Supply chain risk management and hospital inventory: Effects of system affiliation

In this study we examine the effects of horizontal inter-organizational arrangements on inventory costs for hospitals facing two key environmental conditions, namely the logistics services infrastructure where the hospital is located and the demand uncertainty for clinical requirements that a hospital experiences. Utilizing detailed data from hospitals in the State of California, we investigated the potential mitigating effects of affiliation with multi-hospital systems while controlling for service performance. We argue that these arrangements potentially influence managers' confidence in their supply chains, which in turn impacts inventory accumulation. Results suggest that while affiliation with local, regional, and national systems has mitigating effects under weak logistics services infrastructure, the mitigating effect is greatest for affiliation in local systems. The results also point to potential for improved operating efficiency with system affiliation, a factor that is often not considered in policy discussions regarding hospital system formation. Theoretical and managerial implications are discussed.