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Vendor managed inventory in the blood supply chain in Germany: Evidence from multiple case studies
Sebastian H.W. Stanger,
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VMI in blood
Vendor managed inventory in the supply chain in
blood supply chain in Germany Germany
Evidence from multiple case studies
25
Sebastian H.W. Stanger
Friedrich-Alexander University Erlangen-Nuremberg, Received 26 November 2011
Erlangen and Nuremberg, Germany Revised 15 January 2012
Accepted 30 October 2012

Abstract
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Purpose – The purpose of this paper is to develop a generic framework for the assessment of VMI
implementation. The framework is used for the analysis of multiple case studies in German hospitals
to discuss the feasibility of VMI in the German blood supply chain.
Design/methodology/approach – The methodology is twofold. In a first step, the literature is
reviewed and a generic theoretical VMI framework is developed. In a second step, the case study
methodology is applied to 13 cases to assess the feasibility of VMI in the German blood supply chain.
Findings – The paper contributes a generic framework for assessing the implementation of VMI in
seven steps. The research proposed that hospitals hesitate to enter a VMI relationship for critical
resources such as blood. Hospitals fear losing control over critical resources.
Research limitations/implications – The unit of analysis is hospitals in Germany and the case
studies do not target the suppliers in the supply chain. The paper contributes three propositions
regarding VMI in the healthcare/blood supply chain.
Practical implications – A generic framework for assessing the applicability and feasibility of VMI
is provided which supports managers with the implementation of VMI in a supply chain.
Originality/value – The paper is one of the first papers targeting inventory and supply chain
management in the German blood supply chain. It provides a generic framework for the assessment of
the feasibility of VMI.
Keywords VMI, Blood, Blood supply chain, Health care, Outsourcing, Germany
Paper type Research paper

Introduction
The increasing demand for healthcare services coupled with rising costs of medical
care leads to a necessity of an efficient utilisation of medical resources. This issue is
also prevalent in transfusion medicine, whose raw material, blood, is an outstripping
supply with increasing costs of blood transfusions due to the further measures to
ensure the safety of donated blood (Rytila and Spens, 2006; Reynolds et al., 2001). Blood
is an extremely valuable commodity; perishability, various safety regulations and a
trend of a declining donor base steadily increase its value (Reynolds et al., 2001). The
blood supply chain is a challenging system, in which blood collected from volunteers is
a critical medical resource for patients with diverse diseases. The balance of demand Strategic Outsourcing: An
and supply in the blood supply chain is a matter of life or death and therefore International Journal
Vol. 6 No. 1, 2013
managing the supply chain is a critical challenge (Dobbin et al., 2009; Pierskalla, 2005). pp. 25-47
Due to an increasing demand for blood products, new approaches for optimizing the q Emerald Group Publishing Limited
1753-8297
blood supply chain are required (Rytila and Spens, 2006). DOI 10.1108/17538291311316054
 SO A well-established and popular supply strategy, which has been used in various
6,1 industry sectors aiming at the optimisation of the availability of products while
minimizing costs is Vendor Managed Inventory (VMI) (Razmi et al., 2009; Waller et al.,
1999). VMI has also already been adopted and implemented in the healthcare sector to
improve material handling efficiency, procurement processes and inventory control for
example of pharmaceuticals (Kim, 2005). However, no application of the VMI concept
26 in the blood supply chain is known. The literature has been reviewed in order to draw
back on evidence both from academics and practitioners to discuss and analyse the
feasibility of a VMI implementation in the blood supply chain. Based on an extensive
review of VMI and supply chain literature a generic framework for assessing a VMI
implementation is developed, 13 case studies have been conducted to answer the
following research questions:
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RQ1. Is it possible to implement the VMI concept in the blood supply chain?
RQ2. How could the blood supply chain benefit from a VMI implementation?

Literature review
This paper does not seek to provide an exhaustive literature review on VMI and the
blood supply chain. The following paragraphs aim to generate a sound understanding
of the blood supply chain and its special characteristics. Academic and practitioner
literature is used to develop a generic VMI framework used in the analysis of the case
studies.

Introduction to the blood supply chain

Blood is a perishable commodity composed of many components: red blood cells (RBC),
platelets (PLT) and plasma (FFP). Each blood component has a different shelf life and
requires special storage regimes. Blood components remain a scarce and precious
resource (Goodnough et al., 1999; Reynolds et al., 2001; Vamvakas, 1996; Paul Ehrlich
Institut, 2011), this is despite the fact that between 4.3 and 4.9 million whole blood
donations have been collected in Germany annually over the last ten years, over 0.9
million units of blood are donated in Canada (Canadian Blood Services, 2010) and over
1.9 million units in England and North Wales each year. In the US buying blood
accounts for about 1 per cent of total hospital spend, as blood is utilized in many
procedures (Pierskalla, 2005). In the generic blood supply chain, freely donated blood is
collected at one of many nationwide located blood donor venues. After collection on
donor sessions the blood is transferred to a regional blood centre for testing and further
processing. After various tests for infectious diseases the blood is separated into its
constituent parts red blood cells, platelets and plasma before being packaged and
stored. Figure 1 depicts a simplified generic blood supply chain.
The supply chains however differ from country to country, where in the UK four
regional suppliers are supplying the hospitals in a monopolistic structure (NHSBT in
England, WBTS in Wales, SNBTS in Scotland, and the NIBTS in Northern Ireland), the
Swiss Red Cross is the only supplier in Switzerland also following a monopolistic
structure as in France, where the EFS is the only supplier for blood. The German
market is characterised by non-profit organisations such as the Red Cross, profit
oriented companies such as Haema AG, as well as larger teaching hospitals collecting
their own blood from their own donor pool. The US market is similar with the majority
 VMI in blood
supply chain in
Germany

