PACIFIC HEALTHCARE Pacific Healthcare is the largest health care provider in San
ID: 466746 • Letter: P
Question
PACIFIC HEALTHCARE
Pacific Healthcare is the largest health care provider in Santa Barbara County. The institution consists of three hospitals: Pacific Memorial (415 beds), Pacific Cabrillo (250 beds), and Pacific Isla Vista (300 beds); also included are two nursing homes and ten outpatient clinics. All combined, Pacific Healthcare has over 1,500 beds.
Barney Rubble, corporate director of supply management for Pacific, is in charge of procuring supplies for all Pacific Healthcare subsidiaries.
Mr. Thurston Howell, director of radiology, had been in charge of supplier selection of X ray film at Pacific for the past fifteen years. In the past, Mr. Howell refused to authorize the use of any X ray film other than Kodak.
Recently, Mr. Howell passed away, leaving Barney Rubble the opportunity to change the policy on selecting the supplier of the film. After a detailed investigation, Mr. Rubble had reason to believe that the current Kodak price was above that of possible competition.
The existing agreement with Kodak calls for furnishing X ray equipment, along with maintenance and service, at a substantial discount for using Kodak as the single supplier of the X ray film.
Kodak refused to provide these services if it were not the only source used for X ray film. X ray film comes in different types and sizes for various uses. The three types of film used at Pacific hospitals are general X ray film, film for mammograms, and film for CAT scans. Pacific uses approximately 1,500 sheets of X ray film per day.
Kodak film has been the industry standard in the past. There are also four other companies that manufacture X ray film: Dupont, Agfa, Fuji, and 3M. The quality of Dupont and Agfa is consistent with Kodak. Fuji and 3M film is thought to be of lower quality; however, this film meets minimum spec requirements. The prices of each brand are listed in Appendix A.
APPENDIX A Manufacturer X ray film, price per sheet Kodak $1.80 Agfa $1.58 Dupont $1.50 Fuji $1.40 3M $1.35
Obtaining the highest quality with the best service at the lowest overall cost is Pacific Healthcare’s supply strategy for medical supplies. Pacific’s objective is to find a single-source supplier for a one-year contract.
1. What alternatives should Barney Rubble consider when addressing the problem?
2. Should Pacific’s supply policies allow for any medical staff personnel to control sourcing decisions?
3. What are the advantages and disadvantages of staying with Kodak—or changing suppliers? How would you evaluate these?
4. What action could Mr. Rubble have taken prior to Mr. Howell’s death to obtain reduced film prices?
Explanation / Answer
1. What alternatives should Barney Rubble consider when addressing the problem?
Barney Rubble must understand te current situation and map it according to the required changes ( ie To Be). The change in cost perspective vs quality perspective is the major things to be considered. As medical industry is a very sensitive sector to handle quality and customer satisfaction ( treatment care and trust) really matters. Thus alternatives are:
2. Should Pacific’s supply policies allow for any medical staff personnel to control sourcing decisions?
No, there must be atleast 2 hierarchy to decide the supply policies. This will be good enough to get expert opinion on such important decisions. Otherwise there will be a single point of decision making may result in single angle perspective and stereotypic decision behavior.
3. 3. What are the advantages and disadvantages of staying with Kodak—or changing suppliers? How would you evaluate these?
Advanbtage:
Kodak has a long term business deal with the company. This helps in meeting the demand on right time as they are well aware of their business.
Quality standard is very high, thus a smooth business deal will be there.
Disadvantage:
Cost perspective study shows that they are very stringent about price aspect and is very high while compared to other competitors.
Relying on single supplier may gradually create issues as they tend to be more on bargaining position.
Contingency situation will be difficult to manage
The advantages and disadvantages has to be studied and verified through quality and cost perspective checks. A detailed study regarding the current cost structure, performance of Kodak has to be evaluated and then re structured or project based on the new vendor. The difference in quality aspect has to be given equal importance.
4. What action could Mr. Rubble have taken prior to Mr. Howell’s death to obtain reduced film prices?
Being a supply chain head, he has the right to work on cost aspect of sourcing. Thus Rubble has to have an early discussion with Howells regarding the issue on increasing price of sourcing. Thus sourcing re consideration and evaluation by having a secondary supplier must have done before. This evaluation and testing might help in improving their standard and reduce the cost. Always a company must have multiple sourcing policies to evaluate and to meet the requirement on un certainty. Vendor evaluation , reviews and rating has to be discussed with all departmet heads for thir understanding and opinions.
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