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Supply Chain Management in the Hospital Industry of Switzerland

Master's Thesis 2011 77 Pages

Business economics - Supply, Production, Logistics

Excerpt

TABLE OF CONTENTS

ACKNOWLEDGEMENTS

ABSTRACT

1. INTRODUCTION
1.1. Significance of research topic and research aim
1.2. Specific research questions
1.3. Gaps in literature and contribution
1.4. Section structure of the dissertation

2. LITERATURE REVIEW
2.1. The changing legal environment of the Swiss hospital industry
2.2. The principles of the industrial SCM approach
2.3. SCM approach for the hospital industry
2.4. Limitations

3. CONCEPTUAL FRAMEWORK

4. METHODOLOGY

5. RESULTS AND ANALYSIS
5.1. The legal environment of the Swiss hospital industry and its business impact
5.2. The industrial SCM approach and its transferability to the Swiss hospital industry
5.3. The hospital SCM approach and its practical suitability
5.4. The hospital SCM approach and its strategic relevance for the Swiss hospital industry
5.5. Critical discussion of results

6. CONCLUSIONS
6.1. Summary of key findings from analysis
6.2. Directions for future research

REFERENCES

APPENDICES

Interview Guide
Head of Controlling (hospital)
Supply manager (hospital)
Senior project manager (consulting company)
CEO (internet trade platform provider)

Interview Matrix

LIST OF FIGURES

Figure-1 Section structure of dissertation

Figure-2 The Generic Value Chain

Figure-3 The Value System

Figure-4 An illustration of a company’s supply chain

Figure-5 Business functions of SCM

Figure-6 Share of material costs related to total costs of top-10 Swiss hospitals

Figure-7 Metric of SCM costs

Figure-8 Value Chain for a Hospital

Figure-9 Business functions of SCM

Figure-10 Business function model of SCM for hospitals’ material management

Figure-11 SCOR business process model compared to hospitals’ business process model

Figure-12 Strategic procurement process

Figure-13 Process flow across hospitals’ SCM business function model

Figure-14 Key figures of Hospital H

Figure-15 Key figures of Project P

Figure-16 Extract of organizational structure of Hospital H

Figure-17 Comparison of business function models

Figure-18 Comparison of process models

Figure-19 Comparison of strategic procurement processes

Figure-20 Comparison of transaction flow

Figure-21 Customized SCM business framework for Swiss hospitals

ACKNOWLEDGEMENTS

The initial catalyst for the dissertation’s object of investigation was an article in a business paper that reported on an awarded ground-breaking logistics solution in the Swiss hospital industry. Although I could find some more detailed information on the project from the organization that awarded the prize it would have been impossible for me to carry out this dissertation without the interviews with experts from the Swiss healthcare industry and the information provided by the awarded hospital.

Since the ethical regulations for this dissertation require anonymization, none of the persons will be named explicitly. Nevertheless it is important to me to thank my supporters.

Firstly, I would like to thank the supply manager of the hospital for his support, especially for bringing me into contact with the other experts, but also for providing me with the disclosed company information. I hope the results of the dissertation can foster his concern to propagate his ideas of a SCM approach for Swiss hospitals.

Secondly, I would like to acknowledge my interview partners for their support and patience. It is not always easy to explain what has been taken for granted from longlasting experience, but the personal interviews and the later consultation have been essential for me to understand the basics of the hospital industry.

Finally, I would like to thank my supervisor Dr Hyunji Kwon for her guidance, especially in the early stages of the dissertation. Her useful advice helped me to focus my study and thus to follow a clear approach.

ABSTRACT

This dissertation seeks to investigate how the Swiss hospital industry can face the upcoming budgeting restrictions set by the Swiss government. Following an analysis of the political and economic environment of the industry the paper focuses on hospitals’ material management, demonstrating that this is an area with substantial savings potentials.

At first the study examines the industrial approach of supply chain management (SCM) as a way to realize those savings potentials, reviewing the comprehensive secondary literature about SCM. Findings from different authors who investigated the specifics of procurement in the hospital industry are compared and complemented with results from in-depth interviews with four experts from the Swiss healthcare industry. The comparison allows formulating how a SCM approach for hospitals should be customized to meet industry specific requirements.

Subsequently, the dissertation designs a SCM model for hospitals that encompasses the business functions, the corresponding organisational structure and the flow of key processes. The drafted business framework is then compared with the findings of a case study research that investigates a Swiss hospital project. This project has been awarded by an international organisation for logistics management and standardization as ground-breaking for the Swiss hospital industry. The comparison substantiates that the principles of the designed SCM model are widely consistent with the hospital’s solution and helps to further customize the model.