27

Figure 1.
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of the blood supplied by America’s Blood Centres; however 15 per cent of the US
hospitals are for-profit hospitals and some of them collect their own blood. In Sweden
blood products are produced and distributed by commercial pharmaceutical
companies, whereas prices are controlled by the state (Rock et al., 2000; Katsaliaki
and Brailsford, 2007).
Transfusion laboratory managers in the hospitals order blood with the blood
service(s) and keep their own local inventories in the hospitals. Order decisions are
usually based on target stock levels where the transfusion laboratory manager
constantly monitors the inventories and places orders when needed. Depending on the
size and type of the hospital, one or more free routine deliveries are planned per day;
however, transfusion managers can use ad hoc or emergency deliveries in case of low
stock levels or increased demand due to, e.g. a heavy hemorrhage. ad hoc deliveries are
unplanned deliveries at an extra charge which are treated with the same priority as
routine deliveries; emergency deliveries, also called blue-light deliveries with highest
priority. Transfusion laboratory managers however try to avoid using emergency and
ad hoc deliveries due to extra costs and for safety reasons, as emergency blue light
deliveries are dangerous because of an increased risk of accidents during transport.
When demand for blood product arises in the hospitals, the correct blood products are
transported to the demanding ward or department where they are finally transfused to
patients (Delen et al., 2009; Rytila and Spens, 2006; Pierskalla, 2005; Rock et al., 2000;
Katsaliaki and Brailsford, 2007). Before blood is transfused to a patient, the blood unit
is cross matched against a sample of the patient’s blood to ensure compatibility of the
blood unit with the patient. The main difference between conventional perishable
inventory management and blood inventory management is the assigned and
unassigned inventory (Nahmias, 1982). Assigned units are crossmatched units which
are reserved for a patient for a given timeframe, normally 24-72 h (Pierskalla, 2005).
The blood units in the assigned inventory are not available for other patients, whereas
the remaining blood units are characterised as unassigned inventory and are available
for all other patients (Jennings, 1973). Even though there is research on synthetic blood
(Chang, 1999) the supply with blood fully depends on human donors (Pierskalla, 2005).
The traditional way of sourcing blood for hospitals is placing orders through the
transfusion laboratory. This paper seeks to appraise if vendor managed inventory
could be implemented as an alternative sourcing strategy for blood components in
 SO hospitals. As blood products are perishable commodities however due to their special
6,1 characteristics general supply chain optimisation strategies such as just-in-time must
be critical assessed before implementation (de Vries, 2011; Chapman et al., 2004).

Vendor managed inventory

Managing the order-delivery process is one of the most challenging tasks in supply
28 chains. In a traditional supply chain the customer places an order of products required.
In this paper, the term customer refers to the entity in the supply chain which sources
products or commodities from a supplier upstream the supply chain. The term supplier
refers to the entity fulfilling the orders and delivering the products/commodities to the
customer. The task of the supplier is therefore to execute this order as precisely as
possible and the challenge of this process is to ensure an efficient and reliable supply in
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order to meet customers’ demand (Kaipia et al., 2002).

Due to this, inventories are held to avoid shortages while at the same time
organisations seek to keep inventory levels low to avoid unnecessary costs. Normally
the supplier does not have access to information about true demand and depends on
the orders placed by the customers forcing the supplier to rely on forecasts rather than
on true demand. The Forrester effect or bullwhip effect is a common consequence of
this lack of information (Lee et al., 1997, 2004; Forrester, 1958).
A solution for this problem is Vendor Managed Inventory (VMI), which in contrast
to traditional supply chain strategies, increases the service level for the customers and
at the same time allows a reduction of inventory levels and hence inventory costs
(Waller et al., 1999). VMI has become very popular due to successful implementations
in various industries such as the grocery sector by Wal-Mart and Procter & Gamble
(Disney and Towill, 2003), the pharmaceutical industry by Glaxosmithkline (Sari,
2007), in the food and nutrition industry by Nestle as a supplier for Tesco (Watson,
2005) and by Coca-Cola and SIG in the beverage industry (Locker and Kreisel, 2010).
VMI is also known as consignment inventory and is an inventory and supply chain
management tool in which the supplier is given both the responsibility and authority to
manage the entire replenishment process (Dong and Xu, 2002). Based on the demand
information exchanged by the customer, decisions about order quantities and timing of
inventory replenishment are made (Southard and Swenseth, 2008). Instead of requiring
faster and more accurate deliveries, the customer sets targets for the availability of the
product and provides the supplier access to inventory and demand information (Kaipia
et al., 2002). This allows more frequent and accurate reviews of the inventories
avoiding delayed information flows and enabling a better resource utilisation for
planning, production, inventory management and transportation and the reduction of
high safety stocks (Waller et al., 1999).
An important difference from other approaches such as just in time ( JIT) is that
VMI does not require more frequent deliveries but more frequent inventory reviews,
which has caused delivery problems and stock-out-situations for suppliers using JIT
(Chapman et al., 2004; Kaipia et al., 2002). In the blood supply chain high service levels
are crucial, as stock outs could ultimately lead to patient’s death in a worst case
scenario.
This paper draws back on a paper by Dorling et al. (2006) which analysed
determinants of successful vendor managed inventory relationships in oligopoly
industries. Based on action research in the New Zealand food industry the author
 developed a step-wise framework for practitioners when establishing VMI and VMI in blood
strategic supply chain relationships in the food industry. This is the only paper which supply chain in
seeks to summarise the wide body of VMI and supply chain literature into one
framework for practitioners. The model provides seven steps for successful VMI Germany
implementation:
(1) Understanding the industry structure.
(2) Assessing rivalry between organizations.
29
(3) Determination of power of buyers.
(4) Evaluation of industry profitability.
(5) Development of long-term relationships.
(6) Investment in technology.
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(7) Investment in supply chain best practices.

