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Alignment of Procurement Programs with Performance Management and Best Practices

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Title: Alignment of Procurement Programs with Performance Management and Best Practices


1
Alignment of Procurement Programs with
Performance Management and Best Practices
  • Joseph Hopkins,
  • Senior Director Strategic Sourcing and
    Procurement
  • Supply-Chain World North America
  • March 19, 2007

2
Session Objectives
  • Company Overview Allergan Building Leadership
    in Specialties
  • Allergans Sourcing Procurement Program Built
    on Best Practices
  • Supplier/Buyer Relationships Defining and
    Expanding the Paradigm
  • Conclusion
  • Discussion and QA

3
Allergan Building Leadership in Specialties
4
Allergan
  • Founded January 27th, 1950 in Los Angeles,
    California, by Gavin S. Herbert Sr.
  • Headquartered in Irvine, California
  • Global specialty pharmaceutical company that
    develops and commercializes innovative products
    for
  • Ophthalmology
  • Neurosciences
  • Medical Dermatology
  • Medical Aesthetics
  • Obesity Intervention

5
Specialty Pharmaceuticals
  • 52 on 2007 BusinessWeeks Best Performers List
  • New York Stock Exchange (NYSE) AGN
  • One of the leading life science companies on West
    Coast of U.S.
  • Approx. 6,800 employees worldwide, over 40
    commercial locations, 4 world-class Research and
    Development facilities and 8 state-of-the-art
    manufacturing plants
  • Discovery-to-development research programs
  • Global marketing and sales capabilities in over
    100 countries
  • 2007 Projected Revenue 3.5B-3.6B USD
  • Market Capitalization 17B USD

Revenue projections provided on Jan. 31, 2007
Earnings Call
6
Our Four Specialties
Medical Aesthetics
7
Eye Care Product Portfolio
8
OphthalmologyPositioned For Growth Innovation
2005 world market growth 10 Allergan fastest
growing global ophthalmology company last 5 years
Market Share Growth
Source IMS Global, Excluding retinal
therapeutics
9
Dermatology Portfolio
  • Retinoid for
    Topical Acne
  • Glycolic Acid for
    fine lines/smoothing

  • Idebenone Antioxidant for skin care

  • Movement Disorder, Excessive

  • Sweating, Spascity and Headache

  • Brow Furrow

10
BOTOX PerformanceStrong Growth Across Segments
24
BOTOX Franchise
18
25
28
Therapeutic
17
16
42
Cosmetic
20
32
25
30
21
30
25
60
Growth rate excludes 2005 Japan Sales, see
reconciliation at end of presentation
11
Neurosciences GlaxoSmithKline Partnership
Maximizing value of Botox assets
  • Japan China
  • Large untapped markets where GSK has critical
    mass local marketing/expertise
  • Allergan to receive up-front payment and royalty
    payments
  • United States
  • Co-promotion of GSKs migraine products, Imitrex
    STATdose System and Amerge
  • Enables Allergan to learn migraine market
  • Contractual payments enable Allergan to double
    neurology salesforce
  • Strategic expansion in Neurology

12
Allergan MedicalHigh Growth Markets
  • Inamed Acquisition of 3.2B
  • Brings global leadership in dermatology and
    plastic surgery channels
  • Leading product portfolio includes
  • Breast aesthetics augmentation and
    reconstruction
  • Dermal fillers collagen hyaluronic-acid based
    products
  • Obesity intervention products Lap-Band, BIB
    system
  • Products address two global mega trends
  • Personal expenditures on appearance
  • Morbid obesity

Extrapolation based on April Dec. 06 Sales
Figures
13
Allergan Leader in Specialty Therapeutics
Medical Aesthetics
14
Allergans Sourcing Procurement Program
Built on Best Practices
15
(No Transcript)
16
Why a Sourcing Program at Allergan?
  • Company has Historically focused on Top-End
    Performance
  • Funding of Key Growth Drivers
  • Consistent with Pharma
  • Efficiency Opportunities
  • Growing As We Are!
  • High Proliferation of Vendors
  • Need for Additional Checks
  • and Balances

Institutionalizing Best Practice Cost
Management Program
17
Making Every Dollar Count
  • The Sourcing Program is built on Best Practice
    Sourcing methods and high level of Key
    Stakeholder Participation
  • Select Preferred Supply Partners who can
    comprehensively fulfill Allergans Business
    Needs/Requirements
  • Expect and Require highest level of service from
    our Preferred Supply Partners
  • Reduce overall costs to Allergan, while not
    compromising the companys standards or business
    requirements

