Doctoral paper

Healthcare supply chain management in

Malaysia: a case study
Noorfa Haszlinna Mustaffa and Andrew Potter
Logistic System Dynamic Group, Cardiff Business School, Cardiff University, Cardiff, UK

Abstract
Purpose – The purpose of this paper is to evaluate inventory management in the private healthcare sector in Malaysia, with a particular focus on the
distribution of medicines from a wholesaler to clinics. Currently, there are issues with service levels to clinics that need addressing.
Design/methodology/approach – The paper adopts a case study approach, with data collected through process mapping, interviews and data
analysis. Data flow diagrams are used to visualise the organization’s supply chain current and future process. Interviews are used to identify the main
supply chain issues, with triangulation of these opinions through data analysis.
Findings – The findings identify two main issues within the case study company – urgent orders and stock availability at the wholesaler. From this, a
future state design of the supply chain is proposed, based around vendor-managed inventory. Barriers to achieving this are also identified, including
consideration of current supply chain management capabilities in Malaysia.
Research limitations/implications – Only a single case study supply chain is studied, although two echelons are investigated. While this may limit
the generalisation of the findings, there is value in demonstrating the benefits modern supply chain management techniques can bring to developing
world healthcare supply chains.
Practical implications – The paper shows that modern supply chain management techniques can bring benefits to healthcare supply chains in
developing countries.
Originality/value – The value of the paper arises from providing a detailed analysis of a healthcare supply chain in the developing world. There have
been only a small number of other studies published in the literature.

Keywords Private hospitals, Distribution, Distribution and inventory management, Pharmaceuticals industry, Malaysia

Paper type Research paper

1. Introduction focussing on individual businesses. This paper aims to address

An increasingly challenging value chain environment is
putting pressure on healthcare organizations to look for
opportunities to improve operational efficiencies and reduce
costs while continuing to improve quality of care (Hanna and
Sethuraman, 2005). Supply chain management is more
complex in healthcare vis-à-vis other industries because of the
impact on people’s health requiring adequate and accurate
medical supply according to the patient’s needs (Beier, 1995).
Despite this, it is still perceived that there is significant scope
for improving the overall performance of the supply chain
(McKone-Sweet et al., 2005). A number of different supply
chain management techniques have been adopted in recent
years, but barriers to their widespread use continue to exist.
Many of these applications have occurred within the
developed world, with only a very limited range of examples
from the developing world available in the literature. Most
that do exist consider the sector as a whole, rather than
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-8546.htm
Supply Chain Management: An International Journal
14/3 (2009) 234– 243
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/13598540910954575]
this by presenting a case study healthcare company in
Malaysia, identifying issues within their business processes
and proposing a modern inventory control approach to
alleviate these.
This paper investigates a leading healthcare company in
Malaysia who owns both a wholesaler and a chain of medical
clinics. For confidentiality reasons, the company cannot be
named. The wholesaler comprises of an administration centre
and a single warehouse. This receives deliveries from a large
number of suppliers with products then despatched on to
clinics. Although these are scattered throughout Malaysia, we
focus on deliveries to the state where the warehouse is located,
as clinics in other states are serviced by post rather than
delivered by the company. The research particularly focuses
on the inventory management and replenishment/supply
chain process within the company, including the wholesaler
and the clinics. A major issue is the availability of medication
to patients, which impacts on the quality of care received by a
patient.
We will first review the literature on both healthcare supply
chain management and the current capabilities of Malaysian
companies. Next we outline the methodology used to collect
the case study data. These data are then presented and
analysed, to identify the main issues that affect the supply
chain today. Potential improvements are then detailed, and
wider implications in the context of Malaysia considered.

