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Procedia Economics and Finance 11 (2014) 676 – 694

Symbiosis Institute of Management Studies Annual Research Conference (SIMSARC13)

Impact of Supply Chain Collaboration on Value Co-creation and

Firm Performance: A Healthcare Service Sector Perspective
Samyadip Chakrabortya, Sourabh Bhattacharyab, David D. Dobrzykowskic *
a
Doctoral Research Scholar, Department of Operations & Systems, IBS Hyderabad
b
Associate Professor, Department of Operations Management & Business Analytics, IMT, Hyderabad
c
Assistant professor, Department of Information Operations and Technology Management, University of Toledo,

Abstract

The healthcare sector is facing spiralling cost burden and the hospitals are finding tough time to provide quality care at affordable
cost. The focus has shifted from managing procurement to managing relationships. This study conceptualizes supply chain
collaboration (SCC) and its components in the context of healthcare service sector (hospital supply chain). The theoretical base of
this paper lies in the relational view and the service dominant logic theory. Using a service dominant logic (SDL) lens, the study
aims at establishing SCC as an antecedent to value co-creation (VCC); where VCC acts as a mediator in the relationship between
SCC with firm performance. The study also aims at introducing the conceptual construct of relationship complexity level and
attempts at investigating its influence on the framework relationships. The study by establishing parallels between the relational
view and the SD logic view rationally converges to show that collaboration is the final prescribed outcome. The study logically
puts forth a set of propositions that offers an enticing scope of further empirical investigation through testable hypotheses.

© 2013
© 2014 The
Elsevier B.V. Published
Authors. This is an open access article
by Elsevier B.V. under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/3.0/).
Selection and/or peer-review under responsibility of Symbiosis Institute of Management Studies.
Selection and/or peer-review under responsibility of Symbiosis Institute of Management Studies.

Keywords: Healthcare, Supply chain collaboration, Value co-creation, Firm performance

* Corresponding author. Tel.: +0-000-000-0000 ; fax: +0-000-000-0000

E-mail address: samyadip.chakraborty@gmail.com

2212-5671 © 2014 Elsevier B.V. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/3.0/).
Selection and/or peer-review under responsibility of Symbiosis Institute of Management Studies.
doi:10.1016/S2212-5671(14)00233-0
 Samyadip Chakraborty et al. / Procedia Economics and Finance 11 (2014) 676 – 694 677

1. Introduction

Healthcare costs are continuously increasing and for the hospitals to provide quality care without passing on the cost
burden to the patients has become a steep challenge (Zheng et al., 2008; Dobrzykowski, 2012). Under such
circumstances the pivot of attention has gradually shifted towards containment of cost through the management of
supply networks and the network relationships. Thus supply chain interactions, relationships, value creation
activities and collaborative environment along the chain with the network actors have increased in importance for
health care providers (Prahalad and Ramaswamy, 2004; Nollet and Beaulieu, 2003; Lonsdale and Watson,2005).

In the past decades loads of research has been carried out in the context of supply chain management (SCM) and led
to the established two main discernable blocks of research namely supply chain collaboration and supply chain
integration. Although during the early stages of research collaboration and integration in the supply chain context
often were used interchangeably, however careful contributions by several scholars have established the difference
in understanding between the two key SCM blocks. In the present competitive business environment firms are
continuously in the lookout for opportunities to collaborate with suitable partners to ensure supply chain efficiency
and responsiveness amidst dynamic market changes (Fawcett and Magnan, 2004; Lejeune and Yakova, 2005).
Despite decades of research there are still areas where the integration and collaboration literature overlaps. However
in the context of multi-firm network interaction where the relational aspect gets the priority collaboration gets an
upper hand. The attractiveness of collaboration lies in its emphasis on relational means and contract means (Nyaga
et al., 2010). This is also the juncture that brings in the concept of value co-creation which gives emphasis on the
relational aspects. This study does not attempt to go further towards differentiating between the collaboration and
integration, rather acknowledging the established differences this study aims at establishing a conceptual framework
that defines and represents collaboration in the context of healthcare with the basic definition given by Simatupang
and Sridharan (2002) which states that: ‘Supply chain collaboration means two or more autonomous firms working
jointly to plan and execute supply chain operations’, the underlying objective being delivery of substantial benefits
and advantages to the involved supply chain partners (Mentzeret al., 2000).

