RFID adoption strategy and the operational performance of a pharmaceutical supply chain: The role of hospital competition

Amid hospitals’ efforts to enhance operational efficiency and slash costs, addressing inventory inaccuracies in hospital pharmaceutical supply chain has gained urgency. Although radio frequency identification (RFID) technology effectively reduces such inaccuracies, its introduction in vendor-managed inventory (VMI) remains debatable for vendors given the impact of competitive inter-hospital environment and corresponding implementation costs. This study develops a three-level Stackelberg game model to analyze the vendor’s strategy regarding RFID adoption within the pharmaceutical supply chain, taking into account different types of competition between hospitals (i.e., public vs. public and public vs. private). We find that the vendor’s RFID adoption strategy under both forms of competition is counter-intuitive, with RFID being adopted even when the intensity of RFID in reducing inventory inaccuracy is low, provided the reimbursement rate for public hospital is high. Furthermore, homogeneous competition increases the vendor’s need for higher RFID intensity, while heterogeneous competition heightens the requirement for a favorable reimbursement rate. Finally, both homogeneous and heterogeneous competition can facilitate RFID adoption, with the preference depending on diagnosis cost, reimbursement rate and RFID intensity. This study offers fresh perspectives on the intricacies of vendors’ decision-making processes for RFID adoption in healthcare, emphasizing the significance of competitive dynamics and strategic management of medical consumables. • We analyze how vendors strategize with RFID in various types of hospital competition. • The vendor’s RFID strategy is counter-intuitive under both types of competition. • both homogeneous and heterogeneous competition can promote the vendor to adopt RFID. • This paper studies competitive dynamics and strategic management of medical consumables.