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 Healthcare supply chain management in Malaysia: a case study
Noorfa Haszlinna Mustaffa and Andrew Potter
2. SCM in the healthcare industry
Within the healthcare industry, the supply chain associated
with pharmaceutical products is critical in ensuring a high
standard of care for patients and providing adequate supplies
of medication for pharmacies. In terms of cost, it is estimated
that supply accounts for 25-30 percent of operational costs for
hospitals (Roark, 2005). Therefore, it is essential that this is
managed effectively to ensure both service and cost objectives
are met.
The typical structure for these supply chains can be found
in Figure 1. Primary manufacture involves the creation of the
active ingredient contained within the medication. Because of
the need to avoid contamination between products, there are
long downtimes in production to allow for cleaning, leading to
batch production (Shah, 2004). In effect, this represents mass
production. Secondary production sees the active ingredient
converted into useable products (such as tablets, capsules,
etc.) This can potentially lead to a significant expansion in the
number of product lines, especially once packaging is taken
into consideration. Altricher and Caillet (2004) suggest a
200:1 growth in products across this stage in the supply chain.
With increasing globalisation in the pharmaceutical industry,
the location of manufacturing plants is often influenced by
factors such as tax benefits (Papageorgiou et al., 2001).
Indeed, secondary manufacturing may be geographically
separated from primary manufacturing and serve local or
regional markets (Shah, 2004).
Turning to the distribution of finished products, there are a
number of different channels to the market. The dominant
intermediary (in terms of volume at least) is the wholesaler. In
the UK, approximately 80 per cent of volume flows through
this channel (Shah, 2004). Hospitals and retailers which have
large demand requirements receive shipments direct from the
manufacturers distribution centre. Equally, hospitals may
leverage economies of scale by consolidating their purchasing
power through, for example, Group Purchasing Organisations
(Roark, 2005). As will be discussed shortly, recent trends in
healthcare supply chain management have seen a move
towards pull based systems for the final part of the
distribution channel, effectively inserting a decoupling point
at the wholesaler, where a repository of stock is found
(Hoekstra and Romme, 1992).
Figure 1 Healthcare supply chain structure
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In terms of the characteristics of these supply chains, Shah
(2004) provides detailed information with regards to typical
performance levels. There are long lead times, with products
taking between 1,000 and 8,000 hours to pass through the
whole supply chain. Coupled with this, inventory levels
appear quite high with stock turns taking between one and
eight weeks. This is consistent with the findings of Haavik
(2000) who reported that, in 1994, stock turns in hospital
store rooms lasted four to five weeks. Another theme raised by
several authors is demand amplification (Shah, 2004, Corrêa,
2004). Given the number of intermediaries within the supply
chain, and the presence of batching within primary
manufacturing, this should perhaps be expected.
There has been a large amount of research carried out on all
elements in the healthcare supply chain (see Shah, 2004, for
an overview). This paper focuses upon the distribution
element, particularly from the wholesaler to the hospital,
where a number of issues exist:
.
Product life cycle. Once the active ingredient is patented, it
may take eight years to develop the product into
something that can be marketed (Papageorgiou et al.,
2001). Once the patent expires, alternative products may
enter the market, or companies may reduce the product
price (Lauer, 2004). New technology is shortening life
cycles (McKone-Sweet et al., 2005), creating new
pressures on the distribution channels.
.
Profit margins. Despite pharmaceutical products having a
high value per unit, operating margins are small in the
wholesaler sector particularly (Morton, 2003). One cause
of this is the control over pricing held by hospitals,
retailers and manufacturers (Lauer, 2004).
.
Forecasting. It is difficult to predict the exact demand for
medicines. One of the issues is the availability of accurate
data on consumption. However, the lack of standard
nomenclature for healthcare products, plus the
preferences of clinicians creates further uncertainties
(Lauer, 2004, McKone-Sweet et al., 2005).
.
Lack of supply chain education. Awareness of the concept of
supply chain management, particularly within hospitals, is
low (Lauer, 2004). Therefore, managers are not properly
equipped to control the supply of medication.
 Healthcare supply chain management in Malaysia: a case study
Noorfa Haszlinna Mustaffa and Andrew Potter
Given this context, a number of initiatives have been
undertaken over recent years with a view to reducing supply
chain costs and improving customer service. Initial
improvements have been based around implementing just-
in-time (JIT) approaches (Kowalski, 1986). Subsequently,
this has been developed further with the introduction of
stockless inventory systems (Wilson et al., 1992). The JIT and
stockless approach can reduce inventory holding costs in the
organization, while maintaining service levels (Lynch, 1991).
More recently, it has been suggested that the stockless system
should only be used for high volume products, with a more
traditional approach for low volume medical supplies (Rivard-
Royer et al., 2002). However, there is a requirement for
improved information and communication technology (ICT)
systems to support this, along with automated processing of
orders and suppliers (mainly wholesalers) close to the hospital
to enable rapid replenishment. Wilson et al. (1992) provide
three examples of the implementation of this type of inventory