Though much hype is created about the benefits of supply chain collaboration, yet many chain relationships
involving partners have been unsuccessful (Barringer and Harrison, 2000).Empirical evidences (Min et al., 2005).
Much of this could be attributed to lack in understanding about the sector specific core aspects that affect
collaboration. Although collaboration is a generic approach but true understanding of the sector specific needs might
be rewarding and further investigation is needed to recognize its value (Goffinet al., 2006).

Healthcare providers are under intense cost and quality pressures. While other industries have addressed these
pressures by improving value creation through purchasing and supply chain management (SCM), healthcare
providers have been slow in adoption. Researchers suggest that this slow adoption is owing to healthcare's unique
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operational context which necessitates collaboration, but suffers from factors that inhibit coordination. At the same
time, general views on value creation are evolving toward a service-dominant logic (SDL) which focuses more
intently on collaborations aimed at the sharing of specialized competencies among actors functioning in a network.

Significant contributions have been made in the context of integration models and also that is done in great details
and with sector specific approaches (Frohlich and Westbrook, 2001;Deveraj et al., 2007; Zhao et al., 2008; Chen and
Paulraj, 2004; Flynn et al., 2010), but the specific understanding about collaboration remains lacking. However Cao
and Zhang (2011) have given a framework which indicates supply chain collaboration (SCC) leading to
collaborative advantage and in turn to firm performance; thereby bridging the gap that Lambert et al. (1999)
specified regarding an accurate definition of SCC because previous definition of SCC had more inclination and
somewhat overlap with SC integration aspects. However even their study left certain specific aspects unfilled.
Though the generic understanding of SCC got established, but the service-sector specificity of SCC remains still to
be established, especially for the critical service sectors like healthcare where the

2. Study Objective

The principle objective of this study is to conceptualize supply chain collaboration (SCC) and its components in the
context of healthcare (hospital) supply chain. Thereafter taking cues from the existing theories and through logical
arguments using a service dominant logic (SDL) lens, the study aims at establishing SCC as an antecedent to value
co-creation (VCC), which acts as a mediator in the relationship between SCC with firm performance. The study
aims at introducing the conceptual construct of relationship complexity level and attempts at investigating its
influence on the framework relationships.

3. Literature Review (Conceptual Development)

The theoretical framework within which this research work is grounded can be related to the two distinct yet
somewhat related converging theories of relational view (Dyer and Singh, 1998) and service dominant logic (Vargo
and Lusch, 2004). Based on collaborative paradigm, it can be envisioned that the supply network is a collection of
interdependent relationships aimed at gaining mutual benefits (Ahuja, 2000; Chen and Paulraj, 2004).

Value co-creation (VCC) concept which is deeply immersed in the service dominant-logic literature also supports
similar understanding is based on the relational view, and attempts at championing the concept of joint value
creation. The authors have argued that essentially value is not created but co-created. Thus VCC concept finds it’s
parallel and converges with the relational view in terms of inter-firm rent generation arguing that relational rents
accrue at the collaboration level for mutual benefits. Cao and Zhang (2011) and Dyer and Singh (1998) opine that
relational rents materialize when ‘collaborative partners combine and exchange idiosyncratic assets’. This finds
resonance in SDL’s VCC concept which discusses exchange of competencies or specialized skills. SDL emphasizes
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that specialized skills and knowledge are the fundamental unit of exchange (Vargo and Lusch, 2004).Relational rent
is defined as a ‘supernormal profitjointly generated in an exchange relationship’ which none of the partners can
create in isolation, thereby supportive the collaborative approach between partners(Dyer andSingh, 1998; Lavie,
2006). SDL premises, on which VCC concept resides also supports such relational connotation of co-created value
which is more than any partner’s individual contribution.

