On Risk Management in Supply Chains: An Empirical Analysis of Inventory Management in Hospitals

In this study we propose a risk management approach in health care supply chains by empirically examining the relationship between supply chain risk and risk buffering strategies on hospital inventory performance. Results demonstrate that hospitals are no different than other firms operating in different industry sectors regarding how they manage inventory in terms of supply and demand uncertainty. Our results suggest that weaker supply chain infrastructure and greater service mix uncertainty are associated with greater inventory accumulation. As a risk buffering approach, results suggest that hospitals mitigate supply chain risk by risk pooling through system affiliation. We also find support for scale advantages for affiliating by small hospitals. In addition, our results suggest that risk buffering benefits through group purchasing organizations (GPOs) does not provide clear operational benefits in terms of mitigating hospitals from supply chain risk.