control system within the healthcare industry in the USA.
Both JIT and stockless approaches represent “pull” type
inventory management systems.
More recently, other inventory control systems have started
to be introduced into healthcare supply chains. In particular,
there has been interest in vendor managed inventory (VMI).
Under VMI, the supplier assumes responsibility for the
management of inventory at the customer, and takes decisions
regarding replenishment (Waller et al., 1999). To some extent,
this builds on the information requirements of stockless
inventory systems. The main difference is moving
responsibility for stock control to the supplier, as the
ordering process remains automated. For VMI to work
successfully, there is a need for accurate information on
current stock levels and consumption. However, providing
such information within hospitals can be difficult (Haavik,
2000; McKone-Sweet et al., 2005). Nonetheless, examples of
VMI implementation do exist in the literature. In Kim
(2005), VMI has brought a number of benefits including less
administration at the hospital, fewer errors, improved
information reliability and a 30 per cent reduction in
inventory. By contrast, Altricher and Caillet (2004) found
that, because of a lack of trust in the supply chain, the hospital
kept over-ruling the VMI system, holding more stock and
eliminating any benefits that accrued.
Throughout the literature review, the focus has mainly been
on healthcare supply chains in the developed world. Only two
sources refer to developing countries – AT Kearney (2004)
studies Mexico while Corrêa (2004) investigates Brazil, both
at a healthcare sector level. Therefore, this paper contributes
to the literature through a detailed case study of a private
healthcare company within Malaysia.
3. Supply chain management in Malaysia
In terms of the application of supply chain management
across different industrial sectors in Malaysia, we now review
papers that specifically focus upon this country. The literature
particularly focuses on two industrial sectors:
1 Automotive. Veloso and Kumar (2002) report on global
trends in the automotive supply chain, and how the
development of the Asian automotive industry is relying
on the capabilities of local supply chains. Simpson et al.
(1998) explore in depth the just-in-time (JIT) activities,
the structure of buyer-supplier relationships and other
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factors that support and limit the implementation of JIT at
Proton Cars.
2 Electronics. Ernst (2004) reports that Malaysia’s electronic
industry is implementing value-chain-based
manufacturing and cluster-based development as
industrial upgrading strategy. Surveys also consider
current practice is supplier selection (Ndubisi et al.,
2005) and supplier performance management (Rosnah,
2004) within this sector.
Some elements of supply chain management in Malaysia
appear to be particularly well studied. The first of these is JIT.
Proton successfully adopted a transitory JIT approach
(Simpson et. al., 1998). However, they discovered that
Proton implements the JIT approach slightly differently with
regards to supplier contract duration, sourcing policy and the
factory stock level. It is still difficult to implement JIT fully in
Malaysia because of a lack of trust between buyers and
suppliers and other factors like traffic congestion. Rosnah
(2004) shows that the level of JIT practice for inventory
management within companies in Malaysia is quite low
compare to the implementation of other material policies
which reduce inventory levels and increase delivery frequency.
However, there are moves towards its implementation in the
agri-food supply chain (Arshad et al., 2006).
The right supplier management and selection strategy is
important especially in the organisations who apply the JIT
approach, Ndubisi et al. (2005). Proton implements multi-
and dual-sourcing policy in order to encourage the
participation of the local component industry and
competition between them to maintain the low costs
(Simpson et al., 1998). Rosnah (2004) reveals that supplier
relationships are the major obstacle to implementing world
class practices in electric and electronics firms in Malaysia. In
Malaysian grocery distribution, social bonding is an
important factor in establishing the supplier-distributor
relationship, reflecting Asian culture (Roslin and Melewar,
2004). Overall, while different supply chain integration
strategies are followed by companies in East Asia, the aim is
to achieve win-win cooperation (Zailani and Rajagopal,
2005).
Outsourcing of logistics activities and the growth of third
party logistics (3PL) providers is another trend present in
Malaysia. In their survey, Sohail and Sohal (2003) show that
67.7 percent of companies use the contract logistics services,
with a primary focus on domestic operations. This differs to
neighbouring Singapore, where the 3PL industry is more
internationally focused (Sohail et al., 2006). Cost appears as
the most important factor for the 3PL selection, with greater
benefits for cost and delivery lead time/time saving compared
to customer service.
A final element of Malaysia’s supply chain capabilities
relates to their information networks. The study by Le and
Koh (2002) on internet and e-commerce usage in Malaysia
shows that the available infrastructure, through the
Multimedia Super Corridor is a key strength of the country.
With a high rate of internet usage, Malaysia is about two to
four years behind the developed economies in e-commerce
development. However, a survey by Beal and Abdullah
(2002) reveals that only 7.2 percent of Malaysian SMEs have
a high level of ICT usage although an additional 34.8 percent
use some ICT for business. A more recent survey suggests
found that 57.8 per cent of SME respondents had used some
 Healthcare supply chain management in Malaysia: a case study Supply Chain Management: An International Journal
Noorfa Haszlinna Mustaffa and Andrew Potter Volume 14 · Number 3 · 2009 · 234 –243