Finally, the strategic relevance of the drafted SCM approach for Swiss hospitals in general is evaluated. It is demonstrated why the principles of the model are appropriate to help Swiss hospitals to eliminate their weaknesses in material management procedures and thus to achieve the necessary savings.

1. INTRODUCTION

1.1.Significance of research topic and research aim

In Switzerland, like in all developed countries, the economic relevance of the healthcare industry has increased during the last 20 years. According to official Swiss governmental statistics, the GDP share of the healthcare industry raised from 9.6% in 1995 to 11.4% in 2009. This places Switzerland third in the OECD statistics of healthcare GDP rates behind the US and France (Bundesamt für Statistik, 2011a). The increasing GDP share indicates that the costs of healthcare overshoot the annual growth of the Swiss economy which brought up the question, how costs will develop in the future and how these costs can be controlled. So the Swiss Ministry of the Interior entrusted its statistical department, the Bundesamt für Statistik, to provide a long-term prognosis to identify cost drivers and the cost development until 2030. The report, released in 2007 (Bundesamt für Statistik, 2007), was the trigger for amendments to the

compulsory health insurance law the Swiss parliament passed in 2007 (Bundesversammlung der Schweizerischen Eidgenossenschaft, 2011). These amendments focus on the Swiss hospital industry which generates 52% of healthcare costs (Bundesamt für Statistik, 2011b). So from 2012 onwards Swiss hospitals must totally convert their billing systems. Accounting by Diagnosis Related Groups (DRGs) will be introduced compared to the former system where hospital compensation was paid on a per day basis independent of the patient’s diagnosis and with the state or the private hospital operator covering the costs exceeding that per day sum. With DRG accounting, all hospital costs must be covered with the corresponding DRG case payments and loss adjustments for public hospitals from their owner (state) like in the past are prohibited.

With a five-year advance from 2007 to 2012 hospitals were requested to prepare for the new market rules that require efficient cost management and transparency. Besides personnel expenses, material costs are the second most important cost factor in a hospital´s profit and loss (P&L) account. Consequently, material management is an area with substantial savings potentials.

The research aim of this dissertation is to investigate if and how an efficient supply chain management (SCM) can help Swiss hospitals to control material costs in the future and thereby face upcoming budgeting restrictions set by the Swiss government.

1.2.Specific research questions

The corresponding research questions for this dissertation are:

(i) How will the legal environment for Swiss hospitals change and what will be the business impact on their material management?

(ii) What are the principles of the SCM approach and how can these principles be transferred to an approach for the Swiss hospital industry’s material management?

(iii) To which extent does the case study solution ‘Project P’ follow this SCM approach for the Swiss hospital industry?

(iv) Which of the aspects of the SCM approach and results from the case study project are strategically relevant for the Swiss hospital industry in general?

1.3.Gaps in literature and contribution

Until now there is a lack of academic literature about material management or SCM in the Swiss hospital industry. Therefore, the literature used in this dissertation refers to SCM in the manufacturing industry and to SCM approaches in the U.S. healthcare industry. Comparing the findings of the literature review with the results of in-depth interviews and the analysis of the case study conducted, the question must be asked if existing concepts from the U.S. with a different social security background are appropriate to be used for a Swiss hospital SCM approach. In this way the dissertation can contribute to close this gap in literature.

1.4.Section structure of the dissertation

Following this introduction chapter, the dissertation consists of five further chapters:

1.1 SIGNIFICANCE OF RESEARCH TOPIC AND

Abbildung in dieser Leseprobe nicht enthalten

Figure-1 Section structure of dissertation

Chapter 2 reviews literature about the changing legal environment of the Swiss hospital industry, the principles of industrial SCM and the transferability of industrial SCM approaches to the hospital industry.

Chapter 3 describes the conceptual approach for this dissertation. It defines four hypotheses referring to research questions and how these hypotheses will be examined.

Chapter 4 explains the methodology used for this research and the arguments that justify this approach. It also describes how the interview guide was developed and how the interviews were analyzed.

Chapter 5 presents the results for the defined research questions and evaluates the hypotheses based on the findings. It also includes a critical discussion of the results.

Chapter 6 summarizes the key findings of the study. Referring to the identified limitations, it finally highlights directions for future research.

2. LITERATURE REVIEW

The literature review shall investigate and so help to define the theoretical base for the case study analysis. First, it will investigate the academic literature base about the new legal environment of the Swiss hospital industry, the corresponding requirements for hospitals in general and their material management in particular. Second, the theoretical background and the principles of the industrial SCM approach shall be researched to determine, if its definitions, business functions, processes and critical success factors are principally appropriate to meet hospitals’ needs. Third, the review shall examine if there are existing theoretical approaches to transfer the industrial SCM business framework into hospitals’ business environment.