The model by Dorling et al. (2006) has a strong focus on the special characteristics of
the New Zealand Food Industry and its oligopoly structure which becomes evident in
the seven steps. The framework does not provide a generic view on VMI and the
authors call for the development of a generic model which is applicable to other
industries and countries. The model assumes the acceptance of VMI by the focal
companies. There is evidence that VMI has to be accepted by both the supplier and the
customer and generate mutual benefits otherwise the implementation is deemed to fail
(Dong and Xu, 2002; Waller et al., 1999). This paper therefore seeks to draw back on the
previously-mentioned framework and create a generic framework for the appraisal of
VMI. The proposed model seeks to be as generic as possible in order to be applicable to
other industries, hence the first four steps provided by Dorling et al. (2006) will be
removed, as these are industry specific characteristics. The framework will be divided
in two steps: the ability to implement VMI from a technical and organizational
perspective and the willingness to implement VMI. Therefore it will be reviewed
whether both supplier and customer are able to implement VMI before further steps are
reviewed. The following paragraphs will review the available VMI literature looking at
requirements and eventual benefits and merge the findings into one generic VMI
framework.

Requirements for implementation

VMI is based on a strong partnership between buyer and supplier. The supplier is
responsible for all replenishment decisions and controls the inventory at the buyers’
site. In traditional supply chains information sharing is of less importance and the
relationship is purely based on fulfilling orders. In a VMI enabled supply chain
however, the vendor has access to all information needed about the customers’
inventory to be able to manage the replenishment process (Razmi et al., 2009). To make
this relationship work the buyer has to be willing and able to source particular
products or a suitable product range from one single supplier (Kraiselburd et al., 2004;
Razmi et al., 2009) leading to a kind of locked-in situation for the customer which
makes it difficult to and expensive to change the supplier (Williams, 2000). To analyses
the ability to source the particular products from single suppliers is the first step in the
framework.
 SO Another important issue is the special relationship between partners. Several
6,1 authors determined mutual trust among organisations as one of the most crucial
requirements for a successful and beneficial VMI implementation. Waller et al. (1999)
evaluated the effect of VMI on supply chains using a simulation model and defined
trust and effective teamwork between partners as the critical requirement which is
confirmed by various authors (Kim, 2005; Vergin and Barr, 1999; Claassen et al., 2008;
30 Petersen et al., 2005; Sari, 2007). Kaipia et al. (2002) stated that lack of trust between
trading partners could be an obstacle due to the unwillingness of customers to share
information required for an accurate replenishment process. Dorling et al. (2006)
identified a long term relationship between buyer and supplier including deep
integration of the approach in culture and processes of the organisation as one key
success factor. Combining these findings leads to a verification of mutual trust between
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the two focal companies as the second step in the model.

In order to enable the supplier to manage this flow, access to various information and
data must be made available by the buyer (Claassen et al., 2008). Implementing VMI
completely reorganizes the sourcing and inventory process and the responsibility is
transferred to the supplier which cannot work properly without information sharing.
Research showed a link between the quality of information exchanged between the
organisations and the delivery performance (Petersen et al., 2005). To be able to forecast
the quantity of products, which have to be delivered, and to manage the replenishment
process the supplier has to receive inventory information from the buyer. Further buyers’
activities which could lead to changes in demand or stock levels need to me monitored as
well (Claassen et al., 2008). Wal-Mart shared their entire inventory data and even stated
that Procter & Gamble knew more about their inventories and distribution processes
than its own managers (Vergin and Barr, 1999). Information sharing is essential and a
continuous information flow has to be guaranteed to enable the supplier to make realistic
order proposals and organize a reliable replenishment process (Toni and Zamolo, 2005;
Kaipia et al., 2002; Holmström, 1998; Kim, 2005).
Many authors examined the importance of information sharing and further
evaluated to what exact information has to be shared. Information related to inventory
data (consumed items and product related information), inventory levels, safety stock
levels, reorder point information and information on promotional activities has to be
transferred continuously (Kim, 2005; Holmström, 1998; Claassen et al., 2008; Toni and
Zamolo, 2005; Vigtil, 2007; Angulo et al., 2004; Tyan and Wee, 2003). This obviously
requires a reliable IT infrastructure to enable information sharing which is also widely
confirmed in the literature (Vigtil, 2007; Toni and Zamolo, 2005; Holmström, 1998; Kim,
2005; Cetinkaya and Lee, 2000; Yao et al., 2007; Lee et al., 2000; Vergin and Barr, 1999;
Claassen et al., 2008; Waller et al., 1999). Step 3 is therefore to analyse the ability of the
customer to provide order and inventory related data. This is consequently followed by
step 4 to analyse the customers IT infrastructure and evaluate the ability to implement
VMI from an IT perspective. Table I provides a summary from the literature regarding
the information that has to be shared by the customer.
In case of a negative result from the first stage of the appraisal, it should be
evaluated if the four requirements can be met in alternative ways, e.g. by upgrading
the IT system, or the development of the necessary components for the existing IT
infrastructure.
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Information that has to be shared by the Information sharing

