Preventing drug shortages through improved demand fulfillment: The untapped potential of postponement and flexibility

Pharmaceutical supply chains have become increasingly fragmented and rigid, which severely impairs their ability to manage uncertainties. A symptom of this development is the growing number of drug shortages including serious implications for patient care. Against this backdrop, this article explores the use of postponement and various types of flexibilities as means to improve the management of uncertainties and, thus, to avert drug shortages. A stochastic multi-stage MILP model is developed to determine the optimal network design of a multi-tier pharmaceutical supply chain under uncertain demands. Extensive numerical studies based on a case from a global pharmaceutical company are conducted in which the impact of two uncertainty dimensions, i.e. the degree of uncertainty and the degree of anticipation, is studied. We identify four distinct network design strategies, named postponement, decentralization, redundancy, and chaining, which are driven by these dimensions. While each strategy is cost-optimal under specific circumstances, they all outperform the industry standard network design. Moreover, we find that the optimal flexibility placement in these strategies mirrors the so-called chaining guidelines proposed in the literature. Overall, this work offers a rare integrated perspective on postponement and flexibility with valuable insights for theory and practice.