A ---- Read the article below and the video that accompanies this article: https
ID: 2616273 • Letter: A
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A ----
Read the article below and the video that accompanies this article:
https://www.youtube.com/watch?v=1ELl4CRts6Y
Arnold Palmer Hospital, one of the nation’s top hospitals dedicated to serving women and children, is a large business with over 2,000 employees working in a 431-bed facility totaling 676,000 square feet in Orlando, Florida. Like many other hospitals, and other companies, Arnold Palmer Hospital had been a long-time member of a large buying group, one servicing 900 members. But the group did have a few limitations. For example, it might change suppliers for a particular product every year (based on a new lower-cost bidder) or stock only a product that was not familiar to the physicians at Arnold Palmer Hospital. The buying group was also not able to negotiate contracts with local manufacturers to secure the best pricing.
So in 2003, Arnold Palmer Hospital, together with seven other partner hospitals in central Florida, formed its own much smaller, but still powerful (with $200 million in annual purchases) Healthcare Purchasing Alliance (HPA) corporation. The new alliance saved the HPA members $7 million in its first year with two main changes. First, it was structured and staffed to ensure that the bulk of the savings associated with its contracting efforts went to its eight members. Second, it struck even better deals with vendors by guaranteeing a committed volume and signing not 1-year deals but 3- to 5-year contracts. “Even with a new internal cost of $400,000 to run HPA, the savings and ability to contract for what our member hospitals really want makes the deal a winner,” says George DeLong, head of HPA.
Effective supply chain management in manufacturing often focuses on development of new product innovations and efficiency through buyer–vendor collaboration. However, the approach in a service industry has a slightly different emphasis. At Arnold Palmer Hospital, supply chain opportunities often manifest them- selves through the Medical Economic Outcomes Committee. This committee (and its subcommittees) consists of users (including the medical and nursing staff) who evaluate purchase options with a goal of better medicine while achieving economic targets. For instance, the heart pacemaker negotiation by the cardiology sub- committee allowed for the standardization to two manufacturers, with annual savings of $2 million for just this one product.
Arnold Palmer Hospital is also able to develop custom products that require collaboration down to the third tier of the sup- ply chain. This is the case with custom packs that are used in the operating room. The custom packs are delivered by a distributor, McKesson General Medical, but assembled by a pack company that uses materials the hospital wanted purchased from specific manufacturers. The HPA allows Arnold Palmer Hospital to be creative in this way. With major cost savings, standardization, blanket purchase orders, long-term contracts, and more control of product development, the benefits to the hospital are substantial.
Question: How does this supply chain differ from that in a manufacturing firm?
B ----
The world’s largest retailer, Walmart, owns and manages its own fleet of trucks. The company has often received praise for its distribution capabilities. The practice, however, seems to represent a stark contrast to the practice of outsourcing not only shipping, but other logistics operations to third-party logistics providers. Address the advantages and disadvantages of these different policies. Under what conditions would it make sense for a firm to own and manage its own trucking operation?
Explanation / Answer
The supply chain for the hospital was vendor contracting while that of Wal-Mart is owning the supply chain by themselves. Both the companies have their specific requirements which can be met by following these models of supply chain. The outsourcing or vendor contracting form of supply chain is advantageous when a large number of companies group together and the requirement of all of them is same. By grouping together, they will have more financial strength as they can pool in more money. Similarly there will be more savings as well. However, if any one of the group wants some different kind of product then it will be difficult for them as all the products are standardized. This is one disadvantage of this method of supply chain management. Moreover there are many parties involved so the whole group should have unity.
The other type of supply chain management i.e. where the company owns its supply chain is possible when the company has good amount of money to spend on buying their own vehicles. This is also possible when the customer base of the company is huge and it cannot rely on a third party for supply chain. The disadvantage is the investment involved and the rusk in managing the supply chain by themselves.
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