Table 1 in Appendix summarizes the advantages and disadvantages of using a centralized procurement function. In this section, the main pros and cons will be discussed: Cost savings – Due to the nature of the centralized procurement e.g. volume discount, less staff, centralized records, transportation costs leads to significant cost savings for the company. Easier spend analysis and monitoring – As you have a centralized department where all company – wide purchases are delegated it’s easier to create and maintain a consistent database with all the spend data in it. Based on Spend Analysis reading1, “a core issue surrounding spend analysis is the poor quality of spend data…”. Having a centralized function, spend analysis could be run frequently to “identify and forecast savings opportunities1”.
Reverse auction2 – Reading mentions that this solution is vital to have better, faster and cheaper acquisitions as well as promoting competition and economic opportunities. Having a centralized system the implementation could be easily supported. Nevertheless, every function, also centralized procurement, has its disadvantages as well: People aspect – Employee might feel disappointed as less decision power is in their hands and only certain people in the company could make purchasing decisions. Motivation, creativity could be affected. Productivity – When production needs to wait for parts to arrive or manufacturing needs to be re-scheduled due to wrong amount of items ordered cost benefits of centralized function are eroded. Flexibility and operating dynamics are not supported by this function. Reverse auctions to negotiate global hotel contracts
A direct reversed auction open to all hotels is not the preferable approach to negotiate global hotel contracts. Traveling and lodging is a service used by most companies but it is not easy to forecast the upcoming demand on travel. In addition to volume variability, high standard hotels might reject participating in a reverse auction to reduce their prices as much as possible. Furthermore, room prices vary during high and low seasons that means it might be tricky to assume uniform prices are maintained throughout the year. With a reverse auction, employees will be restricted to use one hotel and this hotel might not be the most desirable for all.
To start off, I recommend that Betapharm develops a centralized procurement approach to negotiate global hotel contracts. A centralized hotel service will help develop solid data base on the type of hotels Betapharm employees prefer, which hotel chain is used most and where are they located. Next, a list of hotels can be put created, these hotels will be the target for the procurement team to approach. Centralized procurement strategy will deliver financial savings since all transactions will be carried out by one entity and this will promote discounted prices from the supplier. Employees will be able to choose from a range of hotels that provide discounts for Betapharm. Futhermore, a uniform complaint booking process will be followed by all employees. …… Benefits
Acquisition process is more efficient- less staff required Limited choices for employees – personal criteria will not be met Transparency in the acquisition process, ensures competing suppliers and taxpayers a fairer competition Risk of alienating both current supplier and potential sources Seller and buyer create value, reduce waste and develop a simplified procurement process Service quality uncertainty – High variability in hotel offering Reduced costs, high potential financial savings – up to 45% Missed opportunities from other hotels with good offers
Access to a global supplier base
Boutique hotels not able to access eRFQs.
Guarantee priority bookings
Limited collaboration between supplier and seller
Increased efficiency in the market
Decision based solely on price, other attributes might not be considered
Reverse auction can incorporate several geographies including the regions taking the 20% of hotel spend Variable booking volume – risk of not meeting promised bookings
Lack of oversight and power over costs.
Reverse auctions to negotiate with new suppliers for Malic Acid Benefits
Contractual obligation ended with Tao. Betapharm is able to create competition to reduce prices of Tao. By performing a reverse auction there is a risk to damage relationship with Tao which the sole source. Tao was expensive so far. Thus Betafarm will be able to deal down the prices. If selecting another supplier, the new supplier would need to be qualified. Qualification process has long lead time of approval process. In Asia there are 5 low cost suppliers. 50% of potential savings by doing a reverse auction with Asian suppliers. Betapharm never did large-scale project with any supplier.
It is known that potential 5 suppliers have enough technical capabilities. Technical process might be transferred to new supplier. Which is an additional effort It is known that additional 5 suppliers have rigorous quality controls. Big price variance between 5 identified Asian suppliers.
We would recommend Betapharm to use reverse auction on Malic Acid as there is already pre-defined sources selected (5 suppliers on previous projects). The Sealed bids shows a big variation on prices between the 5 suppliers, so it would be recommended that Betapharm conduct evaluations for these suppliers to understand their capabilities and quality standards before starting the reverse auction. After they have the final list of suppliers with scores on the important CTQs for each of them, Betapharm should educate these suppliers on the reverse auction process and provide them with all the information they need (Qty, lead time, Qualification process,…etc).
At that point, Tao should be informed about the reserve auction and invited to participate. We believe that the reserve auction will definitely decrease prices and help Betapharm on their selection process. Final decision should not be based only on prices from the auction, the company should take on consideration the CTQs scoring since Malic Acid consider to be critical to make the new drug “Exelon”.
We would recommend Betapharm to use reverse auction on Malic Acid as there is already pre-defined sources selected (5 suppliers on previous projects). In the selection process it was imperative that these suppliers have rigorous quality-control standards in place as well as technical capabilities to deliver consistent product in the necessary amounts.
Courtney from Study Moose
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