Cost Analysis for Different Hospital Procurement Models

Abstract: Different procurement models will affect the total cost and service level. Centralized procurement is an integrated model for replenishing the first tier and second tier demand units in a hospital. It can take the advantage of obtaining a higher discount from the supplier by ordering a larger volume. The centralized model is commonly used in a hospital medical supply system. Especially, for the large scale medical center, it can consolidate the demands of different demand units and branches. However, it will affect the efficiency and lower the service level. The purpose of this study is to establish a cost analysis model to assist managers in making procurement decisions. We proposed a different model (To-Be model) and conducted a comparison with the current model (As-Is). Cost drivers along the procurement process are analyzed. The analysis models are applied to evaluate the impacts of different models by using empirical data from a medical center located in central Taiwan. Finally, a sensitivity analysis was performed to know the effect of the difference in parameter values on the total cost. This evaluation mechanism can also show the distribution of costs in procurement operations, make the relevant costs visible, and help managers can develop further improvement plans.

Key words: procurement model; cost analysis; decentralized model; price discount

JEL code: I1