Inventory modeling for active pharmaceutical ingredient supply chains
Name
1191622448-MIT.pdf
Size
2 MB
Format
Adobe PDF
Checksum (MD5)
5a71f9b33f963187b62bad6f3eab9085
Author(s)
Bazerghi, Audrey.
Advisor(s)
Thomas Roemer and David Simchi-Levi.
Date Issued
2020
Publisher
Massachusetts Institute of Technology
Abstract
Pharmaceutical companies traditionally manufactured drugs in-house, and have only recently been increasingly outsourcing production to contract manufacturing organizations (CMOs). In this work, we use inventory modeling to explore the trade-off between the attractive purchase price and the hidden costs of outsourcing for two active pharmaceutical ingredient (API) supply chains at AstraZeneca (AZ). We assess the inventory levels recommended by a base stock policy with deterministic purchase order lead times at each contracted stage of the supply chains. The single-echelon calculations reveal that safety stock levels are not systematically inflated at individual stages. The current inventory costs and service levels vary widely across products studied, as performance is hard to track over long periods of time and different inventory types. However, we demonstrate with a multi-echelon inventory optimization that a fully integrated API supply chain would yield savings compared to a purely external chain. Today, AZ's organizational processes allow it to partially coordinate with CMOs and capture up to 60 % of the value left on the table by not being able to optimize the full chain due to outsourcing. We propose using cost premium frontiers to prioritize further improvements at strategic outsourced nodes and align incentives. Partnering with CMOs to shorten lead times and increase flexibility is set to become a key advantage in a changing pharmaceutical environment with exacerbated volatility.
Description
Thesis: M.B.A., Massachusetts Institute of Technology, Sloan School of Management, in conjunction with the Leaders for Global Operations Program at MIT, May, 2020
Thesis: S.M., Massachusetts Institute of Technology, Department of Civil and Environmental Engineering, in conjunction with the Leaders for Global Operations Program at MIT, May, 2020
Cataloged from the official PDF of thesis.
Includes bibliographical references (pages 66-68).
Subjects
Sloan School of Management.
Civil and Environmental Engineering.
Leaders for Global Operations Program.
MIT Department
Sloan School of Management
Massachusetts Institute of Technology. Department of Civil and Environmental Engineering
Leaders for Global Operations Program
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