The Veroxide Group (VG):

manufactures a range of pharmaceutical products, namely,

prescription drugs and human vaccines. VG have their headquarters
in Berne, Switzerland, a research and development unit in Stockholm
(Sweden) and manufacturing sites in Leeds (England), Pretoria (South
Africa) and Berne. In the past year, R&D spending rose 3.9%,
equivalent to 17.3% of core business sales. There are a number of
potential new products in the pipeline but ‘Zentonex’ is widely
anticipated to receive regulatory approval in six months time.

VG have located their production buying operation in Leeds, but it may

be noted that the R&D unit have their own buying function. There is a
little contact between the two buying functions, mainly because the
R&D Director insists that he is the custodian of his budget. When a
drug goes into mass production, much larger quantities of feedback
are required.

When ‘Zentonex’ enters production, one of the feedstock items is

‘Onolun’, a special chemical. To meet the forecasted production
scheme, 2 tonnes will be required every three months. This chemical
has been supplied to VG by Gardners Ltd. who produces it in their
Birmingham (England) manufacturing plant. Gardeners have been a
regular supplier to R&D unit for five years and have impeccable
delivery and quality performance. Gardeners have three competitors
located in Brazil, Canada and France. VG plan to make ‘Zentonex’ in
their Pretoria location.

Anne Fortescue, the VG Buying Director, commissioned a report on

Gardner’s ability to manufacture and supply ‘Onolun’. The salient
extracts from the report are ‘Buying is done by an untrained buyer who
takes instructions from the plant director. Buying is an unsophisticated
operation and would require three key suppliers for feedstock to
‘Onolun’. These suppliers can manufacture the quantities required and
to the quality standards. The quality management is excellent, and we
have complete confidence in this
aspect.
It became evident that Gardner will need to invest £500,000 in new
plant and equipment.

They have not planned this expenditure and would need to extend
their bank overdraft to fund the purchase. The lead time to purchase,
install and commission the new facility would be 18 weeks. The Chief
Engineer would take accountability for the project, including
procurement.

The feedback is shelf life restricted (seven weeks), and so the supply
chain and inventory management will be critical. The accountability for
this is with the stores manager. This causes us serious concern and is
identified as a major risk. If VG sign a contract with Gardners, there
will have to be a commitment to supplier development. This is our key
recommendation.
Solution:
Case summary:
• headquarters in Berne
• R&D unit in Stockholm
• manufacturing sites:
o Leeds (England), Pretoria (South Africa) and Bern
• R&D spending:
o Last year: 3.9% currently: 17.3%
• new products : Zentonex & production will be in Pretoria location.
• regulatory approval in six months’ time
• production buying operation in Leeds.
• Onolun : raw material need for Zentonex 2 tonnes will be required
every three months.
• Gardners : supplier produces Onolun in their Birmingham (England)
manufacturing plant.
• Gardeners have three competitors located in Brazil, Canada and
France.
• Issues:
o R&D unit have their own buying function with little contact
between the two buying functions
o Buying is done by an untrained buyer who takes instructions from
the plant director.
o Gardner will need to invest £500,000 in new plant and equipment.
o Gardner have not planned this expenditure.
o lead time to purchase, install and commission the new facility
would be 18 weeks.
o feedback is shelf life restricted (seven weeks).
o VG to sign a contract with Gardners, there will have to be a
commitment to supplier development
Recommendation:
o VG must have a procurement department that control all the
procurement activates across the organization not by department.
o Full training needed for all procurement staff with clear KPI’s for their
performance to enhance the procurement process.
o It’s a huge risk to keep all the supply only with Gardners.
o Although Gardners is good supplier but the supplier development
evaluation program should also include the competitors to have a
realistic evaluation.
o The trade of between pay £500,000 to Gardners and evaluate the supply
from other competitors have to be done as 1st step.
o If we take the decision to continue with Gardens New plant for Onolun
must be in Pretoria or in the same country to be near the production
and minimize supply chain risk of moving the raw material from other
continentals.