Supply Chain Collaboration

Contemporary literature highlighted the importance of collaboration across a plethora of studies and indicated that
collaborative relationships with network partners results in several advantages. Studies indicate that supplier
collaboration reduces procurement hazards and helps the firm achieve competitive position by ensuring reduced
transaction cost (Handfield and Bechtel, 2002; Sheu et al., 2006). Evidences show that collaborative relationships
helps firms manage risk by sharing (Kogut, 1988) and also provides access to complementary resources (Park et al.,
2004); thereby enhancing profitability and performance through the development of competitive advantage over
time (Mentzer et al., 2000).
But for conceptualizing collaboration for the niche hospital supply chain, there comes a need for a thorough
understanding regarding what connotes collaboration and what are its components. Literature on collaboration have
mainly focused on its importance and outcome aspects related to its role in planning activities (Boddy et al., 2000),
creation of conducive business environment for information sharing (Lamming, 1996; Manthou et al, 2004),
integration of cross-functional processes (Lambert et al, 1999) and setting up of congruent goals (Peck and Juttner,
2000). While one set of studies on supply chain collaboration focused on the process aspect the other set has
concentrated on the relationship aspects (Cao and Zhang, 2011). Supply chain collaboration (SCC) have been
viewed and conceptualized differently by different scholars. While Cao and Zhang (2011) have viewed the outcome
of SCC from the perspective of cost reduction, response time, resources and innovation and consequently used
information sharing, goal congruence, decision synchronization, incentive alignment, resources sharing,
collaborative communication and joint knowledge creation as components of SCC. Again Ramanathan and
Gunasekaran (2012) in their SCC model have divided collaboration in three major components of collaborative
planning, collaborative execution and collaborative decision making with the objective of finding their influence on
the future and success of collaboration. Supply chain collaboration has been defined in various contexts in different
studies. While some viewed SCC as a process, between two supply network entities, where they work together
towards achieving a common goal (Stank et al., 2001; Sheu et al., 2006), others have highlighted it based on nature
of interaction. They discussed it to be long-term in orientation, aimed at working together, sharing information,
resources and risks and taking into consideration not just individual but mutual objectives and gains (Golicic et al.,
2003). Thus taking a broader snapshot of the literature, it becomes clear that SCC has few aspects which are core to
its fundamental understanding: information sharing (Strader et al. 1999; Manthou et al., 2004), collaborative
communication (VanVactor, 2011; Mohr and Nevin, 1990; Cao and Zhang, 2011), incentive alignment (Simatupang
680 Samyadip Chakraborty et al. / Procedia Economics and Finance 11 (2014) 676 – 694

and Sridharan, 2005); goal congruence (Cao and Zhang, 2011; Angeles and Nath, 2001); etc.

Although the above mentioned components can well explain the basic tenets of collaboration, however in highly
uncertain network environments where the demand and procurement forecasting is not only difficult but rather
impossible to some extent, as in healthcare, the concept of ‘relationship transparency’ may have important
implications. However this construct have not been much highlighted in the collaboration literature yet.
Collaborative paradigm entails that the business world to be composed of a network of interdependent relationships
which have their origin and fostering linked to strategic collaboration goal of mutual benefits (Ahuja, 2000; Chen
and Paulraj, 2004). However this mutual benefit can be argued to be a relative term. Who and how can it be decided
whether a relationship is mutually beneficial or not until and unless a complete transparency in the relationship is
ensured. Prahalad and Ramaswamy (2004) provided a framework (DART) which they rationally argued as the
logical step towards a successful transactional relationship between the network actors. In DART, ‘T’ stands for
transparency. Though they explained in the marketing context and discussed about being transparent with the
consumers, it won’t be logically out of the box to claim its validity in the upstream supplier focal firm (supplier-
hospital relationship).

Different studies have discussed varied aspects of collaboration. While Kumar and Dissel (1996) highlighted the
benefits that collaboration extends towards attaining sustainability and minimizing conflicts in inter-organizational
systems, Ellinger (2000) discussed about the role collaboration plays in marketing/logistics in cross-functional
supply chains and again Ahuja (2000) while focussing from the strategic aspect indicated the key role collaboration
plays in the strengthening of inter-firm linkages. Thus it is evident that collaboration is key to the success of supply
chain relationships but it is a very broader approach. Several sector specific aspects necessitates that the
conceptualisation of supply chain collaboration be made accurately and appropriately focused towards incorporating
sector-specific critical components. Though the hospital procurement like manufacturing supply chain entails mostly
procurement of necessary medical supplies but the healthcare is predominantly a service sector and more so the
supplies are critical and unlike manufacturing the hospital supply chains deals with very high number of network
actors (both suppliers and customers), upstream and downstream respectively. The number and variety of individual
stock keeping units (SKUs) are very high procured from almost equally high number of suppliers and on the down
stream side the customers (who might be imagined as physicians on the behalf of patients) also are very high and
very specific in their choice of items (physician preferred items or PFIs). Thus the level of complexity in the hospital
supply chain makes the necessity of transparent synchronous relationship imperative. After scanning through the
literature this study defines supply chain collaboration in healthcare (hospital) supply chain in terms of five
interconnecting components. The four established components are: incentive alignment, information access,
collaborative communication orientation and goal congruence; while this study conceptualises the construct of
relationship transparency as an important component of supply chain collaboration in the context of hospital supply
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chain.

