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Reengineering – Novartis Style

May 11, 2010

Last week, I summarized a conference that I attended in Barcelona and undertook to write about some of the presentation highlights.

One was a session led by Sammy Rashed and Gerardo Aguilar from Novartis. They have been ‘evolving sourcing into the organizational productivity champion’. This is a cause dear to my heart because, in my experience, support functions that do not lead change are in for a sorry ending.

At its heart, the work at Novartis has transformed Procurement from being ‘a buying organization into an organization that manages buying organizations’. Internally, it has transitioned from being a service provider to becoming a business partner. This has been achieved by three core steps:

  1. Integration of the function into the business and a more strategic leadership, two levels below the CEO
  2. Category heads sit on relevant functional boards – for example, Marketing.
  3. The operational staff operate within the business untits, rather than as category teams.

These changes have been driven by a desire to move up-stream in terms of value and influence and to outsource traditional Procurement activities (in this case to Genpac). Re-defining the process also led to re-allocation of certain tasks – for example, efficiencies were realised by moving the issuing of  orders to Finance, to sit alongside accounts payable. Internal transactional activity has largely been eliminated.

The project tackled core issues, such as demand management and cost of ownership, through the introduction of disciplines that look at what is being bought relative the value of the need being satisfied; and which introduce discipline over ‘must’, ‘nice’ or ‘smart’ to have.

The presenters summarized their efforts by explaining that they addressed ‘the need to develop cross-functional project leadership and business partnering as core capabilities’. This change was fundamental to altering the image of Procurement and the value it is able to deliver.

IACCM will soon feature Sammy and Gerardo in an ‘Ask The Expert’ interview, to provide its members with a more in-depth insight to this fascinating reengineering project which, in my view, provides a powerful insight to the future.

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