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International Journal of Physical Distribution & Logistics Management

Emerald Article: Rx for smart hospital purchasing decisions: The impact of


package design within US hospital supply chain
Sameer Kumar, Rebecca A. DeGroot, Daewon Choe

Article information:
To cite this document: Sameer Kumar, Rebecca A. DeGroot, Daewon Choe, (2008),"Rx for smart hospital purchasing decisions: The
impact of package design within US hospital supply chain", International Journal of Physical Distribution & Logistics Management,
Vol. 38 Iss: 8 pp. 601 - 615
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VIEWPOINT

Rx for smart hospital


purchasing decisions
The impact of package design within
US hospital supply chain

Hospital
purchasing
decisions
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Sameer Kumar, Rebecca A. DeGroot and Daewon Choe


Opus College of Business, University of St. Thomas,
Minneapolis, Minnesota, USA
Abstract
Purpose The purpose of this paper is to examine the impact of packaging design on purchasing
decisions in hospitals and to identify inefficiencies in the US hospital supply chain. Recognition of
inefficiencies helped to directly relate to the effects on critical factors of operation such as environment,
traceability, and logistical ease which significantly add to the cost of health care.
Design/methodology/approach A survey instrument was designed to be completed by
purchasing agents in US hospitals and clinics. Statistical analysis was then applied to the survey data
to draw inferences. In addition, existing studies of best practices of supply chain and packaging design
were considered to determine what may be applied to the US hospital supply chains.
Findings Analysis showed very little correlation between packaging requirements and hospital
supply chain design. The data from the survey also supports the supply chain literature that the
healthcare industry in the USA has been slow to adopt inventory efficient systems like just in time and
lean development, including product tracking through bar coding and radio frequency identification
devices; though most US hospitals have the capability to migrate to such a supply chain system.
Research limitations/implications A small number of respondents were involved in the survey.
Such efforts were limited by the availability of participants which were primarily supply chain
procurement staff in various large community hospitals in major metropolitan areas across the USA.
Practical implications There is a substantial opportunity for management of hospitals to educate
their purchasing agents on the benefits of collaborating with their suppliers in order to take their
relationships to the next level to lower costs of the US hospital supply chain. This has been shown by
the responses in support of critical factors of the supply chain. Case studies have shown some
hospitals are leading the way towards efficient use of their supply chain strategies.
Originality/value Analysis of survey data revealed that packaging and environmental friendly
suppliers/medical products do not currently play a role in hospital purchasing decisions. Nearly, all of
the community hospitals in the USA that participated in the survey do not value packaging as
providing a means to a more efficient inventory management program.
Keywords Packaging, Economic sustainability, Supply chain management, Hospital management,
United States of America
Paper type Viewpoint

Introduction
The US healthcare industry, often considered to be cutting-edge; has fallen behind in
the development of an efficient supply chain design, ignoring better packaging and
supply chain design to gain cost efficiencies. This industry has been insulated from the
need to redesign their networks due to federally funded tax programs.

International Journal of Physical


Distribution & Logistics Management
Vol. 38 No. 8, 2008
pp. 601-615
q Emerald Group Publishing Limited
0960-0035
DOI 10.1108/09600030810915134

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Healthcare can no longer afford to view itself as operationally different than other
businesses. One way to lower costs is to restructure the supply chain, thus improving
their supply chain management.
These efficiencies would have a positive impact to the environment. According to an
article published in 2000 (Messelbeck and Sutherland), the US Environmental
Protection Agency (EPA) named medical waste as the fourth largest contributor of
mercury in the environment. They also stated that they were a major contributor of
dioxin, one of the most highly toxic chemicals on earth, second only to radioactive
materials. While the pollution is certainly alarming at an estimated 3.5 million tons per
year, as early as the 1990s, 85 percent of medical waste (by weight) comes from waste
that is not considered infectious (Kaiser et al., 2001). However, waste reduction from
packaging, almost certainly leads to logistic efficiencies, as packaging becomes smaller
and easier to handle (Shah, 2004).
The decisions purchasing professionals make influence inventory levels, and
ultimately the service provided to the consumer of the hospital or clinic, as they tend to
have control over many supplier relationships. Inefficient purchasing will eventually
be passed along to the patient as additional costs. Thus, any advances in efficiencies
must first begin with purchasing (Parker and Anderson, 2002).
The following hypothesis comes from the research already published on this topic. It
is hypothesized that the packaging of supplies, is ignored as part of the purchasing
decision-making process within the healthcare industry. This lack creates an inefficient
supply chain design between the manufacturers, wholesalers, and consumers (hospitals
and clinics) of these goods. This apparent disconnect in industry led to the development
of collaborative packaging design, implementation of standardized tracking methods
(bar codes/radio frequency identification devices (RFID)) and just in time (JIT) practices.
This hypothesis will be validated by answering the following question:
What are the greatest opportunities for improvements in health care packaging/supply chain
design?

