In 2013, Novartis began to explore shifting to a Vested framework to
renew the original agreement. Moving to a Vested agreement would
allow Novartis and JLL to shift to an outcome-based framework and
incentivize JLL to invest in innovation — essential if Novartis was
going to sustain year-over-year cost savings and continued value-add services. A Vested model would also provide Novartis with more
flexibility because it uses a pricing model versus a “price” approach.
Novartis and JLL began their Vested journey with a formal review
of their existing deal. The review identified gaps in the contract that
would need to be addressed and closed under a Vested relationship.
For example, their performance-based agreement used output-based
SLAs and not outcome-based measures.
With a road map in hand from the deal review, Novartis-JLL worked
through the five rules to create a contract that would fully align the
10 contractual elements. On January 1, 2016, the parties signed a fully
Vested agreement that covers nearly three dozen facilities spanning
North America and South America. The agreement is structured as a
flexible framework and allows Novartis an option to add other regions
as conditions require.
THE EVOLUTION CONTINUES
The appetite for shifting to a Vested model has increased dramatically
since the 2011 article in Inside Supply Management®. What started out
as a research project has turned into a methodology.
Today, the Vested methodology is fast becoming a movement, with
more than 50 organizations applying it to such spend categories
as facilities management, reverse logistics, third-party logistics,
environmental services, fiber optic network management and labor
services. And companies are beginning to apply Vested in strategic
direct spend categories; for example, Danfoss, a Nordborg, Denmark-based manufacturer of heating and cooling products, created a Vested
agreement with Nu Tech, a manufacturer of high-precision compressor
housings and related machined parts.
The UT research library dedicated to Vested includes six books, 16
white papers and 13 public case studies that document the success
stories of such organizations as Intel (third-party logistics), Dell
(reverse logistics), Vancouver Coastal Health (environmental services),
Novartis (facilities management) and Discovery Health (insurance
claims management). The research materials are available at www.
The Vested approach’s theme is simple: It is easier to win when you
have a win-win deal. ISM
Kate Vitasek is an international authority on the Vested business model for highly
collaborative relationships. She is the author of six books on Vested and a faculty
member at the University of Tennessee in Knoxville, Tennessee.
years. And service and quality did not suffer at the
expense of costs. In fact, they increased. Quality
levels (measured in defective parts per million)
reached record highs, and the parties reduced
the scrap level of old and damaged hardware by
62 percent. FedEx also benefited with a tripling of
John Coleman, FedEx’s general manager of
operations for Dell’s reverse logistics business,
explained the power of a collaborative win-win
approach. Says Coleman, “It’s like we broke open
a new innovation piñata. (FedEx) employees now
know that we will share in the reward for good
CASE STUDY 2: NOVARTIS/JLL
Companies like Novartis are also starting to make
the shift to more strategic supplier relationships.
Often, however, the path is not a straight line.
When Novartis International AG, a multinational
pharmaceutical company based in Basel,
Switzerland, started its outsourcing initiative,
facilities management operations were
decentralized across each of the company’s
seven business divisions. Each division had
its own objectives, budgets and needs. There
were more than 5,000 suppliers managing their
facilities, which were ultimately reduced to four
The first step to a more strategic supplier
relationship began when Novartis shifted to an
integrated facilities management (IFM) agreement
for its U.S. operations. Integrating maintenance
and repair, site operations and workplace services
under a single service provider contract enabled
Novartis to drive efficiencies through scale. A
key objective of the IFM initiative was to reduce
Novartis’ facilities management cost structure.
Leveraging Novartis’ purchasing power across
fewer suppliers gave it significant negotiating
power during the bid process.
Jones Lang LaSalle (JLL) was selected as the
supplier, with Novartis shifting from 5,000
transactional contracts to a single performance-based agreement with JLL in 2010. The contract
shifted risk for performance to JLL. The supplier
agreed to a guaranteed savings glide path with
penalties if it missed performance SLAs.
The relationship worked well, and Novartis and
JLL met aggressive cost-reduction targets.
However, as the relationship matured, Novartis
knew it would be difficult, if not impossible, to
seek further improved performance and cost-structure reductions without innovation. And
innovation would require investment from JLL.