Health Care Supply Chain Design: Toward Linking the Development and Delivery of Care Globally*

This article is motivated by the gap between the growing demand and available supply of high‐quality, cost‐effective, and timely health care, a problem faced not only by developing and underdeveloped countries but also by developed countries. The significance of this problem is heightened when the economy is in recession. In an attempt to address the problem, in this article, first, we conceptualize care as a bundle of goods, services, and experiences—including diet and exercise, drugs, devices, invasive procedures, new biologics, travel and lodging, and payment and reimbursement. We then adopt a macro, end‐to‐end, supply chain–centric view of the health care sector to link the development of care with the delivery of care. This macro, supply chain–centric view sheds light on the interdependencies between key industries from the upstream to the downstream of the health care supply chain. We propose a framework, the 3A‐framework, that is founded on three constructs—affordability, access, and awareness—to inform the design of supply chain for the health care sector. We present an illustrative example of the framework toward designing the supply chain for implantable device–based care for cardiovascular diseases in developing countries. Specifically, the framework provides a lens for identifying an integrated system of continuous improvement and innovation initiatives relevant to bridging the gap between the demand and supply for high‐quality, cost‐effective, and timely care. Finally, we delineate directions of future research that are anchored in and follow from the developments documented in the article.     

Bundling of Vertically Differentiated Products in a Supply Chain*

We consider a supply chain consisting of a single manufacturer and a single retailer. The manufacturer produces a basic and a premium product. If desired, a bundle of the two products might also be produced at a unit bundling cost. We allow either the manufacturer or the retailer to produce the bundle from the component products. All products, however, must be sold exclusively through the retailer. Using game theoretic models, we compare and contrast the equilibrium outcomes under retailer bundling and manufacturer bundling scenarios. We show that under manufacturer bundling, the manufacturer never offers the full product line composed of the basic product, the premium product, and the bundle, at equilibrium; while the same does not hold under retailer bundling. We show that total supply chain profit under retailer bundling weakly dominates that under manufacturer bundling and characterize the region in the parameter space where this domination is strict. We explore an extension where there is a capacity constraint in producing one or both of the component products and characterize the equilibrium outcomes. We show that unlike the infinite capacity case, offering the full product line is an equilibrium outcome under manufacturer bundling when the capacity of the premium good is limited.     

An Analysis of Manufacturer‐Retailer Supply Chain Coordination in Cooperative Advertising*

In the literature of cooperative (co‐op) advertising, the focus of the research is on a relationship in which a manufacturer is the leader and retailers are followers. This relationship implies the dominance of the manufacturer over retailers. Recent market trends have shown a shift in power from manufacturers to retailers. Retailers, as a result, may now possess equal or even greater power than a manufacturer in some instances when it comes to retailing. Based on this new market phenomenon, we intend to explore the role of co‐op advertising in a manufacturer‐retailer supply chain through brand name investments, local advertising expenditures, and sharing rules of advertising expenses. Two co‐op advertising models are developed and compared. The first co‐op advertising model is based on the traditional leader‐follower relationship of a manufacturer and a retailer. The second model incorporates partnership into co‐op advertising coordination. Business examples and managerial implications of the models have been discussed. A cooperative bargaining technique is utilized to implement the partnership co‐op advertising model.     

Explaining Anomalous High Performance in a Health Care Supply Chain*

An implicit assumption in distributing and coordinating work among independent organizations in a supply chain is that a focal organization can use financial or contractual mechanisms to enforce compliance among the other organizations in meeting desired performance objectives. Absent contractual agreement or financial gain, there is little incentive for independent organizations to coordinate their process improvement activities. In this study, we examine a health care supply chain in which the work is distributed among independent organizations. We use a detailed case study and an abductive reasoning approach to understand how and why the independent organizations choose to coordinate and collaborate in their work. Our study makes two contributions to the literature. First, we use well‐established lean principles to explain how independent organizations achieve superior performance despite highly uncertain and variable customer demand—a context considerably different from the origins of lean principles. Second, we forward relational coordination theory to explain why the organizations in this decentralized supply chain coordinate their work. Relational coordination includes the use of shared goals, shared knowledge, and mutual respect for one another's work as primary mechanisms to explain process improvement in the absence of any contractual incentives. Our study constitutes a first step in generating theory for work design and its improvement in decentralized supply chains.     

