When is it worth it for two hospital network pharmacies to operate as an integrated inventory system in the presence of supply chain disruptions?

Abstract

Hospital pharmacies stock perishable drugs that experience supply chain disruptions. A potential solution to alleviate the negative effects of shortages caused by these disruptions is lateral transshipments (i.e., sharing of inventory; integrated inventory system) between hospital network pharmacies with independent suppliers. However, it is unclear when it is beneficial to operate as an integrated inventory system. We create a modeling framework to solve for the integrated inventory policies in a two-hospital network pharmacy inventory system. We find that (i) to benefit from an integrated inventory system, the lateral transshipment cost must be sufficiently less than the shortage cost; sufficiently largely influenced by the duration of and time between supply chain disruptions. We find (ii) hospital network pharmacies need to consider the duration of and time between supply chain disruptions when selecting a hospital network pharmacy with which to share inventory. The integrated inventory policies demonstrate that perishable inventory systems with supply chain disruptions may benefit from sharing inventory. In our hospital network pharmacy setting, this contradicts the strict regulations in current practice that generally prohibit hospital network pharmacies from sharing drugs or make it very difficult for hospital network pharmacies to stay compliant when sharing drugs outside of their network.

Keywords:

• Healthcare
• hospital pharmacy
• inventory management
• supply chain management

Acknowledgments

The research team would like to thank the Central Pharmacy at the University of Michigan for sharing protocols for lateral transshipments between hospital network pharmacies and providing input parameters for the numerical analysis. We would like to give a special thanks to Christine Betts (University of Michigan Health Pharmacy Services) for providing access to the Fentanyl daily demand data and Nicole Mor (University of Michigan) for the helpful literature searches. The research team would also like to thank the associate editor and anonymous reviewer for their feedback on the paper.

Ethical approval

This study has been exempt from the requirement for approval by an institutional review board because the research does not include human participants. The demand data used in this research does not include patient information.

Disclosure statement

The authors do not have non-financial conflicts of interest to disclose.

Data availability statement

Due to confidentiality and privacy concerns, the Fentanyl data provided by the Central Pharmacy at the University of Michigan are not publicly available.

Figure A1. One HNP with one supplier Markov chain.

Figure A2. Integrated inventory system Markov chain with one supplier.

Additional information

Funding

This work is supported by the National Science Foundation Research Fellowship Program under Grant DGE 1841052.