18
Pillars of a Best Practice Strategic Sourcing
Program
19
Protection
Government Contracts Compliance
Mitigation of Procurement Risks and Potential
Fraud
Greater Ability to Monitor and Enforce SOX
Compliance
Structured Contracting Environment More Favorable
Contract Terms
20
Standardization
Process Efficiencies
Nimble Business Engagement Practices
Program Sustainability
21
Category Management Process
Continuous Improvement
Preferred Supply Partner Selection Process
Continuous Improvement
Continuous Improvement
Vendor Assessment Business Requirements
RFI Request For Information
RFP Request For Proposal
Preferred Supply Partners
  • Additional Considerations
  • Mix of National / Local
  • Previous Relationship

Continuous Improvement
22
Portfolio Analysis
23
Sourcing Efficiency Supplier Rationalization
24
ROI
Leverages Buying Power
Overall Program Efficiencies
Verifiable Savings to Fund Key Growth Drivers
25
At-A-Glance Overall Program Results
  • Rationalization Based on Initial Spend OA,
    achieved 50 Reduction of Supplier Base
  • Vendors of Choice Approx. 48 of spend Now
    Supported by Preferred Suppliers
  • Savings 290 increase over 2005 Capture
    Performance
  • Impact Most Budgets now reflect lower cost base
  • Driving Compliance Launching eProcurement
    Platform
  • Do the Right Thing Proposal on Table to
    transform SBA Program into Supplier Diversity
    Program
  • New Ways of Working Business Partners, Legal
    and Sourcing Workflow Processes in place

26
Supplier/Buyer Relationships Defining and
Expanding the Paradigm
27
Establishing new Ways of Working and Processes
to support a Preferred Supplier Program is
Critical
But, You must concurrently define and expand The
Supplier/Buyer Paradigm
28
Supplier/Buyer Relationships Expanding the
Paradigm
  • Rapid shift from traditional, adversarial, "arm's
    length supplier/buyer relationships toward
    longer-term, more cooperative relationships in
    which the buyer and the supplier tend to regard
    each other more as equal partners.
  • Partnerships or alliances between suppliers and
    buyers are increasing in frequency and
    importance.
  • Regardless of the reasons given for partnering,
    many purchasing experts believe that partnering
    is a trend that will continue into the next
    century.
  • Customers are recognizing that Successful
    Engagements largely depend on the Ability to
    Maneuver through the Supplier/Buyer Relationship
    Continuum.

29
Supplier/Buyer Relationship Continuum
Value
Transcendental Relationship (Partnerships
or alliances)
Transitional Relationship (Preferred Supplier
Program)
Transactional Relationship (Contracts /
Blanket Orders)
Informal Relationship (initial / One-off
Engagements)
Organizational Impact
30
Key Ingredients
  • The Law of Reciprocity
  • Is the Supplier Trustworthy?
  • The Appearance of Self-service
  • Disclosure of relevant information when requested
  • Supply Specifications Get It Right!
  • Supplier/Buyer Relationship Continuum

31
The Law of Reciprocity
  • One of the most fundamental requirements of any
    long-term Supplier/Buyer relationship is the
    assumption of reciprocity
  • a shared understanding that compensate value
    received with equal value given.
  • Compensation offered in exchange for goods and
    services rendered, but must also be perceived as
    being fair by each of the transacting parties.
  • Shirkers and free-riders are swiftly penalized
    for uncooperative behavior.
  • Without a norm of reciprocity, trust among people
    would evaporate, and commercial trade among
    individuals and firms would grind to a halt.
  • A smart buyer will use tools (i.e. Portfolio
    Analysis, etc . .) to ensure that a marketplace
    equilibrium is achieve to competitively determine
    price. If the competition is either constrained
    or deficient, the Law of Reciprocity is violated
    due to inequality.

