 GlaxoSmithKline: Using Sourcing to
Add Billions to the
Bottom Line
Tuesday, March 29, 2005
Lora Cecere
GlaxoSmithKline (GSK) is a major producer of pharmaceuticals and operates in 117 countries with 101,000
employees. The sourcing organization supports £7.4B of annual spend across more than 1,000 categories with
700 buyers. Based on a systematic approach of continuous improvement, the organization has increased the use
of Supplier Relationship Management (SRM) from a single event in 1999 to more than 2,000 events (such as
sealed bids, reverse auctions, RFX buy) in 2004. The initial electronic e-sourcing project paid for itself within the
first three events. Within the first three years, the company added £1B in savings to the bottom line. The team
interviewed was proud of the fact that post-merger savings were equal to the sales of a new blockbuster drug.
The Bottom Line: Sourcing technologies are maturing for wider adoption. Innovators like GlaxoSmithKline are
fine-tuning business processes using these technologies to gain huge returns while serving their Line-of-Business
(LOB) customers.
What It Means: Today, approximately 40% of GSK’s total spend is tendered using electronic events in a shared
service model run through a center of excellence to support more than 1,400 internal customers using hosted
technologies from Emptoris. The Emptoris system was installed in 2002 for electronic sourcing first, followed by
using the tool for spend management and rating supplier performance.
In 1999, sourcing technologies were deployed as an experiment or a one-off by many innovators piloting the
projects. While some companies overhyped the technology and under-delivered, GSK persevered with an
overarching vision to redefine its procurement processes through its Galaxy project.
GSK succeeded where many failed by sticking to the following five core principles:
- Create a core competency center. Using technology to power events is a specialized skill, not one that
is required by all buyers, and not one that fits all types of spend. GSK’s vision was to form a competency
center that combined tech-savvy personnel with seasoned buyers to explore the limits of the use of the
technology and build credibility with seasoned procurement professionals. Each group learned from the
other in a supportive, small-group environment.The Takeaway: Not all buyers will become electronic
procurement experts, and don’t expect them to. Form a shared services organization to capture the best
of both worlds for the greatest savings.
- Serve internal customers. Organizations frequently complain about the tracking of real savings, so GSK
established a tracking system early on. The savings must be auditable: Before savings can be booked at
GSK, they must be signed off by the LOB customer and the financial organization. The Takeaway: Letting LOB take charge and targeting actual savings help keep the organization focused on real results
versus pie-in-the-sky projects.
- Global organizations must source globally. To facilitate global procurement for a global organization,
last year the group looked at how to best run electronic events in all continents, with events run in more
than 50 countries. The group shared stories of quick adoption by Japan and India, a slower ramp-up in
China, and the need to provide proxy bidding and bidding facilities for areas with poorer connectivity, like
Africa. The Takeaway: Flexibility and training are important in the ramp-up of global events. While
global sourcing automation is possible, as demonstrated by GSK, each region of the world has cultural
and connectivity considerations. This does not happen overnight.
- Technology should support the business and not be for technology sake. Unlike many
organizations, electronic events were not deployed in isolation at GSK. Instead, the IT organization
worked with procurement and the LOB customers to invest in spend analysis and spend tracking. Since
this was vital to the business, the IT organization supported the LOB in getting functionality for a quick
return on investment, not handicapping the organization to wait for the maturity of its internal systems
from J.D. Edwards or SAP. The Takeaway: The degree of collaboration and support by GSK’s IT
organization for the LOB is rare. Companies seeking large returns through procurement projects need to
buy tactically today to ensure that savings can be captured early, while following the maturity of
Enterprise Resource Planning (ERP) technologies to make a decision to migrate to established technology
standards. The savings are just too great to wait. The gap between ERP technologies and best-of-breed
sourcing technologies is still huge in spend management and collaborative procurement workflow.
- Align to support the organization. Each member of the 15-person core competency team is assigned
to support different buyers by sector of business. As a result, GSK has been successful in the deployment
of spend analysis and electronic events to major buying categories: indirect spend, direct materials,
capital projects, corporate support for finance, marketing services, and IT and engineering. Procurement
and business customers are using Emptoris for spend analysis, and procurement staff is actively involved
in business decisions including Sales and Operations Planning (S&OP), buying strategies for new product
launches, and the creation of GSK’s factory of the future. The Takeaway: The adoption of these new
technologies requires active work (marketing and selling) with each of the buying units, but when done
right, the business can increase usage even more.
Conclusion: With today’s tightening of materials, rising costs, and shortages of capital, investment in sourcing
technologies can greatly increase the bottom line. There is a lot to learn from GSK about how to do a sourcing
project right. The savings are substantial and auditable, the business transformation is sustainable, and the work
to continue the momentum of helping the organization self-fund the ever-increasing cost of new drugs through
procurement excellence is commendable.
Copyright © 2005 AMR Research, Inc.
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