A Transaction‐Efficiency Analysis of an Internet Retailing Supply Chain in the Music CD Industry*

The emergence of the Internet may have fundamentally altered the mechanisms underlying information exchanges between sellers and end consumers. However, little attention has been given to the impact these mechanisms have on the efficiency of supply chain operations. This paper begins to address this deficiency in the literature by evaluating supply chain transaction efficiency effects from Internet purchases by consumers. It develops and empirically tests a theoretical framework examining the role Internet purchases have in establishing transaction‐efficiency levels in product exchanges involving sellers, placed at different supply chain echelons, and consumers. The theoretical framework integrates the transaction‐cost and internet economics, inter‐organizational information systems, and supply chain management literatures. Empirical testing, via structural equation modeling, is based on archival data in the Internet music CD market. The results show that Internet‐mediated purchases by consumers allow for greater transaction efficiencies when inventory ownership is postponed farther upstream in the supply chain and supply chain echelons are disintermediated. The results also indicate that channel structure configuration, defined by the supply chains' Internet retailing echelon, moderates these transaction efficiency effects.     

Coordinating a Supply Chain When Facing Strategic Consumers

This article examines the impact of strategic consumers on the efficiency and coordination of a supply chain. We consider a supply chain consisting of a manufacturer and a newsvendor retailer selling a seasonal product to strategic consumers, who may choose to wait for clearance sales to maximize their intertemporal utility. Under a prenegotiated supply contract, the retailer chooses retail price and ordering quantity simultaneously. After that, the strategic consumers, who may be heterogeneous in their patience levels, make purchasing decisions. We find that strategic consumer behavior can hurt the supply chain efficiency due to severe double marginalization, and that a simple buyback contract can coordinate the supply chain. Nevertheless, we show that the supply chain does become more difficult to coordinate when strategic consumers are present: the set of buyback contractual terms that coordinate the chain shrinks as consumers are more willing to wait, and the chain profit cannot be arbitrarily allocated between the firms. Contrary to popular intuition, this result implies that the retailer may enjoy some benefit from consumers' strategic waiting. In addition, we find that the retailer's gain is the highest when impatient and patient consumers are comparably mixed in the population.      

Supply Chain Management of Fresh Products with Producer Transportation*

This article considers a class of fresh‐product supply chains in which products need to be transported by the upstream producer from a production base to a distant retail market. Due to high perishablility a portion of the products being shipped may decay during transportation, and therefore, become unsaleable. We consider a supply chain consisting of a single producer and a single distributor, and investigate two commonly adopted business models: (i) In the “pull” model, the distributor places an order, then the producer determines the shipping quantity, taking into account potential product decay during transportation, and transports the products to the destination market of the distributor; (ii) In the “push” model, the producer ships a batch of products to a distant wholesale market, and then the distributor purchases and resells to end customers. By considering a price‐sensitive end‐customer demand, we investigate the optimal decisions for supply chain members, including order quantity, shipping quantity, and retail price. Our research shows that both the producer and distributor (and thus the supply chain) will perform better if the pull model is adopted. To improve the supply chain performance, we propose a fixed inventory‐plus factor (FIPF) strategy, in which the producer announces a pre‐determined inventory‐plus factor and the distributor compensates the producer for any surplus inventory that would otherwise be wasted. We show that this strategy is a Pareto improvement over the pull and push models for both parties. Finally, numerical experiments are conducted, which reveal some interesting managerial insights on the comparison between different business models.     

A Model for Planning Resource Requirements in Health Care Organizations

In this paper we present a general model and solution methodology for planning resource requirements (i.e., capacity) in health care organizations. To illustrate the general model, we consider two specific applications: a blood bank and a health maintenance organization (HMO). The blood bank capacity planning problem involves determining the number of donor beds required and determining the size of the nursing and support staff necessary. Capacity must be sufficient to handle the expected number of blood donors without causing excessive donor waiting times. Similar staff, equipment, and service level decisions arise in the HMO capacity planning problem. To determine resource requirements, we develop an optimization/queueing network model that minimizes capacity costs while controlling customer service by enforcing a set of performance constraints, such as setting an upper limit on the expected time a patient spends in the system. The queueing network model allows us to capture the stochastic behavior of health care systems and to measure customer service levels within the optimization framework.     

Simulation Analysis of a Manufacturing Supply Chain*

A supply chain is a series of manufacturing plants that transform raw material into finished product. A pipeline within a supply chain refers to the stream of information, material, components, and assemblies that are associated with a particular product. It is typical for manufacturing plants to put considerable effort to optimize the performance of a horizontal slice of a supply chain (such as coordination among parts that share a common resource). The need to optimize the performance of the vertical slice (the supply chain connecting raw material to finished product) by controlling the transmission of schedule instability and the resulting inventory fluctuation is often overlooked. A schedule is stable if actual production requirements for a given period do not change from the forecast production requirements. Stable production schedules are important when managing supply chains as they help control inventory fluctuation and inventory accumulation. Failure to control schedule instability results in high average inventory levels in the system. In this paper a simulation analysis of supply chain instability and inventory is conducted, and it is shown how supply chains can be analyzed for continuous improvement opportunities using simulation. The focus is on a stamping pipeline in an automobile supply chain based on operating data from General Motors (GM). It is shown that the techniques used in this paper are a useful tool for supply chain analysis.     

