How GlaxoSmithKline reshaped its procurement categories
GlaxoSmithKline’s CPO explains how the firm boosted business engagement, maximised supplier value and overcame structural obstacles.
The Procurement strategy at GlaxoSmithKline (GSK) is simple: to work with the supply markets and the business users to maximise the value delivered to the business. Underpinning this strategy are two main objectives:
- Increase the value delivered to GSK – by driving savings to meet business targets while ensuring quality and supply
- Make buying simpler for employees – connecting employees seamlessly to the right suppliers
For the strategy to succeed, three enablers are critical: Procurement capability uplift, smart operations and Category Councils.
The concept of Category Councils is perhaps the most important element behind his team’s success, says Jean-Yves Rotté-Geoffroy, Chief Procurement Officer at GSK, who oversees the company’s procurement strategy. “You can have the best people, the best processes and systems but, if your business engagement is poor, you will waste so much energy and rarely deliver break-through strategies.”
GSK has structured Procurement into 32 Category Councils, each of which is chaired by a relevant business lead. They are enterprise-wide decision bodies, which determine the category strategy by addressing five main strategic questions:
- What value, performance, quality and service do we expect from our suppliers in this category?
- Which suppliers do we want to work with globally?
- What are the associated risks and how will we mitigate them?
- How do we define performance and how do we incentivise it?
- How can we optimise financially?
Procurement supports the councils by preparing the market analysis, helping define business requirements and outlining strategic options. Category Procurement Leads help to link the business to the supply markets.
The creation of Category Councils means that procurement strategy is now developed in partnership with business leadership and they have sponsorship and co-leadership of the process.
Consequently there is much less resistance to change and the business buy-in is much stronger, says Jean-Yves Rotté-Geoffroy. “The Category Council process helps to ‘open up’ many areas of the business to the potential opportunities available in the supply market.”
These changes have also altered the focus of the procurement teams, increasing the importance of analytical skills and the ability to engage with the market.
GSK has recently boosted its analytical capability through a partnership with Infosys, to supply analytical, market research, eSourcing and tail management resources.
You can have the best people, the best processes and systems but, if your business engagement is poor, you will waste so much energy and rarely deliver break-through strategies.
Working with finance
Another factor in Rotté-Geoffroy’s success in raising Procurement’s profile has been through the way value is created and tracked through to the bottom line.
Rotté-Geoffroy stresses the importance of GSK’s Spend Management Framework, co-developed with Finance and sponsored by the CFO: a set of processes agreed with Finance and the business line to track and realise savings.
He emphasises the importance of working closely with Finance to ensure savings are reflected in budgets and realised in the P&L. “While quality and suppliers’ performance contribute to GSK’s success in all parts of the operations, there is a direct link between Procurement performance and GSK’s profitability.
“Core EPS guidance for 2016 is double-digit growth, for which our core Opex target will be a key contributor. Net cash flow was £2.6 billion, including £1.4 billion spent on Capex. Our Capex savings were £131 million, helping improve returns to shareholders.”
Maximising value from suppliers is another key element of GSK’s procurement strategy, and Rotté-Geoffroy has a clear view on the importance of supplier development and collaboration. “I am passionate about talking with our suppliers and really engaging them to see what additional value can be delivered by us working more closely together.
“I see the supply base as an extension of our business enterprise, and I want them bringing their best ideas to us first and for us to use their R&D efforts to benefit our business.”
Rotté-Geoffroy believes in the power of collaboration, but competition is also an important value-lever. “It’s not either/or – it is vital to understand the competitive dynamics of a supply base and how standardised the product or service is or could be. This segmentation is crucial to ensure you apply the right strategy.”
Rotté-Geoffroy joined GSK in 2011 from Cadbury/Kraft Foods where he was VP of Procurement for Kraft’s European operations. Before that, he held senior roles at InBev (the multinational drinks giant), including CIO of AmBev with a remit covering IT and a Shared Services Centre – a role that helped to shape his philosophy of business engagement.
One of our challenges is to ensure that the correctly cautious approach to change in our direct materials does not hinder the pace of change in indirect goods and services.
“This role took me completely outside my comfort zone, and for the first time I was a customer of Procurement. It taught me that, to really succeed in driving value, Procurement must first understand the business needs, and it is crucial that the business-line leadership takes ownership of procurement/supplier change initiatives – this alignment is essential.”
GSK is on a journey to simplify its operations in order to live up to financial objectives, without any quality trade-offs that would impact patients and consumers.
The decisions involved during this process are made more consensually than in the fast-moving consumer goods (FMCG) sector, where Rotté-Geoffroy has spent most of his career.
“One of our challenges in Procurement is to ensure that the correctly cautious approach to change in our direct materials – that is, raw materials and primary packaging – does not hinder the pace of change in indirect goods and services, because the risk profiles are completely different.”
The need for alignment and consensus in a way has created a significant opportunity for Procurement, Rotté-Geoffroy says. “We had to raise our game in the way Procurement and the business communicated at a strategic level – which has changed the conversation and enabled a controlled challenge of existing requirements, supply base, specifications, planning and ways of working.”