Balancing Supply Chain Concentration and Efficiency: An Empirical

Study of the Medical Manufacturing Industry

Siyuan Ren

School of Management, Cranfield University, Cranfield, U.K.

Keywords: Supply Chain Concentration, Supply Chain Efficiency, Supply Chain Transparency, Medical Manufacturing

Industry.

Abstract: With the continuous exploration of the methods of cost reduction and efficiency improvement in supply chain,

the potential influence of supply chain structure has been paid more and more attention. This study focus on

one structural aspect - supply chain concentration, investigating its impact on supply chain efficiency and

exploring the moderating role of supply chain transparency. A highly regulated and innovation - intensive

industry - medical manufacturing industry is selected as the research industry in this study. The panel data

from 366 medical manufacturing industry firms with 2,300 firm-year observations over the period 2014-2023

is used as the longitudinal dataset in this study. The results shows that supply chain concentration has a

significantly negative impact in supply chain efficiency in medical manufacturing industry; supply chain

transparency has a negative moderator effect, that is, firms in medical manufacturing industry with higher

supply chain transparency obtain less supply chain efficiency. The findings provide valuable insights for both

academic research and managerial practice by indicating the importance of balancing supply chain

concentration and transparency in improving supply chain efficiency.

1 INTRODUCTION

In an era of increasing complexity and globalization,

supply chain structure has become a critical

determinant of organizational performance. Supply

chain concentration is one structural element that has

received increased attention because of its effects on

risk exposure and operational efficiency. A

concentrated supply chain might have advantages like

lower coordination costs and better partnerships, but

it can also make a company more susceptible to

interruptions and less flexible in terms of operations

(Choi & Krause, 2006). Over-reliance on a small

number of suppliers or purchasers can increase the

risks, especially in highly regulated and innovative

industries like medical manufacturing (Gereffi, 2019).

Supply chain efficiency is one of the most

important parts to estimate the performance of a

supply chain. Increased supply chain concentration

may impair efficiency by decreasing a firm's

flexibility and negotiating power, according to

previous study (Tang & Tomlin, 2008). However, the

moderating role of supply chain transparency has not

been thoroughly explored in this context. Thus, the

https://orcid.org/0009-0007-3783-5668

research object is to investigate the relationship

between supply chain concentration and supply chain

efficiency and further examines the moderating effect

of supply chain transparency. Panel data of 2,300

firm-observations in the medical manufacturing

industry over the 2014-2023 period is used to do the

regression analysis.

2 BACKGROUND AND

HYPOTHESIS DEVELOPMENT

2.1 Supply Chain Concentration

Supply chain concentration refers to a firm’s

dependency on a small number of suppliers and

customers, suggesting interconnectedness between

upstream and downstream supply chain participants

(Lanier et al., 2010), or a company's supplier and

customer mix density in relation to the significance of

its main suppliers and customers (Ak and Patatoukas,

2016; Tang and Rai, 2012).

346

Ren, S.

Balancing Supply Chain Concentration and Efﬁciency: An Empirical Study of the Medical Manufacturing Industry.

DOI: 10.5220/0013844500004719

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 2nd International Conference on E-commerce and Modern Logistics (ICEML 2025), pages 346-351

ISBN: 978-989-758-775-7

The number of suppliers that supply a company

with raw materials and the amount of purchases are

both considered aspects of supplier concentration. A

high degree of supplier concentration reflects limited

interaction with suppliers and with a large portion of

purchases coming from primary suppliers (Kahkonen

et al., 2015).

Resource dependency theory states that

organizations depend on outside parties for essential

resources such labor, funds, information, and

materials. This interdependence produces

unpredictability and power imbalances, causing firms

to pursue strategies like creating alliances, mergers or

political ties to manage and decrease dependence and

ensure resource access (Pfeffer and Salancik,1978).

In supply chains, a high level of concentration can

lead to more robust relationships with suppliers,

which can enhance risk management and improve

coordination. However, the concentration also means

that the failure of just a few key suppliers can

significantly disrupt the entire chain, making it more

vulnerable to interruptions (Hendricks and Singhal,

2014).

