It's been over a year since the merger of pharmaceutical giants Glaxo Wellcome and SmithKline Beecham. In that time, GlaxoSmithKline's (GSK) IT procurement and IT operations have worked together to meet—and exceed—an internal cost-savings target of about 40 million British pounds (which is about $60 million).

Together, the two groups more than doubled the target. More important, "targets for 2002 and 2003 are being incorporated into the actual IT budget," says Howard Richman, director, global IT procurement, GlaxoSmithKline. "This means the synergy savings we say we are going to obtain are, in essence, being fully committed by both IT and IT procurement. That's a very powerful interaction between the two."

At GSK, IT procurement is responsible for acquiring more than $600 million annually in computer hardware (servers, desktops, notebooks and portable PCs, printers and peripherals), software, telecom equipment and services, outsourced managed services and consultants, and Web-enabled services.

Prior to the merger, SmithKline Beecham (SB) had an IT procurement operation in place for five years; Glaxo Wellcome created its function about three years ago. Richman led the IT procurement operation at SB for about four years. Previously, he worked in various finance/procurement posts for 20 years—at such companies as Air Products & Chemicals, United Technologies and M&M Mars. He has an MBA in finance.

Richman reports to Willie Deese, senior vice president of procurement.

"In the two companies we had two very professional IT and IT procurement organizations, yet we found that when we came together our level of success jointly was much greater than what we could have achieved separately, the very essence of synergy," says Richman.

"It's been demonstrated by the results we saw in this first year of the merger. It's a credit to incredible vision and leadership of the top GSK management team that was put together and the fact that this is very much a merger of equals. Best practice from each legacy company is being applied. We are seeing this throughout the company in many different areas, but in IT procurement in particular we definitely see the benefit. It has been quite a first year but it's only the beginning," he adds.

After the merger, GSK set synergy targets, which senior management presented to investors in both the U.S. and U.K. (GSK has headquarters in both countries and is quoted on the New York and London stock exchanges.) The targets called for savings of 1.6 billion pounds ($2.4 billion) in three years. Of this figure, savings totaling 855 million pounds are expected from procurement working with the company's businesses.

With GSK's second quarter results, the 1.6 billion £ was raised to 1.8 billion £, a sign that the company was exceeding its original target from synergies created by the merger.

While IT procurement did not have a formal cost savings goal that first year, buyers working with IT analyzed the opportunities and established an internal target.

"We applied our Sourcing Group Management process and established teams with IT on a number of specific items," says Richman. "We accomplished objectives that were well in excess of what we would have had we not done so."

Under the Sourcing Group Management process, teams are set up for major commodities based on the level of spend and importance to the business. Each team has an executive level sponsor who, along with team members, and extended team members, has a defined role. The team itself has specific scope and boundaries. Team members develop a charter that outlines how the team is going to move toward its goals.

The two functions teamed to develop a tactical strategy for telecom purchases. "We now have a sourcing group in place to build a strategic buying plan off the tactical success," says Richman. "This is not something that we would have done before. It generated significant savings."

For telecom, IT and IT procurement focused initially on "creating operational excellence." When both companies came together, the two had highly divergent supplier bases. "We weren't focused on changing suppliers at first," says Richman. "Now, as we feel comfortable that the operation is running as it should and that we are hitting our service levels, we can look into more strategic applications, such as optimizing and concentrating the supplier base. However, at no time do we sacrifice necessary quality, service or delivery requirements in exchange for price concessions. In fact, we often insist on and receive better quality and service as well as lower prices."

From an IT supplier forum attended by GSK's top 28 IT suppliers (held in the spring of 2001), hardware suppliers understood that the company is pursuing global agreements and "became aggressive in terms of positioning themselves to ensure that they would be in consideration when we make that strategic sourcing decision in 2002 or 2003," Richman says. "They saw that the process is in place to make that happen" (PUR: July 19, '01; p. 26). Before, their strategies for the two companies were of a divide-and-conquer mentality. Each hardware manufacturer would look to do business in one major business sector and become entrenched, believing it had a preferred position for their particular niche within the company.

"The forum made them rethink that," says Richman. "We saw significant results, above and beyond what the marketplace is doing within the industry. We benchmarked this with independent sources versus what we normally would be doing and we saw that we are definitely buying below market prices."

IT procurement also has conducted an online reverse auction for flat screen monitors for the company's new headquarters in London, and for a standard desktop and laptop build in the U.S. and UK. "Both were highly competitive and came in well under budget because of the process we used," says Richman. "Our CIO is greatly supportive of our use of these tools and applying them whenever possible for buying IT goods and services."

Richman says that GSK is going to reap benefits beyond savings resulting from consolidating the company's hardware purchases. "We are going to make tremendous gains internally in terms of the efficiencies of how we work and operate because of the standardization we are going to establish for hardware."

To ensure that GSK's strategies are well communicated to high levels of management within the company's supplier base and that suppliers understand how to best respond to its requirements, IT procurement is a Supplier Link Program. The program which is being implemented in "waves" includes a questionnaire developed by IT and IT procurement which is sent to some internal users who interface with the company's top 28 IT suppliers. Once responses, which measure supplier performance, are tabulated and scored, IT procurement will set up meetings with GSK IT executives and high-level supplier executives to analyze and share results.

Another tool the two groups use is an IT Contacts database. When an IT manager or IT procurement manager has a meeting with a supplier, he or she enter notes of its details in the database. Managers who have a need to know in terms of working with the supplier have access to the database and can view the latest interaction. "We realize that our suppliers have very complex interaction and relationship with many people throughout the organization," says Richman. "Having the information readily available makes everyone's contact with these suppliers that much more productive."

In addition, IT procurement uses three tools developed internally by IT at SmithKlineBeecham and refined over the past year for all of procurement at GSK. The tools, which are accessible via the company intranet, are:

• ConTrak. All supplier contracts are posted here, including those for hardware, service, consulting, and confidentiality. The GSK legal department has access to the tool through which IT procurement forwards drafts for its review, creating additional efficiency in contract management.
• SpendTrak. This tool provides IT procurement with buying data—what the company is spending with which suppliers—that helps the group better leverage the newly merged company's annual spend.
• SaveTrak. The tool tracks savings on all procurements. Savings are approved by both the internal business unit and the finance department (two sign offs) then posted on SaveTrak. These savings are recognized by the company's top management and are credited towards the synergy targets.
• SourceTrak. The new tool helps put together sourcing plans and strategies established by the teams. These plans and strategies are then posted in a database so IT and IT procurement managers can easily access them.

"Combined, the synergy targets, the shared process, and the tools all contribute to a climate of success," says Richman.