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 ow diagrams are used to visualise the organizations 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 ndings 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 identied, 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 ndings, there is value in demonstrating the benets 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 benets 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
An increasingly challenging value chain environment is putting pressure on healthcare organizations to look for opportunities to improve operational efciencies and reduce costs while continuing to improve quality of care (Hanna and Sethuraman, 2005). Supply chain management is more `-vis other industries because of the complex in healthcare vis-a impact on peoples health requiring adequate and accurate medical supply according to the patients needs (Beier, 1995). Despite this, it is still perceived that there is signicant 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
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focussing on individual businesses. This paper aims to address 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 condentiality 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 rst 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. 234

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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 signicant 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 inuenced by factors such as tax benets (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 nished 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 ows 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 nal 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

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 ndings of Haavik (2000) who reported that, in 1994, stock turns in hospital store rooms lasted four to ve weeks. Another theme raised by a, several authors is demand amplication (Shah, 2004, Corre 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. . Prot 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 difcult 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.

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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 justin-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 (RivardRoyer 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 difcult (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 benets 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 benets 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) a (2004) investigates Brazil, both studies Mexico while Corre at a healthcare sector level. Therefore, this paper contributes to the literature through a detailed case study of a private healthcare company within Malaysia.

factors that support and limit the implementation of JIT at Proton Cars. Electronics. Ernst (2004) reports that Malaysias 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.

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 specically 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 236

Some elements of supply chain management in Malaysia appear to be particularly well studied. The rst 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 difcult to implement JIT fully in Malaysia because of a lack of trust between buyers and suppliers and other factors like trafc 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 multiand 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 rms in Malaysia. In Malaysian grocery distribution, social bonding is an important factor in establishing the supplier-distributor relationship, reecting 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 benets for cost and delivery lead time/time saving compared to customer service. A nal element of Malaysias 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

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ICT, although only 47.8 per cent had internet connections (Alam and Ahsan, 2007).

4. Method
In this paper, a case study approach is adopted to investigate the current level of supply chain management in the healthcare industry in Malaysia. Using a case study will help us to gain in depth knowledge and understanding on what is going on within an organization. Even though the case study company is singular, the study involves two echelons in the supply chain the wholesaler and clinics. This can be classied as an embedded case study design (Yin, 1984). One author spent two months within the company in Malaysia collecting data using three main techniques: 1 Process mapping. Process mapping is a technique to model the business process ow in graphical form to visualize the actual process in the organisation and look for improvement to make it more effective (Paper et al., n (2004) provides an overview of the 2001). Aguilar-Save many process mapping tools. In this research, we use the Data Flow Diagram (DFD) technique to model both the current and future inventory management process within organisation. Recker et al. (2006) study the differences in the representational capabilities across leading process modelling techniques and conclude that DFD is one of best method in representing the structure of systems. The process map uses four different symbols (see Figure 2) to represent the main components External Entities, Data Stores, Data Flows and Processes. An External Entity either supplies data to the system or receives data from the system, or both. The Process receives input data and produces outputs. DFD has data stores as a document, le or database to store the output from a process before it will be retrieved by the other process. Data ows generally are labelled with the name of the data and link sources, process, data store and sinks to represent the data ow 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

Data analysis. Reviews of the organizations archival records were important and useful here to get specic and detailed information for analysis. Archival data was collected from the company on purchase orders (PO) and delivery orders (DO). These are kept on two different systems. Purchase Order details are extracted from the companys online system used by the clinic to place an order. DOs are extracted from the inventory system and the data is kept in a Microsoft Access database. For this research, three months of PO and DO data was analysed.

From this, the supply chain was analysed to identify the main problems that existed, using triangulated ndings from primary and secondary sources. Having identied the problems, a potential solution was then proposed, again using DFD to portray the future state of the supply chain.

