The effects of vendor and quality control variability in the procurement of raw materials in a bio-pharmaceutical company

Abstract

Pharmaceutical companies have traditionally placed little emphasis on supply chain efficiencies and operations costs. With the changing landscape of expiring intellectual property rights and increased market segmentation, the need for improved supplier relations and inventory management is becoming paramount. This thesis presents a study of a procurement system within a biopharmaceutical company. The many sources of variation in delivery lead times from both suppliers and internal departments coupled with variation in manufacturing demand, has resulted in excess raw-material inventory at the company. By using discrete-events-simulation software to model the system and its inputs, we generate insights that can help the materials management team maximize their efforts to improve the system performance. In this particular case, it was found that reducing supplier lead time variability was far more effective in reducing the need for inventory than reducing average lead times or even internal lead times from the Quality Control department. The pharmaceutical company involved in this study would be best served by focusing its efforts on working with suppliers to increase the consistency of delivery for their raw materials. This increased consistency will allow them to reduce total inventory costs by reducing the variability of the raw-material supplies.