Use of an online reverse auction tool to purchase PCs globally has helped to reduce buying costs by 17% for Novartis International AG.

Perhaps more important, use of the tool for the buy has helped to set a global PC (personal computer) standard for the pharmaceutical and health care giant.

Headquartered in Basel, Switzerland, Novartis is made up of these business sectors: Pharmaceuticals, Generics, Consumer Health, CIBA Vision, and Animal Health. With sales of $19 billion, the company operates in 140 countries.

Looking to consolidate a global spend of about 50,000 PCs to one common platform, the buying operation at Novartis put together a cross-functional team of corporate purchasing and information technology (IT) managers to develop a sourcing strategy. On the team, IT served as project leader with purchasing contributing its expertise in strategic sourcing and contract negotiation.

Previously, each business sector, and in some cases each site, managed its own agreements for PCs. "There wasn't any drive to have everyone purchase the exact same unit, with the exact same configuration," says Mark Yules, vice president and head of e-procurement for Novartis. Prior to his current post, Yules served as vice president of purchasing for the company's Consumer Health division. He reports to the head of global procurement.

Standardizing the PC buy to one common platform provides a host of benefits to Novartis:

• Consolidating the spend provides leverage for use in negotiations with suppliers,
• Having users on the same platform makes it easier to regularly replenish the PC fleet; the company can take advantage of frequent technology upgrades, and
• Purchasing PCs from fewer suppliers helps to improve service and support, as well as alleviate demands made on help desk staff.

Novartis has a small, corporate purchasing group based in Basel that helps define sourcing strategy for the company. The group chairs the Novartis global purchasing council, which serves to consolidate buys common across the businesses. One such buy: Intel-based servers and the fleet of desktop and notebook PCs.

A little over a year ago, management determined that it was time to replace many of the PCs on the desks and in the labs of company employees, and it wanted to do so over the course of one year.

The cross-functional team worked first to identify the company's requirements for PCs (number of and type needed as well as delivery locations, etc.). Based on their findings, team members decided to implement a global standard that provides employees with a choice of three PCs, an IT procurement best practice. They would have a choice of one desktop and two notebook models. One notebook would be of a lighter weight for those who travel frequently; the other serves as a desktop replacement. The team also selected one monitor as standard.

With sourcing professionals at ICG Commerce based in Paris, London and Frankfurt, the team next developed its sourcing strategy. ICG Commerce is a procurement services provider with headquarters in Jenkintown, Pa.

The team issued an RFP (request for proposal), with PC and peripheral model specifications written from a total cost of ownership perspective so that supplier responses could be compared in "an apples to apples" fashion (quantitatively). The team sent the RFP to tier-one manufacturers and several support manufacturers for peripherals such as monitors. With such a sizeable buy (50,000 PCs), the strategy agreed upon by the team bypassed the VAR (value-added resellers) and distributor channels.

Using supplier responses to the RFP, the Novartis team selected three OEMs for PCs and eight OEMs for peripherals as potential suppliers based on capability to meet requirements in these areas: price, quality, availability, technology, and service/support. In particular, "we were looking for a fit with Novartis regarding product, service and support," says Yules.

While the responses showed that a fair amount of savings could be realized through consolidating the PC buy globally, there was some discrepancy among the suppliers in such areas as pricing, order fulfillment and delivery leadtime.

"In such a competitive market, we decided that an online reverse auction would be the ultimate tool for final negotiations with suppliers," says David Clary, senior vice president, ICG Commerce. Also, it would help cut time and expense associated with travel for the global company and its prospective PC suppliers.

With ICG Commerce, the team spent time with each of the suppliers, reviewing their responses to the RFP and preparing them for the auction event. "Perhaps most important, Novartis informed the suppliers that it would be moving all its business to the 'best' supplier from a total cost perspective," says Clary. Because elements of the RFP—including requirements for such services as break fix, image loading and asset tagging—were compiled into quantifiable terms, suppliers could see where they stood against the competition during the auction.

The online reserve auction event, hosted by ICG Commerce in Paris, was held in November 2001. In attendance was the cross-functional team; suppliers participated from their facilities in the U.S. Because of the size of the buy and the fact that it was the company's first online reverse auction, Novartis also had viewing rooms for management in Europe and in the U.S. This brought added visibility to the sourcing function within the company.

After the 90-minute auction, ICG Commerce worked with the team to analyze the bids. (The entire sourcing process lasted just five weeks.) Together they decided on two OEM suppliers and several supporting OEMs for peripherals. The team opted not to purchase all of its PCs from one manufacturer because of risks associated with sole sourcing: Although the industry has plenty of capacity now, the team wanted flexibility should a manufacturer chose to close a factory or recall a PC model.

Novartis signed a three-year lease with its new suppliers and began implementing the agreements in January 2002. Requisitioners place orders for new PCs using e-procurement technology from Ariba. The company's IT operation manages the PC life cycle (disposing of all the old units and tracking and registering new equipment).

Since the auction, Novartis has also used the tool to negotiate agreements with suppliers for such goods and services as temporary labor, travel, software, translation services, corrugated packaging and some direct materials such as ingredients.