Supply Management Under High Goal Incongruence: An Empirical Examination of Disintermediation in the Aerospace Supply Chain

Aftermarket sales and profits are becoming an increasingly important part of an original equipment manufacturer's (OEM) business model. Because replacement parts often do not require further manufacturing, OEMs act as intermediaries in the aftermarket. As with any intermediary, the OEM must concern itself with suppliers disintermediating its supply chain selling replacement parts directly to the OEM's customers. We frame supply chain disintermediation (SCD) as a principal–agent contracting problem between an OEM buyer and a supplier. Hypotheses relate contract conditions, goal incongruence, supplier capabilities and contract enforcement to SCD. The data are collected from the aerospace industry using a multimethod study, combining an Internet‐based survey with archival data. Causal modeling with structural equation modeling (SEM) shows general support for the hypotheses. Particularly, SCD is positively related to buyer–supplier goal incongruence. The agency model offers insights that differ from previous transaction‐cost‐based models of buyer–supplier relationships. OEM buyers with a lucrative aftermarket should consider aligning goals through incentives rather than relying entirely on economic hostages associated with specific assets.     

Capacity Management in Health Care Services: Review and Future Research Directions*

Health care has undergone a number of radical changes during the past five years. These include increased competition, fixed-rate reimbursement systems, declining hospital occupancy rates, and growth in health maintenance organizations and preferred provider organizations. Given these changes in the manner in which health care is provided, contracted, and paid for, it is appropriate to review the past research on capacity management and to determine its relevance to the changing industry. This paper provides a review, classification, and analysis of the literature on this topic. In addition, future research needs are discussed and specific problem areas not dealt with in the previous literature are targeted.     

Modeling Supply Chain Dynamics: A Multiagent Approach*

A global economy and increase in customer expectations in terms of cost and services have put a premium on effective supply chain reengineering. It is essential to perform risk-benefit analysis of reengineering alternatives before making a final decision. Simulation provides an effective pragmatic approach to detailed analysis and evaluation of supply chain design and management alternatives. However, the utility of this methodology is hampered by the time and effort required to develop models with sufficient fidelity to the actual supply chain of interest. In this paper, we describe a supply chain modeling framework designed to overcome this difficulty. Using our approach, supply chain models are composed from software components that represent types of supply chain agents (e.g., retailers, manufacturers, transporters), their constituent control elements (e.g., inventory policy), and their interaction protocols (e.g., message types). The underlying library of supply chain modeling components has been derived from analysis of several different supply chains. It provides a reusable base of domain-specific primitives that enables rapid development of customized decision support tools.     

Price Incentives and Coordination in a Two‐Product Decentralized Supply Chain

We investigate pricing incentives for competing retailers who distribute two variants of a manufacturer's product in a decentralized supply chain. Under a two‐dimensional Hotelling model, we derive decentralized retailers' prices for the products, and distortions in pricing when compared to centrally optimal prices. We show that price distortions decrease as consumers' travel cost between retailers increases, due to less intense competition. However, price distortions do not change monotonically in consumers' switching cost between products within stores. To fix decentralized retailers' price distortions, we construct a two‐part pricing contract that coordinates the supply chain. We show that the coordinating contract is Pareto‐improving and analyze increase in the supply chain profit under coordination.     

A Demonstration of Methods for Studying Negotiations Between Physicians and Health Care Managers*

Decision analysis was used to study negotiations in the health care context. This paper found that analytical methods could answer several important questions related to complex negotiations, including whether contracts promote the interest of both parties, whether a decision aid could better meet the priorities of both parties, and whether one negotiator is more successful than the other in repeated negotiations. The paper concluded that micro-health care negotiations can be traced and studied with existing mathematical theories of negotiation.     

The Impact of Forecast Errors on Early Order Commitment in a Supply Chain*

Supply chain partnership involves mutual commitments among participating firms. One example is early order commitment, wherein a retailer commits to purchase a fixed‐order quantity and delivery time from a supplier before the real need takes place. This paper explores the value of practicing early order commitment in the supply chain. We investigate the complex interactions between early order commitment and forecast errors by simulating a supply chain with one capacitated supplier and multiple retailers under demand uncertainty. We found that practicing early order commitment can generate significant savings in the supply chain, but the benefits are only valid within a range of order commitment periods. Different components of forecast errors have different cost implications to the supplier and the retailers. The presence of trend in the demand increases the total supply chain cost, but makes early order commitment more appealing. The more retailers sharing the same supplier, the more valuable for the supply chain to practice early order commitment. Except in cases where little capacity cushion is available, our findings are relatively consistent in the environments where cost structure, number of retailers, capacity utilization, and capacity policy are varied.     

