Case

 TAPEX  
Restructuring  the  Purchasing  
Department  

Strategic  Purchasing  Management  

 Case  Tapex:  Restructuring  the  Purchasing  Department  

 
Case  Tapex  
 
Restructuring  the  Purchasing  Department  
 
Tapex,  one  of  the  leading  companies  for  pressure  sensitive  tapes,  had  a  complex  year  in  2008,  since  
preparations   for   becoming   a   legally   independent   subsidiary   of   Fullcare   were   getting   serious.   On  
October   30,   2008,   John   Smith   (Ph.D.)   come   out   of   a   very   important   meeting   in   the   headquarter  
office   of   Tapex:   the   new   board   of   Tapex   had   asked   him   to   develop   a   concept   for   the   design   of  
Tapex  procurement  activities.  
Back  in  his  office,  he  immediately  called  his  friend  and  colleague  Christian  Beckett  to  tell  him  the  
great   news.   “Purchasing   amounts   to   almost   half   of   our   revenues   and   both   of   us   know   how  
important   cost   efficiency   is   in   order   to   secure   the   450   jobs   here   in   Lille   and   elsewhere.”   John   Smith  
was   well   aware   of   the   role   procurement   was   playing   for   Tapex   and   felt   under   pressure   to   organize  
the   purchasing   activities   in   a   way   that   would   allow   for   efficiency   increases   and   savings.   At   the  
same  time,  however,  he  was  proud  that  the  board  would  leave  most  conceptual  and  organizational  
decisions  to  him.    
John  Smith  knew  how  much  work  was  waiting  for  him:  by  January  1,  2009,  the  board  expected  him  
to  have  developed  a  proposal  based  on  a  thorough  analysis  of  all  feasible  options.  Within  a  month,  
he   should   set   up   a   project   team,   perform   the   necessary   analyses,   and   finally   come   up   with   a  
decision   about   the   new   organizational   structures   and   an   estimate   of   potential   savings   and    
financial  impacts.  
 
Fullcare  
 
Founded  in  1912,  Fullcare  has  become  one  of  today’s  leading  branded  goods  manufacturers.  The  
company’s  success  has  been  closely  connected  to  its  brand  Bodycare.  In  the  year  2008,  Fullcare  AG  
employed   over   16,500   people   worldwide   and   had   global   revenues   of   4.1   billion   euros,   an   increase  
of   approximately   13   percent   compared   to   2007.   The   company   had   three   major   business   lines:  
Cosmed,   Medical,   and   Tapex.   Cosmed,   being   by   far   the   largest   and   most   important   product  
category  generated  revenues  of  2.5  billion  euros  in  2008  and  includes  brands  like  Bodycare.  Under  
the   Bodycare   umbrella   brand,   Fullcare   markets   a   series   of   cosmetic   products,   especially   the  
famous   Bodycare   beauty   cream,   facial   products,   and   a   separate   series   of   men’s   products.   The  
brand   has   a   high   worldwide   recognition   and   its   value   is   estimated   to   exceed   four   billion   euros.  
Medical   constitutes   the   second   biggest   product   category,   accounting   for   over   850   million   euros   of  
revenues   in   2008,   including   products   like   sport   tapes,   surgical   tapes,   adhesive   bandages,   fabric  
dressings,  or  wound  closure  strips.  The  business  line  Tapex,  described  in  detail  below,  generated  
revenues   of   merely   668   million   euros.   Fullcare   earned   389   million   euros   before   interest   and   taxes  
(EBIT)  and  paid  a  dividend  of  one  euro  per  share  to  its  stockholders  in  2008.  Fullcare  emphasizes  
the  importance  of  a  strong  brand  and  its  development  as  a  major  part  of  its  corporate  strategy.  
The   company’s   portfolio   consists   of   brands   with   a   leading   global   position   brands   with   global  
presence,  and  regional  brands.  This  brand  development  is  based  on  strength  of  R&D  innovations  
which  enables  the  company  to  follow  its  growth  strategy.  At  Fullcare,  all  three  drivers  of  organic  
growth   are   applied:   introduction   of   new   products,   expansion   of   existing   products   into   new  
markets,   and   market   share   increases.   Growth   is   considered   very   important   at   Fullcare   and   as   a  
matter  of  fact,  each  subsidiary  is  evaluated  by  its  growth  rate  and  return  on  sales  (ROS).  
 