5. Supply chain process

Based on interviews and process mapping, Figure 3 illustrates the key stages in the organisations inventory management and replenishment process between the wholesaler and clinics. Figure 4 shows the DFD diagram for the same process. The numbers in the processes and data stores indicate the sequence of the process. Each clinic is responsible for monitoring and managing their own inventory and they place an order to the wholesaler when required. The decision on which products to order at each period and the quantity required relies upon the experience and skill of staff at the clinics. Clinics make an order directly using the online PO system. Generally, orders are placed during the rst and third week of every month. All the orders will be processed and delivered within ve days. Each order is referred to by the PO number, which is automatically generated in the system. The rst stage of order Figure 3 Inventory management process

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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 avour. 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 specic 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 companys transport eet (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. 238

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 satised, 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 identied through triangulating ndings 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 Noorfa Haszlinna Mustaffa and Andrew Potter

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.

orders are generated manually and based only on the experience of individuals at the clinics. With normal orders, there is a delivery lead time of ve days, increasing the risk of a stock out. Unlike consumer products, where the customer can either defer their purchase or acquire an alternative, this can be critical in providing patient care as there may be no alternative treatment for the patient. Therefore, urgent orders need to be delivered immediately. Just a few products are delivered in each urgent shipment and, due to the scattered locations of clinics, vehicle ll is lower with increased transportation costs. To understand the size of this problem, PO data over a three month period was analysed. For each day, the number of normal and urgent orders placed was counted, and the results are shown in Figure 5. As can be seen, order levels peak in weeks 1 and 3 of each month. However, between the peaks (and especially in the days before peak normal orders) there are a signicant number of urgent orders. Generally, almost one third of total orders every month are classes as urgent. This highlights not only the size of the problem in relation to the availability of medication at clinics, but also indicates issues with the ordering process within the clinic. The pressure on the supply chain at peak times to meet demand is also considerable. 6.2 Stock availability at the wholesaler 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 difcult to forecast their requirements. Coupled with two major peaks in orders each month, the wholesaler may face difculty if the many clinics order the same products at the same time. This will cause out of stock problems at the wholesaler. Some clinics will get the products ordered while others need to wait until the new stock arrives. In order to determine the scale of this problem, we compared the POs and DOs for a three-month period. Each product line ordered is categorized as follows: Figure 5 Normal and urgent orders placed by clinics to the wholesaler

. .

the quantity of product delivered is equal to the amount of the order; the quantity of product delivered is lower than the amount ordered; the product is not delivered to clinics; and the quantity of product delivered is greater than the amount ordered.

The unit of analysis was for individual products rather than the aggregate order for each clinic. About 2,000 individual orders for products were analysed for each month and the results in percentage terms for each category can be found in Table I. The analysis shows that around 80 per cent of orders are fullled by the wholesaler. In 9 per cent of cases, more product is delivered than requested by the clinic. The cause of this is often a difference between the quantity ordered and the unit size for the product. For example, an order for Gentacimin Cream from the clinic is 900 g, but the product is only available in 500 g packs. Therefore, the wholesaler will deliver two packs of the product, leading to an over delivery of 100 g. About 7 per cent of orders cannot be delivered to clinics at all, while a further 12 per cent see a reduced delivery as there is insufcient stock available at the wholesaler. These shortfalls can have a serious impact on the medical treatment available to patients. Table I Delivery performance for the wholesaler
Category Product Product Product Product October November December % % % 72.75 9.12 9.84 8.29 71.64 8.8 11.69 7.87

delivered 5 Amount ordered 71.5 delivered > Amount ordered 9.37 delivered < Amount ordered 12.1 delivered 5 0 6.97

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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 efciently, which can lower the operating cost and generate more revenue and prot. 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 uctuates 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 efciencies. 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 products 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 efcient 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. Holmstro m (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 difcult 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 240

improvement to the companys 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 signicant investment by acquiring inventory control and routing software.

8. Implications, given Malaysias 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 benet 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 exibility 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 benets 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 ndings 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 specically 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

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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 Malaysias 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 inuenced 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 241

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 organisations 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 exibility 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 benets from VMI implementation.

Healthcare supply chain management in Malaysia: a case study Noorfa Haszlinna Mustaffa and Andrew Potter

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Healthcare supply chain management in Malaysia: a case study Noorfa Haszlinna Mustaffa and Andrew Potter

Supply Chain Management: An International Journal Volume 14 Number 3 2009 234 243

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Zailani, S. and Rajagopal, P. (2005), Supply chain integration and performance; US versus East Asian companies, Supply Chain Management, Vol. 10 No. 5, pp. 379-93.

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

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