However, in order to answer this question, several other questions must be addressed.
The future is often a matter of learning from the past; therefore, we will identify how
key processes and needs that already exist work in the healthcare industry:
.
What is the current role of packaging in the medical supply industry?
.
Are purchasing decisions currently influenced by packaging design? If so, what
aspects are considered important to the decision-maker?
.
What type of collaboration, if any, exists between manufacturers and customers
of healthcare supplies?
.
What are the established best practices of other industries that could be useful
to health care manufacturers?
We will review published literature regarding packaging as part of the supply chain in
healthcare and other industries. This will illustrate the advances that have been made,
and the opportunities for improvements that are already being discussed. Next, a
survey outline that was conducted of purchasing professionals within the healthcare
industry, will be provided in an attempt to answer some of the secondary questions.
We also reviewed a few case studies, to supplement the survey results that reveal how

practical application of the packaging considerations improves the efficiencies of


hospitals. The survey results are presented and the inferences made leading to
recommendations, limitations, and implications to management on how this research
should be applied to the industry in order to move forward toward greater efficiency in
design and decision making for this supply chain. Finally, we will state the conclusions
and opportunities for further research in this area.
Literature review
The healthcare industry is the largest industry in the USA. In 2005, the healthcare
expenditures were $2.016 trillion accounting for 16 percent of gross domestic product
(GDP) with a $6,697 per capita (Centers for Medicare & Medicaid Services, 2007). The
forecasted spending for 2010 is $2.887 trillion, which represents 18 percent of the GDP
(Centers for Medicare & Medicaid Services, 2007). Considering the purpose of this
study, the focus will be on only consumable products in the healthcare industry. A
subset of the healthcare industry is the medical products industry.
Hospital administrators are searching for ways to control spending and reduce
inventories. This focus will continue as funding sources are continually reduced,
combined with continued pressure from private health insurance carriers that are
reluctant to cover increasing costs for members.
Unlike the grocery and retail industries, the healthcare supply chain is not well
connected between the customer and manufacturer. One reason healthcare has been slow
to adapt any strategies like lean, JIT, and Kanban is that having a stock out situation is not
safe when the health of a patient is on the line. The inventory of medical supplies must be
available for immediate use by medical professionals. Inventory reduction may not be
feasible, however, collaboration between the hospitals and manufacturers is necessary to
provide a better system. Figure 1 shows a very basic supply chain process for the
hospitals. For the purpose of this study, the focus is only on the circled area of the
interaction between the manufacturer (or distributor) with the end consumer (the hospital).

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Packaging
The packaging of products serves two purposes:
(1) marketing/informational: the package communicates the details of the product
in an appealing way; and