Push and Pull Contracts in a Local Supply Chain with an Outside Market*

Wholesale price contracts are widely studied in a single supplier‐single retailer supply chain, but without considering an outside market where the supplier may sell if he gets a high enough price and the retailer may buy if the price is low enough. We fill this gap in the literature by studying push and pull contracts in a local supplier–retailer supply chain with the presence of an outside market. Taking the local supplier's maximum production capacity and the outside market barriers into account, we identify the Pareto set of the push and/or pull contracts and draw managerial implications. The main results include the following. First, the most inefficient point of the pull Pareto set cannot always be removed by considering both the push and pull contracts. Second, the supplier's production capacity plays a significant role in the presence of an outside market; it affects the supplier's negotiating power with the retailer and the coordination of the supply chain can be accomplished only with a large enough capacity. Third, the import and export barriers influence the supply chain significantly: (i) an export barrier in the local market and the supplier's production capacity influence the supplier's export strategy; (ii) a low import (resp., export) barrier in the local market can improve the local supply chain's efficiency by use of a push (resp., pull) contract; and (iii) a high import (resp., export) barrier in the local market encourages the supplier (resp., retailer) to bear more inventory risk.     

Channel Coordination for a Supply Chain with a Risk‐Neutral Manufacturer and a Loss‐Averse Retailer*

This articles considers a decentralized supply chain in which a single manufacturer is selling a perishable product to a single retailer facing uncertain demand. It differs from traditional supply chain contract models in two ways. First, while traditional supply chain models are based on risk neutrality, this article takes the viewpoint of behavioral principal–agency theory and assumes the manufacturer is risk neutral and the retailer is loss averse. Second, while gain/loss (GL) sharing is common in practice, there is a lack of analysis of GL‐sharing contracts in the supply chain contract literature. This article investigates the role of a GL‐sharing provision for mitigating the loss‐aversion effect, which drives down the retailer order quantity and total supply chain profit. We analyze contracts that include GL‐sharing‐and‐buyback (GLB) credit provisions as well as the special cases of GL contracts and buyback contracts. Our analytical and numerical results lend insight into how a manufacturer can design a contract to improve total supply chain, manufacturer, and retailer performance. In particular, we show that there exists a special class of distribution‐free GLB contracts that can coordinate the supply chain and arbitrarily allocate the expected supply chain profit between the manufacturer and retailer; in contrast with other contracts, the parameter values for contracts in this class do not depend on the probability distribution of market demand. This feature is meaningful in practice because (i) the probability distribution of demand faced by a retailer is typically unknown by the manufacturer and (ii) a manufacturer can offer the same contract to multiple noncompeting retailers that differ by demand distribution and still coordinate the supply chains.     

Designing Distribution Systems to Support Vendor Strategies in Supply Chain Management*

The interactions among a firm's distribution strategy, market share, and distribution costs are an important consideration in the design of supply chain networks. However, these interactions are largely ignored by existing distribution system design methodologies, which assume demand is constant regardless of the firm's distribution strategy. This paper describes a multidisciplinary framework that considers these interactions in the design of “profit maximizing” distribution networks. The framework employs two major decision support methodologies: (1) binary logit models for estimating market share considering various demand-influencing parameters such as product price and distribution service, and (2) a mixed-integer programming (MIP) model for finding optimal distribution network designs. We applied the framework to an actual design problem facing a national distributor of industrial chemical products. The test results verify the framework's large-scale capability and the potential benefit of the integrated solution methodology.     

Barriers to Swift,Even Flow in the Internal Supply Chain of Perioperative Surgical Services Department: A Case Study*

This research analyzes the internal service supply chain of a perioperative surgical services department of a nonacademic community hospital using the theory of swift and even flow as a theoretical lens. Performance data were gathered using an in‐depth case study and it was determined that the swift and even flow constructs did affect flow speed and variance, but did not account for all the effects observed. To understand the need for departments to coordinate their efforts with each other and how this affected flow, further analysis was conducted using insights from Pagell's (2004) theory of internal integration and Gittell's (2002) research about coordinating mechanisms. The findings suggest the need to incorporate a variable measuring supply chain coordination into the theory of swift and even flow.