2.2 Supply Chain Efficiency

Researchers have explored supply chain efficiency

from diverse perspectives, each emphasizing

different key elements that contribute to overall

performance. An efficient supply chain relies on

strategic and operational factors such as resource

optimization, cost control, faster deliveries, high

quality and increased profitability (Negi,2020).

In order to maintain low supply chain costs and

achieve high profitability, businesses must ensure

strong performance both within the organization and

across the supply network. Internal performance

refers to factors such as production efficiency and

lead times, while external performance covers aspects

like delivery reliability, responsiveness, customer

support, and pricing. Competing successfully in a

connected global market requires attention not only to

internal operations but also to the broader

management of the supply network. As noted by

Christopher (1998), to stay competitive in a rapidly

changing global market, companies need to

constantly find new strategies to reduce costs while

improving service quality. As a result, the role of a

high-performing supply chain becomes increasingly

vital to long-term success.

The core challenge for a company lies in striking

the right balance between cost efficiency and

operational performance. This means maximizing the

use of facilities and minimizing capital expenditure,

while also ensuring quick and accurate deliveries,

high customer satisfaction, reduced lead times, and

lean inventory levels. Achieving this balance is

essential for optimizing overall outcomes. Ultimately,

effective supply chain management plays a crucial

role in boosting profitability and gaining a

competitive edge in the market (Schary and Skjøtt-

Larsen, 2001).

Earlier research suggests that efficiency can be

evaluated through both quantitative and qualitative

lenses. Quantitative assessments typically focus on

factors like profitability, cost control, productivity,

and responsiveness to customer needs. In contrast,

qualitative measures emphasize areas such as

customer satisfaction, strong supplier relationships

and effective risk management (Negi,2020).

Since highly concentrated supply chain always

have limited supplier with large amount of critical

resources, supply chain may be more fragile and easy

to disruptions and causing the decrease in supply

chain efficiency. Thus, hypothesis 1 is developed as

follow.

Hypothesis 1: Supply chain concentration has a

negative impact on supply chain efficiency.

2.3 The Role of Supply Chain

Transparency

Supply chain transparency involves openly sharing

precise and comprehensive information about various

aspects of a company’s operations and products. As

noted by Bai and Sarkis (2020), supply chain

transparency involves sharing comprehensive

information related to sourcing, manufacturing, cost

structures and logistics. In previous researches, terms

like visibility, traceability, openness and disclosure

are frequently used to convey similar ideas, reflecting

the multifaceted nature of transparency in supply

chains. Transparency initiatives in supply chains play

a crucial role in shaping how organizations share

information. These strategies not only help define

suitable levels of disclosure but also promote a

culture of accountability and build stakeholder trust

by reinforcing a sense of openness throughout the

supply network (Montecchi,et al., 2021).

Mechanisms through which supply chain

transparency influences supply chain efficiency are

from different aspects. On the one hand, it helps

bridge information gaps among partners, fosters trust,

and enhances coordination across the network

(Montecchi,et al., 2021). On the other hand,

transparency also carries risks by making internal

operations more visible, it may expose vulnerabilities

or sensitive financial data, potentially giving

Balancing Supply Chain Concentration and Efﬁciency: An Empirical Study of the Medical Manufacturing Industry

347

competitors a strategic advantage (Årdal, et al.,

2021). Firms may adopt conservative strategies such

as increasing safety stock to mitigate competitive

disadvantages, which will affect supply chain

efficiency in some degree. In certain highly regulated

industries, maintaining transparency is crucial for

meeting legal and regulatory requirements

(Christopher, 2016). Stricter compliance

requirements could increase tracking and scrutiny,

potentially affecting the efficiency with which

resources move through the supply chain. Thus,

hypothesis 2 is developed as follow.

Hypothesis 2: The positive impact of supply chain

concentration on supply chain efficiency is reinforced

with high supply chain transparency.

3 METHODOLOGY

3.1 Sample and Data

The research selects 366 listed firms in China of

medical manufacturing industry from 2014 to 2023 as

research samples to test the hypothesis based on the

following reasons. First, the supply chain of medical

care has already been identified as a field with great

potential for improved efficiency (Ebel, et al., 2013).

