Feasibility of prime vendor purchasing for a state university hospital

The economic feasibility of implementing a prime vendor purchasing system for pharmaceuticals was evaluated in a midwestern university hospital. Inventory costs, personnel costs, and check processing costs under the current purchasing system were compared with costs estimated for a proposed prime vendor purchasing system. For each step in the purchasing process that would be changed under the proposed system, work measurement techniques were used to determine personnel costs. The total savings from reductions in inventory holding costs, personnel costs, and check processing costs under the proposed prime vendor system was +98,396.37, or 2.4% of the value of pharmaceuticals purchased. Since the pharmacy department could not negotiate a contract in which the prime vendor's service fee was 2.4% or less, implementing a prime vendor purchasing system would not have been cost effective. Therefore, the hospital retained its existing purchasing system. Through detailed analysis of the major costs involved in pharmaceutical purchasing, the hospital was able to determine that it was not cost effective for it to use prime vendor purchasing.