Becton Dickenson :

Vacutainer® Systems
Division
Environmental forces
impacting the supply chain

Presented by
Group 5
Aakruti Katre (1811028)
Anvi Gupta (1811096)
Milind Gurav (1811169)
Deepshika (1811220)
Armaan Lakra (1811338)
Venkatesh K (1811403)
 Industry Analysis – Porter’s five forces and Customer
segmentation
Company Analysis – Business segments, Strengths and
weaknesses, positioning with respect to competitors 
Agenda Timeline and Organizational Buying Behavior

Key issues

Problem at hand and Recommendation

Industry analysis
Porter’s five forces
Threat from competitors - High Power of largest customer
Power of distributors - Medium
segment (Hospitals) – Very High

• 10 largest distributors accounted

• Hospitals organized themselves
for 80% sales through distributors
Terumo doubled its market share in into buying chains/ groups 
• Backward integration, APG
needles • Centralized purchases, high
manufacturing 45% of its current
(cost leadership) volume, better price bargain
sales
• with manufacturers and
But distributors’ margins are
distributors
squeezed by hospitals

Threat of new entrants - Medium Threat of substitutes - Low Critical factors for success
• Constant R&D creates better • Reduce current rivalry by offering differentiated
• New players like J&J withdrew 
substitutes  products and charge premium for it 
• But new technologies in industry
• Limited threat by capillary blood • Reduce buyer bargaining power by developing
can attract new players
collection systems alternate customer segments i.e. labs and physician
office

Overall, the industry for blood collection products is now unattractive

Industry analysis
Customer segmentation                 Venous blood collection products - $124mn (US Market) 

Commercial ​ Non-hospital health care

Hospitals – 70 % (4900 hospitals, 86.8mn) – 5% (6.2mn)
Labs​- 25 % (31mn)
Declining growth (Legal Cost Containment pressure) +6% pa, outsourced from +5% pa, easy technology
hospitals

Large Hospitals - (43.4mn) Midsize and small - (43.4mn)

Non
Teaching
Teaching
Key Buying Influence Preferred good brand Price sensitive,
name and quality Need to meet budget
MD, PhD Lab technicians (Risen through ranks) Material Manager

Post DRG Regulation

Buying Situation Straight Rebuy Modified Rebuy

Decentralized Buy Centralized Buy

Key Criteria
Focus on quality Focus on price
Company analysis BD
Sales: $845mn (US Market)
Business segments
Medical products Laboratory Industrial safety
60% sales: $507mn (23% sales)  (17% sales)

Blood collection system

Pharma Needles, syringes, &
10.65% sales system diabetic products
$90mn sales, $10.44 income

Capillary
Venous Microbiology
$3.48 mn op. VACUNTAINER 
$63mn sales, $3.48 mn op. income  income  
$3.48 mn op. income 
7.5% BD sales, 70% BDVS sales, 3.5%
total income

Needles Tubes Lancet Tube

$55mn $8mn
The $6mn APG contract in
question
Competitor information
Company Origin Tubes (Market Needles (Market
share) share)
Tubes ( Value in million $)
50% 16.
18% 7.5 cents
1.8
24
m,
Doubled share Doubled market m,[P72 BDVS
[P m,
Terumo Japanese with same price ER Terumo

of 6.5 cents share ER

CE
[P Sherwood
CE ER
(Pushed by ASP?) NT
NT CE
AGNT
AG
E]
E] AG
E]
Sherwood USA 2% 15%
10 cents Total Value:

80% Needles (Value in million $)

Constant for 7 30% 5.010.
7 15
16.
BDVS USA years- increased 7.5 cents- lost m,
92 m, BDVS
price from 6 to 8 10% market share [P [P
m, Terumo
ER
[PER
cents CE
Sherwood
ERCE
NTNT
Decision Criteria: Decision Criteria: CE
AG
NTAG
Quality Cost E] E]
AG
E]
Total Value: 32.14 million $
Company analysis
Strengths & Weaknesses

• Research & Development

• Brand reputation (for quality)
• Product assortment : Widest range of tubes
Color coding and product assortment measure of quality for
STRENGTH hospitals & labs
• Relatively intensive distribution
BD sells syringes to fragmented physician market
Small local distributors who have close relation with lab

• Higher price

WEAKNESS • Weak boundary spanning

• Reactive to competitor’s actions

The company sees product development & market development imperative to its growth strategy
Timeline
Mid 1970 1975 1978 1980 1982 1983 1985

Separate sales force DRG guidelines- cost

APG was formed implications for hospitals- saw
was established for value in becoming a part of
vacutainer group

Terumo entered into contract AHS Corporate APG national purchasing New agreement
with ASP through ASP's Program was agreement- BDVS refused for supply of tubes
supplier (Kimball Glass) initiated to negotiate- Signed with and needles
Terumo

Organization buying behavior

Buying situation: Straight rebuy by individual hospitals  modified rebuy by APG group (Buyer bargaining power)

Buying process: Focus on vendor selection (Focus on price)

