Procurement at Betapharm Corp. (a)
Define the Issue
The Betapharm sourcing team needs to make an urgent decision whether products that are as diverse as raw materials (Malic Acid) and hotel contracts can be electronically sourced by using their already acquired ePass sourcing system. The aim is to find ways to better control costs and to remain competitive.
Analysis The global hotels issue is that the cost on hotel spending is high. The annual total spending in 2003 was €70M. Although Betapharm has a global travel agent, employees are acting as independent agents when making hotel reservations. Each employee has his own set of preferences and criteria. The company has a large supply base of over 1,500 hotels currently being used. If Betapharm changes to ePass system, there is no risk affecting the company’s core business. Based on the facts, having a large number of capable suppliers with a high annual expenditure and limited supply risk, global hotels issue is a leverage item meaning that reverse auctions would be a solution to cost saving. For the raw materials (Malic Acid) issue, changing supplier from Tao is risky to Betapharm. Tao has the reputation in the pharmaceutical industry, and is one of the leading suppliers. Tao had been Betapharm’s strategic partner and had Early Supply Involvement (ERI) with Betapharm who helped develop the basic processes to convert Malin into Malic acid for use in Betapharm’s product. Additionally, Betapharm did not want to take the risk of jeopardizing their relationship with Tao before they made a decision. As far as the cost issue, the price from Tao is much higher than the quotations from all five potential suppliers. Using an Asia supplier, Betapharm has to risk not only transferring chemical and process technology but also the issues related to quality and technical capabilities. Decision needs to be made soon because the contract with Tao will be ended in two years and it could take a couple of years for a new supplier to get the
The Betapharm sourcing team needs to make an urgent decision whether products that are as diverse as raw materials (Malic Acid) and hotel contracts can be electronically sourced by using their already acquired ePass sourcing system. The aim is to find ways to better control costs and to remain competitive.
Analysis The global hotels issue is that the cost on hotel spending is high. The annual total spending in 2003 was €70M. Although Betapharm has a global travel agent, employees are acting as independent agents when making hotel reservations. Each employee has his own set of preferences and criteria. The company has a large supply base of over 1,500 hotels currently being used. If Betapharm changes to ePass system, there is no risk affecting the company’s core business. Based on the facts, having a large number of capable suppliers with a high annual expenditure and limited supply risk, global hotels issue is a leverage item meaning that reverse auctions would be a solution to cost saving. For the raw materials (Malic Acid) issue, changing supplier from Tao is risky to Betapharm. Tao has the reputation in the pharmaceutical industry, and is one of the leading suppliers. Tao had been Betapharm’s strategic partner and had Early Supply Involvement (ERI) with Betapharm who helped develop the basic processes to convert Malin into Malic acid for use in Betapharm’s product. Additionally, Betapharm did not want to take the risk of jeopardizing their relationship with Tao before they made a decision. As far as the cost issue, the price from Tao is much higher than the quotations from all five potential suppliers. Using an Asia supplier, Betapharm has to risk not only transferring chemical and process technology but also the issues related to quality and technical capabilities. Decision needs to be made soon because the contract with Tao will be ended in two years and it could take a couple of years for a new supplier to get the