Scm 309 – Developing a Sourcing Strategy at Exeter Pharmaceutical Corporation
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Developing a Sourcing Strategy at Exeter Pharmaceutical Corporation SCM 309Section 010Professor TrentFall 2017 884841151~887276901~881236036Table of ContentsExecutive Summary…………………………………………………………………… 2Supplier Financial Analysis…………………………………………………………… 3Financial Ratios……………………………………………………………… 3Z-Score Analysis……………………………………………………………….. 8Total Cost Analysis…………………………………………………………………….. 9Supplier Evaluation and Selection Analysis……………………………………….. 12Rough Cut Capacity Analysis……………………………………………….. 13Weighted-point Supplier Assessment Audit……………………………….. 14Sourcing Risk Management Plan and Map……………………………………… 16Scenario Risk Map…………………………………………………………… 20Strategy Recommendation, Implementation, and Timeline……………………… 21Our Strategy…………………………………………………………………… 21Implementation……………………………………………………………….. 21Timeline………………………………………………………………..………. 23 Key Takeaways……………………………………………………………………….. 23  Executive SummaryThis 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 Alzheimers 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 AnalysisRatio AnalysisIn 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 RatiosMeasureNippon MaterialsDytec ChemicalsRXP NVProfitability RatiosProfitability RatiosProfit Margin0.01920.06820.0343Profit Margin= Net Income/Net SalesReturn on Investment3.585713.51918.0973ROI = Net Profit / Total Investment * 100Return on Stockholders Equity0.06530.21740.0994Return on Stockholders Equity= Net Income/Average Stockholders’ EquityLiquidity RatiosLiquidity RatiosCurrent Ratio1.21591.33881.1294Current Ratio= Current Assets/Current LiabilitiesQuick Ratio0.96780.82450.9331Quick Ratio=(Cash +Accounts Receivable + Short Term Investments)/Current LiabilitiesNet Working Capital384.541.544.9Net Working Capital= Current Assets – Current LiabilitiesActivity RatiosActivity RatiosInventory Turnover5.19995.43307.0050Inventory Turnover= COGS/Average InventoryAccounts Receivable Turnover7.311612.22227.7650Accounts Receivable Turnover= Net Sales/Average Accounts ReceivableAverage Collection Period49.920829.863647.0055Average Collection Period= 365/Accounts Receivable TurnoverReturn on Net Assets0.05900.22520.1017Return on Net Assets= Net Income/ (Fixed Assets +Working Capital)Total Asset Turnover1.32001.57001.3800Total Asset Turnover= Sales/Total AssetsLeverage RatiosLeverage RatiosDebt Ratio0.61240.50710.5226Debt Ratio= Total Liabilities/Total AssetsEquity Ratio0.38760.49290.4774Equity Ratio= Total Equity/Total AssetsTimes Interest Earned1.75006.45832.8455Times Interest Earned= Operating Income/InterestDebt-Equity Ratio1.58011.02901.0945Debt-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