Copyright  ©  Politecnico  di  Milano  School  of  Management     2  

 Case  Tapex:  Restructuring  the  Purchasing  Department  

The  tape  market  

 
The  pressure  sensitive  tape  industry  can  be  segmented  into  technical  and  specialty  tapes  on  the  
one   hand   and   commodity   tapes   on   the   other   hand.   Technical   and   specialty   tapes   are   used,   for  
instance,   for   industrial   or   medical   treatments,   while   commodity   tapes   are   required   mainly   for  
packaging,   consumer   applications,   and   office   supplies.   Packaging   tapes   accounted   for  
approximately   70   percent   of   total   demand   and   will   probably   continue   to   track   average   industry  
growth   rates   in   the   future,   partly   due   to   increasing   internet   sales,   which   in   return   increase   the  
demand   for   boxed   shipments   and   packaging   tapes.   The   best   and   probably   most   profitable  
opportunities  in  the  industry  exist  in  the  field  of  technical  and  specialty  tapes  due  to  increasingly  
fast   developments   in   the   high-­‐tech   industry,   boosting   demand   for   adhesive   films   to   attach  
microchips   and   storage   in   technical   devices,   like   mobile   phones   or   digital   cameras.   However,  
technical   and   specialty   tapes   and   commodity   tapes   have   a   comparable   production   process   and  
often  require  similar  input  materials.  
 
The   market   size   for   pressure   sensitive   tapes   (including   technical   and   specialty   tapes   as   well   as  
commodity   tapes)   is   expected   to   almost   double   in   size   within   the   next   decade.   In   2007,  
approximately   18   billion   square   meters   were   sold   worldwide   and   sales   are   predicted   to   exceed   33  
billion  square  meters  in  2017.  In  2007,  the  US  market  accounted  for  28  percent,  Western  Europe  
for  22  percent,  China  for  14  percent,  Japan  for  8  percent,  other  Asian  and  Pacific  markets  for  12  
percent,  and  the  rest  of  the  world  for  16  percent  of  total  sales.  The  overall  market  is  expected  to  
grow  by  6.2  percent  per  year  in  the  next  five  years.  
 
Product  portfolio  
 
The  product  portfolio  of  Tapex  offers  a  wide  range  of  commercial  and  industrial  products  for  an  
incredible   variety   of   different   applications.   About   one   third   of   Tapex   revenues   are   generated  
through  sales  to  the  consumer  market,  leaving  the  bulk  part  of  sales  to  industrial  customers.  While  
most   people   imagine   adhesive   tapes   to   be   used   for   packaging   or   office   use,   adhesive   tapes   and  
films   have   long   conquered   important   problems   in   industrial   applications   and   production  
processes.   Often   sensitive   electronic   parts   can   no   longer   be   soldered   or   brazed,   but   have   to   be  
glued  together  by  using  double-­‐sided  adhesive  films.  
The   company   provides   over   6000   different   kinds   of   adhesive   tapes   (of   which   300   are   consumer  
products)  to  its  various  customers  from  industrial  and  handcraft  firms.  Tapex  strategy  is  to  offer  
any   product   that   is   based   on   adhesive   tapes.   Its   product   portfolio   hence   ranges   from   simple  
adhesive   tapes   used   in   offices   and   homes   worldwide   to   specialty   tapes   used   outdoors   or   for  
special   purposes   like   isolation   of   electric   cables.   Innovations   contribute   considerably   to   Tapex  
success:  new  products  generated  35  percent  of  its  sales  in  2007.  Tapex  R&D  department  in  Lille  
was  known  for  product  innovations  as  well  as  the  materials  required  for  production.  In  order  to  
develop  and  maintain  profitable  products,  the  collaboration  of  R&D,  marketing,  procurement,  and  
the  plants  is  considered  crucial.  
 
Tapex  industrial  structure  
 
Today,  Tapex  has  ten  production  sites  worldwide.  The  four  European  plants  are  located  in  France  
(Lille   and   Nantes),   Italy   (Bergamo),   and   Spain   (Zaragoza).   Another   two   plants   are   located   in   the  
United  States  (Sparta  and  Middletown)  and  three  in  Asia  (Bombay,  Kuala  Lumpur,  and  Shanghai).  

Copyright  ©  Politecnico  di  Milano  School  of  Management     3  

 Case  Tapex:  Restructuring  the  Purchasing  Department  

The   plants   in   Lille   (450   employees),   Nantes   (450   employees),   Bergamo   (200   employees),   and  
Shanghai  (130  employees)  are  the  ones  with  the  highest  outputs.

