When is it worth it for two hospital network pharmacies to operate as an integrated inventory system in the presence of supply chain disruptions?

Abstract

Hospital pharmacies stock perishable drugs that experience supply chain disruptions. A potential solution to alleviate the negative effects of shortages caused by these disruptions is lateral transshipments (i.e., sharing of inventory; integrated inventory system) between hospital network pharmacies with independent suppliers. However, it is unclear when it is beneficial to operate as an integrated inventory system. We create a modeling framework to solve for the integrated inventory policies in a two-hospital network pharmacy inventory system. We find that (i) to benefit from an integrated inventory system, the lateral transshipment cost must be sufficiently less than the shortage cost; sufficiently largely influenced by the duration of and time between supply chain disruptions. We find (ii) hospital network pharmacies need to consider the duration of and time between supply chain disruptions when selecting a hospital network pharmacy with which to share inventory. The integrated inventory policies demonstrate that perishable inventory systems with supply chain disruptions may benefit from sharing inventory. In our hospital network pharmacy setting, this contradicts the strict regulations in current practice that generally prohibit hospital network pharmacies from sharing drugs or make it very difficult for hospital network pharmacies to stay compliant when sharing drugs outside of their network.