Exploring the importance of orientations on hospital-supplier collaboration

Introduction

Recently, the Indian Government adopted several initiatives for developing the healthcare
sector. For example, the E-health initiative targeted providing economical medical services to
patients. Additional examples include the following: the National Deworming initiative for
safeguarding 240 million children from intestinal worms; the development of 3000 new medical
stores in the country; the GI Digital Dispensary for extending medical facilities to rural people;
and the provision of additional healthcare coverage of 30,000 INR (447 USD approximately) to
senior citizens. These examples are good indications of the enormous potential that the
healthcare sector in the country promises. However, the healthcare sector in the country remains
underdeveloped and requires collaboration among its supply chain members at an optimal cost.
Previously, the cost of hospital supplies and associated materials represented 45 per cent of a

hospital’s operating budget. Therefore, focal firms, i.e. hospitals in medical SCs, are striving to

reduce cost and increase efficiency through enhanced integration among their SC entities.
Furthermore, it is suggested that hospitals should focus on successfully responding to their
different challenges, e.g. the escalating cost of inputs and operations.

Hence, medical chain entities such as hospitals and accommodation providers should
focus on developing their SCs through appropriate investments. Consequently, SC management
in healthcare has gained considerable importance. While SC management had roots in
manufacturing, there has recently been a paradigm shift to incorporate hospital SCs. There is a
need for theory development and empirical testing on healthcare SCs, considering the increased
complexity in healthcare management. Such complexity has increased the challenges for
successful integration in healthcare SCs. The benefits of effective integration have been observed
in manufacturing in terms of operational performance improvement. However, healthcare SCs
have yet to identify the essential drivers of hospital-supplier integration Therefore, healthcare SC
entities must focus on integrating their individual efforts and competences for enhanced
performance.
 The extant research emphasises collaborative activities as a precursor to successful

integration. While studies utilized ‘integration’ and ‘collaboration’ interchangeably integration

to be more process focused with an aim of unification at the operational level. Collaboration is a
broader term that puts more emphasis on governance through relational means in addition to
governance through contract means. Therefore, collaboration combines both process and
relationship focus in its conceptualization. The present study therefore explores the contribution
of collaborative assets viz. collaborative planning, execution and decision-making in the
development of hospital-supplier integration (HSI). While other collaborative activities such as
information sharing, goal congruence, decision synchronization, incentive alignment and
resource sharing are important, we argue that collaborative planning, execution and decision-
making are more holistic concepts encompassing such activities in their conceptualization.

Collaboration and collaborative assets

The role of collaboration in effective SC management is well recognized. Collaboration

involves every SC entity participating in planning, anticipating, replenishment, resource sharing,
information sharing and incentive sharing. SC collaboration results in reduced costs, improved
enhanced forecast accuracy. One of the widely accepted advantages of SC collaboration is
benefit sharing. SC management tools have had a prime focus on enhancing SC collaboration. A
specific tool is collaborative planning, forecasting and replenishment (CPFR). This tool utilizes
computer networking, information technology and other internet-based technologies. Resource
dependence theory (RDT) has been found to support the dependency of SC players on
downstream retailers for demand information and inventory positions. Aggregate information
from key SC partners is generally utilized for planning production and replenishments. SC
partners benefit from collaborations and may tend to collaborate for the long term, seeking
higher performance by depending on each other. The basic concepts of RBV and RDT motivate
SC entities to collaborate with each other by developing mutual trust and enhanced performance.
The benefits of SC collaboration can be realized fully when every key SC entity is ready to
cooperate. While the existing literature underscores the advantages and disadvantages, the
contribution of SC collaboration in developing SC integration has yet to be addressed for
healthcare SCs. For the effective delivery of healthcare services, collaborative assets must
significantly contribute to successful integration. Such integration would have positive
performance implications. Hence, the current study explores the role of collaborative planning,
execution and decision-making in hospital supplier integration (HSI) with TO as a moderator.

The resource-based view suggests that firms differ in their performances owing to
differences in resources and capabilities possession. Furthermore, this ownership of different
resources and capabilities culminates in differential firm performance and may be a source of
competitive advantage. With hospitals as key focal units in a healthcare SC, we propose three
important assets under collaboration based on the extant literature: collaborative planning,
collaborative decision-making and collaborative execution. Furthermore, we argue that these
assets would positively contribute to HSI, which would result in positive operational
performance.

Collaborative planning and HSI

SC planning has recently been a crucial determinant of success in the competitive

environment. Retailers are proactively creating alliances with key suppliers to address demand
changes in the market. Success of such activities depends largely on collaborative planning of
focal firms with upstream and downstream entities. Collaborative planning of suppliers and
retailers is likely to decide the duration and type of sales promotions. Collaborative planning
indulges SC entities to involve in front-end agreement on SC activities and teamwork
arrangements. SC members collaborate with logistic providers to ensure timely replenishment.
By sharing production and replenishment plans with downstream members, manufacturers are
likely to achieve timely replenishment by improving the SC performance. Most successful
collaborations have information sharing as their core element. It is important to note that
businesses that actively practise SC collaboration efforts indulge in collaborative planning with
an objective to improve upstream and downstream visibility. Hence, collaborative planning is
more important for healthcare SCs. For example, collaborative planning could help hospitals to
anticipate the demands of medicines based on the season, prevailing weather conditions and
likelihood of corresponding diseases. Accordingly, hospitals could work with their suppliers to
predict demand and meet their treatment schedules for their patients.