customer Authors Continuity

Inventory levels Incoming orders (Vigtil, 2007) (Holmström, 1998; Kim, 2005; Claassen et al., Data has to be transmitted
Stock withdraws (Vigtil, 2007) 2008; Toni and Zamolo, 2005; Vigtil, 2007; continuously
Sales data (POS) (Vigtil, 2007) Angulo et al., 2004)
Production schedule (Vigtil, 2007)
Free stock (Holmström, 1998)
Cumulative goods receipt (Holmström, 1998)
Safety stock levels/reorder point (Holmström, 1998; Kim, 2005) Data has to be available; no need to
Minimum replenishment batch (Holmström, 1998) exchange it continuously
Sales/demand forecast (Toni and Zamolo, 2005; Claassen et al., 2008; Vigtil, 2007; Angulo Data has to be transmitted
et al., 2004) continuously
Promotional activities (Claassen et al., 2008; Toni and Zamolo, 2005)
Downstream orders and demand (Toni and Zamolo, 2005)
Germany
VMI in blood

shared by the customer

Information needed to be
31

Table I.
supply chain in
 SO Once the ability to implement VMI from a technical and organisational perspective has
6,1 been ensured the next step is to evaluate the willingness. Therefore the benefits and
risks of VMI will be briefly discussed in the next paragraphs.

Benefits and risks of VMI in the blood supply chain

For VMI to be implemented successfully and getting accepted clear benefits for both
32 parties have to be gained from the relationship (Dong and Xu, 2002; Waller et al., 1999),
hence this section will review the literature looking at benefits and risks for the
supplier and for the customer and set the theoretical background for the development
of further steps in the VMI framework. The section will also briefly discuss eventual
benefits and risks for the blood supply chain in preparation for the case studies.
It has been identified in the literature that the benefits between the buyer and
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supplier are unequally distributed with customers gaining more benefits from VMI
(Vergin and Barr, 1999; Razmi et al., 2009). The benefits for the supplier are more
controversial and the supplier may need a longer period of adjustment and
reconfiguration before achieving profits, while benefits for customers are evident in
practice (Dong and Xu, 2002).
VMI leads to strong, trustful, long term partnerships between the supplier and the
customer. Hence the supplier benefits from more loyal customers and thus secured
future sales (Claassen et al., 2008; Williams, 2000). Some authors even refer to increased
sales for the suppliers due to VMI implementation (Vergin and Barr, 1999; Toni and
Zamolo, 2005). Once VMI is implemented and established it becomes an integrated
process at the customers’ side, which results in improved customer retention (Williams,
2000). By receiving up-to-date true demand information directly by the customer the
supplier can improve the reactions to demand and coordinate replenishment processes
across several customers to improve transport utilisation (Waller et al., 1999; Toni and
Zamolo, 2005; Williams, 2000). Regular and frequent information about customers’ true
demand allows the suppliers to exploit this increased visibility of the supply chain to
enhance capacity and production planning (Dong and Xu, 2002; Claassen et al., 2008).
Regular monitoring of customer’s inventories and downstream demand reduces
uncertainty in demand and improves forecast accuracy or even make short term
forecasts obsolete allowing a reduction in safety stocks and hence reduce overall
inventories and the related inventory costs (Claassen et al., 2008; Williams, 2000). In the
blood supply chain, a VMI implementation could lead to improved planning and
forecasting at the blood services’ side due to access to accurate demand information.
This could lead to further benefits and improvements through better transport and
delivery planning as well as capacity planning.
On the customers’ side also benefits are apparent. As a consequence of the supplier
becoming responsible for managing the inventory on the customer’s site, the customer
can benefit from reduced administrative overhead. As the supplier takes responsibility
for forecasting and automatically fulfills orders based on true demand, inventory
planning on customers’ side becomes obsolete (Kumar and Kumar, 2003; Claassen et al.,
2008). Reduced administrative overhead and ordering costs allow more frequent
shipments and lower cycle stocks, which may result in inventory reductions and hence
lower inventory costs (Vergin and Barr, 1999; Toni and Zamolo, 2005; Kim, 2005; Tyan
and Wee, 2003; Sari, 2007). Another important benefit for the customer, identified by
many authors, is increased service levels due to a continuous stock monitoring (Kumar
 and Kumar, 2003; Toni and Zamolo, 2005; Vergin and Barr, 1999; Tyan and Wee, 2003; VMI in blood
Angulo et al., 2004) while decreasing the number of emergency orders (Claassen et al., supply chain in
2008). Due to the high level of collaboration between both VMI partners lead times can
be reduced as well, which leads to higher availability of products for the customer and Germany
an increased flexibility in case of variable demand (Claassen et al., 2008; Angulo et al.,
2004; Disney and Towill, 2003). Hospitals could benefit from reduced overhead and
better service levels by the blood service. Improved service levels would allow the 33
hospitals to reduce their safety stocks and hence reduce the risks of outdating. With
outsourcing the ordering process, transfusion laboratory managers can focus on their
core competence in the laboratories and hence improve the efficiency of the
laboratories.
The potential benefits gained from VMI are summarised in Table II.
The following three steps are therefore derived to be included in the framework.
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There are discussion about responsibilities of inventories in the extant supply chain
literature (Lee and Chu, 2005), also from a resource dependence theory perspective
(RDT) it can be argued that organisations seek to maintain independence from their