ICT, although only 47.8 per cent had internet connections 3 Data analysis. Reviews of the organization’s archival
(Alam and Ahsan, 2007). records were important and useful here to get specific and
detailed information for analysis. Archival data was
collected from the company on purchase orders (PO)
4. Method and delivery orders (DO). These are kept on two different
systems. Purchase Order details are extracted from the
In this paper, a case study approach is adopted to investigate
company’s online system used by the clinic to place an
the current level of supply chain management in the
order. DOs are extracted from the inventory system and
healthcare industry in Malaysia. Using a case study will help
the data is kept in a Microsoft Access database. For this
us to gain in depth knowledge and understanding on what is
research, three months of PO and DO data was analysed.
going on within an organization. Even though the case study
company is singular, the study involves two echelons in the From this, the supply chain was analysed to identify the main
supply chain – the wholesaler and clinics. This can be problems that existed, using triangulated findings from
classified as an embedded case study design (Yin, 1984). One primary and secondary sources. Having identified the
author spent two months within the company in Malaysia problems, a potential solution was then proposed, again
collecting data using three main techniques: using DFD to portray the future state of the supply chain.
1 Process mapping. Process mapping is a technique to model
the business process flow in graphical form to visualize the 5. Supply chain process
actual process in the organisation and look for
improvement to make it more effective (Paper et al., Based on interviews and process mapping, Figure 3 illustrates
2001). Aguilar-Savén (2004) provides an overview of the the key stages in the organisation’s inventory management
many process mapping tools. In this research, we use the and replenishment process between the wholesaler and
Data Flow Diagram (DFD) technique to model both the clinics. Figure 4 shows the DFD diagram for the same
current and future inventory management process within process. The numbers in the processes and data stores
organisation. Recker et al. (2006) study the differences in indicate the sequence of the process.
the representational capabilities across leading process Each clinic is responsible for monitoring and managing
modelling techniques and conclude that DFD is one of their own inventory and they place an order to the wholesaler
best method in representing the structure of systems. The when required. The decision on which products to order at
process map uses four different symbols (see Figure 2) to each period and the quantity required relies upon the
experience and skill of staff at the clinics. Clinics make an
represent the main components – External Entities, Data
order directly using the online PO system. Generally, orders
Stores, Data Flows and Processes. An External Entity
are placed during the first and third week of every month. All
either supplies data to the system or receives data from the
the orders will be processed and delivered within five days.
system, or both. The Process receives input data and
Each order is referred to by the PO number, which is
produces outputs. DFD has data stores as a document,
automatically generated in the system. The first stage of order
file or database to store the output from a process before it
will be retrieved by the other process. Data flows generally
are labelled with the name of the data and link sources, Figure 3 Inventory management process
process, data store and sinks to represent the data flow in
the system.
2 Interviews. Semi-structured interviews were carried out at
the wholesaler and the clinics. Interviewees included the
customer service, inventory control, transport and IT
managers at the wholesaler, and pharmacy staff at the
clinic. We collected information on the current inventory
and delivery process at the wholesaler, as well as the IT
systems used to support this. At clinics, we discussed their
inventory control process and how they decided on which
products to order.