Incentive alignment is defined as the process by which the chain and network partners have a unified viewpoint and
have agreement over sharing of costs, risks as well as benefits as and when necessary (Simatupang and Sridharan,
2005). A clear understanding of the risks and benefits and the formulation of incentives and its sharing is vital (Cao
and Zhang, 2011). Therefore, who gets what becomes extremely important and especially in those supply chains
where the uncertainty and volatility aspects are on the higher side. The base of a successful supply chain
partnerships rests on the foundation of certain key premises that equitable sharing of risks and benefits should occur
in such a way that there is no local optimisation of profit but a global optimisation along the chain i.e. the
collaboration should be quantifiably beneficial to all (Manthou et al., 2004) and the gains are commensurate with
investment and risk undertaken by the partner concerned (Lee and Whang, 2001). While supply chain management
has proven effective in other industries (Bailey et al., 2002), healthcare has found its adoption to be challenging
(McKone-Sweet et al., 2005; Meijboom et al., 2011). Supply chain networks in the healthcare sector are complex –
different from those of other sectors (Meijboom et al., 2011). Healthcare supply chains (HSC) involve numerous
network partners working autonomously, based on often undefined incentive structure and supply driven self-
interest (Laing and Cotton, 1997; Lian and Laing, 2004). Such linkages are often sub-optimal, thereby lacking
integration, cooperation and multidisciplinary collaborative approaches (Lugon, 2003; van Raak et al., 2005;
Billings and Leichsenring, 2005). Incentive alignment thus qualifies as a key component of collaboration in
healthcare (hospital) supply chain.

Information access is defined as the extent to which network actors effectively share information that is necessary
in the creation of value (value-in-use). Thus it indicates an approach towards provision of timely, accurate and
relevant information, more precisely having inclusions of the previously hidden or unavailable information to be
used by the organizational decision makers (Davenport and Glaser, 2002; Prahalad and Ramaswamy, 2004; Ford
and Scanlon, 2007; Strader et al. 1999, Lee et al. 2000, Zhao et al. 2002, Viswanathan et al. 2007; Shah et al. 2008;
Angeles and Nath, 2001; Cagliano et al., 2003; Sheu et al., 2006). While Lamming (1996) have highlighted that
information sharing is at the heart of collaborative environment, Chopra and Meindl (2001) indicated it as the nerve
center of supply chain collaboration.

Collaborative communication orientation is defined as the extent to which network actors demonstrate a
manifested willingness to communicate. Cao and Zhang (2011, 166) defined collaborative communication as
process of ‘contact and message transmission among supply chain partners in terms of frequency, direction, mode,
and influence strategy”. The importance of open, frequent and balanced two-way communication has been
highlighted by Goffin et al. (2006) as key to organizational. In the perspective of healthcare sector, such
communication practices have been indicated to be very effective and important for the smooth continuation of the
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supply activities among the network actors. VanVactor (2011) highlighted that such communication practices
(referred to as collaborative communication) has been successful in not only creating a collaborative network
environment and enhanced healthcare supply chain operations, but also had potential cost savings and higher
efficiency in achieving enhanced synergy between network organizations, multi-stakeholders working together.
Thus the orientation towards such creation of collaborative communication platform can logically be expected to be
core to the conceptualisation of SCC.

Goal congruence can be defined as the extent to which the supply network actors perceive that their business
objectives and goals are fulfilled by following the overall goal of the chain and that the chain leaders goals are not
detrimental to them (Angeles and Nath, 2001; Cao and Zhang, 2011). This alignment should be very vital for
success of collaboration because as Ramanathan and Gunasekaran (2012) indicated that satisfaction is an important
aspect of success of collaboration. Without the goal congruence there will be many ups and downs and that can be
logically attributed to lessening of satisfaction and hence affect success of collaboration.