3rd party
distributor
Raw
Material
Supplier

Manufacturer

Hospital/
Clinics

Figure 1.
Supply chain flow in
healthcare with
collaboration

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(2) logistic: the package must be able to protect the product and be easily handled
for transportation.
This paper will focus on the logistical components of packaging. The changes in
packaging can only be driven by the customers and can be considered a degree of
product customization to meet customer needs (Engelseth, 2007).
Seven main factors of good packaging design include: standardization, pricing,
product or package adaptability, protective level, handleability, product packability,
and reusability or recyclability. In addition, storage space utilization and the ability to
convey information is also important in package design.
An example of such a usage occurs in Evergreen Hospital Medical Center where the
officials sought to prepare for bar code medication administration and improve
efficiency of medication delivery to nurse servers (www.Mckesson.com, 2007). The
hospital successfully implemented the ROBOT-Rxw system, which has significantly
increased its dispensing accuracy to 99.9 percent; has cut down 72 percent of the cart
fill labor; and has realized nearly $2 million in annual savings through 24,000
pharmacist-patient interventions.
Many industries are focusing packaging design efforts on sustainability in
packaging as the US Congress Office of Technology Assessment stated in 1992 that
material consumption has increased by a factor of four since the turn of the century
(Beamon, 1999; Jonson, 2005) and the US EPA has stated that in 1997 containers and
packaging created 71.8 million tons of waste of which 28.3 million tons was recovered.
This increase in consumption and waste has been linked to the climate changes,
specifically the increases in global warming due to greenhouse gases (Messelbeck and
Sutherland, 2000; Environment Report, 2008; White and Hamner, 2005). Alcan global
pharmaceutical packaging representatives report that many of their customers are
clamoring for more information on this topic (Butschli, 2007). Reduction of packaging
waste leads to decreased costs for the manufacturer, as there is less material used
therefore, less expense as well as lower transportation costs, as products take up less
space in transit (Shah, 2003; Sonneveld et al., 2005; Vistrom, 2003).
RFID in packaging
Pharmaceutical companies are using RFID to protect against counterfeit drugs.
The food and drug administration (FDA) is endorsing the use of RFID on drugs to track
the flow from manufacturer to wholesaler to customer. Pharmaceutical companies are
experimenting with implanting RFID on drug bottles to validate the authenticity of
their products. Moreover, the adoption of RFID by hospitals in the US was estimated to
be 10 percent in 2005 and is expected to increase to 80 percent by 2011 (vonEschenbach,
2006). However, while RFID has taken hold in the pharmaceutical industry, there has
not been any dramatic implementation plans on other consumable items. In fact,
manufacturers have not yet implemented bar coding to standardize information to
their customers.
Robotics
AstraZeneca, for example, employs robotics on several of its packaging lines at its
plant in Sodertalje, Sweden (Butschli, 2007). High flexibility and digital changeover
are among the benefits that are seen with robotic packaging. Theyre also ergonomic,
requiring no, manual, lifting or handling of boxes. Robotic equipment can be

economically justified in that robots are the same price as common machines, but
have better and more flexible functions.
Biologics packaging
Biologics-based products and combination products appeal to some pharmaceutical
firms, for their treatment potential, their financial prospects, and their ability to extend
patent protection (Butschli, 2007). The packaging of these products relates to the
sensitivities of these proteins, which are also less robust than chemical molecules.
These products have to be frozen or lyophylized (freeze-dried) for a shelf life thats
useful in a commercial sense. Even then, the estimated shelf life of biologics is typically
12-18 months, compared to years for pharmaceutical tablets.
Just in time ( JIT)
Another important issue involving packaging design relates to lean manufacturing and
JIT strategies being implemented into supply chains across industries. As stated earlier,
JIT strategy is difficult to implement in the healthcare industry due to the importance of
patient safety. However, there have been studies performed that show that some of the
supply chain activities of hospital meet the criteria of potential JIT strategy. These
criteria include operations that are repetitive, high volume, and deal with tangible items
(Jarret, 1998). These criteria combined with the right relationships with material and
pharmaceutical suppliers mean that deliveries could be made on a JIT basis.
Three strategies were implemented in order to achieve the goals of electronic
healthcare requisitioning. Goals include: 95 percent electronic transactions, 100 percent
invoice accuracy, 80 percent inventory reductions, 99 percent service level/fill rates,
product stopping points, and cutting material-handling staff by 50 percent.
First, more efficient product movement was implemented, which resulted in savings
of $6.7 billion for the overall supply chain, as inventory management strategies became
more automated. Second, by utilizing efficient order management the supply chain was
able to save $1.7 billion through better negotiation and product purchases. Third, EDI
and barcode technology allowed faster transactions and fewer errors, which produced
savings of $2.6 billion. This last strategy requires the adoption of uniform product
labeling and bar coding which currently is not in place for all manufacturers (Jarret,
1998; Huang et al., 2004).
Two initial operational changes need to be made before healthcare providers can
implement these JIT strategies. First, they need to form collaborative-based
partnerships with their suppliers. Second, research needs to be done in order to
determine the capability of the health care supply chain systems currently in place to
accurately identify, categorize, and predict all products.
Due to the cost savings nature of the recycling and segregation programs, hospital
purchasing agents need to identify opportunities and seek out manufacturing firms
that share their vision of a green process in supplying healthcare supplies. In doing
so, they initiate collaborative planning with their manufacturers, so that packaging
design will be considered at the research and development phase of the process.
Therefore, it will be fully integrated within the supply chain design of manufacturing
these products (Jarupan et al., 2004).
Manufacturing firms, such as Baxter International, Inc., have been employing
environmental life cycle considerations into their design process since 1992.

