Benefits and Barriers of E-Sourcing and E-Purchasing in the Healthcare Sector: A Case Study

1. Introduction

With over $4.5 trillion in expenditure, the global Healthcare industry is one of the world’s largest and fastest growing industries, comprising various sectors: medical equipment and supplies, pharmaceutical, healthcare services, biotechnology and alternative medicine sectors (Beeny, 2014). It is facing an increasingly complex regulatory and legislative environment as well as a variety of economic and business challenges (UPS Survey, 2013), such as the policy level that may restrict product selection possibilities, the service delivery point that may face frequent stock outs due to poor forecasting, unavailability of transport and a variety of other issues (UN CoLSC, 2014). These risks combined with new growth opportunities are driving healthcare businesses to overcome the inefficiencies of the past. Given the personal and professional impact of timely, cost efficient and most importantly effective treatments, today’s global healthcare industry is forced to manage its supply chain more effectively. To be effectively managed, supply chain resources, such as suppliers, partners and customers need to be linked. The supply chain is transforming from a controlled entity within the four walls of a warehouse into a network of resources, scattered across facilities and entities in different cities and countries (Beeny, 2014).

Failing to manage the supply chain effectively has been shown to have significant negative impacts on organizations (Kanyoma et al., 2013). It has been argued that especially for the healthcare industry inefficient supply chain management (SCM) processes cause significant cost increases (De Vries & Huijsman, 2011), as activities related to the purchase, distribution, and management of supplies account for about one third of the operating costs of healthcare facilities (Kumar et al., 2008). These findings are supported by industry surveys, which show that healthcare providers are using almost a third of their annual operating funds to support their supply chain (Nachtmann & Pohl, 2009). The management of the supply chain in the healthcare industry in particular, possesses an additional dimension of complexity, as companies have to do a highly accurate job, considering that potential dysfunctions might have negative consequences on peoples wellbeing and even peoples lives (Mustaffa & Potter, 2009). Thus, companies in the healthcare sector need to make continuous efforts to improve their supply chain performance, especially since experts have estimated that SCM practices of the healthcare industry are 10 to 15 years behind other industries such as retail and manufacturing (Chen et al., 2013). According to a survey among healthcare executives, investing in new technologies was identified as the top strategy to improve competitiveness and increase efficiency (UPS Survey, 2013). As the significance of information and communication technologies (ICT) in improving healthcare supply chains has been proved, many healthcare organizations initiated related projects (De Vries & Huijsman, 2011). Even in developed countries such as the US, the healthcare industry is suffering from inconsistent and inaccurate product information, which negatively impacts the rest of the supply chain including the quality of care delivery for patients (Pleasant, 2009). Room for improvement through the use of ICT also exists for UK’s national healthcare provider NHS, as it is characterized by lack of common commercial and procurement data standards, which means that the analysis of expenditure and demand requirements across organizations is very costly in terms of time and resources (Hodson-Gibbons, 2009; Kritchanchai, 2012).