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Demand driven models at Alcon Novartis

Apr 7, 2014 9:15:00 AM

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Proxima image; Alcon Novartis logo

Vipin Rikhi, Finance Director, Business Planning Analysis for Alcon Novartis, talks with Proxima about demand driven procurement models and their impact on the business.

CG:  Today I am joined by Vipin Rikhi. Finance Director, Business Planning Analysis for Alcon Novartis, one of the world’s leading eye care companies. Thank you for joining me today Vipin.

VR:  Thank you.

CG:  Vipin could you tell me a little bit about your background and your current role?

VR:  Post my MBA from the Schulich School of Business I worked at both Xerox for a year and Nestlé for 5 years as a Finance Manager, which mainly involved turning the businesses around; back to profitability. After my time at Nestlé I decided to enter the healthcare industry and joined GE Healthcare.

The role with GE Healthcare was a big transformational shift for me in terms of how we went to our customers from a commercial standpoint. Traditionally, a lot of the purchasing decisions around equipment were made from the bottom-up i.e. starting with the clinicians and funneling up from there. However, due to healthcare budget reforms and pressure from regulations, the funnel inverted – starting with procurement before trickling down to the clinicians.  This meant we had to restructure our P&L and our commercial and business decision making processes. My role was of a highly transformative nature here.

After two years in this role, I eventually moved onto my next, and current role, at Alcon Novartis. I took on this role because it was an interesting opportunity as a result of a dual integration between Novartis and Alcon at a corporate and business level – with a big focus on creating Centers of Excellence (CoE) for global services.

The great part about my current role is that I get to touch various pieces of the business before the decision to outsource to the CoE is made. This is really important in my opinion; as it allows me to ask the right questions and understand the various levers around changing or improving certain processes, or dealing with issues that might occur associated with the outsourcing process.

CG:  Have you ever experienced outsourcing as a way to solve or fix a problem?

VR:  I have, an example of this would be ‘trade spend’. Trade spend, or trade investment, is basically a pool of money that is given to retailers & other purchasing group organizations that distribute, stock and sell our products.

This pool of money is quite material within the P&L and typically makes up the first or second largest expense line within a P&L i.e. FMCG trade spend could represent 25% of sales. When I came on board originally there was no system or model to control all of the trade spend. We didn’t have a team that really understood trade spend, so I had to go out and outsource to an organization that could support us with the transactional functions of trade spend. The outsourcing of the transactional tool helped to correlate all the information that we required in order to manage our investments with our customers. It also enables us to view our trade investment from a very strategic point of view; asking purposeful questions such as who we want to do business with; who do we not want to do business with; how much we spending with them; and is it aligned with our overall strategic objectives?

A lot of these questions are answered with the help of this tool, but more than that, the third-party helps me to manage the numbers so I can focus a lot more on the strategic side of the business, knowing that the financial metrics, and accruals are being taken care of.

CG:  In addition to the top-line related initiatives you mention, are you investigating your third-party costs as a lever for bottom-line improvement?

VR:  We are. An example of this is around our ‘demand driven model’. Basically, we have a field sales force that goes out to doctors to ensure they completely understand our products. They help them understand how they are favorable to the patient and understand how it will help their practice. This drives demand via doctor recommendations for our products. We also have a secondary sales force, they go into the pharmacies, and they will have a similar discussion with the pharmacist.

However our entire secondary sales force is really a third-party that we hire. We work with that third-party and we identify the regions where we want to grow our business, the accounts that we want to target, how often we want to target them, the messaging we want to convey etc. This secondary sales force team is also responsible for ensuring that our products are always on the shelf. They are validating & ensuring functionality from a supply chain and demand standpoint.

Every quarter the third-party will come in and they will present an overview of what is working, or not working and any opportunities available. They will share insights that they see from the field level which we take into consideration.

I work very closely with my procurement team around the management of this external function. We work together to understand costing structures, where Alcon is receiving the most value, and what the overall margins look like. In the past we had a very high level view, from a budget perspective, but never really understood the cost structures or levers at a granular level. When procurement came on board they helped us to understand that the cost structures were actually a critical piece to the entire picture – keeping budgets and strategy in line with our corporate objectives.

CG:  What is your vision of procurement and supply in Alcon for the three to five years?

VR:  My vision is a world where business supply and growth are aligned. This however, requires us to be more proactive - if we are expecting growth to happen in six months to a year from now we need to make sure our investments now are supporting, and are aligned, to the predicted growth.

To be proactive, we need to focus on our core areas, which will remain internally controlled, as they are the aspects that define our success. Outside of these core areas, procurement needs to step up and say “I understand what the business strategy is, I understand what the core parts are, I understand how the investments are lining up with the growth areas, and I think these are the areas where there is an opportunity to save some money and not detrimentally impact the business.” From this conversation, procurement and finance can then drive those cost efficiencies back into the core areas to help generate more sales or promote business growth.

That is really where we are right now. We understand the fundamentals of where the business is in terms of our third parties and external spend. We are starting to get some small wins i.e. the third party sales force – which wasn’t all about saving money, but about getting the most value out of our third-party spend.

CG:  Do you feel you have complete visibility and control over your total cost base? How does procurement help cover your blind spots?

VR:  For the most part we have pretty good visibility and control over our costing. The question is not over the visibility so much, the question is more around how to maximize opportunities and how to get people’s mind wrapped around the idea that we can still get the same thing we want but in a different and much more effective manner. For example, I’d like to see procurement bring the marketing team together and say “This is how all the divisions within Alcon are using their marketing agencies, and this is what would happen to your costs if we consolidated our engagements with the agency…”. 

Previously our procurement team had really been focused on gaining the visibility as to who our third-party suppliers were, and where our costs were being incurred - which we have now achieved. Now it is a matter of: What do we want as a business? What are the upcoming strategic investments? How do we prioritize all the initiatives for the best ROI (because you can’t do everything at once).

From a procurement skills and expertise standpoint, I look for a commercially oriented procurement person who is able to think strategically. They must have a holistic approach to the business, understanding that certain decisions will have certain impacts on the organization – particularly those business areas related to growth and customer experience.

When you have an individual that understands all this, and they can speak the same language as marketing or sales or finance; that is where they become a business partner, as opposed to just a procurement person.

CG:  The final question I have got here is more about cost management in general. What is one example of a really unconventional style, or an unconventional approach that you or your team have taken around a cost management challenge that resulted in a transformational change for the business?

VR:  The best way to accelerate profits is to accelerate sales. However, a lot of our optometrists right now are cash strapped. They cannot purchase certain equipment that is needed in order to drive their business, nor offer products to consumers that are not beneficial for the entire optometry world within Canada.

So Alcon took a step back and said “as you are already a customer, why don’t we buy the equipment for you and finance it back over time”. The way we finance it back to them is very special because they are already buying certain consumables from us, so we are able to simply pass through the costs via the consumables.

So without becoming a bank, we are able to provide a service for optometrists to access more products (and without breaking the bank to get them) and subsequently we are also improving patient healthcare by making more products and diagnostic equipment available.

This approach required us to look at cost management by starting with the customers and consumers perspective first. This in turn helped us to drive more sales and moreover, we were able to sell a wider/better mix of products. The benefit of this is more than just volume; it was also good volume - volume that has improved bottom-line results for us as a company and improves the benefits to patients with better access to health care and treatment.

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