Analysis of Bargaining Power of Suppliers at PT Kimia Farma Tbk
PT Kimia Farma Tbk is a company engaged in the pharmaceutical industry in Indonesia with the main activity of carrying out production and distribution activities ranging from medicinal products, cosmetics, to medical devices. Initially PT Kimia Farma Tbk was a company owned by the Netherlands, but this company was made a national state-owned company by the Indonesian government. Bargaining Power of Suppliers analysis is very important to do, because by knowing the power of suppliers, this can help us to know the competitive position of a company and help in making decisions in a company. In my opinion, the bargaining power of suppliers for PT Kimia Farma Tbk is low because this company doesn’t only depend on one supplier to provide its raw materials.
PT Kimia Farma Tbk is a pioneer in the Indonesian healthcare industry, by providing an integrated business chain from upstream to downstream. This can be seen from the fact that the company produces the main raw materials for its own pharmaceuticals through its subsidiaries. Examples of its subsidiaries are PT Kimia Farma Sungwun Pharmacopia and PT Sinkona Indonesia Lestari, which produce quinine, one of the main raw materials used in some medicines. This certainly helps in reducing dependence on suppliers from other countries such as India, China, and Europe, thus weakening the bargaining power of suppliers for some key raw material supplies.
In addition, as a pioneer in the Indonesian pharmaceutical industry, Kimia Farma has operated 10 production facilities, 49 distributors, and more than 1,000 pharmacies and clinics. This large scale of operation benefits PT Kimia Farma Tbk through greater negotiating power with foreign suppliers. This allows the company to get more affordable raw material prices due to the high number of purchases of raw materials and also has an impact on weakening the bargaining power of suppliers because the company may switch to other suppliers if needed.
Then, the strict and regulations in the pharmaceutical industry under the supervision of BPOM in Indonesia also affect the bargaining power of suppliers, because the raw materials provided by suppliers must meet the standards and requirements in accordance with existing regulations and policies in Indonesia. If they fail to meet the standards, it allow this company to find other suppliers that comply with regulations.
Finally, suppliers who cooperate with this company may have a high level of dependence on this company as the main buyer, so it can strengthen Kimia Farma’s negotiating power, because suppliers don’t want to lose large clients.
The conclusion is that Bargaining Power of Suppliers of PT Kimia Farma Tbk is low due to producing key raw materials through its subsidiaries, reducing reliance on foreign suppliers. Its large scale of operations, including production facilities and distributors, gives it bargaining power to secure better prices. Strict BPOM regulations ensure only compliant suppliers participate, while the suppliers’ dependence on this company as a major buyer strengthens the company’s negotiation advantage.
Sources:
https://www.kimiafarma.co.id/en/read/achieving-idr-4.95-t-in-revenue-semester-1-2023-kaef-maintains-positive-performance
https://www.kimiafarma.co.id/id/value-chain-perusahaan
https://www.kimiafarma.co.id/en/annual-report
https://en.wikipedia.org/wiki/Kimia_Farma