The Dell Theory Of Conflict Prevention

Published Date: 02 Nov 2017

Introduction:

The health-care industry today is a dynamic and complex industry with constantly changing relationships between patients, physicians, hospitals, insurers, employers, communities, and the government. We see an increasingly competitive environment being developed in the health-care sector with severe and ever-changing competitive factors, unpredictability in the demand and psychology of customers and reduction in the overall capital and utilization of resources available. With the inflation that we are facing currently health-care costs are escalating at an exponential rate greater than the general inflation. The concern that is flowing across the health-care field today is the necessity to control cost. Care is also being taken not only to control the escalating costs but also to maintain the quality of care being provided.

It is definitely not easy to bring about sudden improvements in Hospitals. The common clinical methods used in health-care and disease cure are difficult to manage when brought together into institutions to be expanded into social systems. It is therefore important for operations management applications to help improve the situation in the health-care sector be it providing sustainability or providing an efficient system in which raw-materials can be handled without much trouble.

The global medical industry which includes various sectors like medical supplies and equipment, bio-technology, health-care support services, pharmaceuticals and alternate medicine is one of the world's largest and fastest growing industries with over $4.5 trillion in expenditure. With such fast increasing size of the health-care sector it is vital that there is a proportional pace in the management and delivery of goods. Overall, the process of manufacturing and distributing pharmaceutical products is similar to that of other industries. Companies purchase raw materials for mass mixture of active and inactive ingredients, the right amount of dosages are formed and packed, the products flow (product life cycle) through finished goods warehouses, wholesale distributors and 3rd Party logistics providers, retail pharmacies, medical institutions, and finally to the patient.

There has been an extensive research and studies conducted on the effectiveness of supply chain in the manufacturing industry but not much foray has been made into its applications in the service segment. In particular, research on how supply chain management concepts can be adopted to benefit health-care sector is still in its infancy stage. The goal of SCM is to achieve short-term and long-term objectives by ensuring information flow efficiently and effectively. The short-term objective is to increase productivity and reduce delivery time, while the long-term objective is to increase customer satisfaction, market share, competitive advantage, and organizational performance.

Today, the healthcare industry is characterized by a number of drivers affecting its supply chain, including:

Globalization, competition and margin compression.

Increased regulatory oversight.

The rise in IT budgets at healthcare institution.

Growth in usage of medication.

Increased cost of drug development, production and distribution.

Major retailers driving packaging and labelling requirements.

Manufacturers’ desire to control the customer and margin away from wholesalers

New outsourcing models in the patent-to-patient supply chain process.

To meet these while improving cost, reducing inventory and maintaining high fill rates is a significant challenge to any supply chain. It is an even greater challenge in pharmaceuticals because of the compliance and regulatory requirements.

Literature Review:

Supply chain involves the management of upstream and downstream relationships between the suppliers’ suppliers and the customers’ customers to deliver superior value to the end consumer at the least cost possible. The concept of ‘just-in-time’ pertaining to the health-care industry came into prominence in the early eighties. Keeping the JIT concept as an integral part of the health-care sector is still an important part of an organization’s supply chain management strategy today. The distributor selects and packs the products according to the needs of each patient care unit and delivers the stock directly to them. The main focus behind this is to reduce inventory and cycle time.

Companies realise today that managing a supply chain effectively can show tremendous results in achieving cost reduction and operational efficiency. The focus has now shifted from competition among firms and hospitals to competition between other supply chains. The internal supply chain of many hospitals rivals the global supply chains of some Fortune 500 companies in its complexity and the number of times a product is touched on its way to its ultimate consumption. A hospital’s financials can be secured with the efficient management of supply chain. There are numerous start points and opportunities for coming up with improvements in the facilities of hospitals, networks and other health-care organizations to optimize the processes and work flows associated with materials management, and reduce the costs related to inventory and supply chain management (SCM).

The various problems faced by the health-care value chain is out-dated and inaccurate data, laborious and time-taking manual processes, lack of transparency for important order information and erratic IT investment levels among providers and suppliers. Although information technology has worked its way to reduce disparities in care delivery by increasing awareness among patients and doctors, the socially disadvantaged haven’t yet reaped the complete benefits.

