Advertisement

Health Care Management Science

, Volume 22, Issue 2, pp 336–349 | Cite as

Dependence and power in healthcare equipment supply chains

  • Jurriaan L. de JongEmail author
  • W. C. Benton
Article
  • 514 Downloads

Abstract

Most healthcare organizations (HCOs) engage Group Purchasing Organizations (GPOs) as an outsourcing strategy to secure their supplies and materials. When an HCO outsources the procurement function to a GPO, this GPO will directly interact with the HCO’s supplier on the HCO’s behalf. This study investigates how an HCO’s dependence on a GPO affects supply chain relationships and power in the healthcare medical equipment supply chain. Hypotheses are tested through factor analysis and structural equation modeling, using primary survey data from HCO procurement managers. An HCO’s dependence on a GPO is found to be positively associated with a GPO’s reliance on mediated power, but, surprisingly, negatively associated with a GPO’s mediated power. Furthermore, analysis indicates that an HCO’s dependence on a GPO is positively associated with an HCO’s dependence on a GPO-contracted Original Equipment Manufacturer (OEM). HCO reliance on GPOs may lead to a buyer’s dependence trap, where HCOs are increasingly dependent on GPOs and OEMs. Implications for HCO procurement managers and recommended steps for mitigation are offered. Power-dependence relationships in the medical equipment supply chain are not consistent with relationships in other, more traditional, supply chains. While dependence in a supply chain relationship typically leads to an increase in reliance on mediated power, GPO-dependent HCOs instead perceive a decrease in GPO mediated power. Furthermore, HCOs that rely on procurement service from GPOs are increasingly dependent on the OEMs.

Keywords

Supply chain management GPO Power Healthcare Procurement outsourcing 

Notes

Acknowledgements

This study was partially supported by a Grant from the Institute for Supply Management (ISM). The autors would also like to acknowledge the feedback and guidance offered by the Association for Healthcare Resource & Materials Management (AHRMM) and by executives from the four major medical digital imaging equipment OEMs.