Figure 2 Four main DFD components

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 Healthcare supply chain management in Malaysia: a case study
Noorfa Haszlinna Mustaffa and Andrew Potter
Figure 4 DFD diagram of inventory replenishment
processing at the wholesaler is to check the order details and
the availability of the products for delivery. If the product is
not in stock, the supply manager is informed. If an order for
the products is outstanding, contact is made with the supplier
to identify its status. Otherwise a new order on the supplier is
produced. In this case the delivery will be delayed until the
product is available in stock. Sometimes certain products will
be replaced by others where the alternative product can
perform the same purpose. For example, orange lozenges can
replace herbal lozenges because the only difference is the
flavour.
The next process is the packaging where products will be
packed based on the PO. All products required for one clinic
are packed together to make delivery easier. This process
should be done three days before the delivery date. All
products delivered to the specific branch are listed on the DO
form, each of which has a unique number. The stock keeper
needs to update the inventory status in the record book based
on the information in the DO to ensure the inventory status at
the wholesaler is up-to-date. Deliveries are made based on a
schedule which takes into account the availability of the
company’s transport fleet (one van and one lorry) and drivers.
Usually, deliveries will be made twice a month, with vehicles
adopting a milk-run approach and delivering to a number of
branches in the area.
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When the order arrives at the clinic, they check whether the
products delivered to them are the same as those on the DO
forms. If satisfied, the products are moved as soon as possible
to the store or fridge, depending upon whether the medication
needs to be kept chilled. The DO and the delivery form need
to be signed as a proof of delivery, with a copy being returned
back to the wholesaler through the driver. If the product
delivered is different to the DO, the clinic should inform the
wholesaler as soon as possible by phone and indicate the
errors on the DO. If the product has been left behind or
delivered to the wrong branch, a revised delivery will be
scheduled to correct this error.
6. Issues in the supply chain
Based on the data collected from the company, it has been
possible to identify two issues that exist within the supply
chain and affect customer service performance. These issues
have been identified through triangulating findings from the
different data collection techniques.
6.1 Urgent orders
As mentioned earlier, usually the clinics will place an order
twice a month. However, urgent orders can be placed if a
product reaches a critical inventory level. This occurs because
 Healthcare supply chain management in Malaysia: a case study Supply Chain Management: An International Journal
Noorfa Haszlinna Mustaffa and Andrew Potter Volume 14 · Number 3 · 2009 · 234 –243

orders are generated manually and based only on the .

