An analysis of inventory policies for substitute pharmaceuticals with purchasing or selling constraints

Abstract

To improve patients' welfare, governments can regulate the availability of the low-price drugs (LPDs) through lower wholesale purchasing or retail selling of the LPD. This paper characterizes two common constrained policies from the practices of pharmaceutical markets. The first (policy P) controls the ratios of the LPD's purchasing quantity and fee. The second (policy S) controls the ratios of the LPD's selling quantity and revenue. Considering a pharmaceutical supply chain consisting of two independent manufacturers and a hospital, we investigate the impacts of two policies on the LPD's availability and the whole industry gains. Our results show that policy P dominates policy S in two aspects: (a) policy P provides a higher product availability of the LPD and (b) policy P reduces less profits for the pharmaceutical supply chain. Specifically, policy P could incur a win-win outcome for the patient and the supply chain. We further show that the demand allocation of the LPD, the substitution degree, and the profit margins' difference can significantly affect the performances of the policies.

Applying Simulation Optimization to Minimize Drug Inventory Costs: A Study of a Case Outpatient Pharmacy

“…Chen et al [ 19 ] studied the sales of low-price drugs (LPD) in the drug supply chain. The motivation for the research was that the government wanted to use legislation to ensure that patients could purchase LPD.…”