Supplier Selection Criteria in the Healthcare Industry: A Comparison of Importance and Performance
Lambert, Douglas M., Adams, Ronald J., Emmelhainz, Margaret A., International Journal of Purchasing and Materials Management
The cost of healthcare has gained considerable attention in recent years. Over the past decade, healthcare costs have risen significantly faster than the consumer price index, and calls for substantial cost reductions are rampant. As efforts to reduce healthcare costs have increased, so have concerns that these reductions will be achieved at the expense of quality and service. While the cost versus quality question is most often focused on delivery of healthcare to the patient, the question is just as applicable to the purchasing of healthcare products and supplies by hospitals. Purchasing has become a focal point of cost reduction as hospitals have been forced to become more cost competitive.
The cost of goods and supplies are estimated at 16 to 28 percent of a hospital's budget. In 1994, the average U.S. hospital spent $16.7 million on goods and services, excluding major equipment purchases. What key supplier selection criteria were used to make those purchases? Within this current cost-cutting environment, has price become a more important criterion than service, quality, and delivery? Are suppliers who perform well on important criteria rewarded with a higher share of hospital business? These questions form the basis of this research.
Decision criteria used by organizational buyers to select suppliers have been examined in numerous studies. While there is some variation in the criteria across different purchase situations and product types, general themes of product/quality, price, delivery, and service consistently emerge.
The relative importance of these selection criteria has been examined over various purchasing situations. In an industrial commodity market, product characteristics were significantly more important than were support, service, or price issues. On the other hand, Pacheco assigned relative weights to customer service (0.5), product quality (0.2), delivery (0.2), and salesperson quality (0.1) in a situation where competing suppliers provided comparable products. In a study comparing single versus multiple-sourcing situations across different industries and product types, it was found that in multiple sourcing environments, emphasis should be placed on price, quality, and delivery, while in single sourcing situations, the focus should be on technical support and reliability of the product. One study of office products and another in the plastic products industry found that customer service-related attributes were significantly more important than were product, price, or promotional attributes. For differentiated, administrative (operational) products, distribution-related attributes were more important than were price or product-related attributes.
One study found that the relative importance of supplier selection criteria was related to product category. Four product categories were identified and the relative importance of price, quality/product, delivery, and service were established for each category. Similar studies were conducted on a wide range of products including office equipment, MRO items, component parts, and capital purchases. As shown in Table I, for routine order products (those for which no problems exist with functional capability of the product or with learning to use the product) the relative importance of the four attributes has changed in recent years. Specifically, the quality/product and service attributes are becoming relatively more important, and delivery less important, than in previous periods.
While knowledge of the relative weightings - or importance - of the various supplier evaluation criteria is useful, by itself this information is not adequate for explaining supplier selection processes. Actual performance of individual suppliers against each criterion also must be considered. This is important to buyers in selecting suppliers and to suppliers in gaining competitive advantage. …