Relationship Transparency is defined as the extent to which network actors openly exhibit trust, and reveal their
true motivations, goals, and agenda. The stress should be given to the word ‘openly’. The extent of ease, the
openness and the true agenda behind the relationship are most important aspect of a relationship between two
financially independent network actors because there the collaborative relationship to a large extent depends on trust
(Sahay, 2003; Lamming, 1993; Lamming et al. 2001). Prahalad and Ramaswamy (2004) in their DART model of
successful transaction relationship highlighted the importance of transparency. However the understanding of
transparency has not been clear yet as evident from collaboration literature. Recently Ramanathan and Gunasekaran
(2012) indicated transparency as an integral aspect of future collaboration, but not much has been explained and it is
only used as an item for the future collaboration construct. A primary aim of the procurement function is inter-actor
transparency. This has been gaining importance and has been the basis of the conceptualization of SC transparency
(Handfield and Bechtel, 2002; Fawcett et al. 2004; Sahay, 2003; Lamming, 1993; Lamming et al. 2001; Lamming et
al. 2004). While discussing the step-wise development of the transparency continuum from an opaque extremity to
that of complete transparency, Lamming et al. (2004, p.203) highlighted that information existing in or sharing
between SC actors or organizations can be classified as opaque, translucent and transparent based on situations.

Opaque: When due to various reasons information cannot be shared with other concerned parties and the concern is
acknowledged by both parties.

Translucent: Only restricted information is shared by the focal party with the other parties, but not acknowledged by
other recipient and hence results in often limited collaboration and tactically may be considered akin to cheating.
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Transparent: This entails a situation when and where the information between the concerned parties are shared
candidly based on 'selective and justified basis' ultimately culminating in the development of shared knowledge pool
and further collaborative abilities.

SC network partners face several issues that often undermine the chain performance and hamper the SC
environment. Advanced technologies provide real-time connectivity, synchronization of data, and improved
efficiency. This is observable in the implementation of ebusiness processes (Zheng et al. 2006). Bhakoo and Chan
(2011) in their paper on e-business implementation in the Australian healthcare‘s pharmaceutical supply chain
context have highlighted the importance of transparent SC transactions in procurement. The hospital sector also
suggests the need for transparency, but laments a lack of connectedness and synchronicity (Schneller and Smeltzer,
2006). This suggests a lack of SC transparency which diminishes VCC activities among the partners. For example,
Bhakoo and Chan (2011) found that overcoming a lack of transparency enhanced performance. The principle
impediments to transparency are: lack in connectedness, trust, alignment of agenda and co-ordination (Hill and
Scudder, 2002). Though the aspect of trust and the role of integrative practices on trust have been highlighted by
existing literature (Marquez et al., 2004, Powell, 1995; Frohlich and Westbrook, 2001; Drickhamer, 2002; Droge et
al.2004), but for sectors like healthcare and hospital supply chain erratic nature of the procurement, extreme high
number of procured items and inherent complexity reduces such integration prospect and rather favors collaborative
approach. Thus how trust aspect of transparency works in the collaborative manifestation becomes vital.

Value Co-creation

There is a shift a foot towards a service oriented perspective and the understanding of value creation (Metters and
Marucheck, 2007). This shift is based on identification and development of
core competences for achieving competitive advantage which center on fostering relationships with key actors who
can derive benefits from each other‘s value propositions and competences (Vargo and Akaka, 2009). Benefits
derived from the specialized competences can be used by suppliers and customers in the value-creation processes,
thereby positioning these actors as co-producers of value and thus assuming an active role in the ‗relational
exchanges and coproduction’ (Vargo and Lusch, 2004). This nascent view is referred to as service-dominant logic
(SDL) and it is thought to have strong potential in explaining purchasing and supply chain phenomenon (Caldwell et
al., 2009; Schmenner et al., 2009). SDL explains the exchange protocol as a process through which supply chain
actors use specific key specialized abilities or skills in sync for mutual benefit (Callaway and Dobrzykowski, 2009).

Firms do not really provide value, but merely give value propositions (Vargo and Lusch, 2004) and it is the
customer that determines value and co-creates it with the firm. Thus from that aspect it can be said that “customers’
value-in-use begins with the enactment of value propositions” (Ballantyne and Varey (2006, p.337). In that way it
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can be argued that firms’ product offering is unrealized until the customer realizes it through co-creation. The views
on value creation are evolving to recognize a more networked and relational purchasing environment (Vargo and
Lusch, 2004; Lusch and Vargo, 2006; Schotanus and Telgen, 2007). In the supply chain, actors offer up
competitively compelling value propositions to meet specific needs of other actors in the network (Vargo and Lusch,
2004, p. 5). The value propositions describe each actor‘s competencies which are shared or exchanged among the
network (Normann and Ramirez, 1994).

