Betapharm Operation

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- Betapharm has to pay more when switching supplier to Chun Wu.

The increasing cost = (€44,014.59- €23,979.38) + €13,622.32 = €33,657.53

Beside the procurement and the total annual holding costs, Betapharm might have to bear other costs if deciding to switch to the Chinese products of Chun Wu. It is true that the price offered by Chun Wu is attractive; however, costs might well be much higher than expected. First of all, the opportunity cost is a big concern. Chinese products are known to have lower quality. Therefore, it is quite possible that their products will fail to meet the standard of Betapharm. If it happened, it would cost the company much time to deal with the problem. Instead of spending time for developing and completing the Exelon, Betapharm would have to buy products from other suppliers or to wait for Chun Wu to improve its Malic acid products.

In addition, unlike other suppliers, Chun Wu request the payments right after the order is made. Hence, if products of Chun Wu turned out to be poor in quality, Betapharm will have to spend an enormous amount of money to buy the Malic acid from other suppliers. Hence, it would destroy the effort of the management to cut cost for the company. Instead of saving money, Betapharm would waste a large amount of money for nothing.

In conclusion, switching to Chun Wu is not a wise decision since the annual holding cost and the procurement cost are higher; and especially since Betapharm will also have to bear some other costs such as the opportunity cost.