The  plant  in  Lille  produces  expensive  specialty  tapes  for  high-­‐end  applications,  which  also  generate  
the  highest  margins  within  the  product  portfolio  of  Tapex.  The  plant  accounts  for  approximately  
10   percent   of   the   four   major   plants’   output   and   employs   about   450   people.   In   Lille,   primarily  
polymers   are   used   as   the adhesive   component   of   the   tapes.   Approximately   one   quarter   of   the  
backing  materials  employed  in  the  production  process  are  PE  and  PET  films  each,  foams  account  
for  10  percent  of  the  backing  materials  and  the  rest  can  be  equally  allotted  to  PVC  and  PP  films.  
Even   if   volumes   might   be   lower   than   in   other   plants,   raw   materials   used   in   Lille   are   particularly  
complex  and  innovative.  As  a  consequence,  the  strategic  importance  of  raw  materials  purchased  
there  is  greater  than  in  other  plants.  
 
The   Nantes   plant   also   employs   about   450   employees,   but   mostly   produces   commodity   products  
with   lower   margins   and   its   yearly   output   makes   up   50   percent   of   the   four   major   plants’   total  
output.  Tapes  are  produced  using  a  solvent-­‐based  adhesive  and  various  backing  materials.  Paper  
accounts  for  about  half  of  the  backing  materials,  fleece  for  roughly  20  percent,  and  fabrics  amount  
to  10  percent.  The  remaining  backing  materials  are  mostly  diverse  plastic  films.  Even  if  products  
are   not   high   margin   they   require   a   variety   of   materials   purchased,   especially   for   what   concerns  
packaging  materials  (in  particular  cores),  which  distinguish  the  different  products.  
 
The   Tapex   plant   in   Bergamo   produces   tapes   for   the   mass   market   with   very   low   margins   and   its  
output  amounts  to  30  percent  of  the  four  major  plants’  total  output.  
Less   than   200   employees   work   at   the   Bergamo   plant,   lowering   personnel   cost   compared   to   the  
French   plants.   Material   costs   account   for   approximately   60   percent   of   total   costs.   Tapes   from  
Bergamo   are   produced   with   solvent   based   adhesives   and   PVC,   PE   and   PP   films   as   backing  
materials,  all  having  roughly  the  same  share.  
 
The   Shanghai   plant   produces   the   remaining   10   percent   of   the   four   major   plants’   total   output   with  
a   headcount   of   about   130   employees.   Solvent-­‐based   adhesives   and   PVC   plastic   films   are   main  
components.  In  Shanghai,  Tapex  produces  its  own  PVC  plastic  films  from  PVC  pellets,  which  can  be  
considered  a  commodity  in  the  world  market.  
 
Other  Tapex  plants  have  either  relatively  low  output  levels  or  are  just  used  as  converters,  meaning  
that  the  finished  product  is  only  sized  and  wrapped  locally  into  the  needed  form.  
 
Purchased  items  and  supply  market  
 
The   adhesive   component   and   the   backing   material   are   the   two   major   components   of   adhesive  
tapes.  While  a  large  part  of  raw  materials  needed  for  the  adhesive  component  can  be  considered  a  
commodity,   especially   for   packaging   tapes,   some   exceptions   do   apply.   Some   special   resins   or  
additives  are  needed  for  technical  specialty  tapes  in  order  to  ensure  optimal  product  specifications  
are  met  and  these  can  be  quite  expensive  and  hard  to  obtain.  Backing  materials,  in  contrast,  are  
often   highly   specified   and   specifically   developed   in   cooperation   with   Tapex   suppliers.  
Consequently   they   cannot   be   considered   a   commodity   and   Tapex   sources   almost   all   of   them  
through  single  sourcing  or  monopolistic  suppliers.  Global  sourcing  has  increased  the  pressure  on  

Copyright  ©  Politecnico  di  Milano  School  of  Management     4  

 Case  Tapex:  Restructuring  the  Purchasing  Department  

local  suppliers,  but  especially  backing  materials  for  high-­‐end  technical  and  specialty  tapes  have  to  
comply  with  complex  specifications  and  high  and  stable  quality  levels.  
Tapex  purchases  are  primarily  generated  in  Europe:  In  2007,  34  percent  of  the  spending  originated  
from  France,  40  percent  from  the  rest  of  Europe,  16  percent  from  the  Americas,  and  10  percent  
from   Asia/Pacific.   Tapex   wide   variety   of   products   demands   many   different   and   to   some   extent  
complex  and  specific  raw  materials.    
 
