Purchasing and Supply Chain Management: Heights General Hospital - Case Study Example

Heights General Hospital Overview: Heights General Hospital is a 600-bed situated nearby a large town. Rose silver was working as purchase director in the hospital whereas her previous job was as Purchasing Manager in a mid-size electric cooking utensils company. In her previous job she is not entitled to take purchasing decisions but actively involved in negotiation process as well as collecting and coordination of data, which was important in pre-negotiation planning. After appointment, her new administrator expected her to be aggressive but cooperative and bring her expertise and professionalism in her area of her operation i.e. purchasing. After 6 months, she faced a genuine problem in discharging her duties. One of the highest paid senior most medical staff and substantial revenue generator Dr. Spiller, almost negotiated and finalized an X-ray processor with New Age regional manager Mr. Jarvis. After finalizing the product and rate and he only called Rose silver to place a final order to purchase the X-ray processor from New Age. Now being in-charge of purchase, Rose tried to explain the things but he is not willing to listen her views at all. He was just explaining to Rose that the firm and person, whom he has finalized is the right company /person and only the said supplier will be able to supply the product as well as it’s a right kind of product. He even told Rose that companies (Supplier) regional manager Mr. Jarvis assured him that all the details has been taken care of by himself. Now Rose Silver is facing a kind of situation in which she could not use her expertise in the interest of hospital as well as she could not be able to discharge her responsibilities properly. Dr. Spiller had tried to bully her. Now she is in dilemma about her future course of actions. Discussions: (1) Lysons (2000, P.1) defines purchasing as: “Purchasing is the function responsible for obtaining by purchase, lease or other legal means, equipment, materials, components, suppliers and services required by an undertaking for use in production or resale”. Organizational purchasing decisions are therefore far more significant in today’s competitive situation and can play a significant part in determining company’s profitability. Purchasing is critical when it represents such a large proportion of the cost. Purchasing activities involves buying decisions to ensure that the right goods are in the right place, at the right time, at a right price, at the right quality and at the right quantity. Information is an important resource to purchasing managers. Information about price, quality, specifications and term of business plays a vital role in making any purchase decision. Another aspects like Reputation, Responsiveness and Reliability also have visible impact on purchasing decisions. So before taking any purchasing decisions, one has to evaluate all the above-mentioned factors and then only he or she can take the most suitable decisions according to the requirement of the organization. Here in the case, Dr. Spiller evidently tried to circumvent the normal purchasing procedure in selecting the supplier and approving the prices of the equipment. Dr. Spiller directly dealt with supplier firm executive Mr. Jarvis and fixed the price also thought he might not have the responsibility or authority to take decision like this. Naturally Dr. Spiller exceeded his authority and trying to intervene in others area of expertise/ job responsibilities. It has been clearly mentioned that the equipments which he used / using is the property of hospital and revenue generated by the department has to be shared by him also. On the basis of his expestise about the functioning of the machine and well being of the people health, he was trying to influence Rose Silver to put an order to New Age. Even Dr. Spiller assured Rose that he had already talked to Mr. Jarvis about other details, which Mr. Jarvis will take care afterwards. By going with the definition of purchase and information required before taking a purchasing decision it has been evident that Dr. Spiller has violated the established procedure of purchase. It has been a rare possibility that Dr. Spiller do not have knowledge about duties / responsibilities of Rose Silver and therefore he has not involved Rose in the process of purchasing the X-ray processor due to ignorance or this sort of practice has been practiced in the past. Dr. Spiller has bypassed all the purchasing procedures, selecting a supplier and approving the price of the equipment. (2.) Dr. Spiller approach to bypass the established purchase procedures and norms bound to create certain risks as well as might create some ethical problems. Other departments and their heads may copy this behaviour and all of them just inform Rose Silver and call her just to take orders finalized by them. This situation could generate chaos with in the organization. There will be no system of purchasing remains. Costing of equipments as well as purchasing of equipments could start on the basis of personal choice and this process ultimately harm the reputation of the hospital and also the profitability. Some ethical problems also may arise. Often the ethical considerations made out of self-interest. When there will not be any system of purchase exists with in the organization, each and everyone may take advantage of it and may take purchasing decisions not on the basis of objectivity and rationality. Purchasing decision bound to be taken on the basis of special Considerations like profit of self. This situation naturally creates some ethical problems. Now these days, many pressure groups like ‘behind the labels’ that monitor and report they see as injustice. Buyers and suppliers can unwittingly become embroiled in these difficulties