the quantity of product delivered is equal to the amount of
experience of individuals at the clinics. With normal orders, the order;
there is a delivery lead time of five days, increasing the risk of .
the quantity of product delivered is lower than the amount
a stock out. Unlike consumer products, where the customer ordered;
can either defer their purchase or acquire an alternative, this .
the product is not delivered to clinics; and
can be critical in providing patient care as there may be no . the quantity of product delivered is greater than the
alternative treatment for the patient. Therefore, urgent orders amount ordered.
need to be delivered immediately. Just a few products are
delivered in each urgent shipment and, due to the scattered The unit of analysis was for individual products rather than
locations of clinics, vehicle fill is lower with increased the aggregate order for each clinic. About 2,000 individual
transportation costs. orders for products were analysed for each month and the
To understand the size of this problem, PO data over a results in percentage terms for each category can be found in
three month period was analysed. For each day, the number Table I. The analysis shows that around 80 per cent of orders
of normal and urgent orders placed was counted, and the are fulfilled by the wholesaler. In 9 per cent of cases, more
results are shown in Figure 5. As can be seen, order levels
product is delivered than requested by the clinic. The cause of
peak in weeks 1 and 3 of each month. However, between the
peaks (and especially in the days before peak normal orders) this is often a difference between the quantity ordered and the
there are a significant number of urgent orders. Generally, unit size for the product. For example, an order for
almost one third of total orders every month are classes as Gentacimin Cream from the clinic is 900 g, but the product
urgent. This highlights not only the size of the problem in is only available in 500 g packs. Therefore, the wholesaler will
relation to the availability of medication at clinics, but also deliver two packs of the product, leading to an over delivery of
indicates issues with the ordering process within the clinic. 100 g. About 7 per cent of orders cannot be delivered to
The pressure on the supply chain at peak times to meet clinics at all, while a further 12 per cent see a reduced delivery
demand is also considerable.
as there is insufficient stock available at the wholesaler. These
shortfalls can have a serious impact on the medical treatment
6.2 Stock availability at the wholesaler
available to patients.
Inventory replenishment at the wholesaler is based on the
orders placed by clinics. Because of the nature of decision
making at the clinics, it is difficult to forecast their Table I Delivery performance for the wholesaler
requirements. Coupled with two major peaks in orders each
October November December
month, the wholesaler may face difficulty if the many clinics
Category % % %
order the same products at the same time. This will cause out
of stock problems at the wholesaler. Some clinics will get the Product delivered 5 Amount ordered 71.5 72.75 71.64
products ordered while others need to wait until the new stock Product delivered > Amount ordered 9.37 9.12 8.8
arrives. In order to determine the scale of this problem, we Product delivered < Amount ordered 12.1 9.84 11.69
compared the POs and DOs for a three-month period. Each Product delivered 5 0 6.97 8.29 7.87
product line ordered is categorized as follows:

