Teva looks for big savings from procurement, manufacturing

Teva Pharmaceutical CEO Jeremy Levin

Teva Pharmaceutical Industries ($TEVA) CEO Jeremy Levin put manufacturing efficiencies at the heart of his plans for Teva to cut costs when he first announced his plans in December. Today, he stepped on the gas.

The company announced it will lay off about 5,000 employees, 10% of its workforce, by the end of next year and now plans on banking $2 billion in savings before the end of 2017, instead of initial projections that it would save $1.5 to $2 billion. The company again avoided details about where the cuts will fall but said the "majority of the savings are expected to come from a reduction in the company's cost of goods."

When Levin first announced his restructuring plans for the Israel-based generics company, he tasked Carlo De Notaristefani, president of global operations, with finding $1 billion in "efficiencies" in sourcing and manufacturing. But the two have never been real specific about how they intend to get there. He has said he expects changes in the supply chain and purchasing to deliver from $400 million to $700 million of the anticipated savings. Levin announced at the time that Erez Israeli, who had run the API business for Teva, would now report directly to him. The plan is to make procurement more efficient. The company, which now buys from thousands of suppliers, will partner with some and eliminate others to driver a harder bargain and lower its costs of goods.

The company also has said it can get about $175 million in savings by moving from smaller plants to larger, more efficient facilities. Execs said they intend to reduce the logistics costs, in part by reducing the number of warehouses it operates. The company last year halted the $300 million warehouse and IT center it had announced for the Philadelphia area. Then, in May, it said it would close a plant in Sellersville, PA, with about 475 workers. It also is hewing off a facility in Irvine, CA, which it said it thinks it can sell. But Teva also has announced some expansion in its manufacturing network. In July, Japanese media reported Teva would invest about $200 million to double its manufacturing capacity in that country after targeting it for big expansion.

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