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Related Experiment Videos

Improving efficiencies in pharmaceutical distribution channels using the economic order quantity model

D L Sullivan1, J C Schommer

  • 1Ohio State University College of Pharmacy, Columbus.

Clinical Therapeutics
|November 1, 1993
PubMed
Summary

The Economic Order Quantity (EOQ) model can save pharmaceutical wholesalers money by minimizing ordering and holding costs. Applying EOQ to 8500 products could yield over $270,000 in annual savings, improving distribution efficiency.

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Area of Science:

  • Operations Research
  • Supply Chain Management
  • Pharmaceutical Distribution

Background:

  • Pharmaceutical wholesalers face significant costs related to inventory management, including ordering and holding expenses.
  • Optimizing inventory levels is crucial for maintaining profitability and efficiency in the pharmaceutical supply chain.
  • The Economic Order Quantity (EOQ) model is a standard inventory management tool for minimizing these costs.

Purpose of the Study:

  • To empirically assess the potential cost savings for a pharmaceutical wholesaler utilizing the Economic Order Quantity (EOQ) model.
  • To quantify the impact of EOQ on reducing combined ordering and holding costs within a specific pharmaceutical distribution context.

Main Methods:

  • A case analysis study was conducted with a regional pharmaceutical wholesaler.

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  • Eleven representative brand-name pharmaceutical products were randomly selected for detailed analysis.
  • The Economic Order Quantity (EOQ) model was applied to calculate optimal order quantities for the selected products.

    • Main Results:

    • The average yearly cost savings per product, when using the EOQ model, was calculated to be $31.92.
    • Extrapolating these savings across 8500 brand-name stock-keeping units (SKUs) indicated a potential annual cost reduction of $271,320.
    • The study demonstrated a direct correlation between EOQ implementation and reduced inventory-related expenditures.

    Conclusions:

    • The Economic Order Quantity (EOQ) model offers a viable strategy for pharmaceutical wholesalers to significantly minimize holding and ordering costs.
    • Implementing EOQ can lead to substantial financial savings and enhance the overall efficiency of pharmaceutical distribution channels.
    • This research provides empirical evidence supporting the adoption of EOQ for improved inventory management in the pharmaceutical wholesale sector.