Building up Resilience in a Pharmaceutical Supply Chain through Inventory, Dual Sourcing and Agility Capacity

Abstract

This paper is inspired by a risk management problem faced by a leading pharmaceutical company. Key operational risk mitigation measures include Risk Mitigation Inventory (RMI), Dual Sourcing and Agility Capacity. We study the relationship between these three measures by modeling the drug manufacturing firm that is exposed to supply chain disruption risk. The firm determines optimal RMI levels for assumed Dual Sourcing and Agility Capacity. We quantify the decrease in RMI levels in the presence of Dual Sourcing and Agility Capacity. Furthermore, using an example, we analyze RMI, Dual Sourcing and Agility Capacity decisions jointly. It turns out that RMI and Agility Capacity can be substitutes as long as no Dual Source is available.Once the Dual Source is available, Agility Capacity and Dual Sourcing appear to be substitutes. We further show that for long disruption times, the optimal Dual Source production rate may decrease in the disruption time. Within our modeling framework, we introduce an operational metric that quantifies Supply Chain Resilience. Supply chain disruptions can have a severe business impact and need to be managed appropriately.

Minimization of Drug Shortages in Pharmaceutical Supply Chains: A Simulation‐Based Analysis of Drug Recall Patterns and Inventory Policies

“…In recent years there has been a noticeable focus on researching pharmaceutical supply chain management. A study by Lücker and Seifert [10], focuses on operational strategies for managing pharmaceutical supply chains under disruption. They model disruptions with features defining the probability of the occurrence and intensity in length.…”

“…They model disruptions with features defining the probability of the occurrence and intensity in length. They analyze three operational risk mitigation strategies for pharmaceutical supply chains experiencing disruption risks, namely (i) Risk Mitigation Inventory (RMI), (ii) Dual Sourcing and (iii) Agility Capacity, with a focus on minimizing the total cost, as a function of product stock-outs and fulfilled demand, over only one cycle [10]. While Lücker and Seifert's [10] study considers one type of drug, Uthayakumar and Priyan [11] model an inventory decision tool for a two-echelon pharmaceutical supply chain with multiple products without considering disruptions in the system.…”

“…They analyze three operational risk mitigation strategies for pharmaceutical supply chains experiencing disruption risks, namely (i) Risk Mitigation Inventory (RMI), (ii) Dual Sourcing and (iii) Agility Capacity, with a focus on minimizing the total cost, as a function of product stock-outs and fulfilled demand, over only one cycle [10]. While Lücker and Seifert's [10] study considers one type of drug, Uthayakumar and Priyan [11] model an inventory decision tool for a two-echelon pharmaceutical supply chain with multiple products without considering disruptions in the system. They use continuous ordering policies to optimize and define the lot size, lead-time, and the number of deliveries for a hospital to minimize the total cost for the supply chain with respect to the target cycle service level for the hospital or pharmaceutical companies.…”

“…Overall, research in pharmaceutical supply chain disruptions has neglected to examine the role of product recalls, a critical type of disruption in this domain [10][11][12][13][14][15]. We develop a model to capture the role of various recall disruptions in the pharmaceutical supply chain.…”

“…One common solution for mitigating shortages is to keep more inventory [10], as this will ensure that more inventories are available to treat patients in the event that products are recalled. However, retaining more inventory results in added costs in the supply chain and may not be feasible for many health care centers due to storage and budget limitations.…”