Figure 5 Normal and urgent orders placed by clinics to the wholesaler

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 Healthcare supply chain management in Malaysia: a case study
Noorfa Haszlinna Mustaffa and Andrew Potter
7. Suggested improvement strategy
Since the current management face a lot of problems both at
the wholesaler and clinics, they should take one step further
and consider new approaches to control the inventory more
efficiently, which can lower the operating cost and generate
more revenue and profit. At the same time, there should be an
improvement in service level. In the literature, the JIT,
stockless and VMI approach are three strategies that have
been implemented within the healthcare supply chain. A
major issue with implementing JIT and stockless systems is
that demand fluctuates and is hard to predict (Kowalski,
1986). The risk associated with a stock out is also much
higher. Therefore, for JIT to be successful, it is important that
the wholesaler and clinic are located close to each other with
effective transport networks between them. In the context of
the case study supply chain, the transport networks are not as
effective, a feature of many developing countries away from
urban areas. In addition, there is only limited transport
capacity (one truck and one van). Therefore, the capability of
the wholesaler to satisfy concurrent demands from a number
of clinics is limited. Therefore, it is believed that a VMI based
solution represents the best course of action for the company.
According to Brennan (1998), Centralized logistics is a key
toward enhancing healthcare supply chain operating
efficiencies. As detailed earlier, this kind of approach has
gained popularity in the healthcare sector since it also can
reduce the time and effort needed to manage the inventory
(Kowalski, 1986).
A revised DFD diagram for the VMI solution can be found
in Figure 6. With this new process, the warehouse monitors
daily each product’s inventory levels and usage levels at all
clinics. By gaining accurate information, the wholesaler as
central decision maker is able to make a good decision
regarding which clinics to replenish and the optimal
replenishment quantity of each product. The product then
will be packed based on the product information and the
deliveries to the clinics are made according to the routing
planning process. The most efficient route may be used in
order to replenish inventories for different clinics which are
close to each other. The visibility and transparency of the
product and demand information helps the wholesaler to
identify priority despatches and make the optimal solution for
replenishment. This will prevent the urgent replenishment
between the normal replenishment and better utilise the
transportation capacity. With customer demand pattern and
inventory level information, warehouse can observe the
potential need for a particular product at each clinic and
ensure that inventory at the wholesaler is used to replenish the
clinics with the lowest inventory levels. This should overcome
customer service issues arising from the wholesaler being out
of stock. Thus, the customer service level can be improved by
having the right product in stock whenever it needed.
Holmström (1997) notes that VMI implementation can be
achieved through robust process design and collaboration.
However, effective systems can improve the success of VMI
implementation (Kim, 2005). An issue in the context of this
particular supply chain is the use of different systems for POs
and DOs. Consequently, it is difficult to ensure accuracy
between the two systems, with errors in data entry occurring.
In addition, the wholesaler has limited visibility of usage or
inventory at the clinics. Therefore, some investment in ICT
may be needed before VMI can be implemented. With some
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Volume 14 · Number 3 · 2009 · 234 –243
improvement to the company’s existing supply chain systems,
it is possible for the wholesaler to get real time data from all
branches. However, to automate the process and get an
optimal decision on the replenishment schedule and the
transportation, they have to make a more significant
investment by acquiring inventory control and routing
software.
8. Implications, given Malaysia’s SCM capabilities
It is important to consider the implications of this solution
within the context of the supply chain capabilities of
Malaysian industry, as discussed in section 3. The literature
suggests that JIT is becoming more popular both within the
healthcare sector (Wilson et al., 1992) and Malaysian industry
(Simpson et al., 1998), and therefore scope could exist for its
application within the case company. However, we suggest
VMI for a number of reasons. Firstly, the applications within
Malaysian industry have occurred within the manufacturing
industry, which benefit from access to reasonable transport
infrastructure and local supply base. The clinics in the case
study are spread more widely and the road network is less
reliable. Also, while the manufacturing industry sees many
suppliers delivering to a single point, the healthcare supply
chain has many delivery points serviced from a single point.
Coupled with the current transport constraints, this makes it
more appropriate to employ a system such as VMI that not
only looks at current requirements but takes into account
potential future demand.
The transport constraint could be relieved through the use