There are a certain unique characteristics of a hospital’s SCM when compared to other industries as it is a complex structure. They are:

The core business isn’t health-care to most firms.

Patients rely and seek the decisions and advice of their authorised physicians who in such cases become their agents.

Suppliers maintain relationships with physicians who have their own preferences for products. The preference of products by the physicians is based on decisions to improve the hospital’s operations.

Distributors provide safety buffers that help control bullwhip effects which in turn reduce the negative influence on supply chain.

The number of items that must be managed is directly proportional to the size of the hospital as every health-care centre requires a constant flow of material and supplies.

The activities of a hospital SCM are governed by legal and regulatory bodies.

It is imperative for service industries to focus on supply chain (SC) innovation to reap the benefits of effective delivery of services which are high quality, lower costs and effective operation. Health care has tremendous opportunity for profitable innovation. A survey suggests the need for innovation in health-care organizations as many as 72% of the respondents voted for SC innovation. Hospitals must realise the increasing customer expectations and try and analyse where profits will lie in the global competitive environment. Many have already tried to place themselves in the competitive environment by encouraging medical tourism with regard to increasing customer expectations. Innovation can be categorised into three different aspects – (i) The customer-focused innovation focuses on reducing the patient waiting time as well as expenses and medical cost. (ii) The technology-based innovation is for improving the delivery system that depends on SC so that improved processes can provide high quality care, new types of treatment, prevention of patient diseases, reduced delivery time of products and services, and improved quality of delivered products and information technology application. (iii) The integrator innovation is for the improved efficiency of health care services, group purchasing, and the integrated network, IT, and SC. Effective SC innovation contributes to quality health care services by ensuring continuous improvement and reducing medical errors. Therefore, SC innovation will help ensure an effective supply of products and services to patients and hospitals using process improvement and IT applications in the rapidly changing environment.

There are certain barriers to developing an effective SCM for the health-care industry:

Dynamic technological advancements leading to decreasing product life cycles.

Varying physicians’ preferences leading to high cost.

Difficulty in forecasting the frequency, duration of admission and the primary diagnoses of patients and their associated product requirements.

No standardization of names for health-care products and commodities.

Lack of IT investments.

Inadequate business knowledge across buyers in the hospital SCM.

A process approach for implementing and managing the business through SCM is increasingly gaining importance. The analysis of what sub-processes and activities are to be contained in each process, and how the processes should interact with each other rather than isolated in the traditional functional silos is being recognized as imperative to understanding the core business and the possible flaws in it. Integrated process redesign for a systemic SC can help obtain efficient and effective flows of material and information. Some may agree that the critical issue for efficient management of SC is a firm’s global sourcing process. An organizational environment that fosters continuous improvement contributes to successful process improvement. Efficient operational process of SC would provide important savings in health care organizations through the best practices or approaches. For example, a new product such as seasonal allergy medicine needs to be introduced immediately to the market. To provide the medicine in a timely fashion, an effective delivery system of pharmaceuticals is critical for both the pharmacies and hospitals to ensure the progress toward established goals.

The support provided by an organization for process improvement and improved employee work performance impacts achievement of organizational goals. Only cost reduction activities and employing highly qualified physicians for better patient care should be placed next to effective SC practices and good material management systems which are more important in today’s competition. This means that SC efforts must develop processes for making sound sourcing decisions, which impact SC efforts. Process improvement helps develop key processes of an organization to achieve objectives and goals, to introduce innovation processes to eliminate waste, reduce delivery time, increase work efficiency, and implement advanced IT. Therefore, health care organizations need to develop a strategy for process improvement based on innovation by SC managers.

So, what should be the strategy adopted in the industry with its dynamic environment? The answer is right before us. In this situation it is imperative for organizations and suppliers to try and maintain a favourable market position and a competitive edge through improved and efficient SC operations. The concept of CPFR has been introduced to achieve the same. CPFR is Collaborative Planning, Forecasting and Replenishing combined as a business process to improve SC effectiveness and efficiency with demand and logistics planning. This concept completely revamps the organizational structure, corporate culture, and operational processes. CPFR specifies various processes and software tools to synchronize and exchange data between organizations for collaborative demand planning including integrated systems and supporting processes. SC efficiency has a direct impact on profitability, flexibility, reliability and waste elimination and it differs in terms of prioritization from organization to organization but the main motive is to increase organizational performance by supporting better operational processes to improve the speed of delivery or response to customer requests by some innovation in SCM.