Given the context of this industry, it is valuable to

examine how both supply chain concentration and

transparency influence overall operations and

performance. Second, the supply chain of medical

industry is complicated. The production of active

pharmaceutical ingredients (APIs), critical

components of all medicines, is concentrated in just a

handful of countries, making it highly dependent on

these regions (Årdal, et al., 2021). In this context, it is

critical to understand how supply chain concentration

affects efficiency. Third, the medical manufacturing

industry can be significantly impacted by global

supply chain disruptions, highlighting the fragility of

the supply chain (Årdal, et al., 2021). It is necessary

to study supply chain concentration and transparency

to develop strategies to improve resilience and

efficiency.

All data comes from GTA-China Stock Market

and Accounting Research Database, which is the

largest and most accurate financial database in line

with China’s national conditions, providing reliable,

comprehensive and effective data for this research.

Industry classification code is used in this

research to combine the financial data with the

sample. Finally, for hypothesis 1 and hypothesis 2, a

longitudinal dataset of 366 firms with 2300 firm-year

observations is obtained.

3.2 Measurements

Dependent Variable. The measurement of supply

chain efficiency referred to the method proposed by

Zhang and Duan (2023). The inventory turnover days

is a measure of how many days it takes an average

business to sell out its inventory, calculated as a ratio

of 365 to inventory turnover. It is worth noting that

the larger the inventory turnover days is, the lower the

supply chain efficiency will be. Thus, the research

takes the reciprocal of inventory turnover days as a

measurement for supply chain efficiency. The larger

the reciprocal of inventory turnover days is, the

higher the supply chain efficiency will be.

Independent Variable. Supply chain

concentration is measured by calculating the average

ratio of purchases and sales from the five largest

suppliers and customers. This indicator is available

directly from the CSMAR database.

Moderator Variable. Referring to the method of

Gong, et al. (2022), supply chain transparency is

measured by the proportion of the transaction volume

of the major suppliers and customers whose names

are explicitly disclosed in the total transaction volume

of the top five suppliers and customers. The larger the

value, the higher the transparency of the firm's supply

chain.

Control Variables. The selection of control

variables refers to relevant literature, and the control

variable group is composed of firm size, firm age,

firm solvency and firm corporate profitability. Firm

size (Size) is calculated as the natural logarithm of the

firm's total assets. Firm age (Age) is determined by

the natural logarithm of its years of establishment.

Firm solvency is assessed through the leverage ratio

(Lev), which compares total liabilities to total assets.

Corporate profitability is expressed as return on assets

(ROA).

3.3 Model Specification

Considering that the data set is vertical, ordinary

multiple linear regression is conducted in this

research for analysis.

Model 1:

𝑆𝐶𝐸 = 𝛽



+𝛽



(𝑆𝐶𝐶)



+𝛽



(𝑆𝑖𝑧𝑒)



+𝛽



(𝐿𝑒𝑣)



+𝛽



(𝑅𝑂𝐴)



+𝛽



(

𝐴

𝑔𝑒)



+𝜀



)

Model 2:

𝑆𝐶𝐸 = 𝛽



+𝛽



(𝑆𝐶𝐶)



+𝛽



(𝑆𝑖𝑧𝑒)



+𝛽



(𝐿𝑒𝑣)



+𝛽



(𝑅𝑂𝐴)



+𝛽



(

𝐴

𝑔𝑒)



+𝛽



(𝑆𝐶𝑇)



+𝛽



(𝑆𝐶𝐶 ∗ 𝑆𝐶𝑇)



+𝜀



)

ICEML 2025 - International Conference on E-commerce and Modern Logistics

348

4 RESULTS

4.1 Correlation and Descriptive

Statistics

The correlation matrix and descriptive statistics of the

variables are showed in Table 1. The correlation

coefficients suggest a moderate and satisfactory level

of discriminant validity among the variables.

Table 1: This caption has one line so it is centered.