Benefits References

Benefits for the supplier

Improved customer retention due to long term relationships based on trust Claassen et al. (2008)
Williams (2000)
Increased sales due to reduced costs and more competitive prices Vergin and Barr (1999)
Toni and Zamolo (2005)
Improved customer service due to visibility in the supply chain Williams (2000)
Waller et al. (1999)
Improved production planning due visibility in the supply chain Dong and Xu (2002)
Claassen et al. (2008)
Reduced inventory levels and reduced inventory costs due to increased Claassen et al. (2008)
visibility Williams (2000)
Reduced transportation costs due to enhanced planning processes and
availability of information Waller et al. (1999)
Reduced demand uncertainty/reliance on forecasting due to access to Claassen et al. (2008)
real time information at customers Williams (2000)
Benefits for the customer
Reduced administrative and order costs Kumar and Kumar (2003)
Claassen et al. (2008)
Reduced inventory levels and inventory costs Sari (2007)
Vergin and Barr (1999)
Toni and Zamolo (2005)
Tyan and Wee (2003)
Increased service levels/less stock outs Sari (2007)
Vergin and Barr (1999)
Toni and Zamolo (2005)
Tyan and Wee (2003)
Less emergency orders Claassen et al. (2008)
More competitive prices due to reduced costs Toni and Zamolo (2005) Table II.
Reduced lead times and increased flexibility in case of variable demand Claassen et al. (2008) Potential benefits from
Angulo et al. (2004) VMI derived from
Disney and Towill (2003) literature
 SO supplies to avoid exploitation and locked-in situation (Pfeffer and Salancik, 1978;
6,1 Williams, 2000), step 5 is therefore to assess the customers’ acceptance of a VMI policy
of the supplier as decision maker on inventories. As already mentioned and discussed
in detail for steps 3 and 4, the customer has to be able to share order and inventory
related data. However not only the ability is important; this information contains
sensitive and confidential data (Angulo et al., 2004), therefore also the willingness to
34 share this sensitive data needs to be ensured. Again arguing from an RDT perspective,
customers may hesitate sharing their point-of-sales data with their supplier,
consequently, step 6 in the VMI framework is to evaluate the willingness of the
customer to provide and share order and inventory relevant data with the supplier.
As mentioned previously, both the customer and the supplier have to benefit from
the VMI relationship (Dong and Xu, 2002; Waller et al., 1999), therefore the last step in
the framework is to evaluate the benefits from the VMI relationship. Table II provides
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an overview of the proposed benefits derived from the literature and helps practitioners
to identify and evaluate potential benefits from the relationship.

Generic VMI appraisal model

This paragraph summarises the findings from the literature as discussed previously
and provides an overview of the seven steps. Table III summarises the requirements
for a successful VMI implementation from the literature review, followed by the seven
step VMI framework.
Based on the findings from the literature, the generic VMI framework has two
stages. In a first stage, the ability to setup a VMI relationship is explored before in a
second stage the willingness to implement VMI is evaluated. This leads to the
following seven-step model to evaluate the implementation of VMI depicted in Figure 2.
The empirical data collected through the 13 case studies are analysed using the
proposed framework.
The framework derived from literature provides a comprehensive view on VMI. It
provides a tool for practitioners helping to follow a structured approach for
outsourcing decisions, especially for the implementation of VMI. The next paragraphs
show an example from the German blood supply chain, where the framework has been
used to analyse the feasibility of a VMI implementation between hospitals and the
blood suppliers.

Methodology
The objective of this exploratory research is to evaluate if the concept of VMI can be
applied in the blood supply chain and to identify eventual benefits gained from its
application. The methodological approach used in this study is the inductive case
study, as this allows enough flexibility for adjustments during the research. The case
study methodology is suitable for exploration of complex processes (Yin, 2009;
Eisenhardt, 1989) such as the implementation of VMI in a special environment. This
methodology has been applied in this journal for other complex research questions
regarding outsourcing considerations with good success (Sinha et al., 2011;
Dobrzykowski et al., 2010; Lau, 2011; Timlon, 2011). Case studies are suitable for
exploring issues that are too complex for empirical surveys or experimental research
(Yin, 2009) and qualitative approaches are suitable for immature fields of research
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Determined requirements Literature reviewed Research method Industries considered

The customer sources or is willing to (Kraiselburd et al., 2004) (Ziaee et al., Mathematical modeling
source from one supplier so that the 2011) (Razmi et al., 2009)
responsibility to manage the customer’s (Williams, 2000) Literature review
inventory can be transferred to the (Locker and Kreisel, 2010) Case study Beverage industry
supplier
Partnership of mutual trust among (Waller et al., 1999) Simulation techniques
organizations (Kaipia et al., 2002) Mathematical modeling applied on
case studies
(Dorling et al., 2006) Theory based modeling
(Sari, 2007) Computer simulation
(Kim, 2005) (Vergin and Barr, 1999) Case studies Health care
(Claassen et al., 2008) (Petersen et al., Grocery
2005) Retail, chemicals, metalwork
Cross industries
Information sharing (Kaipia et al., 2002) Mathematical modeling applied on
case studies
(Kim, 2005) (Vergin and Barr, 1999) Case studies Health care
(Claassen et al., 2008) (Petersen et al., Grocery
2005) (Toni and Zamolo, 2005) Retail, chemicals, metalwork
(Holmström, 1998) Cross industries
Grocery
Household electrical
Grocery
Ability to share order relevant (Angulo et al., 2004) Computer simulation
inventory data (Kim, 2005) (Claassen et al., 2008) (Toni Case studies Health care
and Zamolo, 2005) (Holmström, 1998) Retail, chemicals, metalwork
(Vigtil, 2007) Household electrical
Grocery
Machining, water,
automotive
(continued)
Germany
VMI in blood

literature
VMI requirements in the
Table III.
35
supply chain in
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6,1
SO

36

Table III.
Determined requirements Literature reviewed Research method Industries considered