• Raw   materials   account   for   approximately   32   percent   of   the   yearly   costs.   The   tape   itself  
basically   consists   of   two   major   components:   the   adhesive   material   and   the   backing  
material.   Depending   on   the   tape,   the   backing   material   and   adhesive   material   may   vary.  
Typically   two   basic   groups   of   adhesive   materials   can   be   differentiated:   solvent-­‐based  
adhesives   and   polymers.   Solvent-­‐based   adhesives   contain   approximately   30   percent  
rubber,   30   percent   resin,   and   40   percent   solvents,   while   polymer   adhesives   consist   of   70  
percent   monomers   and   30   percent   additives.   They   are   chemical   products,   so   essentially  
commodities.   Backing   materials   can   be   more   diverse   and   include   materials   like   films   (PP,  
PE,  etc.),  papers,  fleeces,  foams,  and  different  fabrics.  Backing  materials  account  for  75%  of  
total   raw   materials’   expenditure.   These   products   are   highly   customized.   Benefits   from  
bundling   and   economies   of   scales   are   not   so   likely,   except   for   some   sort   of   fiber   fabric,  
which   is   also   used   for   surgical   tapes   of   the   medical   division.   Nevertheless   both   backing  
materials   and   adhesives   represent   the   main   component   of   Tapex   products   and   are  
considered  strategic.  
 
• Packaging  materials  not  only  include  product  packages,  but  also  so-­‐called  tape  cores,  which  
are  positioned  in  the  middle  with  the  tape  wrapped  around  them,  giving  the  final  product  
its  stability  and  facilitating  its  use.  They  count  for  approximately  3%  of  the  total  yearly  cost.  
Cores  have  complicated  requirements  and  it’s  difficult  to  find  suitable  suppliers  for  them,  
even  if  they  don’t  influence  the  product  performance  so  much.  
 
• Third-­‐party   products   used   in   Tapex   products   are   not   produced   by   Tapex   itself,   but  
purchased  on  the  market  and  account  for  about  20  percent  of  Tapex  costs.  It  is  quite  easy  
to  find  them  on  the  market  since  they  are  not  so  specific,  but  they  are  important  for  the  
final  product,  so  it’s  important  to  find  the  suitable  supplier  for  them.  
 
• The   same   amount   is   needed   each   year   for   technical   goods   and   services,   which   includes  
important   machines   and   maintenance   costs.   They   are   quite   available   in   the   market   but,  
also   in   this   case,   it’s   important   to   carefully   choose   suppliers   to   avoid   problems   in   the  
production  process,  one  of  the  core  processes  in  Tapex.  
 
• Costs   of   freight,   transportation   and   logistics   amount   to   approximately   10   percent   of   the  
total   purchasing   costs.   Transport   and   logistical   services   have   potential   for   economies   of  
scale  and  are  of  low  strategic  relevance.  There  is  plenty  of  suppliers  for  this  kind  of  services  
so  it  is  important  to  make  a  good  scouting  to  save  money  by  choosing  a  reliable  supplier  
among  them.  
 
• Cost   for   marketing   services   account   for   5   percent   of   the   total   purchasing   costs.   They   are  
not   a   core   activity   for   Tapex,   so   they   are   bought   from   external   agencies   without   strict  
requirements,  depending  on  the  nature  of  marketing  service  required.  

Copyright  ©  Politecnico  di  Milano  School  of  Management     5  

 Case  Tapex:  Restructuring  the  Purchasing  Department  

 
• Other  diverse  costs,  such  as  IT,  stationary  and  energy  amount  to  approximately  10  percent.  
Price   for   some   of   them   are   quite   difficult   to   negotiate,   considered   the   bargaining   power   of  
some  suppliers  in  the  energy  sector  for  example,  while  other  are  essentially  commodities  
bought  on  a  price  basis  on  the  spot  market.  
 

