Bethapharm Corp A Essay

Solution to Procurement at Betapharm Corp. (A)

Centralized Procurement

The case begins by discussing the recent changes in the pharmaceutical industry, specifically, the lower growth predicted for the next few years, pricing pressures from managed care and government programs, and the loss of patent protection on many of the industry’s leading drugs. In a search for other ways to remain profitable and maintain its position as one of the largest pharmaceutical companies, Betapharm decided to focus on procurement spending. The organization recently centralized the procurement function; the new procurement department was responsible for all annual production and non-production purchases amounting to €7.5 billion. The organization aimed to reduce this amount by 12.5% during the upcoming year.
The organization is global and employees in various parts of the world have different preferences. Selecting a “preferred” supplier that meets everyone’s criteria is a daunting task. The end users have the deepest knowledge about the specific product requirements needed. For example, scientists may prefer a certain brand of beakers for a reason; this reason may be overlooked when the procurement group selects a preferred vendor. Additionally, local employees may have established relationships with local vendors; due to these relationships, these vendors offer excellent service at a competitive rate. However, these vendors may not have the capacity to supply product to the entire Betapharm organization and thus, are not selected by the procurement group. Although the sourcing group technically includes employees that will be using the product, the procurement group representative is responsible for the final decision and is compensated based on realized cost savings. Allowing this person to have the final word may result in suboptimal, lower cost decisions.
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