IT systems have to allow (Waller et al., 1999) Simulation techniques

implementation of VMI (Cetinkaya and Lee, 2000) (Yao et al., Mathematical modeling
2007) (Lee et al., 2000)
(Kim, 2005) (Vergin and Barr, 1999) Case studies Health care
(Claassen et al., 2008) (Toni and Zamolo, Grocery
2005) (Holmström, 1998) (Vigtil, 2007) Retail, chemicals, metalwork
(Tyan and Wee, 2003) Grocery
Household electrical
Grocery
Machining, water,
automotive
Grocery
(Sari, 2007) Computer simulation
(Lee and Chu, 2005) (Lee et al., 2000) Mathematical modeling
Clear benefits of the relationship have (Waller et al., 1999) Simulation techniques
to exist
(Dong and Xu, 2002) Mathematical modeling
 VMI in blood
supply chain in
Germany

37
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Figure 2.

(Edmondson and McManus, 2007) such as the VMI implementation in the blood supply
chain.

Case selection
In order to answer RQ1 and RQ2, transfusion laboratories in German hospitals have
been selected as the unit of analysis. Transfusion laboratories are in charge of
managing the supply of blood for a hospital and are the link between the external
suppliers (blood service) and the internal customers (medical and surgical
departments). The transfusion laboratory is the stage in the blood supply chain
where VMI could be implemented as it is the interface between supplier and end
customer. The transfusion laboratory manager is in charge of all inventory and
replenishment processes and was therefore selected for interview.
In order to ensure the rigour and validity of the cases it was ensured that hospitals
from all parts of Germany as well as hospitals of different sizes were included into the
sample. There is evidence, that hospital size has an effect on efficiency (Watcharasriroj
and Tang, 2004; Eakin, 1991; Hsing and Bond, 1995; Polyzos, 2002), therefore hospitals
from 70 up to 2,000 beds have been included into the case studies in order to prevent
biased results. It was also ensured that hospitals are from different geographic areas in
order to prevent biased data based on geographic differences. In total 13 hospitals have
been selected for the case studies. Eisenhardt (1989) suggests limiting the number of
cases to a maximum of seven, whereas Yin (2009) does not provide a rigid number of
cases, but suggests collecting data until saturation. There is no uniform and clear trend
in recently published case studies regarding the correct sample size (Sinha et al., 2011;
Dobrzykowski et al., 2010; Lau, 2011; Timlon, 2011). Therefore a hybrid approach was
 SO followed combing Yin’s and Eisenhardt’s suggestions continuously reviewing
6,1 saturation during the field phase. As the cases have been analysed and reviewed
continuously and iteratively during the field phase of this study, saturation was
defined as the point to which an additional case did not make any new contribution to
answering the research questions. After ten cases saturation was evident, however to
ensure rigour, data for three additional cases was collected and reviewed. Further
38 details about the hospitals based on secondary data (BertelsmannStiftung, 2011) can be
found in the Appendix (see Table AI).

Data collection
In order to derive valid conclusions from the cases, multiple sources of data have been
accessed. Interviews with transfusion laboratory managers and hospitals staff, annual
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reports, newspaper articles, web sites and various other secondary data has been
accessed to ensure validity and rigour by triangulating the data (Yin, 2009; Eisenhardt,
1989).
Semi-structured interviews have been used, as they allow flexibility regarding the
direction of the questions and do not exclude important areas by restricting or
predefining possible answers (Thietart, 2001). A structured interview approach based
rigidly on a standardised questionnaire was not considered suitable due to the complex
and widely varying nature of the subject as important topics may have been neglected
(Thietart, 2001; Wilson, 1996). The interview guidelines have been tested with Red
Cross staff and transfusion staff in a local hospital to ensure, that logistics and
transfusion terminology was applied correctly to prevent misinterpretation of
questions. Interviews were conducted face-to-face and via telephone and not via e-mail
to allow the required interaction with the interviewee.

Case coding and analysis

During the data collection process, the interviews were transcribed and summarised.
Before using the information from the interviews, the transcripts and summaries were
sent back to the interviewees for their final approval. This ensured that the interviews
were interpreted correctly and no special transfusion and supply chain terminology
was misunderstood. The collected data, documents and transcripts have been stored in
the case database and have been analysed individually for each case. The multiple
sources of data collection ensure triangulation. Within case analysis is a process of
data reduction and every case has been summarised to identify key findings. This was
undertaken by clustering the material from all sources into different categories. This
was done for each case. The questions and subheadings from the interview protocol
were used as a starting point in building categories. The data has then been clustered
using the proposed VMI framework. The interview transcripts, information from site
visits and archival data were then clustered into these categories. A detailed
description and display of the results from all 13 case studies was seen as impractical
due to the large amount of data involved. Table IV provides an overview of the results
based on the VMI framework:
During the next step, cross-case analysis, data were reduced further in order to
derive commonalities and differences between the 13 individual case studies and to
display the data in a meaningful format (Yin, 2009). Therefore, the VMI framework has
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Ability Willingness
Step 5: Acceptance
Step 4: IT system of the VMI policy of Step 6: Willingness Step 7:
Step 1: Ability to Step 2: Mutual trust Step 3: Ability to allows the the supplier as to provide order Expected
source from one between hospital provide order implementation of decision maker on relevant inventory benefits of
Hospital supplier and supplier relevant data VMI inventories data VMI

A U
B U
C U
D U
E U
F U
G U
H U
I U
J U
K U
L U
M U
U U
U U
U U
U U
U U
U U
U U
U U
U U
U U
U U
U U
U U
U – – –
U – U –
U U U U
U – – –
U – – –
U U U U
U – U U
U – – –
U – – –
U – – –
U – U U
U – – –
– Not researched further due to lack of IT systems
Germany
VMI in blood

Results from within case

framework
analysis based on VMI
39

Table IV.
supply chain in
 SO been used to cluster the data from each case into one dataset. Similar expressions,
6,1 comments and findings have been grouped accordingly.

