ratherstraightforwardly, supplier partnering.

“In terms of developing the suppli-er partnering program,” says Don Faw-cett, director, for GSS, “we recognizedthat we couldn’t go on exploiting lever-age forever. With the potential for $10billion in annual spend, we knew wecould source part of that every couple ofyears, but were missing significantopportunities to work on processimprovements affecting all of the spendevery year.”

Fawcett notes that GSS had madesome attempts at initiating processimprovements with strategic suppliers.“But those attempts were in select areas,and our successes tended to be confined

to areas, such as lab supplies, whereGlobal Strategic Sourcing was the pri-mary supplier stakeholder or controllerof the supply relationship.”

GSS experienced considerably lesssuccess with its ad hoc improvementefforts when the primary stakeholdersresided with Bristol-Myers Squibb busi-ness units, Fawcett notes. “They werealways interested in the ideas, but theyhad their day jobs to do. It was difficultto attract people to our projects, so wedecided to come out with a more for-malized program that would be sanc-tioned by senior management.”

GSS kicked off its formal supplier-partnering program in the fall of 2001.The basics, according to Fawcett:

• Focuses on the top 100-150 BMSsuppliers (in terms of dollars) who rep-resent approximately 50% of Bristol-Myers Squibb spend. (There are someexceptions, Fawcett notes. “We includesome critical suppliers with whom wedon’t spend a large percentage of our

dollars.”)• GSS actively recruits sponsorship

from business unit stakeholders forworkshop sessions with supplier part-ners. The sponsor sets a timeline forcompletion of workshops and idea gen-eration.

• In advance of workshop sessions,GSS people interview both businessunit stakeholders and supplier person-nel for background on how the rela-tionships work. They also survey sup-pliers targeted for workshop sessions(sample questions on page 30).

• GSS personnel facilitate one-dayworkshops comprising key personnelfrom the business unit stakeholdersand suppliers. GSS asks suppliers tosend executives and account managersbut also to involve people who actuallydo the work of interacting with Bristol-Myers Squibb. The goal of the work-shops is to identify significant opportu-nities for process improvements.Workshops include process mapping

exercises followed by brainstormingsessions.

• Sponsors review lists of improve-ment ideas coming out of workshopsand choose high opportunity ideas forimplementation.

One example of a successful suppli-er partnering implementation occurredbetween the sales and marketing organ-ization for Bristol-Myers Squibb’s Pri-mary Care Group and six suppliers thatthe group’s President, Dean Mitchell,selected for workshops. Says Fawcett:“He chose the suppliers he wanted usto work with and sent a note to his staffasking them to participate. Many of the50 to 75 ideas generated in the work-shops were focused on requirementswe place on suppliers. They came fromsuppliers asking simple questionsabout they way we operate.”

Example: One of the suppliers cho-sen by Mitchell puts on very large meet-ings for Bristol-Myers Squibb to learnabout new product launches. “We

“We’re going to run out of steam in terms of leverage. So,we want to shift our focus to making processes better asopposed to making bad processes cheaper,” says Santiago.



sourcing strategy

might fly in a couple thousand of oursalespeople to talk about a new drugand how it will be used to treatpatients,” Fawcett says. The supplier, inits workshop, noted that Bristol-MyersSquibb had no guidelines for whenpeople should purchase their airlinetickets to attend these events. “Welooked at the data,” says Fawcett, “andfound that more than half of the ticketswere being purchased within threeweeks of the events.” A simple follow-up guideline instructing sales personnelto purchase air tickets more than threeweeks in advance of the events is expect-ed to yield annual savings of $400K forBristol-Myers Squibb, according to Faw-cett.

Another workshop conducted forthe Primary Care Group occurred witha supplier that runs small educationalmeetings with physicians. In its work-shop, the supplier noted that Bristol-Myers Squibb’s sales reps were renting,through the supplier, LCD projectors ata daily rental cost of about $500/day.

(The machines can be purchased foraround $2,000 each). “These were pass-through expenses for the supplier,” saysFawcett, “and they were being coveredthrough T&E, which is why they weren’tshowing up on our radar screens inGSS.” A follow-up survey on how fre-quently sales staff were renting LCDprojectors led to a decision to purchasea machine for each sales office. Project-ed annual savings, according to Fawcett,are expected in the $1-$2 million range.“Now that the LCD projectors areowned, we expect them to be used morefrequently, which will improve thevalue of our investments even further,”he adds.