The ultimate end to which the industry is striving for collectively and as individual silos is to regulate the cash flows. Stress is on the importance of flows of cost and information to achieve SC efficiency in the daily operations of the health-care sector. SC creates and adds value to products and services for customers. Cost of production, transportation, and internal material handling are the different cost components that play a role in operational processes for SC efficiency. Complicated transportation processes, order to delivery cycle mismatch and unnecessary storage of raw-materials result in costs. Speed is one of the most important sources of competitive advantage and others being waste elimination, and information networks within/between suppliers and customers. Information networks help develop a positive relationship between customers and suppliers. An effective SC must consider the timing of the demand for products and services. Speed in response increases delivery lead time, captures customer demand, and reduces operational response. The waste elimination process can reduce the steps of supply which result in transportation cost reduction, and streamlined processes such as waste reduction. When companies develop or use more efficient information networks, they can improve processes for continuous replenishment and shipping based on ordering notices. Companies can also explore other information technologies such as RFID for transportation tracking and shared databases, and EDI for order placement and invoicing. The Internet can also improve communication with customers.

Benchmarking is also one the most efficient tools in evaluating opportunities for improvement. There are examples of world-class practices that can be benchmarked from such firms as Wal-Mart, Dell, Eastman Kodak, SC Johnson, Arcelor-Mittal, Cisco and FedEx. However, SCM in health care has lagged behind because health care organizations deal with finished products and hospitals usually have to take what suppliers deliver based on what physicians and patients request. Therefore, SC efficiency is often considered as a part of efficient SC operations to improve existing processes in the hospital. More recently, a hybrid version of the stockless system, under which the distributor supplies high-volume products for the patient care unit in case quantities, leaving a particular institution's central stores to break down bulk purchases of low-volume products, has been tested. It also shows the importance of the manufacturer's role with respect to packing formats, and demonstrates that the rearrangement of storage areas can generate substantial savings.

More and more hospitals today are using vendor-managed inventory (VMI) software that has a capability to forecast a hospital’s demand for supplies based on past usage and this capability allows the supplier to respond to hospital’s immediate supply needs.

The supply chain spending represents up to 30% of a hospital’s operating costs, second only to labour; many hospitals are striving to improve their materials management. Medical and surgical supplies present a huge target for cost savings. There is an estimated $83 billion spent annually on such items, $11 billion could be eliminated through the use of electronic data interchange (EDI) links with supply chain partners for an array of purchasing activities such as:

(i) Checking product availability,

(ii) Sending purchase orders,

(iii) Receiving invoices, and

(iv) Processing payments.

Technology is playing a major role in hospitals in getting the right product in the right unit of measure at the right price to the right place at the right time from the right source using the right resources. Centralization helps reduce the inventory required to provide a certain level of service by reducing the process sharing risk between several units. Simulation studies are involved to understand inventory pooling as direct implementation may involve high costs due to other parties which are directly related to the inventory held being affected by the massive change.

Research Methodology:

The study examines the impact of supply chain effectiveness on health-care industry profitability. We will see the general operational efficiency being increased by bringing in SC innovation, efficiency through process approach and focus towards cost reduction and we will see the difference in the past and resultant values of profits being made by wither reducing overall costs or gaining more revenue due to effective supply chain. Therefore, the dependent variables would be revenue and operational costs.

Sampling:

Due to the nature of the data needed to perform an empirical study, hospitals with more than 200 beds in India will be identified as most appropriate for the sample. Due to location constraints hospitals meeting the above criteria in Hyderabad and Bangalore will be considered but the methodology can be replicated and the results extrapolated for the entire country.

3.2 Data Collection:

The importance of health-care supply chain effectiveness is a new concept and a lot of research has been done in terms of using the SC effectiveness for a single organization’s performance or using effective leadership and improving SC but an overall impact of SC efficiency and effectiveness on the industry profitability hasn’t been done.

Primary Data – questionnaire and personal interview with the COO’s of MNC hospitals in Hyderabad and Bangalore.

