AstraZeneca on the Role of Supplier Engagement and Development in Saving Billions (Part 3)

In the first two posts in this series (Part 1 and Part 2), I shared some talking points from AstraZeneca's supplier engagement and development programs, which are helping to contribute to procurement transformation delivering billions in savings to the company. In this post, I'll summarize nine key lessons we can embed in our own procurement programs (some of these I gleaned at the Forrester event, others I've learned from elsewhere). Apologies in advanced if these sound too high-level or remedial/generic for you off-the-chart maturity model types, but I think there's something in here for all of us:

  1. Make supplier development an integral part of whatever sourcing process you go by (5-step, 7-step, 8-step, 9-step, etc.)
  2. Put supplier development efforts first from a cost reduction program standpoint with your largest and most strategic suppliers
  3. Rigorously segment which suppliers are worth engaging in joint-cost take out and improvement programs...
  4. ...Which implies segmenting your spend and sticking to prioritization (and focusing on leverage + transaction efficiency with others that fall out of the joint development focus areas)
  5. Know as much about your key supplier's cost structures as your own (the goal should be to know more about their spend than they do)
  6. Share in the savings together
  7. Prioritize technology architecture as a key enabler of overall procurement strategy (this includes specific data management and supplier development/performance management approaches in addition to the standard source-to-pay stuff)
  8. Have a technology savvy CPO (or at least one who is a fast learner) who can build a rapport with IT
  9. Get your procurement team members out of their offices and cubes -- make them spend more time engaging with suppliers and the business than on their regular day-to-day initiatives (they'll find a way to get those done anyway)

So there you have it. Approaches like this have helped AstraZeneca catch up to procurement leaders in pharma like GSK (which we ranked as an "innovator" in 2008 during our last analysis of the sector). In contrast, we typed AstraZeneca an "early adopter" on the Geoffrey Moore adoption curve for the pharma industry three years ago. How did other pharma companies stack up in the nineties? We considered Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Merck, as leaders in our earlier analyses, based on a combination of IT and procurement adoption and sophistication.

Given this updated analysis, we'll most likely promote AstraZeneca to the "innovator" level as well, which goes to show that you can achieve even greater results from engaging suppliers collaboratively on joint cost take-out and waste reduction as you can simply from cutting into their margins. That, and of course sourcing APIs and other direct materials (as well as R&D) from emerging markets can play a serious role in EPS improvement as well.

Jason Busch

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