GlaxoSmithKline looks to supply chain for savings

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Pharmaceutical giant GlaxoSmithKline is targeting improvements in its supply chain in the next stage of its strategy to reduce its cost base.

“Going forward we continue to apply sustained pressure to GSK’s cost base to realise further savings, through improvements in areas such as support functions, supply chain and procurement efficiency.”

The group has identified enhancing cash conversion as a a key priority. Chief executive Andrew Witty said: “While we have made some progress improving our working capital position, there is clearly more we can do. This is a significant focus area for us, particularly in inventory management where we are targeting a number of fundamental changes to the management of our supply chain to improve inventory turn as well as reduce costs.”

The group’s first half results show operating profit rose 42 per cent to £3.8bn on sales down 7.5 per cent to £13.3bn. It its interim report it notes that: “Working capital increased by £380 million in the half-year, largely as a result of increased inventory holdings for seasonal and new product stock-building. Consequently, working capital conversion declined by 15 days compared with 31st December 2010.”

In its annual report for 2010 GlaxoSmithKline said: “Inventory of £3,837 million has decreased by £227 million during the year. The decrease reflects initiatives to reduce manufacturing cycle times and reduce stockholding days through more efficient use of inventory throughout the supply chain.”

It is nearing the end of its current Operational Excellence programme which has focused on issues such as improving the selling model, streamlining global manufacturing, enhancing research and development efficiency, and reducing bureaucracy.

Witty said: “Following a review we now expect to deliver additional annual savings of approximately £300 million, bringing the total annual savings expected from the programme to £2.5 billion a year by 2012. These incremental savings will be generated with no increase to the previously disclosed restructuring charges of £4.5 billion, the majority of which have already been taken.”


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