Being more like Coca-Cola takes days out of GSK's pharma supply chain

In what was a somewhat middling financial report to investors, there were some manufacturing and supply chain nuggets from GlaxoSmithKline ($GSK) CFO Simon Dingemans this week.

Fairly deep into the conference call, Dingemans said lessons learned from being more of a FMCG company on the consumer side were being applied to pharma to take time and costs out of the supply chain. FMCG--Fast Moving Consumer Goods--is most often applied to companies like Coca-Cola, Anheuser-Busch or British American Tobacco that have to turn product over quickly and so must manufacture close to where they sell.

In the last 6 months, Dingemans said GSK has been "simplifying the manufacturing footprint" to align that footprint more tightly to the three main businesses: Vaccines, Pharma and Consumer. Creating a single end-to-end supply chain, "much like you would find in any of the major FMCG companies around the world" allows the company to drive the speed of response, drive the costs lower and particularly to drive cash and the working capital out of the process.

Using the techniques in pharma, the company is now asking where it wants to put a plant and where is the capacity, he said.
"So Aranda, our big respiratory plant in Spain, had some space in one of their plants that was otherwise sitting there in a mothballed way. We are now going to put the production of Panadol into that plant," Dingemans said.

Efforts in manufacturing and improvements in IT systems are helping take time and costs out of the supply chain. That has particularly played out in Pharma, he said, in which about 10 days were taken out of the supply chain process, an improvement expected to contribute £350 million in the first six months of the year.

The company missed forecasts for fourth-quarter earnings and sales, and margins weren't what they might have been for 2011, so officials concentrated on talking about what to look for in 2012; Dingemans said efforts at being more of an FMCG company is adding to the prospect of a better 2012.

A simpler manufacturing platform allows for simplified logistics, for instance, "which are hundreds of millions of pounds [of costs] in terms of how we think about distributing our product around the world," he said. "If you align the plant more closely with where you're actually selling it, you can reduce those [costs] significantly."

- read the conference call transcript

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