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Bristol-Meyers-Squibb ensures new products have environmental qualities in its


efforts to minimize waste through the manufacturing, use, and disposal of their
products. Allergen looks at packaging considerations including weight reduction of
materials, packaging level reductions, recyclable content, ease of recycling,
biodegradability, and reusability when designing new packaging for their products
(Messelbeck and Sutherland, 2000).
The pharmaceutical side of the healthcare industry is highly regulated regarding
impacts on the environment. The US EPA watches pharmaceutical manufacturers
through the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act, the Safe Drinking Water Act, the Underground Storage Tank
regulations, the Emergency Planning and Community Right-to-Know Act, and the
Toxic Substances Control Act (Messelbeck and Sutherland, 2000). In addition, the FDA
also regulates the pharmaceutical industry through the Federal Food, Drug, and
Cosmetic Act. This act defines the regimented approval process that any new
pharmaceutical must go through before being allowed on the market for consumers.
When going through the approval process, the packaging design of the product
must be defined to a detailed level; any subsequent changes of packaging after the
product is released to the market are required to go through an approval process as
well. This provision of the act is part of the reason that pharmaceutical companies, in
particular, are reluctant to make packaging design changes on existing products, as it
means further investments into a process that may not be approved for market.
Since this type of approval is not needed on all healthcare supplies, there are prime
opportunities for manufacturers to collaborate with their consumers to determine the
best designs and systems in order to be able to service the majority of their markets
with ease and lower expenses.
Analytical framework
In order to gauge the influence of packaging through purchasing, the authors
conducted surveys of 75 hospitals across the US in different regions (West Coast, East
Coast, Midwest, and South) of the country. A 10-15 min telephone survey consisting of
17 questions was used to capture a broad range of current practices regarding the topic
in a short span of time. The purchasing or material management department staff of
the hospital was chosen for the survey, as they have a direct impact on the purchase of
medical supplies. Response rate for the survey was 40 percent (30 out of 75). Large
public/privately owned community hospitals were chosen because they purchase the
most medical supplies and offer the greatest incentive for manufacturers to change
their practices. Criteria used for selection of large community hospitals were: hospitals
with at least 250 employees (nurses, doctors, healthcare staff, etc.) and more than 100
beds. In order to find hospitals, US News and World Reports Hospital Directory (www.
usnews.com/usnews/health/hospitals/state_dir.php) and the American Hospital
Association Directory (www.ahd.com) were used. Hospitals, were then randomly,
chosen across the USA, in major metropolitan areas such as Seattle, San Francisco, Los
Angeles, Boston, Washington (DC), Minneapolis, Atlanta, and Houston.
The survey (see Appendix) questions covered several topics including purchasing
behavior, current supply chain design, and supplier information and relationship. The
survey was constructed to determine a correlation between the influence of packaging
and decision to purchase the product. The questions are arranged to discover a pattern

