Coordinating a bi‐level blood supply chain with interactions between supply‐side and demand‐side operational decisions

Abstract

AbstractIn most blood supply chains, blood centers and hospitals make individual decisions, resulting in an inefficient structure of the blood supply chain, which in turn renders supply and demand matching a challenging exercise. In this work, we make the very first attempt to optimize the interaction between blood centers and hospitals. To that end, this paper investigates collection, production, replenishment, issuing, inventory, and wastage decisions under three different blood supply chain channel structures, that is, the decentralized, centralized, and coordinated structures. We propose a bi‐level optimization program to model the decentralized system and use the Karush–Kuhn–Tucker optimality conditions to solve that. In such a system, hospitals tend to order more than their actual need, resulting in overcollection, overproduction, and high wastage rates. On the other hand, in a centralized system decisions are made by a central decision‐maker, which results in higher performance. Recognizing the challenges of implementing a centralized system, we design a novel coordination mechanism to motivate hospitals to operate in a centralized system. Analysis of a case study in Canada indicates that integration can significantly improve the performance of system; allowing substitution between blood products can decrease the total cost of the blood supply chain by 14.41%; an increase in supply or decrease in demand can be detrimental under inappropriate structure, facilitating coordination mechanism; offering subsidy beyond a threshold is not beneficial to the blood centers.