Secondary Data – Research journals existing on supply chain in health-care sector.

Hypothesis:

In any industry, profitability has been a result of operational effectiveness. The value chain in hospitals starting from procuring medicines and other medical related supplies to the patient treatment and satisfaction forms an integral part of the health-care operations. The supply chain includes manufacturers of medicines, medical equipment and other hospital infrastructure equipment to the end consumers which in this case is the patients. The faster the service delivery to the patients greater is the satisfaction. Greater satisfaction leads to more footfalls and therefore more revenue. So, we can come to a conclusion that the supply chain efficiency is measured in terms of the revenue generated in the hospital which makes the profit, revenue and operational costs as dependent variables. The following hypotheses are proposed:

H0: Effective Supply Chain improves the profitability of the health-care industry.

H1: Effective Supply Chain has no effect on the health-care industry profitability.

Descriptive Statistics:

We formed the Questionnaire to understand the penetration of supply chain in the target hospitals, to check whether they were familiar with the supply chain management and what were the existing supply chain programs in their organizations. The survey was conducted among 32 qualified operations department personnel from over 15 Hospitals. All of them were asked whether they have Supply-Chain activities prevalent in their organization and each of them responded positively showing that all the Hospitals have a supply-chain management system in place for conducting their day to day operations.

Table 1

Awareness of Supply Chain activities in the Organization

S.no

Organization

No of Respondents

Aware of Supply Chain Concept

1

Apollo Hospitals

5

Yes

2

Remedy Hospitals

1

Yes

3

Care Hospitals

4

Yes

4

Fortis Healthcare

3

Yes

5

Kaliappa Hospitals

1

Yes

6

Jayadeva Hospital

1

Yes

7

Manipal Hospital

3

Yes

8

Wockhardt

2

Yes

9

Yashoda Hospitals

1

Yes

10

SRM Hospitals

1

Yes

11

Sagar Hospitals

2

Yes

12

Image Hospitals

2

Yes

13

Columbia Asia Hospitals

1

Yes

14

Medinova

2

Yes

15

Mediciti

1

Yes

16

Lazarus Hospitals

1

Yes

17

Mallya Hospital

1

Yes

General Activities used by Organization for Supply-Chain Management:

Based on the responses we found out that from the generally practised activities of supply chain the surveyed hospitals followed only a few among them. We have given a graph of the most commonly used activities and their frequency in terms of the number of respondents who were aware of these practices.

Chart 1:

The other responses were supporting 3rd party logistics, Vertical Integration and EDI etc. We see from the data that not much JIT activities are being carried out. Hospitals are mainly focussing on keeping their suppliers close so that when need arises they can order the materials required. Their primary focus is on suppliers and patients but maybe looking into other avenues would give them a better outlook and help them manage supply chain activities effectively.

The survey also covered the satisfactory aspect of the fact that the above mentioned activities were being carried out in the organization. Almost all the respondents wanted to implement other best practices as well for the betterment for supply chain management in the organization. The top few activities which were preferred as a major change in supply chain activities are given below in the chart.

Chart 2:

This clearly shows a positive approach by Hospitals in achieving a highly efficient Supply-Chain system. The data shows they want to benchmark against the best practices of the industry and their competition in order to achieve the desired Supply-Chain effectiveness. Moreover, they want to implement the Just-in-Time supply methodology of Toyota by having an EDI setup at their location which integrates their suppliers into the system so that procurement and distribution process is automated without any delays and they achieve maximum increase in productivity.

Reliability tests:

Case Processing Summary

N

%

Cases

Valid

33

100.0

Excludeda

0

.0

Total

33

100.0

a. Listwise deletion based on all variables in the procedure.

Reliability Statistics

Cronbach's Alpha

N of Items

.761

22

To investigate whether the instruments are reliable a reliability statistics was conducted. The Reliability test showed that there is significance (Cronbach’s Alpha = 0.761). Therefore we infer that there is evidence for reliability for the instruments.

Test for other Factors:

We checked for other factors which are important and are the reason why we need an effective supply chain management system.

4.3.1 Improved Quality of Care

Improved Quality of Care (Chi-Square test)

Count

Responses

Total

Neutral

Important

Very Important

Does your company have a separate logistics department?

