3. Do you have the right mix of tactical versus strategic productivity initiatives?
While your quarterly or annual targets are usually the most important objectives (and you cannot defer good results), many
of the elements you implement this year will also determine what you can achieve next year. While focusing on easy cost reductions
and short lead times can be a solution for the current year, this cost-saving strategy will likely create a problem the year
after. Savings which require more strategic cost initiatives and longer lead times need to be started earlier rather than
later, and you should aim for a healthy blend of initiatives that will allow for short-term success but also ensure that you
are set up for the long-term. Peppering in a few strategic initiatives will help you avoid the need for quick fixes over time.
For example, a life sciences supply company wanted to implement simple tactics for reducing inventory by reorganizing its
ordering processes and payment terms. At the same time, it aimed to reduce complex overhead by phasing out some of the products
in its inventory, improving its supply chain footprint, and managing how it deals with its supply chain sourcing throughout
the network. This initiative yielded limited savings in year one, but more importantly, will be key to achieving cost savings
targets for next year as it implements a more streamlined inventory and supply chain organization.
4. Are you putting the right amount of resources in implementation and execution, or do your projects get stuck after the
initial planning phase?
There is tremendous value in planning a cost reduction and productivity program very carefully; however, there can often be
a disconnect between the planning and implementation phase. This problem is often elevated by a lack of transparency around
the real total number of projects occurring within the organization, and therefore a gap in knowing where resources can best
be allocated. While it can take some time and investment to assess the true value and return on any given project and the
real internal resources deployed on it, having an accurate view on which projects people spend their time is often all it
takes to make the right resourcing and prioritization decisions. This resource allocation transparency is instrumental to
making these decisions.
5. You might pursue all the right procurement activities, but are you sure that you are going at the right speed?
Investing in strategies that help you gain speed is a counterintuitive notion in a climate of reduced spend. Spending money,
even if outside the budget, to accelerate capture of the opportunity is worth considering, as it might result in savings.
For example, implementing an initiative with a $12 million annual cost savings target beginning in April, rather than July,
has an incremental bottom line impact of $3 million. This adds up to a massive amount when you consider the large cost base
of leading pharmaceutical companies. Adding more resources or management attention to a project in order to complete it faster
is one approach to increasing speed; improving processes and systems is another.
Overall, executives throughout the industry have said that meeting lofty cost reduction goals set for 2011 will require major
changes in their company's approach. At the same time, these executives are charged with growing their organizations during
a time when resources are being cut back.
Companies are challenged now more than ever to simultaneously reduce costs and to continue to grow and innovate. They will,
therefore, need to find the most effective mix of measures to be executed both through the line organization and the launch
of new cost reduction products. In a resource-constrained environment, it will be key to get the most out of each initiative
and every project they execute to stay competitive. Pharmaceutical companies that execute well and confront these changes
will most likely come out on top, emerging stronger and fitter after the storm.
Frédéric Brunner is the CEO of a-connect, a global consultancy and project execution partner. He can be reached at firstname.lastname@example.org