Tapex  purchasing  activities  

 
While  Tapex  had  been  the  problem  child  of  Fullcare  in  former  times,  the  restructuring  efforts  in  
2005  and  2006  showed  already  initial  success  in  2008.  However,  it  became  more  and  more  evident  
that  it  would  make  sense  to  form  a  legally  independent  profit  maximizing  entity  out  of  Tapex  with  
a   separate   management   structure   for   all   essential   business   areas   like   finance,   HR,   controlling,   and  
supply.  Not  only  was  Tapex  business  model  hardly  comparable  with  the  other  Fullcare  activities,  
but   also   Fullcare   wanted   to   make   the   restructured   business   sustainable   by   granting   more  
independence  to  its  subsidiary.  
The   central   supply   department   of   Fullcare   in   Lille   had   about   45   employees   at   that   time,   who   were  
managing   the   sourcing   process   of   the   three   business   divisions,   Cosmed,   Medical,   and   Tapex.  
Cosmed  was  the  department’s  most  important  internal  customer,  followed  by  medical  and  then  
Tapex.  
Due  to  the  supply-­‐market  orientation  of  Fullcare’s  sourcing  division,  several  strategic  purchasers  
spent  part  of  their  time  on  sourcing  for  Tapex,  while  one  employee was  dedicated  completely  to  
Tapex   related   sourcing   streams.   All   purchasers   had   to   coordinate   purchasing   decisions   with   Tapex  
plants  around  the  world,  where  generally  only  minor  purchasing  decisions  were  made.  Group  wide  
purchasing  synergies  could  be  realized  especially  with  regard  to  indirect  materials  (e.g.  energy  and  
mailing).   From   Tapex   raw   materials   about   five   percent   could   be   purchased   together   with   the  
medical  division.    
The  department  had  the  following  main  tasks:  
• research  international  supply  markets;  
• bundle  quantities  around  the  world  and  generate  synergies;  
• negotiate  contracts  and  prices  and  communicate  them;  
• assure  required  product  and  service  quality  and  supply  security;  
• monitor  the  purchasing  business  by  controlling  systems.  

Most  strategic  purchasers  had  an  academic  background  in  business  or  engineering  and  generally  
had   hands-­‐on   work   experience   within   Fullcare   or   at   companies   in   the   line   business.   Different  
success   measures   were   used   to   evaluate   the   group:   cost   savings   were   measured   as   the   difference  
between   prices   at   beginning   and   end   of   an   optimization   project,   whereas   technical   negotiation  
success   was   defined   as   the   difference   between   best   price   first   offers   and   negotiated   price.   Finally,  
the  planning  and  forecasting  accuracy  of  material  prices  was  also  important.  
 
Even  though  the  official  date  for  legal  independence  of  Tapex  was  planned  for  April  1,  2009,  the  
company  began  preparations  already  throughout  2008.  Fullcare  imposed  very  few  constraints  on  
Tapex   with   regard   to   the   future   structure   of   the   company   once   the   new   board   had   been  
appointed.  Sourcing  was  of  obvious  concern  to  the  top  management,  as  it  accounted  for  a  major  
share  of  Tapex  costs  (purchasing  amounted  to  approximately  50%  of  Tapex  sales)  and  was  crucial  
for   determining   the   price   range   of   products   as   well   as   for   their   positioning   and   success   in   the  
market.  Consequently  and  despite  the  additional  overhead  this  would  create,  the  board  decided  

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 Case  Tapex:  Restructuring  the  Purchasing  Department  

to   establish   the   position   of   a   procurement   manager   in   the   new   company   who   should   decide   on  
how  to  collaborate  with  the  central  sourcing  department  of  Fullcare  in  the  future  and  to  negotiate  
emerging   service   fees   (service   fees   would   have   to   be   paid   if   Fullcare   continued   to   purchase   for  
Tapex)   or   how   Tapex   should   organize   its   procurement.   Very   soon,   they   agreed   that   John   Smith  
was  the  right  person  for  this  job.  
 
John  Smith’s  role  
 
John   Smith’s   career   with   Fullcare   started   in   1988   in   the   IT   department   of   the   medical   division.  
When  switching  to  controller  of  Tapex  Lille  plant,  he  experienced  that  “brainstorming  with  various  
people  from  the  plant  was  a  big  help  for  production  management.  There  is  an  enormous  potential  
for  improvement  at  the  bottom  of  the  organization  that  has  to  be  realized.”  In  2004,  he  joined  the  
team   for   the   restructuring   project   of   Tapex   where   he   was   the   responsible   controller         (controlling  
corresponds   to   managerial   accounting   or   corporate   control)   in   the   redesign   of   the   global  
manufacturing  network.  “When  the  future  of  the  Lille  plant  was  under  discussion,  I  realized  that  
purchasing,  amounting  to  half  of  the  revenues,  had  to  become  more  efficient  in  order  to  secure  
the  450  jobs  in Lille.”  He  was  also  involved  in  a  procurement  efficiency  improvement  effort.  “We  
tried   to   apply   different   levers,   but   in   the   end   the   most   important   projects   dealt   with   the  
development   of   suppliers   for   certain   materials,   where   we   could   reduce   the   price   level   by   about  
five  to  ten  percent.”  
Experience  showed  that  supplier  developing  programs  can  be  successfully  applied  with  a  success  
probability   from   60   to   50   percent   of   single   source   or   monopolistic   suppliers.   This   probability   is  
decreasing   in   5   years,   assuming   every   year   20%   of   the   spending   is   addressed.   Also   expected  
savings  (10-­‐5%)  are  decreasing  in  the  five  years.  
 
