GSK Prescribing Higher EPS through Procurement Cost Reductions
According to GSK's most recent earnings report, net profit, before restructuring charges, was £1.27 billion or just over $2 billion in US dollars for the quarter ending 30 June. Factoring in restructuring charges, net profit still hit £1.11 billion, an impressive number. According to one source covering the latest quarterly performance, "Cost-cutting helped deliver bottom-line improvements, and that drive will continue. The company has already identified another £300 million worth of cuts to annual spending, bringing the restructuring savings to £2.5 billion a year. Plus, GSK is eying more cost reductions, some of which mimic Novartis' efficiency efforts, namely supply-chain and procurement efficiencies, and cash-conversion improvements."
Yet from the Spend Matters perspective, we'd argue that at least historically speaking, GSK has been at the same level (or potentially even ahead) of Novartis in certain areas of procurement and supplier management. A study we conducted in 2008, suggested that GSK along with Eli Lily, Johnson & Johnson, Merck and Pfizer were the most "Innovative" companies when it came to procurement and related technology adoption and returns. Abbott, Amgen and Novartis came up as "Early Adopters" on the same measurement scale, with over three dozen other companies falling into the Early Majority (e.g., AstraZeneca), Late Majority (e.g., Genzyme) and Laggard categories. Regardless, all the work that GSK has been driving for years in procurement is certainly paying off, with shareholders partaking in the benefits of previous and continuous investment.
TweetBacks
There was an interesting piece earlier this week in the WSJ talking about how GSK (among others) is leveraging reverse auctions on legal spend. Setting aside any opinions on the relative merit of using that approach, you have to give them credit for pushing the envelope. I was at the bleeding edge intersection of reverse auctions and legal spend years ago and have a unique appreciation for what it takes to pull that off in that environment. It is not insignificant. I tip my hat to them.
Jason, Can you comment on specifically how these companies are driving higher EPS through Cost Reductions? This additional information would be valuable. Also, how was the ranking of the companies measured? Regards, Ansa