DMU and roles: Higher quality  Low price, KBI shifted from bench people to purchase managers
Relationship anatomy: Transactional relationship b/w hospital and manufacturer (stuck on price)
Key issues
 Champion at
Build strong
Kimball opened  Strong relations- each ASP brand-
 BDVS didn't relationships
door for Terumo 70% Terumo sales Distributors
block suppliers with
at ASP via ASP helped Terumo
distributors
gain market share

Buying groups Change in

Cost efficiency Hospitals more
Legal environment -
pressures for inclined towards
signing National buying
DRG regulations Purchasing behavior of
hospitals buying groups
Agreement (NPAs) customers

 BDVS negotiated  90% of BDVS

 Ill will with APG- Build strong
 APG signed with individual business with
Now APG is more relationship
national agreement hospital- Z
prepared APG member
Contracts hospital at risk with APG
 PROBLEM AT HAND AND RECOMMENDATION
PRICE  DISTRIBUTION BRAND 
  20% price reduction, matching Exclusivity to APG affiliated
APG TERMS APG private label
competitors  distributors

Reduce the TCO through logistics

Retain BDVS brand
RECOMMENDATION expense Retain BDVS distributors
name
Expand DMU
- Price cut to APG ($6MN) --> Price cut
- BDVS distributors are
for all ($63MN)
RATIONALE also BD distributors - Quality is a
- Material and logistic - 10-15% each
($845MN) differentiator factor
of total cost
- 65% i.e. $40.95mn from - Tight control
- Distributor margin cut 6 distributors v/s through backward
IMPLEMENTATION - Unbundle distributor-hospital value additional $0.51mn integration
added service APG business

- Incentivize for developing 2 other

For cost optimization,
segments (fragmented market,
WAY FORWARD distributors plan to retain
standard product)
only 1-2 vendors
- Sales force restructuring
Appendix 1
Calculation of venous blood collection product market size
Line items Needles  Tubes Total 
No. of units purchased by x 2.5x 3.5x
APG
Quantity purchased from 40% 80%
BDVS = 0.4x = 2x
Price per unit 7.5 cents 8 cents
0.19x
Value purchased from BDVS 0.03x 0.16x (=$6mn given, x= $31.58mn)
=2.5*0.08
=1*31.58*0.075*10*10 *31.58*10
0/70 *100/70
= 33.84 =90.23
Total value purchased by APG = 0.075x+0.2x= 0.275x = $8.68mn
Since APG comprises of 10% of hospitals, purchase by hospital segment = $86.8mn
Since hospitals constitute 70% of total value, market size = $124mn
Appendix 2
Effect of letting go distributors Figures in $ mn

Venous blood collection system Present Scenario Agree to all Don't agree
APG terms
Market size 124 124
Total BDVS sales  63 22.56 57
Part of total sales through national distributors 40.95 0

Total APG business at original prices 8.68

APG business available to contractor 7.812

APG business available to contractor at new prices 6.51

Current business to BDVS from APG member hospitals 6 0
Additional business from APG at new prices 0.51

Operating income of BDVS 3.48 1.25 3.1464

Operating income to sales ratio 0.0552
Loss from alternative  2.23 0.33
 Appendix 3
Interview with Hospital Purchasing manager
Q. What kind of blood collection products you typically buy?  
A. VACUTAINER products  
Q. Whom do you buy them from?
A. BD manufacturer
Q. Why not from any other vendor? Is it because of the technology of evacuated tubes?
A. Currently, all manufacturers produce evacuated technology tubes but still BD is preferred because of its quality
Q. Do you buy for your hospital or are you a part of a buying group? 
A. We buy collectively for all state government hospitals 
Q. Who all are included in the decision-making process? 
A. We have a committee with nurses, lab technicians,  purchasing managers etc. 
Q. What does the buying process look like? 
A. We invite tenders and have internal decision-making criteria pre-defined by the committee 
Q. What is the most important factor for qualifying supplier ? 
A. Quality is the most important factor. If 3.5mL of blood is to be collected the vacuum shouldn't stop at 3mL.  
Q. What are the other factors you look at? 
A. Since the volume is large, production capacity is very important. The supplier should also have financial strength to take loans and complete the order. We ask around for
review on the after sales service and inventory available with the distributors. 
Q. How important is price as a factor in the decision-making process? 
A. Price is last. BD tubes are 25% more expensive than other brands and we still buy it
Appendix
Interview with Junior Doctor
Q. What kind of blood collection products you typically use at hospital?  
A. VACUTAINER products  
Q. Are you included in the decision-making process of selecting the supplier of these products? 
A. Yes. I give the specifications to the purchasing manager. If there are any new products, I first use  them and then decide if we can
consider the same
Q. What is the most important attribute for you? 
A. Definitely the quality. If the suction of needle stops midway and we have to manually pull out blood with syringe, it causes the
patient a lot of pain and there is a very high chance that he wouldn’t return to us for blood test
Q. What are the other factors you look at? 
A. The product should always be in-stock. Patient wants to get the blood test done on the same day as OPD. Nobody these days has
the time to visit the hospital twice.