Fixing the Broken Humanitarian Healthcare Supply Chains

Despite significant advances in supply chain management in terms of both methodology and application, healthcare supply chains, and, in particular, humanitarian healthcare supply chains, have not received the needed attention.

Humanitarian healthcare supply chains have many unique characteristics. For example, as pointed out in the handbook, Humanitarian Supply Management and Logistics in the Health Sector, by the Pan American Health Organization and World Health Organization (2001), “The various stages in the flow of supplies from their point of origin to the moment they reach their recipients – whether they be the organizations managing the emergency or the actual beneficiaries of the assistance – are a chain made up of very close links. How any one of these links is managed invariably affects the others. Supply management must therefore be the focus of an integral approach that looks at all the links in the sequence and never loses sight of their interdependence ...”

Hence, an appropriate framework for humanitarian healthcare supply chains must capture the entire relevant network.

Moreover, Van Wassenhove and Pedraza Martinez, writing in an article in a special issue of International Transactions in Operational Research, that I have blogged about, have argued that “The key for logistics restructuring is better network design” and noted that logistics restructuring is a supply chain management best practice that could be used in humanitarian logistics restructuring, singling out the restructuring of the International Federation of Red Cross and Red Crescent Societies (IFRC).

The news as to how to optimally design and redesign multiproduct humanitarian healthcare supply chains needs to get out more widely since, in 2011, more than 251 drug shortages were reported, including 20 chemotherapy agents, according to the American Society of Health-System Pharmacists. The drug shortage crisis has not only forced patients to switch to more expensive alternatives, but also posed potential hazards of medical errors. Although the causes of drug shortages are complicated, it has been noted that production disruption at one manufacturing facility can lead to widespread drug shortages.

In the paper, "Multiproduct Humanitarian Healthcare Supply Chains: A Network Modeling and Computational Framework," that I co-authored with my doctoral student, Min Yu of the Isenberg School of Management, and with Professor Patrick Qiang of Penn State Malvern, we developed a multiproduct supply chain network design and redesign model with applications to humanitarian healthcare applications. The variables in the model are supply chain network link capacities as well as the healthcare product flows associated with the supply chain activities of production, transportation/shipment, and storage/distribution.

When the capacities are sufficient to meet the demands and no enhancement of capacity is needed, the model collapses to a humanitarian healthcare operations optimization model.

The solution of the model yields the optimal investment capacities and product flows on the links at minimal total cost, with the demand for the various products being satisfied at the various demand points. With this information, a firm or organization involved in the production and distribution of healthcare products can identify the total cost associated with the provision of its products. The framework can handle both the design and the redesign problem with the latter being especially relevant for healthcare, since, for example, vaccine manufacturers may have to regear from year to year depending on the forecasted flu viruses; the same holds for the manufacture of associated medicines.

Given the paucity of multiproduct supply chain network mathematical models and associated methodologies in the literature that can handle both link capacities and product flows as decision variables, along with nonlinear cost functions to capture congestion, as well as risk, we believe that, with this paper, we have made a contribution of specific relevance to humanitarian healthcare supply chains.

We will be presenting the paper at the 2012 POMS Conference that will take place in Chicago, Illinois, April 20-23. The paper has been accepted for publication in the conference Proceedings.

Advanced Analytics for Pharmaceutical Supply Chain Networks

Drugs produced by pharmaceutical companies not only keep people healthy, but can prolong and even save lives.

Hence, when shortages of medicines occur there can be devastating impacts.

There has been a lot of coverage lately in the media about drug shortages, with the number of drugs that were reported in short supply in the US in the first half of 2011 rising to 211 – close to an all-time record – with only 58 in short supply in 2004. According to the Food and Drug Administration (FDA), hospitals have reported shortages of drugs used in cancer treatment as well as in surgery, anesthesia, and intravenous feedings. The consequences of such shortages include the postponement of surgeries and treatments, and may also result in the use of less effective or costlier substitutes. The American Hospital Association reports that all US hospitals have experienced drug shortages, and 82% have reported delayed care for their patients as a consequence.

The reasons for such shortages are complex, and this important issue is starting to receive even increased governmental attention. As we note in our latest paper, "A Supply Chain Generalized Network Oligopoly Model for Pharmaceuticals Under Brand Differentiation and Perishability," co-authored with two of my doctoral students, Amir H. Masoumi and Min Yu, most cases appear to be related to manufacturers’ decisions to cease production in the presence of financial challenges. Pharmaceutical companies secure notable returns solely in the early lifetime of a successful drug, before competition takes place. This competition-free time-span, however, has been observed to be shortening, from 5 years to only 1-2 years. Hence, the low profit margins associated with certain drugs may be forcing pharmaceutical companies to make a difficult decision: whether to lose money by continuing to produce a lifesaving product or to switch to a more profitable drug.

The FDA, however, cannot force companies to continue to produce low-profit medicines even if millions of lives rely on them. On the other hand, where competition has been lacking, shortages of some other lifesaving drugs have resulted in huge spikes in prices, ranging from a 100% to a 4,500% increase with an average of 650%.

In addition, in 2011, pharmaceutical products valued at more than $30 billion were losing patent protection, with such products generating more than $15 billion in sales in 2010.


More than 80% of the ingredients of drugs sold in the US are made overseas, mostly in remote facilities located in China and India that are rarely -- if not ever -- visited by government inspectors.

Supply chains of generic drugs, which account for 75 percent of the prescription medicines sold in the US, are, typically, more susceptible to falsification with the supply chains of some of the over-the-counter products, such as vitamins or aspirins, also vulnerable to adulteration.

In the past, product recalls were mainly related to local errors in design, manufacturing, or labeling, a single product safety issue today may result in huge global consequences.

In our pharmaceutical supply chain network paper, we developed an analytical model, based on game theory and generalized network theory, that captures many of the realities of complex pharmaceutical supply chain networks today -- from competition, to brand versus generic drug consumption, to product perishability and even waste management issues. For flexibility purposes and generality, we modeled both elastic and fixed demand scenarios.


The analytical framework also allows for the quantitative investigation of the impacts of patent rights expiration on a pharmaceutical company's profits, as we demonstrate in a case study of cholesterol-lowering drugs. Our paper, we are pleased to report, has now been accepted for publication in the journal, Transportation Research E: Logistics and Transportation Review. In addition, we will be presenting it at the upcoming POMS Conference that will take place in Chicago, Illinois April 20-23, 2012.

And for a brilliant panel discussion, A Worldwide Standard of Care, at the World Science Festival in NYC, that includes Dr. Eric Lander, the head of the Broad Institute, click here.