Sol 1)

According to the case Betapharm is one the largest pharmaceutical companies of the world and has a market share of about 5-10%. Out of the total revenue earned 50% goes to the cost of goods sold which comprises of procurement and other cost. The procurement process of betapharm comprises of a sourcing group which is responsible for formulating the procurement strategy for a product. This sourcing group was made up of a cross functional team comprising of members from procurement, quality, technical, finance and logistics department. Whenever a good had to be procured the sourcing group determined which mode of procurement was best for a product, implemented the agreed upon method and selected the preferred supplier.

In my opinion the decision to form a centralized sourcing group to procure the required material was a good decision taken by the management. This was because as the case mentions that the sourcing group comprised of people from 5 different departments each representative having a specific set of skills. Having a specialized team will definitely work to the advantage of the firm as there will be more information sharing and the procurement process will take opinions of multiple people into consideration before deciding the optimal strategy. These opinions will make sure that all technical and other requirements are taken into account before deciding what and how to procure. For example the finance representative will make sure that the cost is within the range permitted by the company rules and the quality department will make sure that quality of the product is not compromised in search for cheaper alternatives. Comparing it to the traditional approach where requirements are sent to the procurement department which comprises of people who have little or no technical knowledge regarding the product could result in inefficient procurement of products as it will only take into account the objectives/opinion of person who may think in only one direction for example he might give up quality for cost. This point is a very important consideration especially for companies like betapharm which manufacture drugs for depression etc. Not meeting the customer requirement in terms of the quality and cost of the product can have a drastic impact on the sales of the product and also can cause many customers to switch to other substitute medicines.

Second point which supports the decision to centralize the procurement decision is given in Appendix 2 of the case.