Coordinating the elderly healthcare service supply chain in China

Abstract

With the fast-growing aging population and customer expectation, China’s community-based elderly healthcare service (EHS) system is facing the problem of imbalanced supply-demand of service capacity. Most studies have tried to address the problem from the viewpoint of service capacity allocation between the elderly service provider (ESP) and the elderly. However, the emphasis on the role of the elderly service integrator (ESI) is a significant feature of China’s community-based EHS system. This aspect makes China’s EHS different from that of other countries. The interactions between the ESI and the ESP have been generally ignored during the planning, procurement and pricing of service capacity. Therefore, the coordination amongst the ESI and ESP is crucial to achieving the balance of supply-demand in the elderly healthcare service supply chain (EHSSC). The current research in operations management has emphasised the inadequacies of China’s existing community-based EHS system, which mainly operates as a decentralised EHSSC. Specifically, they are (i) a lack of a well-established service operational framework that clearly specifies the structure of the EHSSC and the respective roles of its members; (ii) an inability of the EHSSC to deal with demand uncertainty; (iii) a lack of effective coordination for making optimal decisions of ordering and pricing on service capacity. The uncoordinated supply-demand decision making between the ESI and ESP affects the service delivery, resulting in the failure of satisfying the end customer’s needs. This study is on the coordination of the EHSSC under demand uncertainty. The various research issues studied are based upon a two-echelon EHSSC comprising an ESI and ESP. Game-theoretic approaches are used to characterise the relationship between the ESI and ESP in the EHSSC. Four scenarios are respectively discussed. These include the coordination of the EHSSC with the following features: (i) information asymmetry; (ii) service sales effort and loss sharing; (iii) government subsidy; and (iv) dual-channel structure and customer demand class. A basic model is represented by a function with the service revenue minus the procurement cost of service capacity, associated loss due to customer dissatisfaction, cost of lost sales and investment for services. Optimal decisions of ordering and pricing on service capacity are analysed within an optimisation model, which is extended from the basic model by incorporating the main influencing factors of demand uncertainty. Different scenarios with suitable contracts are designed to incentivise the ESI and ESP for the coordination of EHSSC. Numerical studies are performed to demonstrate the benefits obtained by introducing the game-theoretic approaches and effective contracts. Furthermore, the impacts of main demand influencing factors on the decisions of ordering and pricing are investigated for the EHSSC. The results show that, the application of game-theoretic approaches and flexible contracts (i.e., option contract, loss-sharing contract and subsidy allocation mechanism) can help to incentivise the ESI and ESP and improve the performance of the whole system. The conditions of coordination and optimal decisions can be obtained under such four scenarios for the EHSSC. These results provide managerial insights for the improvement of China’s EHS system under demand uncertainty.