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The drug shortage crisis in the last decade not only increased health care costs but also jeopardized patients’ health across the United States. Ensuring that any drug is available to patients at health care centers is a problem that official health care administrators and other stakeholders of supply chains continue to face. Furthermore, managing pharmaceutical supply chains is very complex, as inevitable disruptions occur in these supply chains (exogenous factors), which are then followed by decisions members make after such disruptions (internal factors). Disruptions may occur due to increased demand, a product recall, or a manufacturer disruption, among which product recalls—which happens frequently in pharmaceutical supply chains—are least studied. We employ a mathematical simulation model to examine the effects of product recalls considering different disruption profiles, e.g., the propagation in time and space, and the interactions of decision makers on drug shortages to ascertain how these shortages can be mitigated by changing inventory policy decisions. We also measure the effects of different policy approaches on supply chain disruptions, using two performance measures: inventory levels and shortages of products at health care centers. We then analyze the results using an approach similar to data envelopment analysis to characterize the efficient frontier (best inventory policies) for varying cost ratios of the two performance measures as they correspond to the different disruption patterns. This analysis provides insights into the consequences of choosing an inappropriate inventory policy when disruptions take place.
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When Variability Trumps Volatility: Optimal Control and Value of Reverse Logistics in Supply Chains with Multiple Flows of Product
Reverse logistics has been gaining recognition in practice (and theory) for helping companies better match supply with demand, and thus reduce costs in their supply chains. In this paper, we study reverse logistics from the perspective of a supply chain in which each location can initiate multiple flows of product. Our first objective is to jointly optimize ordering decisions pertaining to regular, reverse and expedited flows of product in a stochastic, multi-stage inventory model of a logistics supply chain, in which the physical transformation of the product is completed at the most upstream location in the system. Due to those multiple flows of product, the feasible region for the problem acquires multi-dimensional boundaries that lead to the curse of dimensionality. To address this challenge, we develop a different solution method that allows us to reduce the dimensionality of the feasible region and, subsequently, identify the structure of the optimal policy. We refer to this policy as a nested echelon base-stock policy, as decisions for different product flows are sequentially nested within each other. We show that this policy renders the model analytically and numerically tractable. Our results provide actionable policies for firms to jointly manage three different product flows in their supply chains, and allow us arrive at insights regarding the main drivers of the value of reverse logistics. One of our key findings is that, when it comes to the value generated by reverse logistics, demand variability (i.e., demand uncertainty across periods) matters more than demand volatility (i.e., demand uncertainty within each period). This is because, in the absence of demand variability, it is effectively never optimal to return product upstream, regardless of the level of inherent demand volatility. Our second objective is to extend our analysis to product transforming-supply chains, in which product transformation is allowed to occur at each location. In such a system, it becomes necessary to keep track of both the location and stage of completion of each unit of inventory, so that the number of state and decisions variables increases with the square of the number of locations in the system. To analyze such a supply chain, we first identify a policy that provides a lower bound on the total cost. Then, we establish a special decomposition of the objective cost function that allows us to propose a novel heuristic policy. We find that the performance gap of our heuristic policy relative to the lower-bounding policy averages less than 5% across a range of parameters and supply chain lengths.
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- Award ID(s):
- 1644935
- PAR ID:
- 10128753
- Date Published:
- Journal Name:
- Manufacturing service operations management
- ISSN:
- 1523-4614
- Page Range / eLocation ID:
- 1=57
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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