The effect of supply chain approaches on profitability in pharmaceutical supply chain of healthcare providers.

Healthcare supply chain is plagued by misalignment, high costs for healthcare providers and heavy dependence on third parties, distributors and manufacturers. In contrast to traditional supply chain models, Vendor Managed Inventory (VMI) can be used to gain a competitive advantage through effective supply chain. A VMI approach can improve supply chain performance by decreasing inventory-related costs and increasing customer service. This study aimed at understanding the effects of traditional and VMI strategies on profitability in private health care facilities. Using a mixed methods approach, the study compared financial statements of two healthcare facilities who used only traditional supply chain and of two additional facilities both for when they used traditional supply chain methods and when they used a VMI model. The analysis reviewed changes in gross profit margin and cashflow margin from 2016 to 2017. In-depth interviews were conducted to provide insights of the health care providers who work in VMI facilities a total of 8 staff members were interviewed. Data collected from financial statements and in-depth interviews was analysed using SPSS and Excel. Facilities that used VMI saw a combined growth in revenue from drug sales of 37% in contrast to 12.3 for those that used traditional models. A strong positive linear relationship was found to exist between VMI adoption and Gross profit margin with correlation values at 0.978 and 0.88 for VMI facilities. While no significant correlation was found between cash flow margins and VMI adoption, 87.5% of staff members interviewed said they would recommend VMI suppliers to their peers. Findings showed that both the facilities that implemented VMI in 2017 experienced significant revenue growth as compared to the hospitals that maintained a traditional model. In addition to this VMI hospitals had higher growth profit margins in 2017 than the traditional supply chain ones. However, the cases have been conducted over a short period of time, which may affect the generalization of the findings. Wider empirical evidence from more facilities over a longer period of time will be beneficial.