of a 3PL. As noted earlier, these are playing an increasingly
important role within Malaysian supply chains, particularly
for domestic movements (Sohail and Sohal, 2003). We did
not consider the opportunities for outsourcing transport in
our research as the main focus was on identifying a system to
improve stock availability. VMI does enable flexibility in
vehicle scheduling and, by coordinating deliveries with the
clinics, it is possible to reduce transportation costs. However,
it would be possible for the company to use a 3PL in
conjunction with VMI, and there may be further benefits
above those obtained through VMI.
In terms of supplier relationships, because the case study
implementation is internal within one company the dynamics
of collaboration change from being externally focussed to
considering internal relationships. Within the company, there
is a hierarchical command structure with many elements of
the clinic activities controlled from the headquarters (where
the wholesale warehouse is based). However, the findings of
Rosnah (2004) suggest that wider implementation of VMI
within Malaysian industry may be hampered by the current
nature of relationships between buyers and suppliers. Equally,
the informal nature of collaborative relationships in Asia may
affect the more structured relationships needed to enable
VMI.
Furthermore, central decision making at the wholesaler
points towards eliminating multiple numbers of resources to
do the decision making at the clinic and possibly to improve
organisational productivity since clinics can focus specifically
on running the business. Arshad et al. (2006) state that
centralised decision making between wholesalers and large
retailers in the Malaysian agri-food supply chains is
minimising duplication of functions.
 Healthcare supply chain management in Malaysia: a case study
Noorfa Haszlinna Mustaffa and Andrew Potter
Figure 6 DFD diagram of proposed VMI/IRP system
Finally, VMI requires the use of ICT for data transfer. The
healthcare company has access and currently utilises the
internet to undertake data transfer between the wholesaler
and clinics. Therefore, no constraints exist in terms of
infrastructure. Equally, the relatively strong position of
Malaysia’s ICT capabilities should enable VMI to be
applied more widely. However, there may be issues should
companies wish to engage with SMEs as several surveys (Beal
and Abdullah, 2002; Alam and Ahsan, 2007) indicate that
these businesses have less experience in using the internet for
transactions. According to Alam and Ahsan (2007), the
adoption of ICT in the organization is mostly influenced by
government support. Therefore, the issue of ICT capability
will be overcome with the initiative of the Malaysian
government to widen e-commerce usage through the Ninth
Malaysia Plan (2006-2020). The VMI application also can be
support Malaysia 3rd Industrial Master Plan (IMP3) to
integrate “logistics solutions across the entire supply chain”
(MacDonald, 2007).
9. Conclusion
In this paper, we explore the supply chain management
practice at a private health care company in Malaysia. As
noted, studies of the healthcare sector at an organisational
level in the developing world appear limited. This paper
particularly focuses upon the inventory and delivery
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management process. From the analysis, it was found that
28 per cent of the orders cannot be delivered as required,
either due to stock availability issues or incompatible
packaging sizes. In addition, many clinics were placing
urgent orders due to poor inventory control methods, which
has a consequential impact on transportation costs. Therefore
the company needs to implement a new strategy in order to
reduce the operating cost and increase the customer service
level. Based on the organisation’s current inventory
management, a VMI approach appears to be the best
solution for them. This should overcome some of the
potential weakness from the application of JIT within the
case study company.
Henceforth, we plan to develop the simulation model based
on this situation as next step of the research. This extends the
research from steady state design into dynamic design. The
model will use a periodic order-up-to policy to control
inventory, but with flexibility through having a “can” and
“must” order level for products (for more information on this
type of system see Balintfy, 1964). Because of the need for
deliveries to be based around multiple drops, the
transportation elements also needs to be integrated in the
replenishment decision. This is known as the inventory
routing problem (Kleywegt et al., 2002). The aim of the
model will be to minimise the total distribution costs while
improving customer service levels. It will also assist in
quantifying the potential benefits from VMI implementation.
 Healthcare supply chain management in Malaysia: a case study
Noorfa Haszlinna Mustaffa and Andrew Potter
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Further reading
Childerhouse, P., Aitken, J. and Towill, D.R. (2002),
“Analysis and design of focused demand chains”, Journal
of Operations Management, Vol. 20 No. 6, pp. 675-89.
Puschmann, T., Thalmann, O. and Alt, R. (2001), “Healthcare
portals – customer centricity in the pharmaceutical
industry”, Proceedings of the 9th European Conference on
Information Systems, Bled, Slovenia, June 27-29, pp. 410-21.
Corresponding author
Andrew Potter can be contacted at: potterat@cardiff.ac.uk