A benefit of having GSS coordinatethe supplier-partnering program acrossBristol-Myers Squibb is that it can lever-age the ideas generated to all otherbusiness units as well, Fawcett notes.

The long-term plan, according toFawcett, is to follow these quick-hitworkshops with more periodic suppliermeetings and formal performance met-

rics. GSS also envisions suppliersextending similar process improvementexercises to their own supply chains.

“This isn’t just a one-shot initiative,”says Santiago. “We expect to start anongoing dialogue throughout the yearso suppliers can hear more about ourbusiness and share more with us aboutwhat they are doing that is innovative.”

Supplier ideasWhile supplier partnering focuses onmaybe 100-150 critical suppliers, com-prising roughly half of Bristol-MyersSquibb’s annual spend, another pro-gram, still in its infancy, will extend theconcept to a much larger portion of thestrategic supply base—say 500 suppli-ers covering 80-85% of total spend.

The idea actually came from anongoing process benchmarking initia-tive in which GSS periodically invitesreps from select supply managementorganizations to participate in focusedtwo-day roundtable discussions.

“We were impressed,” says Spak,“with another company’s program.”This program will be communicated totop suppliers at an annual conference.The top management team will take theopportunity to share business objec-tives with suppliers and clearly com-municate expectations of workingtogether to generate innovative cost-savings measures. “We will support thiswith a Web-based technology interfacefor soliciting, evaluating, ranking, andacting upon ideas submitted by suppli-ers,” says Spak.

A first necessary step, according toSpak, will be to set up a goal structurefor suppliers focusing on cost reduc-tion, productivity improvement, quali-ty improvement, or whatever else mightbe appropriate for pointing supplierstoward the kinds of ideas that will resultin increased value for Bristol-MyersSquibb. While GSS does not yet have agoal structure in place for its suppliers,he notes that, through Business Ware-house, it already has the data infra-structure for creating one. “In the past,we have set our cost reduction goals byfamily of spend, but not by individualsupplier,” Spak notes.

“We could do this program withoutgoals, he adds, “but we think specificobjectives will create a tangible record

Bristol-Myers Squibb’s pre-workshop sup-plier partnering survey asks suppliers tolist important cost, time and quality driv-ers in delivering their product or service toBristol-Myers Squibb. Other questions:

• How does your interaction with BMScompare to your other customers? Whenyou think of your best customer, what is itabout that relationship that makes it supe-rior to others?

• Think of a project or service work you per-formed for BMS that you feel went well.What happened that made it successful?

• Think of a project or service work you per-formed for BMS that you feel went poorly.What happened to make it unsuccessful?

• What are some of the key interactionpoints between you and BMS (examplesinclude discussing project specifications,

revisions to advertising content, orderquantity changes, etc.)

• If you deal with more than one person atBMS, are your interactions consistent orstandard from person to person? In otherwords, is there a standard process in theway you work with BMS or does it varydepending on whom in BMS you are work-ing with?

• What does BMS do well?

• What does BMS not do well?

• What can BMS do differently to help youlower costs, improve service, or reducecycle times?

• What do you do well?

• What do you not do well?

• What areas overall in the relationship doyou think can be improved?

Survey questions for supplier partnering

Says Anthony Santiago, vice president, global strategic sourcing and financialshared services for Bristol-Myers Squibb: “Simple questions like ‘What do you dowith your best customer?’ or ‘How do we drive your cost structure in inappropriateways?’ are great lead-ins for our suppliers to open up and say ‘I’m glad you asked.This is what we can do together to take work out of the system.’”



sourcing strategy

of our expectations and encourage sup-pliers to orient their ideas toward meet-ing them. The reward for meeting ourgoals will be more business. The penal-ty will be loss of business.”

According to Beatriz Loizillon, associ-ate director of sourcing effectiveness forGSS, the group is evaluating softwareoptions, focusing on those that providean ability to build evaluation criteriaright into the submittal process. “Thesoftware we choose will assist with scor-ing of ideas according to criteria we set,”she says. The submittal form, she notes,will require suppliers to provide estimat-ed returns on investment for their ideas.

