On the Optimal Inventory Classification and Replenishment Strategies of Pharmaceutical Items: A Case Study in TCVGH

Abstract

Over the last decade, Veterans General Hospital in Taichung (TCVGH) has experienced an upsurge in the number of patients who requested for medical service each day. Such a trend brings the managers in Pharmacy the challenges of significant increase in the inventory holding costs, substantial growth in the number of pharmaceutical items and considerable raises in the complexity of inventory control and management. To face up to these challenges, the managers are desperate for a systematic infrastructure and more efficient approaches to control the inventory of the pharmaceutical items. The focus of this research is to bridge the expertise of both parties (namely Veterans General Hospital in Taichung and Tunghai University) so as to not only enhance knowledge transfer between medical domains and academia, but also upgrade the efficiency of Pharmacy in TCVGH by introducing new management techniques. In order to assist the managers in Pharmacy to overcome the challenges, this research plans to build a "pipeline" through the supply chain of the suppliers, pharmacy and the patients to reduce the inventory holding in TCVGH. We propose to reach our goal by using the four-phase scheme as follows. (1) Demand analysis: We first investigate the sources and the patterns of demand for the pharmaceutical items by the history of prescription fulfillment. (2) Supply characteristic analysis: We should conduct a supply characteristic analysis since the characteristics of the suppliers, lead time, bargaining power and special ordering rules usually have significantly impact on the purchasing strategy of a pharmaceutical item. (3) Pharmaceutical items classification: After finishing demand analysis and supply characteristic analysis, we may categorize the pharmaceutical items into groups in which each item may use a common purchasing strategy. (4) Optimal purchasing policy derivation: For each category of pharmaceutical items we will formulate a mathematical model and derive an optimal algorithm (or a closed solution) for obtaining an optimal purchasing policy so as to minimize the total inventory costs per unit time. This research expects to deliver the managers in TCVGH a useful decision support system to significantly improve the efficiency of Pharmacy by reducing the inventory costs, upgrading the service level to the patient and improving the replenishment process from the suppliers.