No

0

1

1

2

Yes

1

8

22

31

Total

1

9

23

33

Chi-Square Tests

Value

df

Asymp. Sig. (2-sided)

Pearson Chi-Square

.586a

2

.046

Likelihood Ratio

.584

2

.747

Linear-by-Linear Association

.203

1

.652

N of Valid Cases

33

From the tests we ran we saw that there is a high relation between Effective Logistics and Supply Chain management and Improved Quality of Care of patients.

4.3.2 Increase in Productivity:

Increase in productivity

Count

productivity

Total

Neutral

Important

Very Important

Does your company have a separate logistics department?

No

0

1

1

2

Yes

1

12

18

31

Total

1

13

19

33

Chi-Square Tests

Value

df

Asymp. Sig. (2-sided)

Pearson Chi-Square

.147a

2

.029

Likelihood Ratio

.203

2

.903

Linear-by-Linear Association

.014

1

.906

N of Valid Cases

33

From the tests we ran we saw that there is a high relation between Effective Logistics and Supply Chain management and Increased Productivity.

Test for hypothesis:

Case Processing Summary

Cases

Valid

Missing

Total

N

Percent

N

Percent

N

Percent

Do you see any considerable increase in profits? * Effective Supply Chain management has improved profits for the hospital.

33

100.0%

0

.0%

33

100.0%

Do you see any considerable increase in profits? * Effective Supply Chain management has improved profits for the hospital. Crosstabulation

Count

Effective Supply Chain management has improved profits for the hospital.

Total

Neutral

Agree

Strongly Agree

Do you see any considerable increase in profits?

No

1

0

0

1

Yes

1

7

24

32

Total

2

7

24

33

Chi-Square Tests

Value

df

Asymp. Sig. (2-sided)

Pearson Chi-Square

15.984a

2

.000

Likelihood Ratio

6.190

2

.045

Linear-by-Linear Association

8.088

1

.004

N of Valid Cases

33

a. 4 cells (66.7%) have expected count less than 5. The minimum expected count is .06.

We see the p value is < 0.001 therefore we reject the null hypothesis. We can conclude from this test that Effective Supply-Chain Management has a positive impact on the profitability of the Healthcare Industry.

4.5 Regression Analysis

Variables Entered/Removed

Model

Variables Entered

Variables Removed

Method

1

CloserGovCop, EasyVocTrang, MoreFunds, IncRegCoop, ImpInfo, MoreAgreemnt, MoreEdu, BetterInfraa

.

Enter

a. All requested variables entered.

Model Summary

Model

R

R Square

Adjusted R Square

Std. Error of the Estimate

1

.449a

.202

-.064

.250

a. Predictors: (Constant), CloserGovCop, EasyVocTrang, MoreFunds, IncRegCoop, ImpInfo, MoreAgreemnt, MoreEdu, BetterInfra

ANOVAb

Model

Sum of Squares

df

Mean Square

F

Sig.

1

Regression

.379

8

.047

.758

.642a

Residual

1.500

24

.062

Total

1.879

32

a. Predictors: (Constant), Closer Govt Co-operation, Ease of Vocational Training, More Funds, Increase in inter-country Co-op, Improved Information Channels, More Agreement, More Education, Better Infrastructure.

b. Dependent Variable: Do you think sustainable measures for continued supply chain efforts are important?

Coefficientsa

Model

Unstandardized Coefficients

Standardized Coefficients

t

Sig.

B

Std. Error

Beta

1

(Constant)

.616

.649

.949

.352

MoreEdu

.018

.096

.050

.189

.852

EasyVocTrang

-.004

.085

-.011

-.042

.967

MoreFunds

.115

.088

.316

1.309

.203

MoreAgreemnt

-.086

.065

-.292

-1.330

.196

BetterInfra

.079

.078

.268

1.009

.323

ImpInfo

-.002

.082

-.006

-.026

.979

IncRegCoop

-.067

.074

-.190

-.913

.371

CloserGovCop

.019

.096

.045

.201

.842

a. Dependent Variable: Do you think sustainable measures for continued supply chain efforts are important?

From the regression analysis we see that for future sustenance and betterment of Supply-Chain management practices we need to focus more on Education and Infrastructure.