Introduction

Betapharm had recently implemented the Emptoris ePass system, which facilitates Procurement
activities and, specifically, reverse auctions. Brannigan wanted to be clear on the advantages and
disadvantages of using e Pass for these products prior to the discussion.

Industry background

Pharmaceutical industry benefited from increased demand and projected future growth due to a
growing elderly segment. But pricing pressures from managed care and government programs and the
migration to generic drugs plagued the industry. North America was the largest market for
pharmaceutical sales, accounting for 49% of worldwide sales.

Pharmaceutical companies lagged other industries in adopting innovative supply-chain practices. In

2002, nine of the top 10 pharmaceutical companies planned to automate their spend-management
processes. Some companies began using e-procurement tools that included many suppliers with each
bid.

Company Background.

Betapharm had between 5% and 10% of the world's pharmaceutical market. The company was
responsible for Ä7.5 billion of annual production and nonproduction spend. Management aimed to
reduce this by approximately 12.5% during 2004. Betapharm experimented with reverse auctions before
adopting Emptoris ePass system.

Procurement Process

Overview

For each product purchased, Betapharm formed a sourcing group with representatives from
procurement, quality, technical, finance, and logistics. The group determined which mode of
procurement was best for a given product,implemented the agreed-upon method, and ultimately
selected the preferred supplier. Each product had to be auctionable, had at least three suppliers willing
to compete, specifications and requirements that could be clearly documented.

E Sourcing Tools

Betapharm had a sophisticated suite of products that assisted in the procurement process. Software
included tools for tracking spend data, developing sourcing plans, validating savings projects, analyzing
the impact of directmaterial changes, determining material standards, and managing capital projects. To
facilitate e-sourcing, Betapharm purchased the Emptoris ePass system.

Prequalification Process

Before sourcing a product or service, the supplier was subjected to technical and quality audits. A
successful audit was required of all Betapharm supplierseither prior to bidding or as a prerequisite for
winning business. If no prior information wasavailable on a potential supplier, the quality and
compliance group would perform a full audit.

Current Situation
Global Hotels

Traditionally, Betapharm employees had acted as independent agents when making hotel reservations.
Brannigan and Houlihan decided to revisit the sourcing strategy for global hotels. The company reserved
approximately 500,000 hotel room nights annually for a total spend on the order of Ä70 million during
2003. This left management with little oversight or power over hotel costs. It also made it difficult to
contract with regional hotels or hotel chains. Prices paid for a given room could differ by as much as
75%.

Malic Acid for Exelon

Meledic acid was a key ingredient in a new drug called Exelon. Betapharm's contractual obligation to the
incumbent ended in two years. Management was interested in securing a low-cost supplier for the malic
acid. The new supplier would be subject to regulatory approval, which could take a couple of years.
Betapharm's procurement department was eager to illustrate the application of the electronic
purchasingtools to the sourcing of intermediate products.

Management believed that Asia offered the best options for a low-cost supplier. Using an Asian supplier
would require a transfer of chemical and process technology. A typical supplier from Asia could offer
more than 50% savings over a western supplier.

Decision

Could both products be successfully sourced using the same method? How would suppliers and
employees react to this type of procurement process?