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Healthcare inventory management in the presence of supply disruptions and a reliable secondary supplier

Author

Listed:
  • Hamed Shourabizadeh

    (University of Toronto)

  • O. Erhun Kundakcioglu

    (Ozyegin University)

  • Cem Deniz Caglar Bozkir

    (Ozyegin University)

  • Mihriban Busra Tufekci

    (Ozyegin University)

  • Andrea C. Henry

    (RX Management, Magellan Health)

Abstract

We study the inventory review policy for a healthcare facility to minimize the impact of inevitable drug shortages. Usually, healthcare facilities do not rely on a single source of supply, and alternative mechanisms are present. When the primary supplier is not available, items are produced in-house or supplied through another supplier, albeit with additional cost. Our aim in this study is to determine how optimal inventory parameters are adjusted depending on the availability of the primary supplier. We show that an approximation provides trivial results, yet fails to capture the nuances therein. Our proposed Markov chain model overcomes these issues, and numerical results illustrate the significant economic impact of inventory parameter optimization. Furthermore, we simulate uncertainty scenarios and provide sensitivity analyses concerning fixed ordering cost for the secondary supplier, shortage frequency, shortage duration, and demand rates.

Suggested Citation

  • Hamed Shourabizadeh & O. Erhun Kundakcioglu & Cem Deniz Caglar Bozkir & Mihriban Busra Tufekci & Andrea C. Henry, 2023. "Healthcare inventory management in the presence of supply disruptions and a reliable secondary supplier," Annals of Operations Research, Springer, vol. 331(2), pages 1149-1206, December.
    • Handle: RePEc:spr:annopr:v:331:y:2023:i:2:d:10.1007_s10479-023-05620-y
    DOI: 10.1007/s10479-023-05620-y
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    References listed on IDEAS

    as
    1. Shima Azizi & Cem Deniz Caglar Bozkir & Andrew C. Trapp & O. Erhun Kundakcioglu & Ali Kaan Kurbanzade, 2021. "Aid Allocation for Camp‐Based and Urban Refugees with Uncertain Demand and Replenishments," Production and Operations Management, Production and Operations Management Society, vol. 30(12), pages 4455-4474, December.
    2. Cem Deniz Caglar Bozkir & O. Erhun Kundakcioglu & Andrea C. Henry, 2022. "Hospital service levels during drug shortages: Stocking and transshipment policies for pharmaceutical inventory," Journal of Global Optimization, Springer, vol. 83(3), pages 565-584, July.
    3. Roni, Mohammad S. & Eksioglu, Sandra D. & Jin, Mingzhou & Mamun, Saleh, 2016. "A hybrid inventory policy with split delivery under regular and surge demand," International Journal of Production Economics, Elsevier, vol. 172(C), pages 126-136.
    4. Antonio Arreola‐Risa & Gregory A. DeCroix, 1998. "Inventory management under random supply disruptions and partial backorders," Naval Research Logistics (NRL), John Wiley & Sons, vol. 45(7), pages 687-703, October.
    5. Marek Gebicki & Ed Mooney & Shi-Jie Chen & Lukasz Mazur, 2014. "Evaluation of hospital medication inventory policies," Health Care Management Science, Springer, vol. 17(3), pages 215-229, September.
    6. Saedi, Samira & Kundakcioglu, O. Erhun & Henry, Andrea C., 2016. "Mitigating the impact of drug shortages for a healthcare facility: An inventory management approach," European Journal of Operational Research, Elsevier, vol. 251(1), pages 107-123.
    7. Nicholson, Lawrence & Vakharia, Asoo J. & Selcuk Erenguc, S., 2004. "Outsourcing inventory management decisions in healthcare: Models and application," European Journal of Operational Research, Elsevier, vol. 154(1), pages 271-290, April.
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