unless they take care. The approach of Dr. Spiller to bully Rose Silver and to dictate her, have lots of potential risks. This approach has some ethical colour also. As Dr. Spiller says that he has taken care of all the details and assurances from. New Age regional managers Mr. Jarvis as well as price of the product has already been decided, shows some type of ethical problem. Here Dr. Spiller, with out having knowledge of other companies who may supply the equipment, assured Rose Silver that New Age is the only company, creates some suspicions. Then again showing the need to take care of public health, pseudo requirement, immediate need and showing that he has no time to discuss, all these situations create the suspicion about the behaviour of Dr. Spiller and about his ethical credentials. If this process of purchasing starts with in the organization, everyone starts the same practices and Hospital will suffer a lot especially erode its credibility as well as profitability. To minimize the risk and potential ethical problems, purchaser has to select supplier carefully, set down and agree appropriate standards; Monitor compliance with the agreed standard and identify areas for supplier improvements. (3.) Rose Silver’s area of responsibility starts with the requirements made by different departments. As a buyer / purchaser / purchase director, Rose have to forge an alliance / partnership, strategic in nature, with suppliers (Wheelright and Clark, 1992) recognized that firms are able to get new products to markets faster and more efficiently establishing strategic partnership with suppliers. Many supply chain relationship could be categorized on the basis of supply chain effectiveness, cost reduction and cooperating relationship. As a purchase manager the first aim of Rose will be to create a relationship will suppliers. Cooper and Gardner (1993) referred to a continuum of relationship and identified six distinctive types of relationships, which are: Arm’s length, Typical small account, National account selling, strategic alliance, joint veuture and vertical integration. Rose Silver has to develop a robust supplier-buyers network through personal, friendship and trust or production network or symbolic networks. To develop better network between buyer and supplier and forging strategic alliances, meet customers demand requirement better and enhance the service level. Rose, who came from another industry i.e. from electronic utensils to entirely different industry of hospitals. So she has to develop entirely a new supply chain, with all the new suppliers. As the Hospital Administrator Warrington Ranson, rightly put as she needs to be aggressive yet cooperative and thourough professional in the approach, Rose silver has to circulate / formulate a purchase policy for the hospital and with the help and approval of administrator, try to find / formulate a team which include departmental heads / doctors to suggest the technical requirements and specification requirements, herself and hospital administrator or anyone from finance dept. She may work, as convener of the team and information provider as well as one of the negotiators to negotiate with suppliers and finally the decisions has to be taken on the basis of team’s recommendations. This process may eliminate most of the ambiguity related to purchase decisions. Rose silver main responsibility lies in coordinating different department needs with in the hospital and matching with proper and timely supply of equipments or other requirement to them of specific quality. Her responsibility towards hospitals is to purchase the products from a supplier with in stipulated time and get the supply properly without any compromise in quality as well as saving optimum cost to hospital. She must have to take strategic, not just operational or tactical decisions in relation to purchasing. Before taking / helping in buying / purchase decisions, Rose Silver may use Purchase Portfolio Matrix, (Kraljic, 1983) as sourcing tool. She can categorize the purchasable items in to 4 categories i. e. Bottleneck, strategic, non-critical and leverage items. In the present situation, the X-ray processor is a strategic item where the buyer has strength but have lesser suppliers alternatives. In this situation the best strategic would be to draw the supplier in to longer-term contract to ensure future supplies. Establishing and maintaining long-term relationship with supplier is critical for the purchasing organization. It is also required on part of Rose silver that she must clearly identify the different type of purchase activity like Adhoc or One-off purchase or Regular / routine or contract or catalogue purchase, and design systems and procedures that enable effective execution of purchase orders. Another aspect which comes with in the area of Rose Silver is to maintain a partnership or cooperative relationship with suppliers having attributes like information sharing, trust, coordinated planning arrangements, shared risks, mutual benefits, Recognition of independence, shared goals, integrated processes, shared culture, compatibility and understanding and open book accounting etc. (4.) In the smooth process of ordering, receiving and installing the equipment, other departments of the hospital must put their requisitions as early as possible. In putting their requisitions they must take care and elaborate the detailed requirements and specification of the products. In the hospital, the main concern of the hospital management is to improve patient welfare as a strategic objective. In meeting this end they will procure / purchase medical supplies from various sources together with the necessary medical expertise and physical assets like equipments / machines. The effectiveness of the healthcare provision will be dependent on technical and managerial core