Prevalence of Bullwhip Effect in Hospitals

Growing concern about health care costs in developed countries in the past two decades has spawned extensive research on the industry and, in particular, hospital management. The literature on the subject is extensive and covers a wide range of themes that include application of operational research-based tools, redesign/re-engineering of delivery systems and clinical procedures, and so forth. However, in our case studies, we found that hospitals in Australia are in early stages of adoption of emerging paradigms in operations management (e.g., coordination, lean principles) that have significant potential for enhanced performance. The purpose of this chapter is to describe one of the consequences of poor coordination—bullwhip effect in hospitals—and its impact on performance and to discuss initiatives to mitigate and manage it. In their widely cited papers, Lee, Padmanabhan, and Whang (1997a, 1997b) define bullwhip effect as “the phenomenon where orders to the supplier tend to have larger variance than sales to the buyer (i.e., demand distortion), and the distortion propagates upstream in an amplified form (i.e., variance amplification).” The bullwhip phenomenon has been observed by many firms across a number of diverse industries. Lee, et al. (1997b) state the impact of increased volatility as, “Distorted information from one end of the supply chain to the other can lead to excessive inventory investment, poor customer service, lost revenues, ineffective transportation, and missed production schedules.” Although there is a growing body of research on managing the bullwhip effect in manufacturingbased supply chains (Baganha & Cohen, 1998; Chen, Drezner, Ryan & Simchi-Levi, 2000; Chen, Ryan & Simchi-Levi, 1997; Metter, 1997), little research exists on its presence in service chains, and we are unaware of any reported research on this subject. In this chapter, we present several examples of distorted information in hospitals resulting in variability amplification and causing inefficiencies similar to the bullwhip effect. We highlight the underlying causes for this phenomenon and propose actions that can mitigate the detrimental impact of this distortion.