Variable Age Size Lev ROA SCC SCT

Age 1

Size 0.276** 1

Lev 0.151** 0.212** 1

ROA 0.079** 0.089** -0.350** 1

SCC -0.246** -0.464** -0.175** -0.090** 1

SCT -0.055* -0.190** 0.001 -0.046* 0.260** 1

Mean 3.264 21.981 0.299 0.053 30.449 0.047

Standard deviation 0.218 1.043 0.172 0.110 14.909 0.110

4.2 Regression Analysis

Table 2 shows the results of linear regression analysis

for supply chain efficiency.

Table 2: This caption has one line so it is centered.

Variables Model 1 Model 2

Intercept 0.261***

(14.149)

0.256***

(13.713)

Age -0.007***

(-2.579)

-0.006**

(-2.527)

Size

-0.002***

(-2.719)

-0.002***

(-2.525)

Lev 0.030***

(6.286)

0.030***

(6.336)

ROA 0.061***

(8.724)

0.061***

(8.733)

SCC -0.0002***

(-3.681)

0.000154**

(-2.628)

SCT 0.035*

(1.946)

SCC*SCT -0.001**

(-2.269)

0.048 0.050

Adjusted R

0.046 0.047

F-statistics 22.142*** 16.600***

Notes:

1.*p < 0.1, **p < 0.05 and ***p < 0.01.

2.t-statistics in parentheses.

According to Model 1, the coefficient of supply

chain concentration is negative (β=-0.0002, p<0.01),

indicating that supply chain concentration has a

significantly negative impact in supply chain

efficiency in medical manufacturing industry.

Therefore, Hypothesis 1 is supported.

In model 2, the interaction between the supply

chain concentration and supply chain transparency

displays a significantly negative effect on supply

chain efficiency (β=-0.001, p<0.05), indicating that

firms in medical manufacturing industry with higher

supply chain transparency obtain less supply chain

efficiency. Thus, Hypothesis 2 is supported.

5 DISCUSSION

The research provides evidence that supply chain

concentration has a negative impact on supply chain

efficiency in medical manufacturing industry. Here

are some possible reasons to explain it.

First, highly centralized supply chains tend to be

more vulnerable to disruptions (Hendricks and

Singhal, 2014), making it necessary to maintain larger

inventory buffers as a safeguard against potential

supply-related risks (Guo et, al., 2016)

.Medical

manufacturing industry is a industry with strong

bargaining power of suppliers, key ingredients such

as active pharmaceutical ingredients (API) and

specialty excipients are often supplied by a small

number of suppliers (Årdal, et al., 2021). Therefore,

firms with a high concentration of supply chains tend

to require longer inventory holding periods to prevent

shortages of raw materials.

Second, the highly regulated environment and

dependence on suppliers in the medical

manufacturing industry leads to high supplier

replacement costs (National Academies of Sciences,

Engineering, and Medicine, 2022), and companies

Balancing Supply Chain Concentration and Efﬁciency: An Empirical Study of the Medical Manufacturing Industry

349

with a highly concentrated supply chain often need to

hold more inventory to avoid production disruptions.

Third, demand fluctuates greatly in medical

manufacturing industry, especially in seasonality or

public health emergencies. For example, during

COVID-19, global medical supply chain is under

enormous pressure. Medicine shortages are common

in the run-up to 2020 and exacerbated by increased

demand, blockades, border closures and hoarding

(Årdal, et al., 2021). In high-concentration supply

chains, firms often require higher inventory levels in

response to demand fluctuations in these

emergencies, reducing supply chain efficiency in

some degree.

Supply chain transparency has a negative

moderate effect on supply chain efficiency in medical

manufacturing industry. First, supply chain

transparency is often accompanied by stricter

compliance requirements. These regulations require

firms to keep detailed track of the flow of medicine.

Additional investment in this aspect may result in

lower turnover efficiency and higher demand for safe

stocks. Second, greater transparency may

inadvertently reveal sensitive business information,

such as supplier relationships and production

capacities (Årdal, et al., 2021). To mitigate potential

competitive disadvantages, firms might adopt

conservative strategies, including maintaining higher

inventory levels, which can reduce efficiency.

6 CONCLUSIONS

The study views supply chain concentration. It

examined the relationship between supply chain

concentration and supply chain efficiency,

investigated the impacts supply chain transparency on

the relationship between supply chain concentration

and supply chain efficiency. By analyzing the data

about 366 listed firms in medical manufacturing

industry in China, the study reveals that supply chain

concentration decreases the supply chain efficiency.