32
Is the Supplier Trustworthy?
  • Trust is important, but is seldom. It is a
    critical component in the development and
    maintenance of supplier/buyer relationships.
  • Two views (a) a business view based on
    confidence or risk in the predictability of one's
    expectations, and (b) a view based on confidence
    in moral integrity of others' goodwill (mutual
    respect).
  • Buying organizations must focus on monitoring and
    measuring performance (SLAs) to ensure fair
    judgment regarding compensation
  • Trust is compromised when performance measurement
    is difficult to accomplish or non-achievable.
  • Buyers generally trust suppliers until the
    supplier destroys trust. One manager recently
    said, I trust suppliers until they break an
    agreement.

33
The Appearance of Self-service
  • The traditional "arm's-length" buyer-supplier
    exchange relationship marketed by mutual distrust
    and active animosity, self-serving behavior, and
    a prevalent "win-lose" attitude towards the
    negotiated exchange terms between the buying and
    supplying parties.
  • Do not engage in hostile commercial
    relationships, where the objective is the
    maximize self-interest.
  • Guard against Suppliers impression of gaining or
    sustaining any possible commercial advantage
    restricting relevant information.
  • Balance the inevitable transaction phases of a
    relationship (extensive contractual arrangements)
    with sufficient levels of shared interests that
    make it attractive for both parties to continue
    the exchange relationship over a longer period of
    time.
  • Much higher levels of trust and openness are
    displayed between buyers and suppliers in the
    transitional relationship, where self interest
    is much more prevalent.
  • Supplier certification or preferred programs
    are examples of transitional relationships.

34
Disclosure of relevant information when requested
  • A Supplier must be as open to revealing as much
    accurate and relevant information to the buyer as
    possible.
  • Open communication and sharing of information can
    not be achieve if you regularly engage in
    backbiting and common negotiation tactics such as
    bluffing.
  • Although mentioned in many negotiation training
    sessions as a strategic tactic, lying/bluffing is
    definitely a negative characteristic.
  • A supplier can not move through the
    Supplier/Buyer Relationship Continuum without
    accurately discloses relevant information when
    requested by the Buyer.

35
Supply Specifications Get It Right!
  • I know you believe you understand what you think
    I said, but I am not sure you realize that what
    you heard is not what I meant.
  • Buyers are responsible for providing procedures
    and specifications, however, the burden is on the
    supplier to translate and get it right.
  • The buyer must proactively feed-forward
    Products/Services, Process and System
    requirements.
  • If supplier can provide clear and complete
    specifications, the relationship between supplier
    and buyer will usually begin on firmer and
    fertile ground.
  • Perform regularly Specification Follow-Through
    Sessions with Suppliers
  • If suppliers dont Get It Right there will be
    an impact on The Language of Business MONEY and
    The Relationship.

36
Maneuvering through the Supplier/Buyer
Relationship Continuum
  • An optimal Supplier/Buyer relationship will
    progress from the Informal to Transcendental
    Relationship to achieve the highest levels of
    mutual dependence and commitment.
  • Transcendental Relationships depend on complex
    system of checks-and-balances which are
    controlled through the use of socialization,
    norms, and internalized common values within the
    long-term, cooperative buyer-supplier
    relationship rather than through any contractual
    or legal enforcement.
  • Whenever buyers and suppliers must work closely
    together to design and produce new or complex
    products, trust must be generated and
    demonstrated between the parties because of the
    high level of sensitive information sharing.

37
Maneuvering through the Supplier/Buyer
Relationship Continuum, cont . . .
  • Maximize total relationship outcomes to satisfy
    both individual firm, group needs and objectives
    as opposed to divergent outcomes.
  • Long-term cooperation and loyalty from all
    parties to the relationship are expected.
  • A long-term orientation is necessary to develop
    high levels of trust between the partners because
    then the relationship itself is shown to have
    value.
  • True strategic partnerships are considered to be
    transcendental relationships.

38
Supplier/Buyer Relationship Continuum (Recap)
Value
Transcendental Relationship (Partnerships
or alliances)
Transitional Relationship (Preferred Supplier
Program)
Transactional Relationship (Contracts /
Blanket Orders)
Informal Relationship (initial / One-off
Engagements)
Organizational Impact
39
  • Successful Trade Engagements largely depend on
    the Ability to Maneuver through the
    Supplier/Buyer Relationship Continuum

40
Conclusion
41
Discussion and QA
42
There are no Limits!
  • Whatever you
  • Vividly imagine,
  • Ardently desire,
  • Sincerely
    believe,
  • And, enthusiastically act upon -
    - -
  • Must inevitably come to pass.


  • Paul J. Meyer

43
Thank You!
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