Spak says GSS is still in process ofpitching the innovative ideas programto senior management and businessunit leaders throughout Bristol-MyersSquibb. “We’re not going to roll this pri-gram out,” he says, “until we can com-mit to our suppliers that we will evalu-ate and act on their ideas in a timelymanner.”

So far, Spak says the response hasbeen positive, although he notes thatsome managers are worried about over-loading the troops, especially with allthe new sourcing work coming to Glob-al Strategic Sourcing through the earlyinvolvement policy.

Frictionless CommerceWith so many strategic initiativesunderway, it’s no wonder that GSS man-agers are beginning to worry about

spreading their resources too thinly.But, that’s where Frictionless Com-merce comes in.

Frictionless Commerce is an enter-prise sourcing software application thatwill create a systems bridge between theGSS Business Warehouse—wherespend data is first collected and organ-ized—and the SAP, Ariba, and ECOut-

look systems—where day-to-day pur-chasing transactions are executed.

Frictionless, in effect, is the soft-ware GSS has chosen to automate andcontrol its activities for advancedspend analytics, collaborative devel-opment and refinement of RFx speci-fications, market making—electronicRFx and “Express Proposals” (auc-tions)—plus negotiation and creationof strategic supply contracts. (Note:Documents pertaining to completedGSS contracts are managed in aninformation system driven by Docu-mentum software).

According to John Tuttle, associatedirector, sourcing effectiveness for GSS,the Frictionless system offers strongproject management capabilities in acollaborative sourcing environment. It

also represents a way to pass criticaldata cleanly from one step of the sourc-ing process to the next.

GSS expects the Frictionless Com-merce system to:

• Increase productivity by automat-ing the sourcing process from projectinitiation through RFx creation, bid-ding events, and supplier management,

• Encourage stakeholder involve-ment by providing a collaborativeworkspace accessible to stakeholdersacross the organization,

• Improve the sourcing process anddrive savings by sharing best practicesthroughout the enterprise, and

• Provide a procurement portal tai-lored to the specific interests and needsof GSS personnel and management.

Santiago has mandated that, inorder to receive credit for their work,GSS personnel must enter all sourcingsavings projects into the Frictionlesssystem (with greater detail required forall savings projects exceeding three per-son-weeks in duration). He also en-courages GSS personnel to use the sys-tem wherever it meets their needs forproject management on nonsavingsprojects they may be undertaking.

System configuration and testingwas completed in January. By the end ofApril, all GSS personnel will haveundergone two full days of Frictionlesstraining. An imminent upgrade to ver-sion 3.0 will add more functionalityand expand use, according to Tuttle.

Electronic auctions (“Express Pro-posals”) are a central part of the Fric-tionless implementation. For the auc-tion piece, Tuttle notes that GSS has twopeople who are specialists in auctions.By Santiago’s reckoning, Express Pro-posals alone could generate up to $40million in savings by 2005.

“This is an exciting time for GSS,” saysSantiago. “We have many new ways inwhich to drive value for the companyand we are partnering with our businessunits better with every passing day.” "

! Pre sourcing spend $100.00! Post sourcing spend $95.00 5.0%! Year 1 result $92.63 2.5%! Year 2 result $90.31 2.5%! Year 3 result $88.05 2.5%

! Pre sourcing spend $100.00! Post sourcing spend $95.00 5.0%! Year 1 result $95.00 0%! Year 2 result $95.00 0%! Year 3 result $95.00 0%

Partnering will pay productivity dividends(hypothetical comparison)

SOURCE: BRISTOL-MYERS SQUIBB

3-year sourcing cyclewith supplier partnering

3-year sourcing cyclewithout supplier partnering

! Sourcing savings without supplier partnering $5.00 5.00%! Savings with year-on-year supplier partnering $11.95 11.95%! Additional savings from supplier partnering $6.95 6.95%

By actively soliciting improvement ideas from suppliers, the Global Strategic Sourc-ing group at Bristol-Myers Squibb thinks it can more than double its per-suppliersavings over a three year period.

A first step in the ideas program will be to set up a suppliergoal structure for cost reduction, productivity improvement,quality improvement, or whatever else may be appropriate.
