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Scm 309 - Developing a Sourcing Strategy at Exeter Pharmaceutical Corporation

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Developing a Sourcing Strategy at Exeter Pharmaceutical Corporation

SCM 309

Section 010

Professor Trent

Fall 2017 

884841151~887276901~881236036

Table of Contents

  1. Executive Summary…………………………………………………………………… 2
  2. Supplier Financial Analysis…………………………………………………………… 3
  1. Financial Ratios………………………………………………………………... 3
  2. Z-Score Analysis……………………………………………………………….. 8
  1. Total Cost Analysis…………………………………………………………………….. 9
  2. Supplier Evaluation and Selection Analysis……………………………………….. 12
  1. Rough Cut Capacity Analysis……………………………………………….. 13
  2. Weighted-point Supplier Assessment Audit……………………………….. 14
  1. Sourcing Risk Management Plan and Map………………………………………... 16
  1. Scenario Risk Map…………………………………………………………… 20
  1. Strategy Recommendation, Implementation, and Timeline……………………… 21
  1. Our Strategy…………………………………………………………………... 21
  2. Implementation……………………………………………………………….. 21
  3. Timeline………………………………………………………………..…….... 23
  1. Key Takeaways………………………………………………………………...…….. 23

 

Executive Summary

This analysis develops a sourcing strategy for Exeter Pharmaceutical Corporation (EPC), Inc., pertaining to a critical chemical required to support the production of a recently approved pharmaceutical drug Trivare that helps delay and even reverse symptoms of Alzheimer’s disease. Because other companies also expect to win FDA approval for their Alzheimer's drugs over the next several months, it is important that EPC gets to market first. EPC decided to source a major intermediary code named Intermediary 332 and the company is considering three suppliers: Nippon Materials, Dytec Chemicals Company, and RXP NV. We will use the data collected during the commodity team’s visits to each supplier to analyze the supplier selection.

The first section of this report will include an analysis of the financial integrity of each supplier through calculation and evaluation of carefully selected financial ratios and the z-score bankruptcy predictor for each company. Dytec Chemicals ranked highest of the three suppliers based on the financial ratios and the bankruptcy predictor, although no one company was particularly alarming. The next section will contain a total cost analysis in order to quantify the costs that are in addition to the quoted unit price. From the TCO we concluded that Dytec offers the lowest estimated price. After performing the TCO, we must also conduct a rough-cut capacity analysis to ensure that our supplier of choice has the capacity to maintain our demand. Nippon MAterials is the only supplier who has the capacity to fulfill our demand indefinitely.

In order to more thoroughly evaluate each supplier we will also perform a weighted-point supplier assessment audit to see how each supplier compares in a variety of qualitative and quantitative considerations, weighting the categories based on how important it is to the selection analysis. From the weighted point analysis, we can conclude that Nippon Materials is our strongest supplier. Based on all of the information given in the case, along with the financial analysis, total cost analysis, and weighted-point assessment, we will carefully select a supplier. It will be clear that Nippon has the capacity to provide the higher volumes early on to get our drug to market first, so we will outsource from Nippon. However, we will implement a tailored sourcing strategy with Dytec Chemicals, who will have enough capacity to fulfill a one month’s order in the off-chance that a shipment from Japan is delayed. Dytec’s financial state and U.S. location will be an effective fall back in the case of a major issue with Nippon. After the selection decision, the we will identify potential risks, map these risks, and explain our developed set of action plans to prevent/mitigate them. The final section will conclude with a discussion of our strategy and a detailed timeline to implement our recommendation in anticipation of the product launch.

Section 1: Supplier Financial Analysis

Ratio Analysis

In this section we will analyze each company through several different financial ratios including profitability, liquidity, activities, and leverage ratios. Highlighting the supplier of weakness for each ratio, we can visualize which companies tend to be financially more weak while others are stronger. This will help us in our final supplier selection decision.

Financial Ratios

Measure

Nippon Materials

Dytec Chemicals

RXP NV

Profitability Ratios

Profitability Ratios

Profit Margin

0.0192

0.0682

0.0343

Profit Margin= Net Income/Net Sales

Return on Investment

3.5857

13.5191

8.0973

ROI = Net Profit / Total Investment * 100

Return on Stockholders Equity

0.0653

0.2174

0.0994

Return on Stockholders Equity= Net Income/Average Stockholders’ Equity

Liquidity Ratios

Liquidity Ratios

Current Ratio

1.2159

1.3388

1.1294

Current Ratio= Current Assets/Current Liabilities

Quick Ratio

0.9678

0.8245

0.9331

Quick Ratio=(Cash +Accounts Receivable + Short Term Investments)/Current Liabilities

Net Working Capital

384.5

41.5

44.9

Net Working Capital= Current Assets - Current Liabilities

Activity Ratios

Activity Ratios

Inventory Turnover

5.1999

5.4330

7.0050

Inventory Turnover= COGS/Average Inventory

Accounts Receivable Turnover

7.3116

12.2222

7.7650

Accounts Receivable Turnover= Net Sales/Average Accounts Receivable

Average Collection Period

49.9208

29.8636

47.0055

Average Collection Period= 365/Accounts Receivable Turnover

Return on Net Assets

0.0590

0.2252

0.1017

Return on Net Assets= Net Income/ (Fixed Assets +Working Capital)

Total Asset Turnover

1.3200

1.5700

1.3800

Total Asset Turnover= Sales/Total Assets

Leverage Ratios

Leverage Ratios

Debt Ratio

0.6124

0.5071

0.5226

Debt Ratio= Total Liabilities/Total Assets

Equity Ratio

0.3876

0.4929

0.4774

Equity Ratio= Total Equity/Total Assets

Times Interest Earned

1.7500

6.4583

2.8455

Times Interest Earned= Operating Income/Interest

Debt-Equity Ratio

1.5801

1.0290

1.0945

Debt-Equity Ratio= Total Liabilities/Total Equity

*Yellow Shading= the supplier with the most concerning ratio for each measure

*Green Shading= the supplier with the most promising ratio for each measure

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