In addition, supply chain transparency can influence

the main relationship between supply chain

concentration and supply chain efficiency.

REFERENCES

Ak, B.K., Patatoukas, P.N., 2016. Customer-base

concentration and inventory efficiencies: Evidence

from the manufacturing sector, Production and

Operations Management, 25(2), 258–272.

Årdal, C., Baraldi, E., Beyer, P., Lacotte, Y., Larsson, D.J.,

Ploy, M.C., Røttingen, J.A., Smith, I., 2021. Supply

chain transparency and the availability of essential

medicines, Bulletin of the World Health Organization,

99(4), 319–320.

Bai, C., Sarkis, J., 2020. A supply chain transparency and

sustainability technology appraisal model for

blockchain technology, International Journal of

Production Research, 58(7), 2142–2162.

Choi, T., Krause, D., 2006. The supply base and its

complexity: Implications for transaction costs, risks,

responsiveness, and innovation, Journal of Operations

Management, 24(5), 637–652.

Christopher, M., 1998. Logistics and supply chain

management: Strategies for reducing costs and

improving services, 2nd edition, Pitman Publishing,

London.

Christopher, M., 2016. Logistics & supply chain

management, Pearson.

Ebel, T., Larsen, E., Shah, K., 2013. Strengthening health

care’s supply chain: A five-step plan, McKinsey &

Company. Retrieved April 2, 2025, from

https://www.mckinsey.org/industries/healthcare/our-

insights/strengthening-health-cares-supply-chain-a-

five-step-plan

Gereffi, G., 2019. Economic upgrading in global value

chains, Cambridge Journal of Regions, Economy and

Society, 13(1), 25–40.

Gong, X., Quan, X., Liu, X., 2022. Supply chain

transparency and corporate tax avoidance, China

Industrial Economics, (11), 155–173.

Guo, S., Zhao, L., Xu, X., 2016. Impact of supply risks on

procurement decisions, Annals of Operations Research,

241, 411–430.

Hendricks, K.B., Singhal, V.R., 2014. The effect of

demand-supply mismatches on firm risk, Production

and Operations Management, 23(12), 2137–2151.

Kahkonen, A.K., Lintukangas, K., Hallikas, J., 2015.

Buyer’s dependence in value creating supplier

relationships, Supply Chain Management: An

International Journal, 20(2), 151–162.

Lanier, D., Wempe, W.F., Zacharia, Z.G., 2010.

Concentrated supply chain membership and financial

performance: chain- and firm-level perspectives,

Journal of Operations Management, 28(1), 1

–16.

Montecchi, M., Plangger, K., West, D.C., 2021. Supply

chain transparency: A bibliometric review and research

agenda, International Journal of Production

Economics, 238, 108152.

National Academies of Sciences, Engineering, and

Medicine, 2022. Building resilience into the nation’s

medical product supply chains, National Academies

Press, Washington (DC).

Negi, S., 2021. Supply chain efficiency framework to

improve business performance in a competitive era,

Management Research Review, 44(3), 477–508.

Pfeffer, J., Salancik, G.R., 1978. The external control of

organizations: A resource dependence perspective,

Harper & Row, New York.

ICEML 2025 - International Conference on E-commerce and Modern Logistics

350

Schary, P., Skjøtt-Larsen, T., 2001. Managing the global

supply chain, Copenhagen Business School Press,

Copenhagen.

Tang, C.S., Tomlin, B., 2008. The power of flexibility for

mitigating supply chain risks, International Journal of

Production Economics, 116(1), 12–27.

Tang, X., Rai, A., 2012. The moderating effects of supplier

portfolio characteristics on the competitive

performance impacts of supplier-facing process

capabilities, Journal of Operations Management, 30(1–

2), 85–98.

Zhang, Q., Duan, Y., 2023. Digital empowerment,

industrial chain integration, and total factor

productivity, Economic Management, 45(4), 5–21.

Balancing Supply Chain Concentration and Efﬁciency: An Empirical Study of the Medical Manufacturing Industry

351