GSK to squeeze supply chain costs

London – GlaxoSmithKline is targeting improvements in its supply chain in the next stage of its strategy to reduce its cost base, the company said alongside first-half results showing operating profits up 42% to £3.8 billion, on sales 7.5% lower at £13.3 billion.

“While we have made some progress improving our working capital position, there is clearly more we can do,” said Andrew Witty, GSK’s chief executive. 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.”

It its interim report GSK noted 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.”

GSK’s annual report for 2010 stated: “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.”

The pharma giant is nearing the end of its current operational excellence programme. This has focused on issues such as improving the selling model, streamlining global manufacturing, enhancing research and development efficiency, and reducing bureaucracy.

Witty concluded: “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.”