Novartis CEO claims purchasing savings potential still strong

20 July 2011

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20 July 2011 | Angeline Albert 

Many spend categories have yet to be “attacked” to deliver savings for Novartis, its chief executive has admitted.

Speaking during a conference call with investors yesterday about the Swiss pharmaceutical group’s “strong” second quarter results, chief executive Joseph Jimenez said purchasing progress had been made but there was more to be done.

Jimenez said: “I believe that in procurement we’re still at the beginning stage. When you think about the organisation that we’ve put together in place right now here at Novartis, which is a global procurement organisation, there are still many categories that we have not yet attacked. So I still think we’ve got many years of procurement savings to come.”

He said the “multi-year benefit” that the purchasing function can bring included current success stories such as e-sourcing. Some 55 per cent of Novartis’ addressable spend had already “been pushed through” e-sourcing, which has generated savings in areas including packaging materials, media and travel expenses. Investors were told that the company delivers 5-6 per cent of procurement savings a year.

To improve its cost base, the group is already trying to optimise its plant capacity to around 80 per cent. As part of a three- to five-year manufacturing streamlining programme, the company has already closed three plants and is in the process of closing more.

Jimenez said Novartis is looking at ways to reduce its high-cost base in Switzerland. Because of the strength of the Swiss franc, costs have increased over the past few months. He said cost-cutting was needed particularly because of pricing pressures that were expected to continue in Europe.

The group’s latest financial results show its sales are up 19 per cent in the second quarter. Although the company’s net profit rose by 12 per cent in the second quarter, currency movements took 3 per cent off its net profit.

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