Collaborative planning also helps hospitals to suitably implement upcoming treatment

technologies due to proactive planning with key entities. Through appropriate planning,
healthcare SCs can successfully mitigate various uncertainties and associated risks. Collaborative
planning prepares suppliers and their focal partners for newer technology adoption and
integration of individual activities. Thus, collaborative planning aids hospitals and other key

entities’ successful integration through increased information sharing and operational

transparency. Hence, we hypothesise that collaborative planning is a critical determinant of

effective HSI. Thus, we have our first hypothesis:

H1: Collaborative planning positively influences HSI.

Collaborative execution and HSI

Competition in the market has led focal firms and their key suppliers to engage in the
joint execution of vital processes such as procurement, production and distribution. The
dissemination of SC information among SC entities ensures the timely replenishment of

materials in the retailers’ warehouse. Consequently, firms make specific investments to update

their IT infrastructure and collaborative tools to achieve cost reduction in strategic SC

management. Given the extant literature, it is reasonable to expect that such planned investments
in SC collaboration would help to improve SC processes. Such investments are likely to enhance
the success of integration for healthcare SCs, eliminating operational complexity through
enhanced information sharing. We define collaborative execution in this study as an alliance
process between hospitals and their key suppliers for the joint execution of routine and strategic
activities targeting optimal performance. Hospitals must focus on joint execution, as it aids in
effective unification through enhanced operational transparency. Further collaborative execution
also aids in supplier skill upgradation and thus improves SC relationships. Most hospitals
currently have their own pharmacy unit for ensuring the timely supply of medicines to internal
and outpatients. Hospitals need to have close collaboration with key suppliers to ensure the
availability of critical medicines. Such collaborative executions enable hospitals and their key
suppliers to take advantage of economies of scope. Accordingly, we suggest collaborative
execution as an essential precursor of effective HSI. This provides our next hypothesis:

H2: Collaborative execution positively influences HSI.

Collaborative decision-making and HSI

Extant studies emphasise the importance of joint decision-making as a core component of

successful SC collaboration SC decision-making involves the participation of SC entities

operating at different levels of SC processes. In each of these processes, support from SC

partners and cooperation helps in SC value creation. Collaborative decision-making also

facilitates accurate demand forecasting due to timely information sharing among key SC entities.

Furthermore, such collaborative forecasting aids in the rapid replenishment of products with low

shelf life. In addition, this forecasting also aids in accommodating changes in original plans to

provide a faster response to customer’ dynamic requirements; this can be a source of competitive

advantage, particularly in healthcare services. SC entities should collectively plan for discount

sales, promotional sales and new product introductions.

Collaborative decision-making influences the execution of essential plans and ultimately

benefits all SC entities. We define collaborative decision-making as an alliance process where

hospitals and their key suppliers make joint decisions for routine and strategic operations to

achieve optimal performance. The development of a new hospital with different testing labs and

pharmacy unit results in mutual benefits for all involved parties. This results in economies of

scope for hospitals and its key suppliers. With their own labs, hospitals were better positioned for

successful integration with their key SC entities. Hence, we hypothesise that collaborative

decision-making is an effective enabler of HSI. This leads to our next hypothesis:

H3: Collaborative decision making positively influences HSI.

Hospital-supplier integration and operational performance

Our study conceptualises operational performance as the performance of key healthcare

SC entities such as hospitals, chemistry/pharmaceuticals, medical equipment manufacturers and

surgical suppliers. In RBV-based studies, operational performance is often the outcome of

higher-order SC capabilities that result from the appropriate deployment of firm-specific

resources and capabilities. Studies on integration suggest that operational performance is an

effective outcome of successful integration in SCs. The collaborative assets of planning,

execution and decision-making often result in streamlined production plans and procurement

schedules. In accordance with the resource-based view, we argue that collaborative assets, when

deployed effectively, would result in HSI, which would enhance operational performance.

Therefore, HSI could be posited as an essential SC level capability developed due to the

appropriate deployment of collaborative assets and has the potential to result in higher

operational performance. As HSI aims for unification and synchronisation of essential processes

among hospitals and their key healthcare SC entities, this study focused on operational

performance. Integration targets synchronisation and unification at the process level, while

collaboration targets the same at the relational level. Accordingly, we frame our next hypothesis.

H4: Hospital-supplier integration positively influences operational performance.

Moderating role of technology orientation

Technology orientation is defined as ‘the ability and the will to acquire a substantial

technological background and use it in the development of new products. Technology orientation

often encompasses several other orientations for example product, service, production and
innovation. In this study, a technology-oriented hospital is one that is dedicated to adopting

newer and emerging technologies for exchanging timely information with its SC partners to

improve coordination and provide effective healthcare services to its patients. While existing

studies suggest that discovery, variation and innovation are key enablers for success for

technology oriented firms, service industries such as healthcare should also focus on developing

these enablers. As focal members of healthcare SCs, hospitals must be ready to provide services

based on patients’ dynamic treatment needs. Technology-oriented hospitals usually provide

updated and advanced healthcare services; this results in enhanced customer value and strategic

performance.

Hospitals that can implement newer technologies are more likely to attain service

differentiation and enjoy cost advantages than others. Similarly, technology orientation can

enable hospitals to develop innovative performances. Service innovation initiatives aided with

technology orientation enable hospitals to develop exploratory and exploitative innovation

competences. Therefore, technology-oriented hospitals are more likely to enjoy the success of

service innovation . Hence, we argue that technology-oriented hospitals are comparatively more

capable of assimilating the contribution of collaborative assets into successful integration.

Furthermore, when each key SC entity is on par with the others in terms of technology adoption,

coordination and collaboration becomes easier to achieve. Consequently, hospital-supplier

integration becomes comparatively easier to achieve. Accordingly, we propose the following:

H5a: Technology orientation positively moderates the relationship between collaborative

planning and HSI.

H5b: Technology orientation positively moderates the relationship between collaborative

execution and HSI.

H5c: Technology orientation positively moderates the relationship between collaborative

decision making and HSI.