Results and discussion

The main result of the case studies was that none of the hospitals applied VMI for the
replenishment of blood. All hospitals source their blood using traditional approaches.
40 Depending on the size of the hospitals, orders are placed at fixed ordering days from
two times per weeks to multiple orders per day. The delivery lead time varies between
five and 250 minutes depending on the proximity to the blood service. The generic
inventory management process is similar in all hospitals and shows no deviation from
the process described in the literature review section even though the literature is
mainly focused on the UK and US blood supply chain (Jennings, 1973; Cohen and
Pierskalla, 1979; Pierskalla, 2005; Chapman, 2007; Chapman et al., 2004; Perera et al.,
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2009).
The detailed results from the case studies are divided in two parts according the
framework: the ability to implement VMI and the willingness to implement such a
strategy.

Ability to implement VMI

In this first step of the analysis, the requirements for VMI implementation derived from
the literature have been compared with the case study data. The case studies show that
all hospitals are able to source their blood from one single supplier. Apart from hospital
B, all 12 remaining hospitals already do so. The ability to collect and share information
along the supply chain was evaluated as well. It was found that all hospitals run IT
systems that track blood units and stock levels within the hospital. Delivery
information from the suppliers (e.g. blood groups, shelf life, etc.) is already transmitted
digitally through a diskette which is enclosed with the delivery. Every incoming
order/delivery and stock withdrawal is tracked by the IT system and therefore stock
levels are transparent at any time. Internal orders, transfusions and discarded blood
units are also captured in the IT systems. Only two hospitals (D&K) have information
about planned surgeries in their IT system which is used for forecasting purposes.
However not only the data itself has to be available, also the IT system has to allow
sharing of information with the supplier. Out of 13 hospitals 12 use state of the art IT
systems which would allow linking their IT systems with the supplier in order to share
the required data with the supplier in an interpretable format. Hospital M’s IT system
does not allow the implementation of information sharing with the supplier; hence
steps 5-7 have not been followed up for hospital M. To conclude, hospitals are able to
implement VMI in the blood supply chain. The technical and organisational
requirements are met by the majority of the hospitals. The next section discusses the
willingness to implement VMI.

Willingness to implement VMI

In order to implement a VMI system, all parties need to be confident with this approach
and be willing to implement such a system. The transfusion laboratory managers have
been asked about their general position regarding VMI. Nine out of the 13 hospitals are
generally refusing a VMI approach for the blood supply where only four hospitals
(C,F,G,K) did not express a strong negative attitude towards VMI. Seven hospitals
 stated that they do not believe that the supplier is capable managing inventories in the VMI in blood
hospitals. It was stated that processes in the hospitals are too complex and cannot be supply chain in
understood by an external organisation due to a lack of knowledge and experience of
internal interrelated processes. It was clearly stated by all hospitals, that blood Germany
inventories can only be managed internally and not from an external third party. The
processes are too complex and an on-site stock manager cannot be replaced by a
transparent IT system linked to the supplier. The processes require quick and accurate 41
decisions based on information other than just stock levels. Out of the 13 hospitals for
example ten critically examine internal orders from doctors to ensure, that blood is
really required and that ideally only true demand is satisfied within the hospital
preventing blood units being transferred into the assigned inventory where they
cannot be allocated to other patients in the meantime. Also in case of emergencies,
hospitals have special procedures how to prioritise the use of blood and how to re-order
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blood components in such special occasions. This critical process in case of

emergencies was mentioned by the majority of interviewees as being too complex and
critical which cannot be outsourced to the supplier. Hospitals are convinced that the
supplier does not have the capability of making the right decisions in such cases.
Inventory processes in the blood supply chain require experience which cannot be
transferred to a supplier through “simple data exchange”. The majority of hospitals
fear increased wastage and/or stock outs, when inventory management is outsourced
to the supplier. Therefore the ten hospitals do not accept the supplier as a decision
maker in inventory management processes; only hospitals C and F would accept the
blood supplier as decision maker for inventory management processes. The hospitals
see another risk in the VMI implementation. Signing an agreement for outsourcing
inventory management and control processes increases the dependence on the
supplier. Hospitals cannot switch the supplier in case of problems in an easy way as
they can do now. This denial of such dependence can be explained with RDT where
organisations seek to maintain independence and only accept dependence when there
is only one supplier (Pfeffer and Salancik, 1978). This is a weakness of the available
literature targeting VMI. There is no distinction between critical and non-critical
resources. Blood is seen as a critical resource in the hospitals and therefore no hospital
was willing to outsource the decision and control processes for this critical resource.
The following proposition can be derived:
P1. Customers are not accepting a Vendor Management Inventory approach for
sourcing critical resources.
Another critical point is the sharing of data. The relevant data are closely linked to
patient details and hence the protection of privacy is crucial. Examples for sensitive
data that has to be shared include planned surgeries and completed transfusions in
order to allow the supplier planning the inventories. Therefore seven hospitals argued
that such data cannot be shared with the supplier without anonymization and manual
clearance of data. Automatic sharing is not reconcilable with the duty of a medical
professional. Legal and professional issues and the risk of violating privacy and data
safety outweigh the benefits gained through VMI. This leads to the following
proposition:
P2. Sharing data with third parties in the blood/health care supply chain is an
obstacle due to sensitive patient data.
 SO The hospitals have reduced wastage levels to what they call “acceptable” levels and
6,1 cannot see an advantage in further reduced inventory levels. Only four hospitals
(C,F,G,K) see potential benefits in a VMI relationship with the blood supplier. Other
than expected from the literature, the majority of hospitals does not see benefits from
VMI through, e.g. reduced administrative overhead or reduced inventory levels, they
fear a poor performance by the supplier resulting in lower service levels which would
42 result in increased costs and poor performance. The service level and hence availability
is crucial in the blood supply chain, as a stock out can lead to a patient’s death in the
worst case and is not reconcilable with the profession of a medic. The hospitals claim
that the processes related to management of blood inventories are too complex and
outsourcing of these decisions would not increase the performance of the inventories.
Based on this, the following proposition is derived:
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P3. Inventory management processes are too complex in the blood supply chain –
the potential benefits of VMI (lower inventory levels and increased service
levels) are not achievable.

