Procurement at

Betapharm Corp
Procurement as a Strategy
Contents
● 1) Do you think that Betapharm made the right decision when it centralised the procurement department and delegated

almost all purchases of goods and services to this department? What are the pros and cons of such an organisational form? Is

this organisational form better suited for specific types of products or services?

● 2) Are E-sourcing tools an asset or a liability to a global organization such as Betapharm? What are the pros or cons of using

technology to help negotiate procurement contracts?

● 3) Should Betapharm use reverse auctions to negotiate global hotel contracts? What would be the greatest concerns with

using reverse auctions to negotiate these contracts?

● 4) What are the benefits and risks of using reverse auctions to select and negotiate with new suppliers?

● 5) If you do decide to use a reverse auction, how would you structure the auction? ( Price only, feedback, rank only

feedback, etc).
 Table of contents
01 02 03
Organizational Form E-sourcing Reverse Auctions
Evaluation of Beta Form in Assets or Liabilities Using reverse auctions to
selecting its organizational negotiate
form

04 05
Reverse Auctions Reverse Auctions
Benefits and Risks Structuring a reverse auction
 Betapharm’s Organizational Form

• The decision to centralise the procurement department and

delegated almost all purchases of goods and services to this
department, was the wrong decision. This organizational form is
most suited for standardized products.
• The generic pharmaceuticals sold are not necessarily standardized
products as they are intended to be bioequivalent to their brand
name counterparts not identical. However, these products are subject
to rigorous regulatory requirements that ensure they meet certain
standards of safety, efficacy, and quality. Choosing to centralize
would mean prioritizing cost-savings over quality.
 Cons of Centralised Procurement
1. Risk of over-reliance on cost savings:
2. Delays in Speed and responsiveness
3. Limited supplier diversity
4. Lack of flexibility-
5. Lack of accountability
6. Ineffective if product has unique requirements
 Cons of Centralised Procurement
• Risk of over-reliance on cost savings: Centralized procurement
systems can place too much emphasis on cost savings, which can
lead to sub-optimal decisions based on short-term savings rather
than long-term value.
• Delays in Speed and responsiveness- The decision-making and
purchase cycles may be slowed by centralizing procurement because
it may result in more layers of management and approval
procedures.
• Limited supplier diversity: Working with limited vendors might
restraint the company's ability to shop around for products and
solutions
 Cons of Centralised Procurement
• Lack of flexibility- : A centralized procurement department may
struggle to adapt to individual department needs, which can lead to
delays and frustration for department heads.
• Lack of accountability- Individual departments may have less direct
contact with suppliers, making it harder to hold them accountable
for quality or delivery issues.
• Ineffective if product has unique requirements
 Pros of Centralised Procurement
1. Centralized decision-making allows consistency
2. Consolidation avoids repetitive efforts wasted by several departments
3. Bulk-purchasing reduces transportation cost, increasing economies of scale
4. It's less time-consuming for staffs in the other departments, leading to
enhancement of productivity
5. Centralized system is easier for monitoring inventory
6. Large-quantity purchasing boosts the buyer's negotiation power
7. Procurement professionals can establish good relationship with suppliers,
which benefits long-term collaboration
 Pros of Centralised Procurement
1. Centralized decision-making allows consistency: When procurement
decisions are made by a centralized department, there is a greater
likelihood of consistency in procurement policies, procedures, and
strategies. This can help to ensure that all departments are following the
same guidelines and standards.
2. Consolidation avoids repetitive efforts wasted by several departments: In a
centralized procurement system, multiple departments do not need to
engage in the same procurement activities, which reduces the duplication
of effort and can save time and resources.
3. Bulk-purchasing reduces transportation cost, increasing economies of
scale: When procurement is centralized, larger quantities of goods and
services can be purchased at one time, resulting in economies of scale that
can lead to lower transportation costs and lower overall procurement costs.
 Pros of Centralised Procurement
4. Procurement professionals can establish good relationship with suppliers,
which benefits long-term collaboration: With a centralized procurement
system, procurement professionals can focus on building relationships with
suppliers, which can lead to better long-term collaboration and potentially
better pricing and terms for the company.

5. Centralized system is easier for monitoring inventory: Centralized

procurement can make it easier to track inventory levels and monitor usage
across departments, making it easier to identify potential inventory
shortages and plan for future procurement needs.
 Pros of Centralised Procurement
6. Large-quantity purchasing boosts the buyer’s negotiation power: When
procurement is centralized, larger quantities of goods and services can be
purchased, which can give the buyer more bargaining power when
negotiating with suppliers.

7. Procurement professionals can establish good relationship with suppliers,

which benefits long-term collaboration: With a centralized procurement
system, procurement professionals can focus on building relationships with
suppliers, which can lead to better long-term collaboration and potentially
better pricing and terms for the company.
 Suitable Products and Services for Centralised
Procurement
Centralized procurement can be suitable for a wide range of products and services, but it is
particularly well-suited for products and services that meet the following criteria:
1. Standardized
2. High-volume
3. Homogeneous
4. Low-complexity

Some examples of products and services that may be suitable for centralized procurement
include office supplies, raw materials, computer equipment, telecommunications services,
travel services, and maintenance and repair services. However, it is important to note that
the suitability of centralized procurement will depend on a variety of factors, including
company size, industry, and procurement objectives.
 Are E-sourcing tools an asset or a liability?

