Pharmaceutical supply chain and inventory management strategies: Optimization for a pharmaceutical company and a hospital

A high level of service for medical supplies and effective inventory policies are essential objectives for all health care industries. Medicine shortages and improper use of pharmaceuticals can not only lead to financial losses but also have a significant impact on patients. Many health systems and hospitals experience difficulties in achieving these goals as they have not addressed how medicines are managed, supplied, and used to save lives and improve health. Studies are essential to understand operations in health care industries and to offer decision support tools that improve health policy, public health, patient safety, and strategic decision-making in the pharmaceutical supply chain. We present an inventory model that integrates continuous review with production and distribution for a supply chain involving a pharmaceutical company and a hospital supply chain. The model considers multiple pharmaceutical products, variable lead time, permissible payment delays, constraints on space availability, and the customer service level (CSL). We develop a procedure for determining optimal solutions for inventory lot size, lead time, and the number of deliveries to achieve hospital CSL targets with a minimum total cost for the supply chain. A numerical example illustrates the model application and behavior.