Explain why would it be interesting for a student to study this Case Analysis? P

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Explain why would it be interesting for a student to study this Case Analysis?

PURCHASING CONSORTIUM FOR THE BMS INDUSTRY IN SINGAPORE

Starting in November 201 1, Dr, Siew Hwa Ong, director and chief scientist for Acumen Research Laboratories (ARL), had been in discussion with Spring Singapore' on ways to improve the existing procurement and su pply chain in the biomedical science (BMS) industry in Singapore.

Dr. Ong had been contemplating a methodology based on a purchasing consortium model, which could provide significant improvements to the efficiency of the current industry 's procurement and supply chain operations. Through this consortium, joint procrnrement by a group of organizations sharing the same needs would be perfonned via a highly user-friendly online purchasing portal. The purchasing consortium would aim to fonn a network of organizations in the biomedical research and development (R&D) industry and would serve as a one-stop solution for purchasing biomedical supplies for the industry. This would enhance cost savings for the member companies via bulk purchase discounts and would eliminate collective waste of resources spent by individual organizations on tedious purchasing sub-tasks. In the long term, this network could also be used to generate industry Jeaming and knowledge through coordinating symposiums and talks among the industry players .

However, creating such a new consortium required that member companies would be willing to move away from the Jong-time existing methods of purchasing through local distributors. Lt was April 2012, and Dr. Ong was finalizing her proposal to Spring Singapore to set up such a consortiwn. She had been working closely with four BBA students from the business school of the National University of Singapore (NUS) in evaluating, analyzing and conceptualizing the business model.

ACUMEN RESEARCH LABORATORIES PTE LTD

ARL was an innovation-dri ven contract research organization that provided R&D services to the biomedical R&D industry . The company was formed in Singapore in 20 I 0 to fulfill the R&D needs of the biomedical industry through its own core competencies and strategic alliances with complememary partners. ARL offered a comprehensive range of customized, contract R&D services in assay development and testing to clients and conducted internal R&D primarily in the area of drug target discovery and validation as well as biomarker discovery. ARL possessed strong expertise in biomedical R&D and understood well the needs of the R&D community. Its major customers included U.S. phannaceutical companies operati ng in Singapore and bioteclrnology companies in Poland.

As the founder of ARL, Dr. Ong bad established a track record as an entrepreneur.2 She obtained her Ph.D. from NUS in 2000 in the field of molecular and cell biology . Her research focused on mapping signaling mechanisms that could be targeted for developing anti-cancer therapeutics . With this relevant training and field of research, she then joined the pharmaceutical industry, focusing on translational research in cancer drug discovery and development. After accumulating a significant amount of experience in the ind ustry and driven by an entrepreneurial spirit to trans late results in basic research into commercial applications, she started ARL in January 20 10, officially la1mcl1ing the company in March 20 10. ARL was founded with the support of a teclmology commercialization grant from Spring Singapore.

The proposed purchasing consortium would be a new line of business operations for ARL. Dr. Ong pla1med to law1ch it first in Singapore and then replicate the consortium model in the near future in other countries, i.e., Poland. ARL was also actively developing new business relationships with suppliers in China and India to build a new supply chain network for biomedical R&D industry suppli es.

BIOMEDICAL SCIENCES INDUSTRY IN SINGAPORE

Global biomedical R&D was facing severe chali lenges arisii1g from the urgent need to be more cost efficient and to speed up innovations to sustainably trans late research into products . Global investments had be.en increasing over the years; however, the retums were w1satisfactory. In fact, many of the biomedica l/biopharmaceutical industries were under tremendous pressure due to significantly rising costs, increased government scrutiny by various cow1tries in healthcare spending, greater stringency on drug approval and the need for more environmentally sustainable manufacturi11g practices. The biomedical researc!J community in Singapore, as one of the global R&D hubs, had been similarly affected by diminished retums and was looking for a breakthrough solution in cost efficiency.

With more than a decade of strategic investment and focused development,Singapore had become a well­ recognized biomedica l R&D hub in Asia . To date, the output of the biomedical manufacturing ind ustries in Singapore was worth S$23 billion3 annually, including biopharmaceutical manufacturing medicines, nutritional products and medical products. Focusing on the biomedica l industry in particular, the government had committed to invest S$3.7 billion over the five years from 201 1 to 20 1 5 (a 12 per cent increase over the last five-year period) to enhance biomedica l R&D's infrastructure, integrate multidisciplinary research and translate basic science into application for commercial outcomes.4

lo the public sector, the key biomedica l R&D infrastmctures supponing the cow11ry 's BMS initiatives included Biopolis5 overseen by A-STAR,6 the academic campuses of NUS and NTU,7 as well as clinical re.search in the hospitals under SingHealth8 and NHG .9 The establishment of the Biomedical Sciences Industry Partnership Office (BMS IPO) in 20 1 1 was another effort by the Singapore government to further facilitate the trans lation of basic science into viable commercial entities, services or prod ucts via public-private partnership .

In the private sector, as a result of the govemment's efforts in attracting foreign investment and partnerships , manufactttring or R&D activities were established in Si11gapore by many major biomedica l and pharmaceutical multinational corporations, including Pfizer, Novartis, Merck, GlaxoSmithKline, Becton Dicki nson, Takeda and others. Alongside the increase in the nwnber of start-ups, small to mediwn-sized enterprises (SMEs) and big BMS/biophannaceutical companies, many major contract researc h organizations (CROs) had also law1ched businesses in Singapore, which had become the base for a large network of CROs offeri11g a wide range of services from preclinical biology , Phase I clinical trials and in vivo pharmacology to pharmacovigilance studies. In 20 10, Singapore's CRO market reached US$ 133 million, representing 3 per cent of the Aslian market.10

Vhile the global biomedica l and pharmaceutical industries represented large markets serving a growing number of unmet healthcare needs and willing-to-pay consumers, there existed a major problem that had to be overcome: there existed a deep, structural problem of innovation drought in biopharmaceutical R&D. As evidenced and depicted in a case study !by Deloitte,11 the substantial investment in global R&D had been increasing for the past 20 years, but the output of new drugs (NME:new molecular entities) had been declining, mai nly due to the rise in signi ficalbt new drivers of cost.