2.1.The changing legal environment of the Swiss hospital industry

Remarkably there is no academic literature existing that discusses or describes the essentials or estimates the effects of changes in Swiss law. A governmental report for the Swiss parliament about the status of preparation (Schweizer Bundesrat, 2009) announces that such an analysis has to be done parallel to the introduction of the new rules. So the literature review has to rely on public bulletins published by the Swiss government and other semi-governmental institutions, such as Swiss DRG AG, the responsible organisation for the DRG introduction and future enhancements.

Changes and impact on hospitals

In a public conference presentation the vice-president of the board of cantonal healthcare ministers illustrates the three major changes of the law for the hospital industry (Conti, 2009): DRG service accounting based on complete cost-covering method, the prohibition of loss adjustment through the hospital’s owner and the new regulations for cantonal hospital planning requiring public invitation to tender for hospital services. Conti (2009) concludes that these changes will cause market competition via price and quality. An expert paper from the Swiss DRG AG (Swiss DRG AG, 2011) that explains the principles of DRG accounting confirms these market effects as desired goals of the law amendment: countrywide transparency and comparability of hospital service provision, intensive use of savings potentials and increasing competition between service providers (hospitals). Even the governmental report for the Swiss parliament (Schweizer Bundesrat, 2009) states that economic pressure on Swiss hospitals will strongly accelerate.

Challenge for material management

Against the background of increasing economic pressure, hospitals’ material management is an area with substantial savings potentials. A comprehensive study executed by the national Swiss price control about the medical device market in central Europe detected that Swiss hospitals must pay up to 200% and more of the price that hospitals in Germany, France or Italy pay for the same product (Eidgenössisches Volkswirtschaftsdepartement Preisüberwachung, 2008). The study identifies two reasons for this: First, the smaller Swiss hospitals have less purchasing power. Second, hospitals follow a long-established procurement pattern, where physicians order medical devices and products based on personal preferences rather than on price-quality aspects. The report offers advice what should be changed to improve the procurement: centralization and professionalization of procurement, data exchange and joint procurement with other hospitals to strengthen purchasing power and inclusion of material costs into DRG accounting (which is mandatory with the new law). Referring to the results of this report, the later analysis will additionally investigate, what share of total hospital costs material costs represent.

2.2.The principles of the industrial SCM approach

The theoretical background of SCM - the value chain concept

The value chain concept developed by Porter (1985) is a strategic planning approach, which assists management in determining the sources of competitive advantage. Porter (1985) defined a methodology to determine and optimize a company’s market position in relation to its competitors. This methodology offers three possible strategies - cost leadership, differentiation and focus. Porter states that a company performing well in any of these strategies will gain competitive advantage, which “stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product. Each of these activities can contribute to a firm’s relative cost position and create a basis for differentiation” (Porter, 1985, p.33). He categorizes a company’s value chain activities into two interlinked groups, primary and support activities, as illustrated in the following figure:

Abbildung in dieser Leseprobe nicht enthalten

Figure-2 The Generic Value Chain

(Source: Porter, 1985, p.37)

While primary activities encompass those activities directly involved in the creation and commercialization of goods and services, support activities include all functions essential for performing the primary activities. Analyzing the performance and strategic relevance of each activity shall help firms to identify their core competencies and take advantage of outsourcing those activities that can be better performed by other companies.

Following Porter (1985), an organisation’s value chain is embedded in a value system, consisting of suppliers’, channels’, and buyers’ value chains (see figure-3). Accordingly, value is created by the entire network of organisations and consequently gaining competitive advantage requires optimization of the value system as a whole.

Abbildung in dieser Leseprobe nicht enthalten

Figure-3 The Value System

(Source: Porter, 1985, p.35)

Definition of SCM

The notion of supply chain management (SCM) was initially introduced by Oliver and Webber, two consultants working on a project in Switzerland in the early eighties (Chen and Paulraj, 2004). Since then, the concept of SCM has gained importance not only in management research but also as a contemporary business practice and key instrument to process optimization, resulting in a variety of definitions and contrasting views of what constitutes SCM. According to Cooper and Ellram (1993, p.13) SCM can be defined as “an integrative philosophy to manage the total flow of a distribution channel from the supplier to the ultimate user”. While this definition highlights the integration of flows in a supply chain (materials, information and funds), Christopher (2011, p.3) emphasizes the network orientation of SCM and describes the term as “the management of upstream and downstream relationships with suppliers and customers in order to deliver superior customer value at less cost to the supply chain as a whole”. Chen and Paulraj (2004, p.120), like many other authors, agree that a generic supply chain constitutes “a network of materials, information, and services processing links with the characteristics of supply, transformation, and demand” as shown in the following figure:

Abbildung in dieser Leseprobe nicht enthalten

Figure-4 An illustration of a companys supply chain

(Source: Chen and Paulraj, 2004, p. 120)

Accordingly SCM not only encompasses a company’s internal logistics activities but also the flow of materials, information and funds between interdependent companies in a supply chain network. While logistics management concentrates on optimizing intrarganisational flows, SCM recognizes the importance of extending coordination and cooperation to suppliers and customers.

