Procurement at Betapharm Corp. Case

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Procurement at Betapharm Corp. (A) Notes

George Brannigan, Vice President
Doug Burke, Director of eSourcing
-Betapharm recently implemented the Emptoris ePass system, which facilitates eProcurement activities and, specifically, reverse auctions Industry Information
-Pharmaceutical sales experienced average growth in the low teens between 1996 and 2003, single-digit growth was expected over the next few years -Betapharm outperformed the industry
-Industry benefited from increased demand and projected future growth due to: oA growing elderly segment
oIncreased average life expectancy
oRising incidence of chronic diseases
-Pricing pressures from managed care and government programs and the migration to generic drugs due to a large number of patent expirations plagued pharmaceutical companies -North America, largest pharmaceutical sales market, 49% worldwide sales -Europe 28%, Japan 11%

-Market slow-down due to pricing pressures and the relative scarcity in new-product approvals -During 2002 and 2003, many blockbuster drugs lost patent protection, causing sales growth to slow -Margins are declining

-Not as innovation driven
-Many companies looked to procurement management in order to decrease costs -By 2002, 9 of 10 companies planned to automate their spend-management processes Company Information
-One of the largest, between 5% and 10% of the world’s pharmaceutical market including drugs in the following areas: oAnti-invectives
oCentral nervous system
-Sales of a small number of very successful products made up the majority of sales as Betapharm -Responsible for approx. 7.5 billion Euro in annual production and nonproduction spend -Majority of these drugs had patents that expired within the next two years and caused concern about the company’s ability to continue its historical growth trends -Competing on cost, order qualifier versus Order winners, key requirements which companies must be able to satisfy before they are even able to qualify -Before the decicion to adopt the ePass system, Betapharm experiment with reverse auctions A reverse auction (also called procurement auction, e-auction, sourcing event, e-sourcing or eRA) is a tool used in industrial business-to-business procurement. It is a type of auction in which the role of the buyer and seller are reversed, with the primary objective to drive purchase prices downward. In an ordinary auction (also known as a forward auction), buyers compete to obtain a good or service. In a reverse auction, sellers compete to obtain business. Procurement Process

-Each purchased product had a sourcing group
-Sourcing group- cross functional team comprising representatives dealing with procurement, quality, technical, finance, and logistics -They determined which mode of procurement was best for a given product, implemented the agreed-upon method, and ultimately selected the preferred supplier -For a product to be actionable, it had to lend itself to negotiation, have at least three suppliers willing to compete, and have specifications and requirements that could be clearly documented -Betapharm compared the risk involved with a given procurement strategy and the related spend value -The sourcing group considered the “total cost of owning” a product, which included technical troubleshooting, performance management, process improvement, required Betapharm assistance and, of course, unit price E-sourcing Tools

-Sophisticated suite of products that assisted in the procurement process -Suite contained:
oDecision-support tools
oAnalytic tools
oElectronic auction/sourcing tools
-Purchased Emptoris ePass system to facilitate e-sourcing, issuing requests for information, ran electronic reverse auctions, and requested sealed bids -Software incorporates sophisticated bid analysis and sourcing optimization program -They rate priorities in a supply base, for example quality or total cost of...
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