References

  1. 1.
    Schneller ES, Smeltzer LR (2006) Strategic management of the health care supply chain. Jossey-Bass, San FranciscoGoogle Scholar
  2. 2.
    Hu Q, Schwarz LB, Uhan NA (2012) The impact of group purchasing organizations on healthcare-product supply chains. Manuf Serv Oper Manage 14(1):7–23Google Scholar
  3. 3.
    GAO (2002) Group purchasing organizations: Pilot study suggests large buying groups do not always offer hospital lower prices. Report GAO-02-690t. Testimony before the subcommittee on antitrust, competition, and business and consumer rights, committee on the judiciary, U.S. SenateGoogle Scholar
  4. 4.
    Burns LR, Lee JA (2008) Hospital purchasing alliances: utilization, services, and performance. Health Care Manage Rev 33(3):203–215Google Scholar
  5. 5.
    Singer HJ (2006) The budgetary impact of eliminating the GPOs' safe harbor exemption from the anti-kickback statute of the social security act. http://www.medicaldevices.org/node/76. Accessed December 15, 2017
  6. 6.
    Sethi SP (2006) Group purchasing organizations: An evaluation of their effectiveness in providing services to hospitals and their patients. http://www.icca-corporateaccountability.org/PDFs/HGPII_Report07-20-06.pdf. Accessed December 15, 2017
  7. 7.
    Hu QH, Schwarz LB (2011) Controversial role of GPOs in healthcare-product supply chains. Prod Oper Manage 20(1):1–15Google Scholar
  8. 8.
    Kumar N, Scheer LK, Steenkamp J-BEM (1998) Interdependence, punitive capability, and the reciprocation of punitive actions in channel relationships. J Mark Res 35(2):225–235Google Scholar
  9. 9.
    Burt RS (1982) Toward a structural theory of action : network models of social structure, perception, and action. Academic Press, New YorkGoogle Scholar
  10. 10.
    Heide JB, John G (1990) Alliances in industrial purchasing: the determinants of joint action in buyer-supplier relationships. J Mark Res 27(1):24–36Google Scholar
  11. 11.
    Morgan RM, Hunt SD (1994) The commitment-trust theory of relationship marketing. J Mark 58(3):20–38Google Scholar
  12. 12.
    Scheer LK, Miao CF, Garrett J (2010) The effects of supplier capabilities on industrial customers’ loyalty: the role of dependence. J Acad Market Sci 38(1):90–104Google Scholar
  13. 13.
    Burnham TA, Frels JK, Mahajan V (2003) Consumer switching costs: a typology, antecedents, and consequences. Int J Mark Res 31(2):109–126Google Scholar
  14. 14.
    Hiltzik M (2005) Supply middlemen may leave hospitals ailing. Los Angeles TimesGoogle Scholar
  15. 15.
    Bogdanich W (2002) Medicine's middlemen: questions raised of conflicts at 2 hospital buying groups. NY TimesGoogle Scholar
  16. 16.
    Walsch MW, Bogdanich W (2003) 2 big hospital buying groups settle lawsuit by needle maker. NY TimesGoogle Scholar
  17. 17.
    Cheney C (2017) Consolidation reshaping healthcare-vendor sector. Health Leaders MediaGoogle Scholar
  18. 18.
    GAO (2012) Group purchasing organizations: federal oversight and self-regulation. Report to chairman of subcommittee on antitrust, Competition policy and consumer rights committee on the judiciary united states senateGoogle Scholar
  19. 19.
    Hunt SD, Nevin JR (1974) Power in a channel of distribution: sources and consequences. J Mark Res 11(2):186–193Google Scholar
  20. 20.
    Emerson RM (1962) Power-dependence relations. Am Sociol Rev 27(1):31–41Google Scholar
  21. 21.
    Handley SM, Benton WC (2012) Mediated power and outsourcing relationships. J Oper Manag 30:253–267Google Scholar
  22. 22.
    Brown JR, Lusch RF, Muehling DD (1983) Conflict and power-dependence relations in retailer-supplier channels. J Retailing 59(4):53–81Google Scholar
  23. 23.
    McWilliams G (2007) Wal-mart's radio-tracked inventory hits static. The Wall Street JournalGoogle Scholar
  24. 24.
    White J (1992) Gm’s lopez says he will accelerate, expand cost-cutting despite criticism. The Wall Street JournalGoogle Scholar
  25. 25.
    Maloni M, Benton WC (2000) Power influences in the supply chain. J Bus Logist 21(1):49–73Google Scholar
  26. 26.
    Frazier GL, Summers JO (1984) Interfirm influence strategies and their applications within distribution channels. J Mark 48(3):43–55Google Scholar
  27. 27.
    Burns LR (2002) The wharton school study of the health care value chain. Jossey-Bass, San FranciscoGoogle Scholar
  28. 28.
    Benton WC, Maloni M (2005) The influence of power driven buyer/seller relationships on supply chain satisfaction. J Oper Manag 23(1):1–22Google Scholar
  29. 29.
    Boyle B, Dwyer FR, Robicheaux RA, Simpson JT (1992) Influence strategies in marketing channels: measures and use in different relationship structures. J Market Res 29(4):462–473Google Scholar
  30. 30.
    Brown JR, Lusch RF, Nicholson CY (1995) Power and relationship commitment: their impact on marketing. J Retail 71(4):363–392Google Scholar
  31. 31.
    Caniels MCJ, Gelderman CJ (2007) Power and interdependence in buyer supplier relationships: a purchasing portfolio approach. Ind Market Manag 36(2):219–229Google Scholar
  32. 32.
    French JR, Raven B (1959) The bases of social power. In: cartwright D (ed) Studies in social power. University of Michigan Press, Ann Arbor, pp 311–320Google Scholar
  33. 33.
