A mathematical model for pharmaceutical supply chain coordination: Reselling medicines in an alternative market

Abstract

Leftover/end of life (EOL) medications not only cause financial losses for the pharmacy but also lead to disposal costs and high governmental penalties for the pharmaceutical supplier. In this study, a two-echelon pharmaceutical supply chain (PSC), including a single pharmaceutical supplier (pharma-supplier) and a single pharmaceutical retailer (pharmacy) with one type of fixed shelf-life medicine, is analyzed. A reducing pharmaceutical wastes scheme is developed to decrease relevant costs of leftover/EOL medicines, avoid governmental penalties, and also ensure patient service level (PSL). In the proposed model, excess medications are collected from the pharmacy warehouse based on the realized demand at a specific time before the expiration date to be resold in the secondary/alternative market. The introduced model is investigated in decentralized and centralized model structures. A novel combination of buyback and shortage risk-sharing contract (B&SRS) is proposed to attain channel coordination, maximize the whole PSC profits, and motivate members to participate in the scheme. The numerical investigation demonstrates that the proposed B&SRS contract can coordinate the developed PSC, enhance the whole channel profit, and also guarantee both channel members’ profitability. Besides, the investigated model helps pharmaceutical managers to decrease EOL/expired medicines related costs and ensure PSL by making decision properly on buyback quantity.