Health Care

I. Major Facts

Pacific Healthcare is the largest health care provider in Santa Barbra County; comprised of three hospitals consisting of approximately 1,500 beds. Mr. Barney Rubble is their director of supply management in charge of procuring supplies. However until his recent passing their director of radiology, Mr. Thurston Howell was in charge of the supplier selection of x ray film used in all Pacific Healthcare facilities. Under the former director of radiology, Kodak was the only authorized supplier of X ray film. Kodak film was found by Mr. Rubble to be priced above its competitors, but as an incentive for sole authorization Kodak offered to supply equipment, services and maintenance at discounted prices. This discount was only given if sole use of their film was maintained. There are four companies besides Kodak that offer film that meets or exceeds the required specifications at a lower cost, DuPont, Agfa, Fuji, and 3M.

II. Major Problems

In the absences of Mr. Howell, Mr. Rubble must decide if he will extend the Kodak contract or go with a new, cheaper supplier of X ray film while taking into consideration cost, quality and services provided.

III. Possible Solutions

A. Mr. Rubble could continue to use Kodak film. Continuing to use Kodak offer many advantages; first there would be no break in services, maintenance or products provided, second while it may be priced higher than its competitors, Kodak's film is of the highest quality in the industry, finally the discounted price of equipment, services and maintenance offered by Kodak most likely offsets the 22-30 cent difference in cost of the two providers of film consistent with Kodak, DuPont and Agfa. While this solution seems to be an easy decision it also has its disadvantages. For example Kodak has the highest priced film in the industry. Mr. Rubble does not know if any of the other providers of film can offer the same, better, or similar discounts on equipment, services and maintenance. Also he needs to think long term, if he offers Kodak the 1 year contract he will not be able to renegotiate until the contract expires.

B. Mr. Rubble could stay with Kodak, but renegotiate the film cost. Now that Mr. Rubble is responsible for the procurement of x ray film and the current contract with Kodak is coming to an end, he is in a great position to renegotiate. A renegotiation of the contract could allow Pacific to get a lower per film cost, while experiencing no service, maintenance, and equipment interruptions. If Mr. Rubble could try to negotiate with Kodak to receive per film cost as low as $1.50 instead of the $1.80. This price negotiation is based on the fact that two other companies, DuPont or Agfa have the same film consistency at theses lower costs, DuPont $1.50 and Agfa $1.58. Disadvantages to this solution include a possibility of weakening in business relations between the two companies, a possible increase or cancelation of discounts offered, and even a possibility of Kodak backing out of negotiations and