Ten Steps to Lower Procurement Costs

©2009 SciQuest, Inc. Confidential

Ten Steps to Lower Procurement Costs in Life SciencesActionable steps to deliver value and boost the bottom line in four months or less

Now available for download at www.sciquest.com/archstone

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2©2008 SciQuest, Inc. Confidential

The Authors

More than 30 years of consulting and operational experience in large, small and early stage life science companies. Advisor to companies on sourcing and procurement effectiveness and transformation since the mid-1990’s.

PhotoMichael EckstutPrincipal and Practice Leader of Life Science and Strategy Practice

www.archstoneconsulting.com

Ken is a 23 year veteran of crafting and deploying enterprise technologies designed to improve efficiencies at the strategic, tactical and operational levels within the Life Science industry.

Ken RoyVice President of Life Science Practice at SciQuest

www.sciquest.com

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Cutting Costs Has Taken Center Stage

• Working capital

• Discretionary spending

• Non-critical capital programs

• Overhead costs

• Inefficient processes

• High rate of errors

• General pressure on all SG&A budgets

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Cost Savings & Procurement

For most companies, current productivity improvement and cost saving initiatives will not yield sufficient cost reductions.

Procurement initiatives can help:

• Procurement has a high impact on bottom line and profitability

• $1 of savings = $6 of revenue growth• Short term gains launch long term

sustainability

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Procurement CAN Make A Difference

Actionable strategies across four major areas:

SourcingSourcingGovernance and

ComplianceGovernance and

Compliance

Supplier Relationship


Self Funding

Self Funding

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Sourcing

Mine Value From Segmentation. Mine Value From Segmentation. Re-evaluate spend in major, market sensitive categories.

• Transportation, IT Capital, Professional Services, Travel, CROs

Build Opportunities In Spend.Build Opportunities In Spend.Review long-term and high-value contracts.

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Governance and Compliance

Eliminate Sacred Cows.Eliminate Sacred Cows.Opportunity to deliver value across all categories and organization.

• Build business case / cost savings scenario• Analyze spend and opportunities• Establish contracts and preferred suppliers• Apply procurement best practices

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Adopt Best Practices.Adopt Best Practices.Benchmark Strategic Procurement processes and tools to drive compliance.

• Centralize procurement function• Funnel spend through online catalogs• Streamline approval processes• Monitor and analyze spend

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Lower Sourcing Threshold. Lower Sourcing Threshold. Increase competitive bidding by enabling people and processes through technology.

Never Overpay.Never Overpay.Automated invoice validation and Closed Loop Matching to focus AP

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Mitigate Supplier Risk. Mitigate Supplier Risk. Define, measure and balance your supply chain risk.

• Build a supplier scorecard and assess your suppliers’ health

• Add suppliers to address single points of failure

• Leverage external information to augment insights

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Self Funding

Ask for a Stimulus Package.Ask for a Stimulus Package.Leverage suppliers for greater discounts to assure long-term relationship.

Negotiate a Self-Funded Discount.Negotiate a Self-Funded Discount.Early payment discounts.

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Take Action Now!

• Identify areas best suited for success

• Execute immediately

• Embrace economic hardships

• Achieve 6-fold profitability impact

• Deliver benefits in 4 months

• Lay the foundation for best-in-class

procurement processes and systems

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Recipe For Success

2

Critical Senior Management Support

Procurement must be used by all partners and will own all 3rd party spend globally

Procurement will address a higher percentage of the spend and go deeper with procurement methodologies and approaches

Procurement will own all resources and employ a flexible resource pool to match business needs – use contractors as needed

Procurement will define, maintain and communicate procurement procedures and policies

Procurement will work collaboratively with Finance and partners to plan spend budgets, savings, and monitor compliance / results

1. Get senior management support

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- Procurement-driven savings that have been quantified and removed from the budget

• “Baked-In”: Procurement cost savings defined collaboratively with budget holders in parallel with budget reductions

Savings Built into the Budget

- Savings on spend that is in the budget, but through Procurement-driven activities can be reduced or eliminated from the budget through the course of the year

Savings Opportunities Not Yet Linked to Budget Reductions

- Savings resulting from procurement-driven activities that are not allocated back to a cost center budget

- Savings that are ancillary to the contract negotiated savings

Unallocated or Supplemental Savings

- Proactive reduction of costs that Wyeth would otherwise incur but has not budgeted for. Represents demonstrable cost reduction relative to increased market price-point.

Cost Avoidance

Savings

ExamplesDefinitionSavings Type

Define Procurement Savings Categories

2. Define target areas to pursue

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Procurement 2009 Project Review

Procurement Business Case Enablement: Risk & Vulnerability

- Proactively track and manage supplier vulnerability and product risk for top products. Reduce risk of supply disruptions or quality failures

Supplier Scorecard- Product quality and safety/QA issue. “Early warning" of supplier underperformance for direct

materials.

Report Development- Report Enhancements

Spend Analytics Improved "quality" of spend categorization, enhanced analysis capabilities

E-Sourcing Reassessment - Evaluate e-Sourcing marketplace and determine best solution for Procurement needs

3. Develop specific projects

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Cost Reduction For Budgeted

Spend

Cost Avoidance

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

2008

Savings

2010

Projected 2010 Savings from 2009 Projects

2008 Total Savings: $M

$M

Sourcing projects will result in $M in savings in 2009. Some of the 2009 projects will result in an additional $M in savings in 2010.

2009 Savings Summary

Savings Not Yet Linked to

Budget

Savings Built into Budget

Cost Avoidance

2009

$.2M

$7M

$.0M

Projected 2009 Total Savings: $M*

$.2M

$.2M

Spot Buy

4. Track Results

©2009 SciQuest, Inc. Confidential

For More Information:

One Bush StreetSuite 505San Francisco, CA 94104www.archstoneconsulting.com

Michael K. Eckstut PrincipalLife Sciences Practice Leader

T 415.249.3533C 415.359.6395F 415.249.3501meckstut@archstoneconsulting. com

6501 Weston ParkwayCary, NC 27513www.sciquest.com

Ken Roy Vice PresidentLife Sciences Practice

T 215 654 0893C 215-262-0997kroy@sciquest. com

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Ten Steps to Lower Procurement Costs