Optimal inventory system for pharmaceutical products incorporating quality degradation with expiration date: A game theory approach

Healthcare supply chain systems around the world face an immediate pressure to transform in the face of unprecedented demand and high Customer Service Level (CSL). And the expiration date of a pharmaceutical product is also a widespread issue in a customer’s purchase decision. In view of this, studies are essential to understand operations in healthcare systems and to offer decision support tools that improve public health, patient safety and strategic decision-making in the healthcare systems. This paper proposes a game theory approach for addressing inventory strategies for managing the flow of a pharmaceutical raw-material incorporating different quality characteristics in a two echelon hospital and pharmaceutical company supply chain. This research also considers a more realistic situation where the deteriorating rate of a finished product gradually increases as the expiration date approaches. We design a procedure for deciding an optimal strategy to achieve the target CSL of the hospital with the help of game theory payoff matrix. Numerical example is presented to illustrate the solution procedure and the sensitivity analysis of some key parameters is provided to demonstrate the proposed model.