I. Major Facts
• 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.
II. Major Problem Even though Kodak film has been the industry standard in the past, Mr. Rubble has reason to believe that the current Kodak price was above that of possible competition. However, 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.
III. Possible Solutions
Mr. Rubble could: A. Consider requesting that Kodak meet the price of the competitors to maintain the business of the company. B. Consider changing suppliers to one of the competitors which will provide the X-ray film with the same high quality but lower price. C. Choose to stay with Kodak because of their pre-existing business relationship and improving track record as an industry standard, even though there are competitors with consistent quality and cheaper prices. D. Choose to go with a little lower quality that still meets minimum spec requirements and is cheaper in price.
IV. Choice and Rationale The best solution would be to go with either Dupont or Agfa. Doing that will allow Pacific Healthcare to keep the same quality X-ray film that they and their patients have been used to having with Kodak .Thus decision will also allow for the company to receive the medical supplies at a lower cost.
V. Implementation
• Consider issues and identify ways to meet the needs of Pacific Healthcare and their patients at a lower cost without compromising the quality of the industry standard of a company like Kodak. • Evaluate all of the pros and cons of switching to a new supplier or staying with Kodak. • Make a decision in the best interest for the reputation of Pacific Healthcare and their budget for the next year.
Case Questions
1. What alternatives should Barney Rubble consider when addressing the problem? • Barney should consider changing suppliers to one of the competitors which will provide the X-ray film with the same high quality but lower price. • He should consider the established, long term relationship with Kodak. • He should consider paying the price and staying with Kodak. • He should consider requesting that Kodak meet the price of the competitors to maintain the business of the company.
2. Should Pacific’s supply policies allow for any medical staff personnel to control sourcing decisions? I do not think that Pacific’s supply policies should allow medical staff personnel to control sourcing decisions. However, medical staff should be able to weigh in on key decisions by giving their options on needed supplies.
3. What are the advantages and disadvantages of staying with Kodak—or changing suppliers? How would you evaluate these? An advantage of staying with Kodak would be the quality of the X-Ray film and being able to maintain a long-term business relationship. A disadvantage of staying with Kodak would be knowing that Pacific is not obtaining the lowest overall cost while getting the highest quality product.
4. What action could Mr. Rubble have taken prior to Mr. Howell’s death to obtain reduced film prices? Mr. Rubble could have addressed the issue with Mr. Howell and asked him to request a reduction in price of the X-Ray film making it comparable to one of the competitors’ pricing.