Health Care Matters: Supply Chains In and Of the Health Sector

• Author: Yousef Abdulsalam,Eugene Schneller,Mohan Gopalakrishnan,Arnold Maltz
• Published date: 01 December 2015
• DOI: http://doi.org/10.1111/jbl.12111
• Date: 01 December 2015

Editorial

Health Care Matters: Supply Chains In and Of the Health Sector

Yousef Abdulsalam, Mohan Gopalakrishnan, Arnold Maltz, and Eugene Schneller

Arizona State University

Providing health care involves a complex enterprise, and the trade-off between quality and cost has been particularly stark compared to other

industries. However, a recent focus on health sector supply networks is now producing significant innovations and improvements. This

Special Topic Forum illustrates for the academic and practitioner community how health care supply chain research can benefit from our evolv-

ing understanding of supply chains and help push that understanding even further. We classify health care supply chain research into two broad

categories—supply chain in health care and supply chain of health care—to set an agenda for future research.

Keywords: health care supply chain; health care innovation; health care networks

INTRODUCTION

In 2013, the cost of health care in the United States amounted to

$2.9 trillion or 17.4% of gross domestic product. Yet U.S. health

care outcomes were worse than those of other developed coun-

tries, according to Organization for Economic Co-operation and

Development metrics (Davis et al. 2014). Since 15–30% of typi-

cal hospital budgets comprises procurement and supply chain

activities (Nachtmann and Pohl 2009), health care supply net-

works are an obvious target for improvement initiatives and

innovations. Indeed, there are a number of high profile success

stories in the health care arena. One example is Virginia Mason

Medical Center’s move toward a “Total Supply Chain Cost”

pricing model (in collaboration with its primary distributor,

Owens and Minor), which significantly improved efficiency and

material availability for the system (Narayanan and Brem 2010).

Another example is the recent establishment of a specialized net-

work of 36 Field Stocking Locations by UPS giving any hospital

in the country access to medical devices and repair services

within 4 hr. Such innovations are examples of good supply chain

practices and extensions of those practices that may suggest

innovations to other industries.

In this introductory essay we first briefly discuss how the

health sector differs from more familiar supply chain research

subjects such as retail, consumer goods, or automotive supply

networks. With this distinction in mind, we differentiate between

two broad categories of research about health care supply chains:

“supply chain in health care”and “supply chain of health care”

and assess how working in the health sector can inform and

improve supply chain research by challenging the boundaries of

theory development and generalizability. Finally, we present

some examples of emerging trends in health care supply chains

as context for the three articles in this Special Topic Forum and

for future research.

THE EXCEPTIONALISM OF HEALTH CARE SUPPLY

CHAINS

Exceptionalism implies failure to adhere to a norm. And while

many have argued that health care supply chains differ in a vari-

ety of areas (including distribution strategies, performance penal-

ties, technology, and inventory control), others have noted

commonalities (regulatory pressures, need for relevant metrics,

data standards, product selection, and supplier management).

However, limited research has directly addressed these similari-

ties and differences, or gauged their importance for supply chain

productivity. Exceptionalism in health care supply chains is

almost certainly a function of the high level of complexity driven

by many factors. Prominent factors include:

•The mission of health care organizations. The overriding goal

of the organization is to improve and even save lives, in many

cases regardless of profit. In the United States, over 60% of

hospitals (about 70% of total bed capacity) are nonprofit (Mos-

sialos et al. 2015). The nonprofit status of hospitals often leads

to misaligned or conflicting incentives with suppliers, who

answer to shareholders and operate at much higher profit mar-

gins than hospitals (McKone-Sweet et al. 2005; Schneller and

Smeltzer 2006).

•Supply chain intermediation. Health care supply chains, even

more than most, involve numerous actors across the supply

chain including: patients, clinicians, provider organizations

(hospitals, clinics, etc.), group purchasing organizations

(GPOs), independent distributors, insurers, and suppliers

(Begun et al. 2003). These various actors are jointly responsi-

ble for health care supply chain effectiveness and efficiency.

In a typical hospital, 75% of stock keeping units (SKUs)

“owned”by the hospital are off site (Darling and Wise 2010),

and many hospitals use GPOs to negotiate pricing for over

50% of their supply spend (Burns and Yovovich 2014).

•Range and criticality of products. Hospitals have diverse clini-

cal departments, each requiring specialized medical devices

and pharmaceutical products (Landry and Beaulieu 2013). In

some cases, specific products are the only option for treating a

patient; a stock-out may quickly result in patient death or

long-term disability.

Corresponding author:

Arnold Maltz, Department of Supply Chain Management, W.P.

Carey School of Business, Arizona State University, 300 E. College,

Room 428, Tempe, AZ 85287-4706, USA; E-mail: arnie.maltz@asu.

edu

Journal of Business Logistics, 2015, 36(4): 335–339 doi: 10.1111/jbl.12111

© Council of Supply Chain Management Professionals