competencies and resources at the organization’s disposal. The efficiency of the healthcare will be dependent upon the organization’s capability to transform the combination of resource inputs into effective outputs at lowest cost. Customers in this context are patients. Effectiveness should take priority over efficiency in this context but efficiency cannot be ignored. It is through efficiency that better service and more effective use of resources will lead to improvements in health care. Efficiency means that more patients can be treated from the same resource envelope. Supply chain strategies can achieve high levels of effectiveness and efficiency desirable. In formulating efficient supply-chain management system all the departments of the hospital must cooperate with Rose silver by discussing all the detailed requirements, nature of products like immediate or may be purchased with in stipulated time, response time for each products, technical specifications or detailed product specifications etc. This process will certainly improve the understanding between various departments and Rose silver and both will work effectively and cohesively to manage the hospital and could provide effective and efficient services to patients. (5.) Before implementing any kind of supply-chain system in the organization, Rose silver must have the full support of top management. Top management of the Hospital must call a meeting of all heads / responsible persons with in the hospital and tell them clearly the rationale behind establishing a prudent, robust and effective supply chain system. They all must be told about the need of the new system because hospital is going to expand in near future and this requires lots of purchasing. If an efficient system of purchasing were evolved, it could save lots of cost to the hospital as well as provide qualitative supply to hospital in time. After discussing all the details, a complete system and its working procedure should be circulated to all the head of the departments. They may provide their suggestions and after evaluating all the suggesting, top management with the help of Rose Silver, circulate the final instructions about the new purchasing system with in the hospital. First of all, for the efficient, cost effective purchasing, every department must categorize its products into various categories like the products which are needed regularly; the products need one time investments, the products which need immediate supply after being required or the products which have some time gap between requisition and installations etc. Once all the products and categories are finalized, Rose silver must look for the suppliers in different category of products. For the products, which are required regularly, Rose silver must find out at least 2-3 suppliers who are cost effective as well as can supply the quality and after negotiating costs and supply specifications, she should inform the Head of departments, the suppliers and request them to put their purchase order to one of them. The suppliers’ responsiveness, reputation and reliability have to be checked before finalizing any order. An expert organizational buyer has always a close look on the competitive environment where innovation and substitution were likely to influence decisions and bargaining power of buyers and suppliers. Purchasing frequency and relationship with supplier plays vital role in establishing an effective supply chain system. Strategic nature of products must be carefully purchased because of high costs involved and its long-tern impact on the organization. So before purchasing the product one must select supplies carefully on the basis of his technical competencies, supplying competencies as well as long-term relationship establishment perspective. Flexibility of the supplier plays a very important role in effective supply-chain system. In the present organization also, supplier must be flexible enough to supply the products just in time (JIT) because of the emergency nature of products. The flexibility advantage allows suppliers to be more responsive. So after selecting the suppliers for various groups of products, Rose silver put up a system for all the departments of the hospital, which they have to follow. First of all the regular nature of products must be supplied by the suppliers identified by Rose. These suppliers must be checked on the basis of responsiveness and quality. The competitive situation between suppliers must be enough for their timely and qualitative suppliers. The strategic nature of products must be finalized by a team constitutes of head of department, Rose silver and persons from finance and administration department. Rose responsibilities will be to arrange suppliers, who could supply the specific nature of products and just put all the information of products with in the team so that they can negotiate prices, quality and ensure proper supply with supplier. Once all this has been done then Rose must finalize all the details about supply of the products, services, maintenance etc., with the supplier. Now just developing a strategic system of supply chain, Rose must ensure that her business expertise will be included with in the organization system. ********************************************************************* References: 1. Cooper, M. and Gardner, J. (1993), Building Good Business Relationship- more than just partnering or strategic alliance? International Journal of Physical Distribution and Logistics Management, 23(6), 14-26. 2. Kraljik, P. (1983), Purchasing must become Supply Management, Harvard Business Review, September-October, 61(5), 109-17. 3. Lysons, K. (2000), Purchasing And Supply Chain Management, 5th ed. London: Prentice-Hall, p.1. 4. Wheelright, S.C. and Clark, K.B. (1992), Revolutioning Product Development, New York: Free Press. Read More