System dynamics approach to model the interaction between production and pricing factors in Pharmaceutical industry

Abstract

Abstract - Pharmaceutical companies need to take the advantage of adequate profits to obtain sufficient funds for playing major roles in the competitive market. The purpose of this research is predicting the price of medicine and the volume of production taking producer’s profit, the raw materials prices, and qualities into consideration. System thinking is employed for developing the cause and effect diagram and system dynamics is used for preparing the model for simulation and trend analysis. The simulation was carried out using VENSIM software on the amoxicillin capsule, as a case study. When government increases the marginal profit percentage for producer and with high-quality raw materials used by producer, then the companies` profits, production volume, and medicine quality will be increased. Sensitivity analysis indicates that our pharmaceutical production company can come up with a better deal with the pharmacies, producers and suppliers now. This means that with 2 percent lower profit margin for the pharmacy industry the final medicine price would come down to 40105 from 40601 which is a one percent reduction to the base price suggested by simulation originally. This article makes significant contribution to the Pharmaceutical fields, and hence to the patients and health industry.