Model development and economic evaluation of vendor-managed inventory (VMI): a case study of a provincial hospital

Abstract

The research comprises three purposes: 1). to explore the current situation on inventory management in hospitals; 2). to develop an effective VMI model for a hospital, and 3). to evaluate the financial impact of the VMI model. This article studies the medicine selection, procurement, and inventory management theme of the in-depth interview data analysis. The current situation analysis reveals that there are two main issues of the current medicine supply chain management. This article analyzes the limitation following the USAID VMI model development guideline. The researcher suggests developing the 3rd Party Managed Inventory Services (3MIS) model to solve the issue found in the situation analysis. The 3MIS model is developed to assume that the third party is set as the intermediated role. Financial impact assessment aims at comparing costs between the current situation model and the VMI-based supply chain management models. This study would focus on procurement and inventory management activities. The study calculates costs using the traditional costing system, lists the activities in medicine supply chain management. The financial assessment reveals that the VMI-based model wastes less cost compare with the current situation. The research also considers cost categories changing. The total process cost of the first year is different, about 20 million THB. The total procurement cost between the two scenarios is similar. The current scenario shows the higher basic cost of the procurement activity. The VMI-based scenario reduces this type of cost on the assumption of reducing the resource used. However, the VMI scenario has a higher management cost. The increased management cost is based on the additional services from the vendor. The carrying cost of the VMI scenario is lower comparing with the current situation model. The lower carrying cost comes from lower average inventory.