Supply Chain Coordination and Influenza Vaccination

Annual influenza outbreaks incur great expenses in both human and monetary terms, and billions of dollars are being allocated for influenza pandemic preparedness in an attempt to avert even greater potential losses. Vaccination is a primary weapon for fighting influenza outbreaks. The influenza vaccine supply chain has characteristics that resemble the newsvendor problem but possesses several characteristics that distinguish it from many other supply chains. Differences include a nonlinear value of sales (caused by the nonlinear health benefits of vaccination that are due to infection dynamics) and vaccine production yield issues. We show that production risks, taken currently by the vaccine manufacturer, lead to an insufficient supply of vaccine. Several supply contracts that coordinate buyer (governmental public health service) and supplier (vaccine manufacturer) incentives in many other industrial supply chains cannot fully coordinate the influenza vaccine supply chain. We design a variant of the cost-sharing contract and show that it provides incentives to both parties so that the supply chain achieves global optimization and hence improves the supply of vaccines.