Actors derive benefit when specialized competences are used in the value creation process, thereby becoming a co-
producer of services in purchasing and thus assuming an active role in relational exchanges and coproduction’
(Vargo and Lusch, 2004; Stanley and Wisner, 2002). These conditions are observable in the healthcare context
where the purchasing function can benefit from collaborating with upstream suppliers of medical and surgical
equipment as well as downstream physicians who use these products in the delivery of care (Schneller and Smeltzer,
2006).

The conceptualization of the VCC components largely draws its source from the AIM Research working paper by
Irene, Nudurupati and Tasker (2010) where they developed a VCC scale in the context of business-to-business
service and highlighted seven generic attributes of value co-creation which are key for delivering value-in-use
through qualitative data analysis and interviews, thereafter matched with previous academic literature: behavioral
alignment, process alignment, congruence in customer expectations, congruence in firm expectations (expectation
alignment), empowerment and perceived control, behavioral transformation, and complementary competencies
(competency alignment). Empirical research on VCC is at a very nascent level and they made an attempt to
operationalize VCC as a construct and have developed a reliable instrument. However the scale was prepared in the
context of defence systems manufacturing. Inherent difference, key issues and the uniqueness in the healthcare
sector (hospital) like: high complexity with a large number of actors who must work collaboratively to create value
(Boyer and Pronovost, 2010), highly decentralized nature where manufacturers, distributors, group purchasing
organizations, and providers (i.e. hospitals) largely operate independently from one another, with very little
upstream demand signaling (Sinha and Kohnke, 2009; Schneller and Smeltzer, 2006; McKone-Sweet et al., 2005),
operational issues due to slow adoption of IT (Dobrzykowski, 2012) and less clearly defined roles (Smeltzer and
Ramanathan, 2002) makes the replicative usage of the available VCC instrument difficult. There is a shift from the
goods-centered view to the service-centered view which is based on identification and development of core
competences for achieving competitive advantage through developing relationships with key economic actors in the
supply chain (e.g., customers and suppliers) (Lambert et al. 2006). However such relationships can be built on the
basis of certain key alignments. Given the pressures for cost and quality, it is important to understand how value co-
creation takes place in healthcare through the different alignments and result in delivery of value in use. In the
hospital supply network scenario the VCC components have been conceptualized as: Competency Alignment,
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Perceived Control, Process Alignment, and Expectation Alignment where as the other three dimensions are not
much meaningful as per the context.

Competency Alignmentrefers to the extent to which the focal firm and the network partner possess complementary
competencies in terms of expertise and judgment, specialized knowledge and skills and diagnosis skills (Stenroos
and Jaakkola, 2012) so that the interaction between the network partners are characterized by complementary skill
sets, roles, ability to access resources and ability to access the technology to get the work done (Sheridan et al.,
2001, Wong et al 1999, Yusuf et al 2004, Hanna 2007, Stratman et al., 2002).

Perceived Controlrefers to the extent to the network partners have the perception of control over the transaction
processes in terms of decisions, process methodology and techniques, variety, quality, pace, scheduling and policies
(Smith et al., 1997, Rodin et al 1980, Ganster 1989, Dwyer and Ganster 1991).

Process Alignmentrefers to the extent to which the network partners’ processes of gathering, storing, moving and
disseminating information and collecting, storing and managing the materials are complementary and in sync (i.e.
aligned) to each other (Hung et al., 2007, Yusuf et al., 2004).

Expectation Alignmentrefers to the extent to which the partner’s expectation of the firm and the firm’s
understanding about the partner’s expectation matches and are in sync. This actually in a nutshell is weighing the ,
how is being doing with how it is expected by the other partner (i.e. how it should be done). On a similar note what
is being done against what is expected (i.e what should be done) (Dean 2004, Zeithmal et al, 1993, Parasuraman et
al 1994, Leventhal 2008).