Various Singapore BMS and biophannaceutical industries had been affected by this global trend and were under pressure to "do more with less." Similarly, the public research institutes in Singapore were also under pressure to achieve cost savings. Laboratories that previously re.ceived industrial research funds had suffered from reduction in tl1ese funds.

Dr. Ong believed that cost savings were not only 11eeded in R&D but also in the procurement and supply chain operations, and thus she planned to work closely with Spring Singapore to implement a purchasing consortium for the local BMS and biopharmace1Utical industries to derive savings from bu l k purchase discounts, as well as combined admi11istrative and logistics expe nditures.

CURRENT SUPPLY CHAIN AND DISTRIBUTION

To date, procurement by biomedical entities in Singapore involved a model whereby tl1ey would search/source for suitable suppliers and purchase thei r needed supplies through the suppliers' loca lly appoimed distributors (there were approximately 60 to 70 such distributors in Singapore dealing with 700 to 800 different suppl iers). Most users (researchers and scientists) felt that the efficie ncy of this model was sub-optimal , mainly because it lacked visibility and customer intimacy; communication and networking were weak too.

The costs incurred via this sourcing method and supply chain operation were very high due to individual, separate, small volume shipments to Singapore. In addition, the purchasing process was time-consuming, as the biomedica l industries had to source their own suppliers, a tedious sub-task for research-oriented organizations. Also, the current supply chain was deficient in quality control and after-sales support, as most distributors were small in size and their personnel lacked the in-depth scientific or technical background to assist the researchers in such matters .

DEVELOPMENT OF THE PURCHASING CONSORTIUM

In order to bridge tl1e gaps in tl1e ctLTrent demand and supply chain for the biomedical R&D industry in Singapore, Dr. Ong believed that a buyer alliance had first to be formed to combine the individua l requirements for purchased equipment, su pplies and materials. This would then allow bulk purchase and enable the consoniurn, as proposed by ARL, to negotiate for discounts . Also, freight and transportation costs for bul k shipments would be reduced compared to the total corresponding costs that would be incurred when each organization ordered separately. Based on the centralized power of consortium purchasing with a larger quantity of items, ARL would negotiate pricing terms and after-sales support services with selected suppliers in order to obtain the best pricing and services for the members of tl1e consortitun .

ARL fundamentally would act as an intermediary between suppliers and the consortium members, fulfilling the role of price negotiation, placing collective orders to suppliers and delivering goods to customers. For the fulfillment of orders, ARL had started negotiations with an established local logistics partner, GK Pharma Pte Ltd .

The proposed purchasing consortium would enhance the cost savings of each member and eliminate tl1e collective waste of resources spent by individual organizations on tedious purchasing tasks. In reducing the operating costs for research activities, the consonitun could also help lower the entry barrier for biomedical start-up companies, thus promoting entrepreneurship within the ind ustry to folfill innovation gaps in the ecosystem. Besides cost saving and convenience, ARL would also offer quality assurance on products, manage risk and develop strong customer intimacy to ensure comprehensive and complete service.

As another value-added service, ARL would form a community among the members of the purchasing consonium to enable networking, infonnation exchange and sharing of technical knowledge by organizing relevalll seminars and workshops on technologies and prod ucts .

Last but not least, as tl1e need for improvement of R&D efficiency was global, the purchasing consortium model, once successful in Singapore, could be expanded overseas.The envisioned target markets included some Asian and Centra l and Eastern European cow1tries.

KEY CHALLENGES FACED BY THE PURCHASING CONSORTIUM

In operationalizing the proposed purchasing consortium, one immediate challenge that ARL needed to address was the encouragement of biomedica l/biopharmaceutical industries to become members of this consortitun, as most of them had traditionally been purchasing through their own distributors in Singapore. Due to the limited market size in Singapore (see Exhibit I), ARL also had the vision to expand its pttrchasing consortiwn business in the near tenn to other countries such as Poland, where it already had significant business experience. It was essential that this consortium could be internationalized so that its business potentia l could be fully exploited.

Explanation / Answer

The case 'PURCHASING CONSORTIUM FOR THE BMS INDUSTRY IN SINGAPORE' focuses on an innovative procurement model devised by ARL PTE Ltd. to derive efficiences of scale in the Biomedical Science indsutry. The case study helps students understand:

1) Distribution and supply chain for the BMS industry in Singapore.
2) Purchasing process and structure
3) Purchasing consortium and e-markets in Singapore and internationally

Along with this it also helps students understand how companies can grow in an industry lifecycle when growth is fueled by cost reductions in all spheres.

Students can through this interesting case learn how strategic negotiations at large scale can help in significant cost savings only if organizations collude to drive the same. It can lead to reduction in purchase, transportation and logistics cost and these savings can fund company's other initiatives.

An interesting angle to the case is how intermediaries like ARL play an important role in bringing all the players in an industry together out of their conventional purchase models and help them collude informally to drive scale efficiencies.

Further, operational nuances of the purchasing consortium and challenges associated with limited market size, convincing and getting players together, negotiating terms internally as well as externally without any biases are also covered which give students an insight into execution of strategy being as important as planning and creation in success of a business.

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