of behavior common through the survey takers (hospitals). There are total of 17
questions in the survey. In total, 13 of the 17 questions were answered on scale system
as strongly agree, agree, neutral, disagree, and strongly disagree. The remaining
questions had specific answers that the respondent could choose in order to give better
information to the researchers. The average time of the interviews was seven to ten
minutes. Results from the survey were compiled to identify the prime opportunities to
implement efficiency in the packaging and supply chain design of the healthcare
manufacturers and consumers. Once these opportunities were identified, case studies
were utilized from other industries in order to identify the best practices that could
apply to the healthcare field.
Answers to the question regarding packaging influence on purchasing decision were
slightly scattered. The majority of the answers regarding the question, if packaging was a
consideration in the purchasing decision were on the neutral to disagree side of the chart.
However, there is some significant interest in purchasing returnable totes, but very few
who have actively sought out environmentally friendly suppliers. There are definitely a
sizeable number of respondents who are interested in the RFID but are unwilling to
consider the packaging as an influential factor during the purchasing decisions.
Survey results in regard to the supplier relationships revealed that most
participating hospitals do have electronic order capabilities. It also shows the very
close contract relationship between hospitals and their suppliers. Moreover, there are
many respondents who have mentioned that their suppliers provide more than
50 percent of the purchases. Considering this, it might be all the more easy to enforce
the importance of the packaging decisions as the purchaser has a great deal of
influence over the packaging decisions.
Considering the type of supplier from which hospitals mainly purchase, it is evident
that in addition to being under contract with many of their suppliers that they are also
heavily using distributors rather than ordering directly from the manufacturers. This
is partially due to the fact that the quantities they are ordering, as distributors are more
likely to break pallets and even cases when necessary to meet the needs of their
customers.
The frequency of meetings between suppliers and hospital purchasing agents is
another factor that was considered during the survey. It is evident that most of them
have a very close relationship and are meeting on a weekly basis to discuss the needs
of the hospital. This might be the crucial factor where hospitals purchasing large
quantities can easily negotiate and communicate the problems and their requirements
for packaging.
The ordering quantities most often used by hospitals and the majority of
purchasing agents are purchasing in case quantities, but there is a high occurrence of a
mixture between cases and individual units depending on the product. Considering this
factor, the purchaser needs to clearly define the packaging requirements for different
types of units. Some individual units might not need sophisticated packaging. Some
units might and this can easily be defined from a cost effective point of view.
Much of the published literature stated that hospitals were not ready for JIT
implementation, but, on the basis of their delivery schedule they are on track for a
JIT type program as 80 percent of the respondents are receiving deliveries on a daily
basis. This opens up the gate for reduction of rejected products and also an efficient
supply chain monitoring base.

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The survey data in response to the studys hypothesis, whether packaging is a


factor in the purchase decision role suggests that the impact of packaging plays a small
part in the purchase of medical products. This is further verified when a correlation
analysis is done between the questions in the survey. There is very little to no
correlation between the answers given in regard to considerations of different types of
packaging.
A moderate positive correlation, 0.468, was found between the questions regarding
seeking out environmentally friendly suppliers whether or not packaging is a
consideration in purchasing. Also, a positive correlation was found between suppliers
that required bar coding or RFID and those that were interested in more
environmentally friendly suppliers (0.293). These same respondents, were also
interested in returnable totes with a correlation factor of 0.517. This shows that those
purchasing agents considering environmental impacts are taking packaging into
account during their decision process, but it is not necessarily, the most persuasive
factor in their decision.
In support of our hypothesis, a very low correlation level was seen between
inventory concerns and consideration of packaging when making purchasing
decisions at 0.0291. This further indicates a lack of awareness of packaging when
determining from which suppliers items are being sourced. The opportunity for
packaging to influence inventory is enormous given that all respondents agree, with
over 90 percent strongly agreeing, that inventory levels are a concern to their
organization.
The data supports the findings in the literature reviews that the healthcare industry
has been slow to adopt inventory efficient systems like JIT and lean development. Only
one of 30 total hospitals was implementing a JIT system. In addition, authors were told
numerous times by the respondents of the need and desire for standardization through
bar coding or RFID tagging of products for the industry. Very few respondents agree
that they required this type of tagging, but most then added, that they did not require it
due to lack of availability.
The authors learned that most hospitals have the capability to migrate to such a
supply chain system. Almost half of the respondents stated that they have a weekly
meeting with suppliers to discuss their needs and two-thirds of the respondents are
already receiving daily deliveries from their suppliers. It was not surprising, given the
concerns surrounding inventory levels that most respondents order products in
case quantities rather than pallets which is a move towards reducing inventory,
particularly given the frequent delivery schedules.
Critical supply chain factors
The supply chain factors that are critical in developing a supply chain were developed
to find the trends in the industry practices. The primary question was Packaging is a
consideration when determining which suppliers I purchase from, that gives us an
indication that cost cutting measures could be promoted within the healthcare
industry. Key questions were segregated to identify trends in the areas of
environmental friendliness, logistics, traceability, inventory management and also
collaboration, planning, forecasting, and replenishment (CPFR) (Table I). Some factors
have a long time perspective such as traceability, which could increase the costs during
a short period of time. In the long run, it could help in the closed loop supply chain