The contributions from different authors share two major aspects that are essential for SCM: First, SCM is managing a company’s core process end-to-end from supply to demand. Second, SCM is coordinating this process across companies that are in the network chain, which can be a distribution channel or - in the sense of Porter - a value chain. A definition combining these major theoretical aspects from literature with the results of practical experience comes from the Council of Supply Chain Management Professionals (CSCMP, 2011):

Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.

Business functions and key processes of SCM

One of the key decisions when implementing SCM is which company specific business functions should be integrated into the supply chain (Lambert and Cooper, 2000). Porter’s value chain model can be used to illustrate these functions:

Cross Company Coordination

Abbildung in dieser Leseprobe nicht enthalten

Figure-5 Business functions of SCM

(Source: adapted from Porter, 1985, p.37)

Following the end-to-end aspect of the reviewed literature, the SCM coordinated business functions encompass all of Porter’s primary activities plus procurement as a support activity. The coordination should be done within and across companies. This approach of SCM business functions will be used in the later analysis to position material management and to check the compatibility of both.

While functions encompass all activities a company performs, processes describe how the tasks are carried out (Borysowich, 2007). Concerning SCM processes a variety of process-oriented supply chain frameworks can be found in the literature of which two models prevail: the Supply Chain Operations Reference model (SCOR) and the Global Supply Chain Forum (GSCF) model. Both approaches are well recognized among major companies, although they differ in their purpose and breadth (Hübner and Elmhorst, 2008). The GSCF framework assumes a strategic perspective and is closely aligned with the corporate strategy. It encompasses eight key processes that foster long-term relationships among supply chain members and helps companies to improve the economic value added (EVA). The eight SCM processes identified by the GSCF are (Lambert et al., 2005):

1. Customer Relationship Management
2. Customer Service Management
3. Demand Management
4. Order Fulfilment
5. Manufacturing Flow Management
6. Supplier Relationship Management
7. Product Development and Commercialization
8. Returns Management

According to Lambert et al. (2005), each process is cross-functional, cross-firm and comprises strategic and operational sub-processes that can be broken down into various individual activities. Customer and supplier relationship management are the major supply chain components through which the other processes are coordinated.

In contrast to the GSCF framework, the SCOR model emphasizes transactional efficiency and encompasses only those functions that allow cost reductions and improved asset utilization (Hübner and Elmhorst, 2008). Following Lambert et al. (2005), SCOR concentrates on the activities directly involved in the supply and flow of products, such as procurement, logistics, and manufacturing, while excluding those functions that focus on relationship management. The five processes developed by the Supply Chain Council (SCC) are (Lambert et al. 2005):

1. Plan (balancing supply and demand)
2. Source (procuring goods and services)
3. Make (transforming products)
4. Deliver (providing finished goods and services)
5. Return (returning or receiving returned products)

Both models consider the supply chain as a network of cooperating firms, but differ in their approach to business process organisation and integration. Lambert et al. (2005) note that companies with low efficiency levels - what is a fact in the hospital industry’s material management - benefit more from the implementation of SCOR due to its transaction orientation. As this project focuses on reducing inefficiencies in hospitals’ material management organisation, the later analysis will further elaborate on the supply chain processes specified by the SCOR framework and compare them to a hospital’s business process organisation.

Success factors

Mentzer et al. (2001) identified increasing global sourcing, time, and quality as critical success factors of SCM. Chen and Paulraj (2004) determine three different success factors for effective SCM. Firstly, they stress the importance of astrong buyer-supplier relationship, including continuous cooperation, communication and involvement. Secondly,customer satisfactionis a major contributor to successful SCM. Increasing market saturation combined with consumer demand for high-quality products at low prices requires supply chain members to collectively look for new ways to anticipate and satisfy customer needs.

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Details

Pages
77
Year
2011
ISBN (eBook)
9783656972358
ISBN (Book)
9783656972365
File size
1.6 MB
Language
English
Catalog Number
v300290
Institution / College
King`s College London
Grade
1.6
Tags
Supply Chain Management Logistik Materialmanagement Gesundheitssektor Schweiz

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Title: Supply Chain Management in the Hospital Industry of Switzerland