Tailored hospital supply chain for greater return on investment

Abstract

The cost of healthcare has been increasing over the past several years. From 1997 to 2002, the average cost for hospital stays increased 24 percent. The increase in healthcare cost can be explained by malpractice law suits and also by the increase in the cost of medical supplies (26 percent increase from 2000 to 2002). Though the Automated Point of Use (APU) technology and the Vendor Managed Inventory (VMI) are helping hospitals reduce supply chain costs, this research seeks to understand whether the inventory policy exists with the APU-VMI model is optimal. To achieve an understanding of the behavior under the APU-VMI model, this research seeks to investigate the inventory cost as well as the average order quantity and the deviation of the order quantity, and the replenishment frequency for before and after the introduction of the APU-VMI model. Through this, this research seeks to recommend the optimal inventory policies that hospitals should couple with the APU-VMI model. This combination should enable hospitals to reduce supply costs, and increase the returns on the investment made in implementing the APU-VMI model.