Bristol-Myers Squibb focuses on reduction in total cost of ownership (TCO) while capturing value-based savings (VBS) in its supplier relationship management (SRM) strategy.
A bit to unpack there.
Keith Robinson, Associate Director of Global Supplier Performance and Development for BMS, and one of the originators of this focus (if not the acronyms), can help. It all starts, he says, with the BMS Global Supplier Performance and Development Initiative of 2011.
You Found It, Now Fix It
“When we started this initiative, we gave a presentation to our executive team,” recalls Robinson. “I showed how much value we identified from just mining the data. They just looked at us, and then said: ‘Well, now you know about all this lost opportunity, what are you going to do about it?’”
What Robinson and team did was lay down the guiding tenet of capturing and accurately measuring a higher value throughout the supply chain, one well beyond cost savings alone.
“Once you source material, services or equipment to a supplier, there’s also a degree of management and other activities that happen internally as a result. All of that can lead to incremental cost beyond the contracting itself,” says Robinson.
The initiative begins with this internal look “to grab at that cost and then reduce it, and measurably demonstrate performance improvements year-over-year.” Robinson says, “This is something BMS is excited to share with other pharma companies and suppliers: There’s a total cost of ownership to look at, and it brings results.”
There’s a review of core activities for operational initiatives, including the usual lineup: quality, delivery, and productivity. But then, with “an operational-excellence mindset for continuous improvement,” brings a much larger value proposition to the business.
This value-based approach leads to deepening collaborations with key suppliers, as well as an increased collaboration between BMS’s own operating units. “We go after internal and external opportunities,” he says. “Sometimes what we might have looked at as a supplier-related challenge, we now find we caused for the supplier.”
Each year the initiative establishes specific targets. “We look at where our pain points are, and actually prepare a forecast on what that value proposition will be,” explains Robinson. “We set detailed goals for the year regarding how much in cost reduction and value creation we are going after.”
According to Robinson, the approach stems from employing a global view of where opportunities exist: “Companies should Pareto the opportunities, targeting those with the greatest value and the highest potential impact to the financials of the company, by way of cost reduction or cost avoidance.” [Pareto refers broadly to the “80/20 Rule” that stipulates 20% of the inputs or activities are responsible for 80% of the outcomes or results. Project managers, for example, know that 20% of the work ends up consuming 80% percent of their time and resources.]
Robinson says this digging into the major challenges – offering the biggest returns –involves a large measure of data mining, and developing “a timing around addressing those concerns and capturing that value.”
There’s also an interdepartmental confirmation exercise that needs to be completed. “Alignment with finance is especially critical,” says Robinson. “We have to speak the same language. And we have to validate the work to be accomplished, so a clear understanding from the related business units regarding the scope of work is vital.”
Regarding metrics, Robinson says they must be “relevant, and there has to be clear visibility of all the issues – both internally and externally – to help align on scope of work, and justification of resources. Everyone involved needs to be provided a clear understanding of what the value is.” That “value” can look like these examples:
1. Supply Chain Complaint Reduction = Resource Cost ($) x Number of Complaints
2. Efficiency = Increased Output (%) through defect elimination
3. Scrap = Reduction of wasted product
“So maybe we look at our site or a supplier’s; maybe at materials. Perhaps we’re looking at the costs of specific events, and how those are handled,” says Robinson.”
Whatever the case, Robinson’s team gets a lot of people involved – manufacturing, technology, quality, various operations – because “there are areas that don’t surface until you get deep into the initiative itself.”
“And again,” he says, “we need to align with our finance organization, because we are going after something we see as adding value. Finance doesn’t automatically agree the initiative actually impacts the bottom line. We need to involve them early to focus on the right areas and measurements.”
Suppliers In The Fix
Often, most important to BMS initiatives is the alignment and integration with supplier relationship management (SRM) strategy. “This is core,” says Robinson, “because where we see opportunity doesn’t mean our suppliers working on those specific projects and programs are willing to actually go after those areas.”
Robinson believes BMS has learned how to effectively integrate supply chain partners within the scope of its initiatives. And sometimes patience is a virtue. The value may become evident incrementally, perhaps even as an annual reduction of time, costs or productivity. Value may manifest in a reduction in the number of high-level issues that need to be escalated, either at the supplier or internally.
“With this approach, and based on where a pharma company identifies its value opportunities with its suppliers, discernable trends should materialize over time. These trends then feed future efforts at cost reductions and more value-based creation,” says Robinson.
There are, then, two keys to the BMS approach: maintaining an operational-excellence mindset – including supplier’s input – on total cost of ownership and value-based savings opportunities; and a continuous look to the future for the next steps to identify and, as Robinson says, “merge opportunities.”
These opportunities don’t necessarily originate from the sponsors. Suppliers have their own unresolved areas of opportunities that influence the total cost of their customer’s products. “Together,” says Robinson, “we can identify a balance between project costs and total return on any investment – a rationalized cost-versus-benefit analysis.”
How would Robinson sum up the first six years of these combined efforts?
“The approach has advanced our pathways to improved supplier performance, and in fact reduced cost,” he replies without hesitation. “And our suppliers have been able to adapt similar metrics to align with their customers’ views of performance. We’re fostering long- and short-term strategic planning. We’ve identified external and internal improvement opportunities, and established yearly cost-reduction targets based on the trends we are now seeing. Finally, we’ve been able to leverage our operational excellence teams to support widespread continuous improvement efforts throughout the company.”
This article was based on a presentation by Keith Robinson, Associate Director of Global Supplier Performance and Development for BMS, at DCAT Week ’17, the annual event of the Drug, Chemical & Associated Technologies Association (DCAT).