Hospira, Inc. (Hospira), a US-based medical devices company, announced details regarding Project Fuel, a multi-phased initiative to improve the company's margins and fuel its growth. Project Fuel will capitalize on the company's potential to increase shareholder value and improve operational efficiency by optimizing its product line, evaluating non-strategic assets and streamlining its organizational structure. Project Fuel is scheduled over a period of 24 months.
In conjunction with these actions, Hospira expects to reduce its global workforce by about 10% and deliver annual cost savings of approximately $110 million to $140 million.
“To maximize our opportunities for growth and sustainable shareholder value, Hospira is taking a number of important steps to simplify our business, strengthen our financial position and establish a strong foundation for our future,” said Christopher B. Begley, chairman and chief executive officer, Hospira. “By reducing costs and improving efficiencies, we can free up more dollars to invest for profitable growth and shareholder returns. And with a streamlined, focused organization, we will reduce complexity, improve performance and be better positioned to advance our significant opportunities.”
Optimizing the product line
Hospira’s global product line encompasses thousands of list numbers, or SKUs, many of which represent multiple presentations of the same drug compound and serve the same medical need. By simplifying presentation choices, Hospira can better meet the needs of its customers with a focused, yet robust, portfolio. In addition to improving inventory management and manufacturing efficiency, Hospira expects the streamlined product line to produce indirect cost reductions through associated decreases in functional support. Importantly, customers will also realize enhanced service levels and value, while continuing to benefit from product choice across the continuum of care.
Evaluating non-strategic assets
Hospira’s Specialty Injectable Pharmaceuticals (SIP) and Medication Management Systems (MMS) product lines have been established as key growth drivers, delivering strong performance and providing significant opportunity for future growth. As a result, the company is now able to turn its attention to rationalizing non-strategic assets that detract from the company’s overall growth trajectory and margin expansion opportunities.
Streamlining the organizational structure
Evolving Hospira’s organizational structure is another key step in optimizing its performance and in continuing to ensure Hospira delivers on its global growth promise. Hospira has identified, and is pursuing, significant opportunities to improve efficiencies and performance in several functional areas, including global procurement, finance and information technology. Efforts will include de-layering the company’s management structure, consolidating certain functions and heightening the focus on process improvement to reduce complexity and redundancy, accelerate decision making and raise overall productivity.
The net projected reduction associated with these collective actions represents approximately 10% of the company’s global workforce, with the majority of reductions occurring in the next 12 months. Hospira will help prepare employees for the transitions through the provision of assistance packages.
“Every day our employees make valuable contributions to Hospira, our customers and the patients we collectively serve,” said Begley. “We understand the impact these decisions have on our employees and their families, especially during tough economic times. Our actions, while difficult, are designed to benefit all of our stakeholders by ensuring a strong foundation for our future.”
In connection with these actions, Hospira estimates it will incur total pre-tax charges in the range of $140 million to $160 million, of which approximately $90 million to $100 million will be incurred during 2009. The total charges for the project include cash costs of approximately $120 million, primarily related to restructuring costs, including employee-separation and other costs, as well as process optimization implementation costs. Approximately $30 million of non-cash costs is related to various potential asset write-downs. Hospira expects these actions will deliver annualized pre-tax savings of approximately $8 million to $10 million in 2009 and approximately $110 million to $140 million on an annualized run-rate basis, which it expects to reach by the second quarter of 2011.