Question numbers

Factors

4
5
6
8
CPFR
9
10
13
14
16
17

Environment
Logistical ease
Traceability
Inventory management

Stongly
agree
5

Agree
4

Neutral
3

Disagree
2

Strongly
disagree
1

4
6
3
9

6
12
4
5

6
8
7
4

9
2
6
5

5
2
10
7

26
18
17
24
22

3
5
10
4
6

0
3
1
1
0

0
1
1
0
0

1
1
1
0
2

Forecast sharing
Planninga
Collaboration (20 percent)
Collaboration (50 percent)
Collaboration (E comm)
Replenishmentb

Notes: aSignifies that the grading scale used was based on the proactiveness of the company which is
outlined in the responses. bSignifies that the grading scale used based on the responsiveness of the
company to react to replenishment needs. Key question: Packaging is a consideration when my
organization decides which supplier I puchase from Survey Results

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Table I.
Survey results segregated
according to the critical
factors of supply chain

structure of all products in the health care industry. This also contributes towards
environmental friendliness, as traceability will help monitor recycling of the products.
Below is a compilation of the answers to the specific questions that help us to trace the
relationship of supply chain and specific factors.
These factors show trends that 53 percent of respondents who are environmentally
conscious, out of which 37.5 percent respondents are neutral (Figure 2). The cost
cutting measures could be concentrated by improving the segments of logistical ease,
traceability and inventory management. Unfortunately, only 47 percent of the
healthcare industry sees it as a requirement to have traceability incorporated into their
Bar Chart showing the Responses of survey to the Critical Factors
30
26

Number of respondents

Strongly Agree
25

Agree

20

Neutral

22
18
17

Disagree
15

24

24

Strongly Disagree
9

10
6
3

t*
en
ish

en
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Re

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n
tio
ra

bo
lla
Co

Co

n
tio
ra
bo
lla

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m

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(5

(2
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Co

)
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*
ng
tio
ra

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an
Pl

tS
as
ec

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r

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to

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ag
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sti
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Figure 2.
Bar chart describing
responses to critical
factors of the supply chain

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packages which could help in the recycling of the product. This might help in the
closed loop supply chain of a used product for recycling purposes. The other critical
factors relating to CPFR also show how the collaborative planning and forecasting
could help in the replenishment of product.
The survey portrayed that more hospitals are beginning to think in terms of JIT,
benchmarking supply chain practices which are the industry best practices as they
strongly agree with the benefits of forecast sharing, planning and collaboration. More
hospitals are becoming aware of the RFID need and tracebility to ensure better supply
chains and also safer practices to ensure product recalls can take place easily and safely.
Industry best practices
By simplifying the supply chain, it enables the relationships to be built in order to
allow deliveries to be made on a JIT basis. However, JIT cannot be supported within a
business without managerial support and good faith in the vendors (Jarret, 1998).
These relationships help support the value chain model in which procurement plays a
key role. The value chain and how the supply chain functions are a result of different
aspects of the organization and policies and procedures that may be in place.
The flow of communication between different levels within the organization, as well
as, between supply chain partners is extremely important in order to maintain
a positive working relationship. A continuous flow of information between all
members of the supply chain is needed in order to be able to implement efficient
packaging and supply chain design changes. This requires a team approach, and many
members throughout the organization need to be involved in decision making early in
the process. Packaging needs to be implemented into supply chain design, as it is an
integral part of the product flow; it will directly influence how a product is handled,
and provide information to all members of the supply chain (Chan et al., 2006; Dahlborg
and Johnson, 2006; Engelseth, 2007). The same is true of industries that have focused
on a life cycle design which builds their framework on concepts and techniques to
address environmental, technological, and social products, services and organizations
(James, 2004; Beckman and Olsson, 2006).
An example of a supplier who is highly motivated and committed towards the
environment is Baxter Singapore which set aside resources to form teams such as the
Environmental Team and the Energy Conservation Team, to spearhead environmental
initiatives. As a whole, Baxter seems to have two main ways to enforce waste
minimization which are: material minimization and plastic waste recycling. The
following methods have been featured in the article which can be found at Baxter
Healthcare Pte Ltd Case Study (2001).
Methods to reduce and reuse packaging material
Only a few of the initiatives by Baxter towards reduction of packaging material are
listed below. A closer look at these methods would help the reader to realize the
implications of such efficient methods. These methods also featured in the survey
questions, helping to detail the gains to both the supplier and the consumer.
Reuse of tote pans and plastic pallets. Baxter has started working with suppliers to
reduce the waste produced from the corrugated boxes and wooden pallets which were
employed for material transportation. These boxes have been replaced with reusable
tote pans and the wooden pallets with plastic pallets to deliver molded parts the pans

