Lonza’s global Procurement team proved the value of our close partnerships with major suppliers worldwide and our robust supply chains in the face of some practical challenges in 2017. These hurdles included working around a railroad blockage in Germany that affected our site in Visp (CH) and responding to chemical supply chains disrupted by major hurricanes in the United States. These operational issues were resolved thanks to the teams with no material impact on the company's overall performance.
Drawing on a broad global base, the procurement teams played a vital role in cost-effectively supporting more than 50 manufacturing and R&D sites worldwide with the raw materials, services and other support they needed to excel and grow in 2017.
Competitive external supplies
In 2017 Procurement worked closely with the businesses to increase the savings performance by roughly 30% compared with the previous year across almost all external-spend categories. These savings are vital to Lonza’s competitive position and profitability.
Together with stakeholders from the different businesses, Procurement develops strategies for spend categories for a diverse range of strategic raw materials and services. The team also uses enhanced analytics and reporting of key raw-material price variances, as well as future price projections, to help our businesses make timely choices. Our risk analysis process also enables us to identify high-risk materials and take adequate mitigation actions.
In tight alignment with our business leadership and value-chain management professionals, Procurement in 2017 successfully launched a breakthrough initiative known as DIVER - Drive and Improve Vendor Results. This initiative is reassessing almost CHF 1 billion of Lonza's external spend to reallocate expenditures to the most beneficial suppliers and to generate other efficiencies. Further significant financial savings are expected going forward.
Surety of external supplies
Each year the Procurement team must respond to everything from unexpected disruptions to rising costs for vital raw materials to assure reliable and affordable external supplies. Beyond this year's hurricanes and rail supply disruptions, the team successfully navigated several unexpected force majeure events at some major suppliers.
The Procurement team also helped our businesses cost-effectively cope with the trend of rising costs for global commodities, including basic chemicals in Europe, where deindustrialization is forcing companies like Lonza either to pay higher costs from the dwindling number of European suppliers or to seek new suppliers in Asia and the Americas. Our professionals secured favorable pricing and terms by leveraging our volume requirements, by capitalizing on close strategic partnerships with existing suppliers and by integrating new suppliers into our supply chain.
Supporting business growth
Procurement helped facilitate Lonza’s growth in serving the strategic healthcare continuum markets by directing growing demand to the right sourcing market segments, by identifying new supply sources and by scaling up existing sources. For example, the team stepped up support to Pharma&Biotech while we built a strong pipeline of growth initiatives, as well as to the newly created Consumer Health and Nutrition division that combines both Capsugel and Lonza offerings.
In 2018 Procurement will be focusing on achieving our vision of a One Purchasing Community that features greater coordination with local sites and business sourcing so that, where possible, we can centralize purchasing to drive competitiveness and strengthen supplier relationships and logistic networks.
Suppliers to Lonza must adhere to the requirements defined in Lonza's Supplier Code of Conduct. This code defines standards of business ethics, as well as labor, health, environmental and safety practices. We routinely conduct audits of suppliers to monitor adherence to this code. These strict ethical requirements are of utmost value when sourcing compliant materials for medicines and therapies, as well as natural and organic ingredients for consumer health and nutrition products.
Looking ahead, Procurement will continue to focus on value-added activities, strategic partnerships inside and outside Lonza, and the search for business opportunities wherever they might arise – all aimed at assuring a best-in-class procurement function.