Drug inventory management and distribution: outsourcing logistics to third‐party providers

Abstract

Purpose -The purpose of the present research is to explore the current situation and future expectations on whether to self-manage or outsource logistics operations in centralized healthcare networks, and to analyse and quantify the relationships between logistics outsourcing, costs and performance. Design/methodology/approach -The paper is based on a thorough study of a local Italian healthcare network, which evaluated the economic sustainability of logistics outsourcing. The data were collected using interviews, documentation and observations in hospital pharmacies and wards, and by referring to public information available on the internet. A system dynamic simulation followed by a sensitivity analysis was used to investigate the impact of changing key variables as well as the advice of logistics providers. Findings -The sensitivity analysis demonstrates that logistics outsourcing is often the most economical choice. Social implications -Performance-oriented concepts applied to healthcare have many pros in terms of sustainable delivery of quality healthcare at affordable costs. Originality/value -While there are numerous studies on logistics outsourcing in many industries, when it comes to the healthcare sector literature is scarce, probably due to the great changes this sector has faced in recent times: thus, the paper's quantitative findings should be seen as a first attempt to assist the "make-or-buy" decision process toward sustainable development of the healthcare sector.

Paving the Way for Warehouse Centralization in Healthcare: A Preliminary Assessment Approach

“…Thus, taking a broader perspective, Battini et al (2013) address the development of centralized HC supply networks and apply the System Dynamics (SD) methodology to understand the benefits of logistics economies of scale as well as the existing risk of failure under uncertainty. Azzi et al (2013) apply the same methodology to support the decision of whether selfmanaging or outsourcing logistics operations in centralized HC networks and find that logistics outsourcing is often the most economic choice. Finally, Wu et al (2015) adopt the SD approach to investigate a drug SC in China, including patients, hospitals, distributors and manufacturers and to propose warehouse centralization in order to reduce the probability of shortage as well as the amount of money associated with stock.…”

Drivers and Patterns of Supply Chain Collaboration in the Pharmaceutical Industry: A Case Study on SMEs in China

“…The outsourcing of logistics has becoming a key component in pharmaceutical supply chain development, focal companies tend to outsource the distribution function to 3PLs. Different from big Pharma in developed market [38], the logistics outsourcing is not at a strategic level [28], as not many of SMEs in China currently would like to outsource inventory management or other activities associated with their sustainability or opportunity, reasons are the costs and lack of sufficient professional 3PLs, the collaboration decision is still on the operational level to realize "cost-saving" and flexibility in response to the market demand ("flexibility"). Although focal company counts heavily on their 3PL partners, as the "switching costs" are low, in such collaborative relationship, the barging power of pharmaceutical manufacturer is higher.…”

“…Pharmaceutical manufacturers are usually treaded as "innovative enterprise" [8] facing significant challenges of ensuring sufficient investment in R & D [24], hence they tend to outsource some "noncore" activities [9]. However, outsourcing has applied not only to "noncore" activities, the core activities of R & D [20] [23] [25], manufacturing [20] [21] [26], and logistics [9] [27] [28] have been involved as well. This may lead to a need of close collaboration with public science [25] [29] or even flexible strategic alliance with peer competitors [29] [30].…”

A Structured Review of Quantitative Models of the Pharmaceutical Supply Chain

“…The centralized model is considered to be a single organization in which the warehouse and the retailer belong to the same organization, while in the decentralized model the warehouse and the retailer are treated as external companies. Other works deal with the problem of optimization of a supply chain in a centralized model, such as that proposed by [45]; in this study, a system dynamic simulation model is developed using a careful analysis which demonstrates that logistics outsourcing is often the most economical choice. Nevertheless, the proposed model is only applicable to small instances due to the complexity of the interactions within the chain.…”