With   the   appointment   as   procurement   manager   of   the   new   Tapex   corporation,   John   Smith’s  
career  advanced  another  step  forward.  Within  the  remaining  month  till  January  1,  2009,  he  had  to  
set   up   a   project   team   and   make   many   decisions.   In   addition   to   his   former   colleague   Christian  
Beckett,   three   experienced   Fullcare   purchasers   joined   the   team.   They   had   experience   in  
conducting   successful   negotiations   with   suppliers   and   hoped   for   additional   cost   savings   in   the  
future  due  to  their  proven  deal-­‐making  tactics.    
 
By  hearing  the  experiences  of  these  skilled  buyers  during  an  informal  lunch  John  Smith  got  many  
interesting   information,   concerning   in   most   part   the   need   to   manage   different   purchase  
categories  in  a  different  and  appropriate  way.  For  example  he  heard  from  Mark  Leenders,  one  of  
them,  that  as  for  commodities  it  was  important  to  plan  well  in  advance  future  needs,  in  order  to  
take   advantage   of   market   trends.   He   managed   to   save   quite   a   lot   of   money   also   by   dealing   on   the  
derivatives  market.  All  in  all,  by  managing  efficiently  commodities,  he  managed  to  save  5%  of  the  
total   spending   from   the   first   year.   Ross   Williams   added   that   capital   goods   and   maintenance  
services   were   another   potential   source   of   saving;   when   he   worked   in   its   previous   company   this  
category   was   at   the   beginning   purchased   from   6   different   suppliers:   he   reduced   them   to   2   and  
improved   relationships,   by   planning   and   organizing   maintenance   services.   In   this   way   he   achieved  
savings  of  4%  from  the  first  year.  Ross  also  emphasized  the  importance  of  an  effective  negotiation  
when  buying  logistics  and  transportation  services.  First  of  all  he  considered  that  centralization  was  
a   good   way   to   manage   this   category,   increasing   the   buyer   bargaining   power.   Besides,   in   his  
previous  experience,  he  used  to  choose  the  most  convenient  supplier  through  electronic  tools.  His  
best  knowledge  of  negotiation  techniques  was  useful  to  get  the  lower  possible  price.  This  action  

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 Case  Tapex:  Restructuring  the  Purchasing  Department  

proved   to   be   very   advantageous   and   made   him   save   10%   of   total   spend   from   the   first   year.   He  
added   that   through   centralization   the   same   savings   (10%)   can   be   achieved   also   in   Marketing  
services  by  consolidating  volumes.  
Jack  Barrel,  the  third  new  member  of  the  team,  probably  feeling  forced  to  add  something  to  the  
discussion,   underlined   the   importance   to   standardize   as   much   as   possible   purchased   materials,  
also   by   redesigning   product   specifications,   especially   for   those   items   that   are   difficult   to   find   on  
the  market  and  are  not  of  a  high  strategic  importance  for  the  output.  He  read  in  a  sector  study  
that   through   requirement   analysis   and   specifications   redesign   it   was   possible   to   save   up   to   8%  
from  the  first  year.  This  lunch  has  been  very  interesting  to  John,  and  source  of  inspiration  for  his  
future  actions.  
 