Relationship Complexity Level

The dynamic and multi-functional nature of supply chains results in often varied network partners with multiple
relationships patterns, organizational culture and level of inter-connectedness. In healthcare, hospital supply chain is
characterized by very high number of network partners both up and downstream with the hospital as the focal firm
of reference. With the enhancement in technology and sector competitiveness, complexity seems to be ever spiraling
up and healthcare happens to be one of the foremost (Schneller and Smeltzer, 2006). In the relational context where
the supply chain relations have come under scanner, there is an enhanced need for orchestration of activities with the
suppliers in the supply-base on one hand and also coordinating with the customers or users of services on the other
(Dyer, 1996). Understanding of the environment and the relationship complexity aspect are gaining more attention
for ensuring operational benefits in terms of increased efficiency, rapid flexibility and preparedness for uncertainties
(Brown and Eisenhardt, 1997; Abell et al., 1999). Healthcare purchasing is dominated by relationships and networks
686 Samyadip Chakraborty et al. / Procedia Economics and Finance 11 (2014) 676 – 694

(Ferlie and Pettigrew, 1996; Lian and Liang, 2004). Literature indicates that higher levels of complexity usually
linked with adoption of certain supply chain processes. In a contemporary study network complexity has been
indicated as an antecedent to supply chain practices and also highlighted that choice and level of practices to a large
extent depends on the network complexity (Chakraborty and Dobrzykowski, 2013).But one must keep in mind that
chain or network complexity are not one and the same thing overall, though some of the aspects might be similar.
Relationship complexity in the healthcare context can be conceptualized through 3 key dimensions: Relationship
quality, Interaction pattern and, Network element character.
Relationship quality signifies the orientation, depth and future direction of the relationship between the focal
hospital and its network partners (upstream suppliers and downstream physicians in case of hospital SC) (Tangpong
et al. 2010). By relationship quality the terms of contract, level of linkage and trust are mainly aimed at. In the
healthcare sector, supplies are often critical, making the coordination aspect very important and in that scenario the
relationship quality dimension might play key role in deciding the relationship complexity level.

Interaction pattern signifies the extent of communication between the focal firm and its network partners with
particular emphasis on the frequency and depth of communication (level of details) (VanVactor, 2011;
Noorderhaven and Harzing, 2009; Choi and Krause,2006). Increase in the number of interaction, reduces the
complexity and uncertainty; thereby enhancing responsiveness (Simon, 1962; Noorderhaven and Harzing, 2009).
Rich face-to-face communication, informal interaction, and teamwork reduces "transmission losses" in the
knowledge transfer context (Mudambi, 2002, Bjorkman et al., 2004). Herein lies this parameter’s relevance in
understanding relationship complexity.

Network element character signifies the extent to which the focal firm and its network partners are differentiated in
terms of organizational cultures, operational practices and technical capabilities (Choi and Krause,2006; Burt and
Doyle,1993). Differentiation entails various connotations starting from the different organizational structure and
culture of the elements to that of operational practices and technology levels and expertise (Choi and Krause, 2006).
Suppliers or customer elements that belong to and use similar patterns of practices, or belong to similar
organizational culture are easier to manage (Burt and Doyle, 1993) and reduces complications. In healthcare
(hospital) perspective, the suppliers and customer elements (physicians) vary along all the characteristics of the
differentiation parameter and thus the extent of such differentiations reflects the complexity in the relationship
largely.

Firm performance

Firm performance is the final outcome that is observed across the literature. It refers to the success of the firm in
fulfilling the business goals in comparison to its competitors (Yamin et al. 1999; Li et al., 2006). In the healthcare
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context for the hospitals the firm performance can be measured in terms of both financial and clinical outcomes.
While the financial outcomes can be measured in terms of return on investment (ROI), return on asset (ROA),
market share and most importantly net revenue per discharge (Vickery et al., 1999; Chen and Paulraj, 2004; Flynn et
al., 2010). The clinical performance can be measured through length of stay, average mortality rate and re-admission
ratio (Dobrzykowski, 2012). These are well known performance parameters with respect to healthcare and hospital
performance measurement.