and the pallets are reused between Baxter and the suppliers. The program has been
expanded to cover about 20 suppliers including mechanical and electro-mechanical
parts suppliers. The supplier takes the empty tote pans and pallets back during
delivery. On average, 9,000 tote pans and 1,400 plastic pallets are reused each month.
Reuse and recycle of cartons. Collection bins are placed at Baxter to collect the empty
cartons of the supplier who will pick up the empty cartons from Baxter during their
next delivery trip. The cartons are reused for supplies to Baxter. Carton waste is stored
in bulk quantity, prior to their transfer to the company that deals in carton waste.
Carton waste is then re-processed into recycled paper. Baxters carton boxes are made
from 50 percent recycled paper.
Recycle of wooden pallets. Wooden pallets are non-returnable to suppliers. They are
collected for reuse or made into technical wood.
Pack factor optimization. Baxter Singapore redesigned the packaging required to
ship Colleaguee Volumetric Infusion Pumps. Now, each pallet accommodates 48
pumps, compared to 18 pumps, previously. This will save 6,000 kg of polyethylene
foam, 7,000 kg of corrugated cartons, and 600 wooden pallets per year. Annual material
cost savings will be US $33,000.
Another way to implement best practices is to put into operation a benchmarking
program within the healthcare industry. The benchmarking cycle can be traced to the
process flow, in the manner of an organization analyzing the processes that need to be
benchmarked, finding a partner which has already implemented this change, then
proceeding to understand and analyze their processes to identify the gaps and
implement changes.
While, many healthcare organizations in the USA may be benchmarking
themselves against each other in some key aspects, they should also benchmark
themselves against other industries which have found and implemented efficient
programs within their supply chain. While, not all practices identified should be
implemented in their exact form, it will be useful to identify why these practices work
well for others and potential modifications needed to implement similar benefits to the
health care organization studying the practice (Lapide, 2005-2006; Andersen and
Randmoel, 1998).
Study limitations and practical implications
Only 30 purchase professionals participated in the study. In order to conduct a
statistically relevant study, the authors would have liked to reach 100 respondents
throughout major metropolitan cities. The main hindrance was the availability of
participants willing to take part in the surveys. Although 100 responses from survey
participants would have been ideal, the authors believe the trend of the data would not
have varied greatly from the 30 responses.
In capturing an overview perspective, the study did not collect detailed information
on specific topics. In a future study, it would be interesting to investigate why
packaging is not considered in the mix regarding the purchase decision. In addition, a
further investigation into the awareness of packaging techniques, needs of the
consumer in this industry and what stimulus is needed in order to move manufacturers
towards those improvements.
Furthermore, there is opportunity to develop a supply chain process model to identify
the barriers that hospitals in the USA face in moving to a JIT supply chain system.