Even  though  the  board  had  assured  John  Smith  that  his  team  would  have  the  freedom  to  decide  
all   details   of   Tapex   future   sourcing   strategy   and   structure,   he   was   not   too   sure   which   degree   of  
change  would  really  be  appreciated  in  the  end.  And  while  the  board  did  not  expect  clear  savings  
commitments   and   put   highest   priority   on   a   procurement   strategy   that   answered   Tapex   current  
and  future  sourcing  needs,  he  felt  that  quick  wins  would  be  helpful  in  increasing  the  board’s  and  
employees’  acceptance  of  changes,  if  changes  had  to  be  undertaken  at  all.  
John   Smith   was   aware   that   he   had   to   differentiate   between   strategic   and   transactional   when  
analyzing  the  procurement  processes.  In  general  strategic  sourcing  managers  choose  the  suppliers,  
negotiate  a  master  agreement  and  a  price  range  and  then  monitor  the  market.  Operative  buyers  
mainly  do  the  day-­‐to-­‐day  ordering  within  the  settled  master  agreement,  working  locally  within  the  
plants,  because  the  material  needs  have  to  be  determined  by  the  production  processes.  
Nevertheless,   it   is   hard   to   draw   a   clear   line   between   strategic   purchasing   and   operative   buying.  
Strategic  sourcing  managers  in  Lille  often  complained  about  operative  task  taking  away  attention  
from  strategic  deal  making.  In  the  past  for  example,  the  responsibility  for  account  master  data  and  
the  price  development  had  been  an  ongoing  issue.  
In  an  initial  brainstorming  phase,  John  Smith  talked  to  different  people  from  within  and  outside  of  
the  company  to  get  some  new  ideas.  He  heard  of  companies  from  other  industries  having  founded  
a  procurement  subsidiary  that  offered  services  also  to  external  customers.  A  friend  of  his  told  him  
that  cost  savings  due  to  bundling  effects  could  be  expected,  transparency  and  motivation  would  
increase,   and   that   his   company   enhanced   its   capability   for   global   sourcing.   Taxation   advantages  
seemed  to  be  another  reason  for  subsidiaries.  In  fact  an  internal  review  pointed  out  that  taxation  
savings   could   not   be   expected,   since   fiscal   authorities   were   modifying   accounting   rules   in   a   way  
that  transfer  of  profit  in  low-­‐tax-­‐countries  seemed  unrealistic  at  that  point  of  time.  
Talking   to   both   managers   from   the   top   and   the   bottom   of   the   purchasing   organization,   Smith  
noted   that   communication   between   Lille   and   the   local   operative   buyer   was   a   source   of   trouble.  
Coordination   especially   with   the   Americas   and   Asia/Pacific   created   a   lot   of   work,   but   a   team  
member   from   Fullcare   raised   an important   issue   when   explaining   that   without   this   effort,  
important  economies  of  scale  of  Fullcare  purchasing  division  would  be  lost.  
Another   interesting   project   John   Smith   heard   of   was   the   proposed   cooperation   with   a  
manufacturer   in   Indonesia.   They   would   finance   the   company’s   R&D   costs   and   investments   in  
production  facilities  for  producing  a  type  of  latex  Tapex  needed  and  an  internal  report  said  that  
this   could   be   promising.   (The   price   difference   compared   to   the   current   latex   supplier   would   result  
in   annual   savings,   which   correspond   to   150   percent   of   the   one-­‐time   investment).   Fullcare  
managers,  however,  brought  up  that  they  had  little  experience  with  this  kind  of  cooperation.  
John  Smith  had  also  heard  of  a  project  team  for  Tapex  IT  assessing  possible  outsourcing  providers.  
He  was  wondering  how  many  outsourcers  for  purchasing  activities  existed.  

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 Case  Tapex:  Restructuring  the  Purchasing  Department  

 
Requirements  for  the  new  structure  
 
Discussions   were   running   high   within   Tapex   on   the   future   structure   and   responsibilities   of   the  
sourcing   activities.   Several   plants   were   pushing   for   a   more   decentralized   sourcing   management,  
since   they   tried   to   become   more   independent   in   various   fields,   sometimes   even   forming   legally  
independent   production   subsidiaries.   They   wanted   both   strategic   and   operational   purchasing   to  
be   undertaken   at   the   plant   level   in   order   to   implement   the   local   needs   rapidly   in   the   sourcing  
process.  They  argued  that  mainly  production  management  at  the  plants  defined  specifications  for  
the  required  inputs.  
In   Lille,   on   the   other   side,   people   argued   that   economies   of   scale   could   only   be   realized   by  
bundling   sourcing   within   the   Fullcare   group.   They   feared   that   internal   communication   could  
become  difficult  and  delaying  when  decentralizing  sourcing  activities  and  that  every  plant  would  
have  different  sourcing  strategies  in  the  supply  markets.  
Operative   buyers   were   not   part   of   Fullcare   purchasing,   but   part   of   the   line   management   in   the  
plants.  This  was  necessary  since  their  work  streams  are  closely  connected  with  the  production  and  
material   managers   and   disciplinary   guidance   cannot   be   granted   from   the   headquarters.   Keeping  
responsibilities  clear  was  not  always  easy  though  and  a  matter  of  conflict  from  time  to  time.  
John   Smith   knew   that   only   an   increase   in   efficiency   would   measure   the   quality   of   the   new  
structure   of   the   sourcing   for   Tapex   and   he   felt   a   considerable   pressure.   In   2008,   about   97   percent  
of   all   materials   for   the   European   plants,   which   accounted   for   most   of   the   volume,   were   bought   in  
Europe.  Therefore,  competence  regarding  global  sourcing  had  to  be  enhanced.  But  also  innovative  
sourcing   tools   like   e-­‐sourcing   and   auctions   were   a   promising   trend   in   purchasing   sectors   where  
many  suppliers  compete  against  each  other  and  Fullcare  had  hardly  utilized  them  for  Tapex  up  to  
then.  Limiting  over-­‐engineering  was  another  possibility  to  save  costs.  The  production  department  
generally   defines   the   specifications   for   the   purchasing   negotiations,   which   the   Fullcare   sourcing  
team  often  was  not  able  or  did  not  want  to  challenge.  
“There,   however,   lays   a   considerable   lever   for   efficiency   increases.”   expected   John   Smith.   “For  
example,   partly   different   raw   materials   can   be   used   yielding   the   same   or   similar   results   in  
production.   This   might   cause   some   additional   costs   in   the   production   process.   There   should   be  
somebody   checking   if   these   alternative   raw   materials   can   be   purchased   at   lower   prices   that   more  
than   compensate   for   the   additional   production   costs.   Who   should   do   this   if   not   the   purchasing  
department?”  
 