Conceptual Model & Propositions

Fig.1. Impact of supply chain collaboration on Value co-creation and Firm performance

4. Proposition Development

The underlying condition that precedes supply chain collaboration is that the participating partners will have a better
gain due to the synergy (Simatupang and Sridharan, 2005). SDL literature stream largely suggests the idea that
supplier and customer are no more external to the system, but rather have integral role in the value creation process
of the focal firm in the supply network through the sharing and application of each actor‘s competencies (Lo Nigro
et al. 2006, Schmenner et al. 2009). The foundational principles of SDL are observable in healthcare purchasing
where the exchange and activation of competencies is where real value is derived. Services from the vendors are
often more important than the product due to the inherent variability in the demand and consumption and ordering
pattern of the healthcare segment itself (HFMA, Dec 2012). There is a need for accommodating such fluctuations
688 Samyadip Chakraborty et al. / Procedia Economics and Finance 11 (2014) 676 – 694

and thus maintaining a vendor-buyer interaction platform becomes very important. Thus it can be rationally argued
that SDL views the need for developing a collaborative environment. Likewise, in the hospital supply chain,
exchanges occur involving many suppliers owing to the dependence on varied but specialized types and sources of
material supplies and information (Schneller and Smeltzer, 2006). Thus, the very nature of SCM is cross-functional
and might be suggestive of collaboration since in hospital SC where mostly financially independent partners are
linked to co-create value, integration is not an option. Therefore the study proposes (Fig:1):

Proposition 1:Supply chain collaboration has a significant positive effect on Value co-creation.

Effectiveness of supply chain collaboration and VCC should be reflected on such financial and clinical metrics.
Once the operational and transactional processes are streamlined in a collaborative SC, between the hospital and the
network actors, through the synchronized practices, the efficiency and the effectiveness of the processes will be
enhanced and hence the firm’s (hospital’s) financial performance supposedly should be favorably enhanced. But
most importantly how the clinical performance is affected is equally important. The streamlined procurement
processes will reduce the chances of stock-outs of important physician preference items and also control
overstocking due to apprehension, thereby reducing the average patient waiting time for treatment and diagnosis and
hence reduce the length of stay through early discharge. Moreover the hospitals and the physicians have often fixed
rate packages for specific type of treatment and surgeries, by reducing the patient length of stay the overall
profitability of the hospitals should be enhanced and also the relative market share should grow in comparison to its
competitors. The mortality rate and the re-admission ratio should also befavorably affected and reduced largely due
to on time diagnosis and quick care delivery with ensured quality. The overall the VCC should favorably influence
the hospital performance. Hence the study proposes:

Proposition 2: Value co-creation has a significant positive effect on firm performance (both clinical and financial).

The hospitals engage into supply relationships with varied number of suppliers for different hospital supplies
(devices, pharmaceutical drugs and products, medical-surgical items, etc) and induce different working relationships
with and among the suppliers; offering a plethora of complex inter-connections with suppliers & physicians. Thus
the relationships are characterized by different levels of information sharing, frequency of interaction and
collaborative linkages. The effect of SCC on value co-creation and firm performance is a multi-faceted and intricate
issue and potentially, there are many other factors that might impact firm performance. Various categorical variables
have been tested in literature to observe moderating impact. This study aims at viewing the relationship complexity
construct into a categorical variable and observes it’s categories as low, medium and high complexity based on
careful categorization using average scores based on the three parameters. The focal firms with different relationship
complexity levels with their partners might have different supply chain collaborative efforts, achieve different levels
 Samyadip Chakraborty et al. / Procedia Economics and Finance 11 (2014) 676 – 694 689

of value co-creation and consequently different levels of firm performance. Hence the study proposes that
relationship complexity will moderate the relationships proposed in the framework.
Proposition 3a: Relationship complexity moderates the relationship between supply chain collaboration and value
co-creation.

Proposition 3b: Relationship complexity moderates the relationship between value co-creation and firm
performance.

5. Conclusion

The study conceptualizes supply chain collaboration and it’s components in the context of healthcare (hospital)
supply chain and propose a linked framework using a service dominant logic (SDL) lens. The study establishes SCC
as an antecedent to value co-creation (VCC), which acts as a mediator in the relationship between SCC with firm
performance. The study also indicates the possible moderating role that relationship complexity might have on the
framework relations. The contribution of this study lies in extending the extant understanding about SCC in the
context of healthcare and in the context of SDL, trying to establish that SCC actually result in an intermediate state
of VCC which in turn influences firm performance. Future research should be aimed at operationalizing the
constructs, converting the propositions into testable hypotheses and empirically trying to establish the framework.

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