Conclusion and implications

This paper aimed at answering two research questions and therefore reviewed the VMI
and extant supply chain literature and analysed empirical data from 13 case studies.
The paper follows up a call by Dorling et al. (2006) and contributes a generic
framework to assess the ability and willingness to implement VMI in a classic dyad.
Applying this framework on 13 case studies in the German blood supply chain, the
paper secondly contributes three propositions concerning VMI as an alternative
sourcing strategy in the blood/healthcare supply chain. Hospitals are able to
implement VMI from an organisational and technical perspective; however,
transfusion laboratory managers hesitate to implement VMI for a critical resource,
such as blood. The analysis of the 13 case studies shows, that hospitals do not see the
benefits from VMI that are prevalent in the extant literature, they are on the contrary
sceptical about improved service levels and reduced inventory levels, hence refuse a
VMI implementation.

Managerial implications
The research shows that lack of trust and the risk of a locked-in situation with the
supplier prevents hospitals to set up VMI as an alternative strategy for sourcing blood
from their suppliers. Transfusion laboratory managers see a lack of competence of the
blood service in understanding the dynamics and the detailed processes within
hospitals. A generic framework for assessing the applicability of VMI was developed
from the literature. Managers can apply this framework in the evaluation process of
strategic outsourcing decisions in any industry. The framework provides insights in
critical factors that have to be considered in a VMI supply chain and provides
guidelines in seven steps how outsourcing decisions can be evaluated in a structured
approach. The paper also found that not only the technical and organisational
requirements for the implementation of VMI have to be considered. The paper showed
that the willingness of the customer to employ a VMI approach is critical as well.
Secondly the paper proposes that a VMI approach is not applicable for sourcing critical
resources. Managers in charge of these resources refuse to outsource the decision
making and control processes to a third party for such critical resource like, e.g. blood.
 Theoretical implications VMI in blood
The research showed that a VMI implementation in the blood supply chain is difficult. supply chain in
The emphatic denial of a VMI implementation can be explained drawing back on
resource dependence theory. Blood is a scarce resource and only few suppliers are Germany
available. In line with RDT, hospitals do not want to become dependent on other
parties. Hospitals seek to maintain their independence and safeguard control over
inventory processes and decisions for critical resources such as blood. There are 43
however limitations in this study. The unit of analysis was hospital blood banks and
suppliers have not been considered in this study. Hence further research should aim at
the suppliers of blood and evaluate how a VMI approach and/or other supply chain
techniques could be implemented from this side of the chain. The paper analysed and
discussed 13 case studies with hospitals in Germany and contributes three
propositions. These propositions should be empirically tested and verified using a
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larger sample and by targeting other industries and countries. As the German blood
market is not of a monopolistic character, the applicability of the VMI concept should
be tested in other countries, where a monopolistic market for blood components
prevails. The fear of dependence on one single supplier should be taken out of the
equation in such a market and hence VMI could eventually be implemented in
countries with a monopolistic blood supply structure.

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 Appendix VMI in blood
supply chain in
No. of Cases fully Transfusions Germany
Hospital’s beds inpatient Surgery (per cent of all Hospital
name (up to) (max.) ward cases) Service level operator

A 2,000 85,000 U 8.21 Maximum care Public 47

B 1,500 48,000 U N/A Maximum care Public
C 1,000 37,000 U 7.37 Maximum care Private
D 1,000 40,000 U 4.99 Maximum care Public
E 1,000 36,000 U 5.78 Specialised care Public
F 700 32,000 U 5.11 Specialised care Public
G 600 25,000 U 4.47 Specialised care Non-profit
H 550 22,000 U 6.09 Specialised care Public
Downloaded by RMIT University Library At 09:26 03 December 2017 (PT)

I 500 18,000 U 7.59 Basic and regular care Non-profit

J 350 17,000 U 8.47 Basic and regular care Non-profit
K 300 12,000 U 3.32 Regular care Public
L 200 6,000 U 3.31 Basic and regular care Non-profit
M 70 2,000 U N/A Basic care Private
Table AI.
Source: BertelsmannStiftung Hospital details

About the author

Sebastian H.W. Stanger is a doctoral candidate at the Chair of Supply Chain Management at
University of Erlangen-Nuremberg and visiting research student at Cranfield School of
Management, UK. He earned an MSc in Logistics and Supply Chain Management at Cranfield
School of Management, UK and an undergraduate degree in Business Administration and
Logistics at Heilbronn University, Germany. His research interests include blood inventory
management, supply chain management and perishable inventory theory. Sebastian H.W.
Stanger can be contacted at: sebastian@stangermail.de

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