    Boyle BA, Dwyer FR (1995) Power, bureaucracy, influence, and performance: their relationships in industrial distribution channels. J Bus Res 32:189–200Google Scholar
  34. 34.
    Frazier GL, Rody RC (1991) The use of influence strategies in interfirm relationships in industrial product channels. J Mark 55(1):52–69Google Scholar
  35. 35.
    Frazier GL, Summers JO (1986) Perceptions of interfirm power and its use within a franchise channel of distribution. J Mark Res 23(2):169–176Google Scholar
  36. 36.
    Williamson OE (1979) Transaction-cost economics: the governance of contractual relations. JL Econ 22(2):233–261Google Scholar
  37. 37.
    Quinn JB, Hilmer FG (1994) Strategic outsourcing. Sloan Manage Rev 35(4):43–55Google Scholar
  38. 38.
    Lonsdale C (2001) Locked-in to supplier dominance: on the dangers of asset specificity for the outsourcing decision. Supply Chain Manag 37(1):22–27Google Scholar
  39. 39.
    Cox AW (2003) Supply chain management: a guide to best practice. FT Prentice Hall, LondonGoogle Scholar
  40. 40.
    Pfeffer J, Salancik GR (1978) The external control of organizations: a resource dependence perspective. Harper & Row, New YorkGoogle Scholar
  41. 41.
    El-Ansary A, Stern LW (1972) Power measurement in the distribution channel. J Mark Res 9(1):47–52Google Scholar
  42. 42.
    Blau PM (1964) Exchange and power in social life. Wiley, New YorkGoogle Scholar
  43. 43.
    Gulati R, Sytch M (2007) Dependence asymmetry and joint dependence in interorganizational relationships: effects of embeddedness on a manufacturer's performance in procurement relationships. Adm Sci Q 52(1):32–69Google Scholar
  44. 44.
    Provan KG, Gassenheimer JB (1994) Supplier commitment in relational contract exchanges with buyers: a study of interorganizational dependence and exercised power. J Manag Stud 31(1):55–68Google Scholar
  45. 45.
    Kumar N, Scheer LK, Steenkamp J-BEM (1995) The effects of perceived interdependence on dealer attitudes. J Mark Res 32(3):348–356Google Scholar
  46. 46.
    Gundlach GT, Cadotte ER (1994) Exchange interdependence and interfirm interaction: research in a simulated channel setting. J Mark Res 31(4):516–532Google Scholar
  47. 47.
    Anderson JC, Gerbing DW (1988) Structural equation modeling in practice: a review and recommended two-step approach. Psychol Bull 103(3):411–423Google Scholar
  48. 48.
    Armstrong JS, Overton TS (1977) Estimating nonresponse bias in mail surveys. J Mark Res 14(3):396–402Google Scholar
  49. 49.
    Caniels MCJ, Roeleveld A (2009) Power and dependence perspectives on outsourcing decisions. Eur Manag J 27(6):402–417Google Scholar
  50. 50.
    Hair JF (1998) Multivariate data analysis. Prentice Hall, Upper Saddle RiverGoogle Scholar
  51. 51.
    Carmines EG, Zeller RA (1979) Reliability and validity assessment. Sage Publications, Beverly Hills, CAGoogle Scholar
  52. 52.
    Fornell C, Larcker DF (1981) Evaluating structural equation models with unobservable variables and measurement error. J Mark Res 18(1):39–50Google Scholar
  53. 53.
    Menor LJ, Kristal MM, Rosenzweig ED (2007) Examining the influence of operational intellectual capital on capabilities and performance. Manuf Serv Oper Manage 9(4):559–578Google Scholar
  54. 54.
    Heckler CE, Hatcher L (1996) Review of: a step-by-step approach to using the sas® system for factor analysis and structural equation modeling. Technometrics 38(3):296–297Google Scholar
  55. 55.
    Hu L, Bentler PM (1999) Cutoff criteria for fit indexes in covariance structure analysis: conventional criteria versus new alternatives. Struct Equ Model 6(1):1–55Google Scholar
  56. 56.
    Bagozzi RP, Yi Y, Phillips LW (1991) Assessing construct validity in organizational research. Adm Sci Q 36(3):421–458Google Scholar
  57. 57.
    Venkatraman N (1989) The concept of fit in strategy research: toward verbal and statistical correspondence. Acad Manag Rev 14(3):423–444Google Scholar
  58. 58.
    Podsakoff PM, MacKenzie SB, Jeong-Yeon L, Podsakoff NP (2003) Common method biases in behavioral research: a critical review of the literature and recommended remedies. J Appl Psychol 88(5):879–903Google Scholar
  59. 59.
    Hofer AR (2015) Are we in this together? The dynamics and performance implications of dependence asymmetry and joint dependence in logistics outsourcing relationships. Transp J 54(4):438–472Google Scholar
  60. 60.
    Van-Weele AJ (2005) Purchasing and supply chain management: analysis, strategy, planning and practice-4/e. Thomson Learning, LondonGoogle Scholar
  61. 61.
    Caniels MC, Gelderman CJ (2005) Purchasing strategies in the Kraljic matrix-a power and dependence perspective. J Purch Supply Manag 11(2–3):141–155Google Scholar
  62. 62.
    Lee J (2013) Strategic move. With IPO, premier targets data analytics game plan. Mod Healthc 43(35):8–9Google Scholar
  63. 63.
    Biggs S (2012) Ascension health alliance announces formation of GPO. Healthcare Finance NewsGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of Operations Management & Strategy, School of ManagementUniversity at Buffalo, The State University of New YorkBuffaloUSA
  2. 2.Edwin D. Dodd Professor of Management, Department of Management Sciences, Fisher College of BusinessThe Ohio State UniversityColumbusUSA

Personalised recommendations