GSK – Laboratory Supply Chain

Driving innovation & value ina fragmented supply chain

Trevor Reay

GlaxoSmithKline

Presentation title 2

Who we are and what we do

• GSK is a science-led global healthcare company that researches and develops a broad range of innovative medicines and brands. Our products are used by millions of people around the world, helping them to do more, feel better and live longer

• We have three primary areas of business in pharmaceuticals, vaccines and consumer healthcare. We have a wide geographical reach, with offices in more than 115 countries, major research centres in the UK, USA, Spain, Belgium and China and an extensive manufacturing network with 87 sites globally

• Annual sales, in 2013, were £26.5Bn and we achieved a 13% return on R&D investment creating one of the largest development pipelines in the industry

• In 2013, we achieved 6 major product approvals in the USA in areas including respiratory, HIV and cancer

Laboratory Supplies

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A Brief Overview of the Category

• The Lab Supplies category covers the strategic procurement of consumables items used in research and development.

• Items are highly regulated and include chemicals, reagents, human biological samples and consumables

• The initial project scope covered a spend of ~£52M across the UK, Europe and USA but this will increase to over £180M with the Global roll out of the programme

• The supply chain was heavily fragmented, with a range of over 1.2 million items purchased, from over 2,800 suppliers, by over 4,000 stakeholders who were spread across over 25 sites and generating over 200,000 transactions annually

• There was limited governance on purchases. Compliance to approved vendor agreements was at 40%. This was creating poor service levels, inconsistent quality, a lack of supply chain cost awareness and control, generation of significant waste across the chain and ultimately creating unnecessary risk

Laboratory Supplies

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Supply Chain Review Concept & Output Overview

“The project was designed to create a step change in performance by transforming atactical, non integrated supply chain into a innovative, fully aligned, efficient and high performing model with inbuilt continuous improvement at its core”

Key Outputs :

• Significant cycle time reduction for stakeholders• On time in full improved from 70% to 94%• 90% reduction in the supply base and 20% in the product range• Increased business compliance to 90% representing £33M additionally controlled spend• Improved planning /forecasting has enabled the supply tiers to reduce stock levels by 15%• The relationship has moved from a tactical issue resolution focus to a strategic VP to VP level fostering an environment of SRM, alignment and partnering

• £10M savings have been released to GSK to fund future R&D• Suppliers have made strategic infrastructure investment decisions to service our needs

So What Did We Do?

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GSK’s StrategyOur business is focused around the delivery of three strategic priorities which aim to increase growth, reduce risk and improve our long-term financial performance. These priorities are totally aligned with the Lab Supplies projects as follows :

Grow a Diversified Global Business

Our supply chain needed to be strategically aligned and structured to meet the needs of the emerging growth markets in China and LATAM whilst improving efficiencies and cost control in the traditional European and US markets. This initiative has created a global solution and significantly reduced costs within the chain

Deliver More Products of Value

With fewer direct relationships we have become the customer of choice and first port of call for innovation. This is both in terms of products and systems. Additionally we have the lowest cost in the market in some categories by leveraging value engineering opportunities and volumes

Simplify the Operating Model

The Lab Supplies chain is now simple and cost efficient having had waste and duplication removed. This allows our KPIs to be meaningful and focus on service and quality improvements meaning that we focus on the future not the past

GSK’s Strategic Vision & PillarsLinked Procurement & Supply Chain to Corporate Strategy

2,800 suppliers

Fisher Scientific

GSK

Lab Supplies – Creating a totally integrated solution“one link one chain”

Stage 1Held a stakeholder

and supplier workshop to establish the

baseline of current work flows, bottlenecks,

performance and future strategies,

expectations

Stage 2Brainstormed the “ideal state” and mapped this to

Stage 1 to identify the gaps and

priority areas for change.

Stage 3We established a

clear RACI for change based on

core competencies. For example, we

stopped scientists sourcing, we

negotiated jointly down the tiers etc...

Stage 4We systemised the

process and reallocated

resources to create a dedicated team and established a

governance framework

underpinned by a 3 year roadmap

Organisational challenges• Ad Hoc Supply Chain Management led to limited

accountability and poor clarity of roles

• No real alignment to the overall GSK strategy

• Existing resources lack the necessary change management skills and knowledge on both sides

• Workflow solutions were not optimal and led to errors

• Communications were unstructured with no RACI or key accountable touch points defined

Designing and driving operational excellence• Design new structure to support both implementation,

governance and day to day needs• Reallocation of resources from tactical fire fighting to

strategic planning with the right skills in place • Training to challenge and pursue CI• Utilised practical process Improvement (PPI)

programme to map workflows, check points and approvals

• Employed customer satisfaction surveys to better understand and meet customer needs

Lab SuppliesOrganizational design to drive optimum performance

9

Reduce cost/drive savingsRemove supply chain complexity

Improve process efficiency Drive laboratory productivityEliminate non-core functions

Focus on science/innovationDeliver on scientific targetsIntegrate/globalise science

LeadershipDrive organisational efficiency and productivityDeliver on core competenciesDrive transformation and remove barriers

ScientificCommunity

OperationalManagement

Sourcing /Procurement

SSciienttiiffffiicCommunity

Lab SuppliesStructuring and integrating stakeholder value to ensure success

VALUE LOST

Contract Value to You

Time

VALUE ERODED or Transactional Collaboration

SUPPLIER RELATIONSHIP MANAGEMENT or Synchronised Collaboration

Optimal Negotiated Value

Sourcing Implementation

Historic Value

Value from Business

Engagement

Requirements Definition

PERFORMANCE MANAGEMENT or Coordinated Collaboration

CONTRACT MANAGEMENT or Cooperative Collaboration

Lab SuppliesChanging the Relationship to Drive Value

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Lab SuppliesOn-Going Governance to Drive Continuous Improvement

Feedback from the Customer

Measure and react

Continuous Improvement

CASPPI

KPICSR

Corporate Social Responsibility

Key Metrics

• Spend through Approved Vendors : 40% to 90%• Revenue Growth for Vendor : £500k - £40M• Supply base consolidation : 2,800 to 200 (90% reduction)• Delivery OTIF : 40% to 90%• Stock Holding Levels : Down 15%• Lead times : Averaging within 48 hours• Item Search & Identification Cycle : > 1 minute• Technology Collaborations : New products and Processes Launched

Introduction & Background Overview

Major challengesWhere are we now? Next steps 2014 and beyond

• Adopt the model for roll out across China and Latin America

• Expanding the relationship into Third Party Outsourced arrangements to reduce costs within those Supply Chains

• Develop the 5 year Road Map to ensure that the relationship and organisations evolve to deliver

• Greater emphasis required on Innovation, Sustainability and Product Substitution to “bring the outside in”

• Evolve the KPIs to more align to the softer measures

• Continue to benchmark & voice of the customer survey to avoid complacency

• Successful Implementation achieved over 25 sites

• Business relationship truly operating at the Strategic Level with aligned long terms objectives and resources

• 18 Strategic Projects identified through the business review process that arebeing scoped and prioritised to ensure the right focus and value creation

• Strong Governance and Compliance is allowing a greater focus on innovation and process improvements and added value offerings

• The Supply Chain has been significantly simplified and is delivering sustainable value and improvements

• The lack of Global maturity in the Supply Chain infrastructure

• Significant Product Churn (40%) due to research directions

• Outsourced organisations reluctance to see a revenue stream removed

• Balancing Innovation Concepts with the organisational speed of change

• Prioritising roll outs and potentially saying no

• Ensuring on-going competitiveness and avoiding lock in

Lab SuppliesSummarising our Journey

Thank You