A simulation-based study of distribution strategies for pharmaceutical supply chains

  • Niziolek L
  • Chiam T
  • Yih Y
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Abstract

This thesis studies the impact of direct-ship distribution strategies in pharmaceutical supply chains. The typical supply chain for branded prescription pharmaceuticals consists of manufacturers, wholesalers, and pharmacies. A direct-ship strategy, also known as disintermediation, entails shipping directly to customers and is under consideration in the pharmaceutical industry. A direct-ship strategy can encompass partial or complete disintermediation of wholesalers, both of which have been successful in other industries. The goal of this work is to determine the impact of different operating policies and degrees of disintermediation on pharmaceutical supply chains. Four direct-ship models with varying levels of disintermediation are compared. The operating policy under consideration is the frequency of deliveries to direct-ship customers. A simulation model is constructed to represent a pharmaceutical supply chain and two and a half years of distribution data was collected from an industry collaborator. The results show that a significantly lower total cost can be achieved with a hybrid strategy that sends 55% of volume directly to customers that operate their own distribution centers and customers that meet minimum value/quantity requirements. With this hybrid strategy, certain product groups see a reduction in standard deviation of inventory and maximum inventory level. For any direct-ship strategy, the operatingpolicy is found to have no impact on total cost at the base case transportation:inventory cost ratio in which inventory cost dominates. Also, no changes to service level performance measures are observed. Sensitivity analysis of the transportation:inventory cost ratio, truck utilization, and product portfolio parameters determines if and at what point the best direct-ship distribution strategy changes.

Author-supplied keywords

  • Simulation
  • direct-ship
  • disintermediation
  • pharmaceutical
  • supply chain

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