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?