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Most hospitals have the core components (EDI, daily shipments, and collaborative
relationship) to move to JIT, but what factors are offering the most resistance? Are the
obstacles capital or resources? Also, what are the overall cost savings to the organization
to implement these programs, as well as, any savings or investments that need to be
made by the manufacturers and distributors of these products.
Packaging plays an increasingly important role in making products safer and cost
effective in the reduction of inventory levels and waste. Managers must reconcile these
two trains of thoughts into a single decision-making methodology.
One way of improving the US hospitals supply chain is through training the
purchasing staff, to increase awareness of the current trends in packaging and
environmental impacts as well as the cost savings and efficiencies where they can
benefit. They also need to look at the waste disposal costs of container packaging,
opportunities for improvements by leveraging their relationships with manufacturers,
and recommend using recyclable and waste reduction parts in medical products to
reduce costs across the entire supply chain.
Contrary to much of the literature, the survey results suggest many hospitals are in
a position to move to a JIT supply chain system. First, about half of the US hospitals
who participated in the survey meet with their primary suppliers on a weekly basis.
This suggests that significant number of hospitals surveyed already have a
relationship with suppliers and could bring those relationships to the next level. It is
important that both parties agree to the new system, since the hospitals are in a
position to leverage their relationship to JIT. Second, nearly all of the US hospitals
surveyed generate electronic purchase orders via EDI. Third, most hospitals surveyed,
receive daily shipments.
Similar to the retail and grocery industries, the healthcare industry not only can
benefit from modernizing their supply chain in order to reduce costs, but they are very
interested in doing so. If the biggest obstacle to change is a fear of stockout situation,
then they need to tailor JIT or Lean Development to their business needs. The new
systems are not a one size fits all, but require customization. A supply chain manager
at a hospital should look at examining the cost/benefit of moving their current system
to a JIT system. The study also showed tremendous opportunity for medical supplies
manufacturers to develop standardization of information in their packaging for their
customers and distributors. The number of respondents who stated they would like to
require bar coding or RFID, but could not, due to lack of availability, was
overwhelming. It appears that consumers are ready to make the investments on their
side to utilize this information, but must convince the manufacturers to do so.
Conclusions
The authors discerned from the survey of various US hospitals and their supply chain
environment, which was complemented with case reviews, that packaging and
environment friendly suppliers and medical products do not currently play a role in
purchase decisions. Nearly, all of the hospitals in the US that participated in the survey
do not value packaging as providing a means to a more efficient inventory
management program. However, these programs can help to reduce the $1 million on
waste disposal that hospitals spend each year. This can clearly be seen from the
traceability matrix that shows that many respondents have yet to launch into the
supply chain designs for low cost. It has effectively been shown that the opportunities

for improvement in the packaging industry, engaged in supply of products to the


health care industry, require not only CPFR, but an environmentally conscious
approach for long-term cost effective means to design their supply chains.
In completing this study, different ways were discovered to reduce costs by
revamping the supply chain. Hospitals in the USA have numerous opportunities to
improve their supply chain to become more efficient and cost effective through
collaboration with their suppliers to design better packaging and systems. In addition,
hospitals already have many of the components and infrastructure needed to move to a
JIT environment. Quoting Pilchik (2004, p. 16), who says that only a few more
operational steps are needed to complete the transition to one set of rules governing
medical device packages, it is just a bold move that is required from the steps of this
revolution. This move will reduce the inventory and the total cost of ownership.
A major obstacle preventing hospitals in the USA from moving towards better
packaging and supply chain design is a change agent, there is currently no main driver
for the change.
A more detailed analysis of the packaging supply chain for hospitals can be
conducted by expanding the scope of the survey instrument, including demographics
of the purchasing agents and also including more participating hospital supply chains
across various regions of the USA.
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Appendix. Packaging/supply chain design survey for purchasing professionals in


healthcare
Title of person completing survey___
Please rate on the following scales unless otherwise notated:
1 Strongly disagree

2
3
4
5

Disagree
Neutral
Agree
Strongly agree
(1) I am able to determine who my organization purchases supplies from.
(2) I purchase all types of supplies including pharmaceutical products.
(3) Packaging is a consideration when determining which suppliers I purchase from.
(4) I actively seek out or have been asked to seek out suppliers that utilize
environmentally friendly packaging and processes (recycling, waste reduction, etc.)
(5) I would purchase products in returnable totes if available.
(6) I require bar coding or radio frequency device indicators on packaging in order to
trace products.
(7) I order customized packaging of supplies for my organization.
(8) Inventory levels are a concern to my organization.
(9) I or someone within our organization supplies a forecasted need to our suppliers.
(10) I meet with my suppliers to discuss our organizational needs:
a. Weekly b. Monthly c. Quarterly d. Annually e. Less than 1 /year
I purchase most supplies from:
a. Manufacturers b. Wholesale suppliers
(11) I order products from domestic as well as international suppliers.
(12) 20 percent of our suppliers deliver 80 percent of our needs.
(13) I am under contract with suppliers who supply over 50 percent of our supplies.
I normally order the following type of quantities:
a. Pallets b. Cases c. Individual units
(14) I am able to transmit data regarding purchase orders electronically.
I receive deliveries on the following schedule:
a. Daily b. Weekly c. Monthly d. Less frequent than monthly

Any additional comments.

Corresponding author
Sameer Kumar can be contacted at: skumar@stthomas.edu

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