Novartis Reports $500 Million in 2Q Procurement SavingsBy
As part of its second-quarter earnings release, Novartis provided an update of its productivity initiatives. In total, the company’s productivity initiatives generated gross savings of approximately $700 million in the second quarter. This total included $500 million in savings from Procurement by leveraging scale.
Also in the second quarter, Novartis Business Services (NBS) continued the selective offshoring of transactional services. NBS is Novartis’ shared services organization, which also includes the procurement function.
Additionally, as of July 1, 2016, the new centralized Technical Operations and integrated Drug Development organizations became operational. Novartis had announced earlier this year that the company planned to centralize its manufacturing operations across divisions within a single technical operations unit. The new unit is responsible for optimizing capacity planning and lower costs through simplification, standardization, and external spend optimization. Centralization is also expected to improve the company’s ability to develop new technologies, implement continuous manufacturing, and share best practices across divisions, according to the company.
Novartis also announced in January 2016 that it was increasing group-wide coordination of drug development by establishing a single global head of drug development to improve resource allocation, technology,and standards across divisions. The move also integrates certain common functions, such as the chief medical office, which will cover medical policy, safety and pharmacovigilance policy for the company.
At the time of its announcement in January 2016, Novartis expected that these changes to generate over $1.0 billion in annual cost savings from 2020, with the ramp-up starting in 2016. Associated with these changes, the company expects one-time restructuring costs of approximately $1.4 billion spread over five years. Net savings will be used to fund innovation and improve profit margins.