 
 
 
 
 
 
 
 
 
 
 

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 Case  Tapex:  Restructuring  the  Purchasing  Department  

Discussion  
 
Organizational  aspects  
 
 What  organizational  structure  for  Tapex  procurement  activities  would  you  recommend?  
 
• Describe  the  options  Tapex  has  to  design  its  purchasing  activities.  Which  are  the  main  
advantages/disadvantages  of  the  different  options?  
• Which  organizational  design  should  be  adopted?  
 
Financial  aspects  
 
 What   will   be   the   impact   of   the   purchasing   rationalization   on   financial   performances   in  
the  next  five  years?    
 
• Identify  the  main  saving  drivers  
• Estimate   Tapex   financial   benefits   (EBIT   and   ROS)   from   restructuring   its   purchasing  
strategy  
 
 
 
 
 
 
 
 
 
 

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 Case  Tapex:  Restructuring  the  Purchasing  Department  

 
Appendix  1:  Sourced  materials  and  services  
 
1. Raw  Materials  
1.1. Adhesives  
• Rubber  
• Resins  
• Additives  
• Fillers  
• Solvents  
• Polymers  
• Chemicals  
1.2. Backing  materials  
• Papers  and  Wovens:  
• Crepe  Papers  
• Flat  Papers  
• Other  Papers  
• Fibre  Fabrics  
• Yarns  and  Fibres  
• Films:  
• PVC  Films  
• PE  Films  
• PET  Films  
• Other  Films  
• Release  Liners  
• Others:  
• Foams  /  Profiles  
• Non  Wovens  
 
2. Packaging  Materials  
• Corrugated  Boards  
• Folding  Boxes  
• Cores  (Cardboard,  Plastics)  
• Labels  
• Displays  (Corrugated,  Plastics)  
• Stretched  /  Blister  Foil  
• Blister  Cards  
• Advertising  Products  
 
3. Third  Party  Products  
 
4. Technical  Goods  and  services  
• Process  Technology  (Mixing,  Extrusion,  Polymerisation,  Surface  Treatment)  
• Coating  
• Converting  (Slitting,  Winding,  Packaging)  
• Warehouse  Equipment  
• Construction  

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 Case  Tapex:  Restructuring  the  Purchasing  Department  

• Transportation  Equipment  
•  Workshop  Equipment  
•  Operating  Supplies  
 
5. Logistical  Services  
 
6. Marketing  
• Advertising  
• Gadget  
• Participation  to  industry  fairs  
 
7. Other    
• IT  equipment  
• Stationary  
• Energy    
 
 

 
 

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 Case  Tapex:  Restructuring  the  Purchasing  Department  

 
Appendix  2:  Fullcare  at  a  glance  
 
 
All  numbers  in  million  EUR  unless  indicated  
 
  2007   2008  
  Fullcare   Tapex   Fullcare   Tapex  
         
Sales     3,638   628   4,116   668  
Change  %  from  previous  year  (%)   8.7   4.6   13.1   6.4  
Cosmed   2,242     2,590    
Medical   768     858    
         
Operating  result  –  EBIT   339   43   389   48  
EBITDA   468   59   538   66  
Profit  after  tax   175   21   226   24  
         
Return  of  sales  (%)   9.3   6.8   9.5   7.2  
         
Gross  cash  flow   359     386    
Capital  investment   129     249    
Research  and  development   79     88    
         
Employees  (number)   16,065     16,590    
 
 

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