E-Sourcing Tools are an asset for a global organization such as Beta-

Pharm because it is the initial phase of electronic procurement
platform that involves pre-qualifying potential suppliers based on
procuring company's requirements to shortlist vendors for the
evaluation stage.
 Pros of E-sourcing
1. Savings in Procurement cost
2. Reducing time to purchase products
3. Transparency and standardisation in the process
 Pros of E-sourcing
1. Savings in Procurement cost: Automating the procurement process can be beneficial
for companies that place large number of purchase order during a business cycle. This
can help in reducing the transaction cost, human resources in identifying the supplier,
etc. As per an estimate by the National Association of Purchasing Management in the
U.S., usage of e-procurement can reduce the procurement cost by £67 per order.

2. Reducing time to purchase products: e-Sourcing can help in reducing the procurement
process as it will reduce the turnaround time at each step by reducing paperwork,
increase transaction speed and identification of suitable supplier based on the
parameters specified. This will reduce the overall turnaround time of contracting and
hence, contract life can be shorter.

3. Transparency and standardisation in the process: e-Sourcing will bring transparency

and standardisation in the process as the suppliers are selected on specified criteria and
hence, is suitable for the hotel contracting for Betapharm
 Cons of E-sourcing
1. Expensive for small supplier base with complex requirement: In cases where the
supplier base is small and has complex requirement, the process can be expensive than
manual process. As in the case, suppliers for malic acid are limited and it needs to meet
high quality standards and hence, eSourcing might not be the best process in this case
as this has impact on healthcare industry and hence, would require trust and
relationship which is tough to quantify. Betapharm would not want to take risk with the
quality for a cheaper price in this case since the product is used in healthcare industry.
2. Onboarding of suppliers: For niche products, there can be resistance in bringing the
supplier base onboard a new technology platform. Since the suppliers are limited, they
hold a higher bargaining power in this case and hence, migration would not be an easy
process.
3. Micromanagement: Options of customisation can make the process complicated than
needed resulting in longer approval process and evaluation because of micro-
management.
 Cons of E-sourcing
1. Expensive for small supplier base with complex requirement
2. Onboarding of suppliers
3. Micromanagement
 Using Reverse Auctions to Negotiate
Beta - Pharm should use reverse auctions to negotiate hotel global contracts. The
reason being there are a variety of suppliers who do not have large distinguishing
factors which would make them the obvious choice . While Beta - Pharm should
use a reverse auction there still are potential risks associated.
 Cons of Using Reverse Auctions
1. Relationship Building: The greatest concern using reverse auction is that the
suppliers are aware that the purchasing decision would be taken on the basis of
lowest price hence even if the supplier is awarded the contract, it will always be
uncertain about its future contracts, hence, no loyalty would develop. In the case
of global hotel contracts, it is important to establish a strong working
relationship with the supplier to ensure that the needs of Betapharm employees
are met
2. Complex requirements: Negotiating hotel accommodations involves several
complex requirements beyond just price, such as location, availability, and
amenities. Reverse auctions may not be the best way to evaluate all of these
factors in the negotiation process. additionally, Beta-Pharm could select the
wrong factors in structuring their reverse auction which could lead to the
candidate pool including sub-optimal choices unable to provide the standard to
meet employee needs.
 The Benefits of using Reverse auctions

1. Cost savings: Reverse auctions can result in lower prices, especially for
commodity products or services, which can lead to cost savings for the
buyer.
2. Time savings: Reverse auctions can streamline the procurement process
and reduce the time spent on negotiations.
3. Increased competition: Reverse auctions can attract a larger number of
suppliers and increase competition, which can drive down prices and
improve supplier performance.
4. Transparency: Reverse auctions can provide transparency in the
procurement process, allowing suppliers to see where they stand in the
bidding process and what their competitors are offering .
 The Risks of using Reverse auctions
1. Quality: Reverse auctions may prioritize price over quality, leading to
potential issues with the products or services purchased.
2. Relationship building: Reverse auctions do not allow for the
development of a strong working relationship between the buyer and the
supplier, which may impact future business dealings.
3. Supplier dissatisfaction: Suppliers may be unhappy with the reverse
auction process and the pressure to lower their prices, which may impact
their willingness to work with the buyer in the future.
4. Bid manipulation: There is a risk of bid manipulation, where suppliers
may collude to artificially inflate prices or withdraw from the bidding
process.
5. Complexity: Reverse auctions may not be suitable for complex
purchases or services where there are many variables to consider beyond
price.
 Structuring the Auctions
1. In the case of Betapharm, they should consider using the combined
feedback structure for the reverse auction. This will allow them to
evaluate the bids based on both price and other factors such as supplier
qualifications, experience, and track record. As a pharmaceutical
company, it's important for Betapharm to ensure that their suppliers are
reliable, have experience in the industry, and can deliver high-quality
products consistently.

2. Additionally, Betapharm should consider using the dynamic feedback

structure to encourage more competitive bidding and potentially lower
prices. This will allow the suppliers to see the current lowest bid and
adjust their prices accordingly, which can result in significant cost
savings for the company.
 Structuring the Auctions
1. However, it's important for Betapharm to also consider the potential risks
and challenges associated with using a reverse auction. These include the
possibility of suppliers undercutting each other to the point where quality
and service are compromised, as well as the risk of losing valuable
supplier relationships due to a focus solely on price. It's important for
Betapharm to carefully weigh the potential benefits and risks before
deciding to use a reverse auction to select and negotiate with new
suppliers.