The management of global supply chains is highly complex and vital for multinational pharmaceutical enterprises. Global integrated planning in multi-site, multi-echelon network of a multinational company has attracted some academic interest. However, the focus has largely been on efficient solution strategies for large problems. In this work, we develop simple yet powerful MILP model for multi-period enterprise-wide planning. We represent the entire enterprise in a seamless fashion with a granularity of individual task campaigns on each production line. Our model integrates procurement, production, and distribution along with the effects of international tax differentials, inventory holding costs, material shelf-lives, waste treatment / disposal, and other real-life factors on the after-tax profit of the company. To demonstrate the performance of our model, we solve two example problems of planning multinational pharmaceutical enterprise. For our evaluation, we consider an industrial scale planning problem for a supply chain network consisting of 34 different entities and producing 9 different products, for a period of 5 years.
The global pharmaceutical industry is grappling with tremendous turmoil in the marketplace and a dramatically changing competitive landscape. This is mainly due to the numerous mergers among different companies and the upsurge in generic manufacturers. Fierce market competition, peaking patent cliffs, mounting R&D costs, shrinking product pipelines, and stringent regulatory protocols are bringing a paradigm shift in the way pharmaceutical enterprises operate. Companies are beginning to realize that past practices will not meet future market needs. The past decade reflects a significant imbalance between new product introductions and patent losses (Pharmaceutical industry outlook – Zacks Equity Research, March 2011). This is expected to continue for the next few years. Also, the new products are not expected to generate the same levels of sales as the products losing patent protection. With revenue growth stalling or slowing down, companies are resorting to cost-cutting to drive bottom-line growth. Although pharmaceutical companies are not known to be the best practitioners of the supply chain models, optimization of supply chain operations is known to improve the bottom lines in several other industries such as airline, refining, semiconductor, etc. This has also prompted the pharmaceutical companies to begin focusing on exploiting economies of scale in manufacturing and improving the management of resources such as facilities, equipment, materials, human, information, and finances.
Fig. 1 shows a schematic of a typical large multinational pharmaceutical enterprise. It involves functions such as raw material sourcing, primary or API (active pharmaceutical ingredient) manufacturing, secondary manufacturing, warehousing, distribution, etc. Such a configuration requires frequent transfers of materials (raw, intermediates, products, packaging, etc.) among the different sites across the globe. These material transfers not only involve time and normal operational costs, but also a slate of administrative and regulatory procedures and costs. Such costs include import duties and corporate taxes to be paid to the local governing authorities, transfer prices for material flows among the company's various sites, etc. Since the taxes and duties vary from one country to another, they can be intelligently exploited to maximize after-tax profits. Another key characteristic of a typical pharmaceutical enterprise is its high-valued material inventories. This is to ensure a high level of customer satisfaction in the face of any operational disruptions and capitalize on any unexpected opportunities (e.g. increase in demand during a disease outbreak or natural calamity). However, costly inventories freeze capital, and are undesirable for many reasons. Clearly, the pharmaceutical operations involve trade-offs, and require intelligent decision making, making operational planning and decision making a complex and crucial task.
While global integrated enterprise-wide planning has attracted some academic interest with some work on pharmaceutical industry, its focus has largely been on efficient solution strategies for large problems. We have presented a simple MILP model for multi-period enterprise-wide planning in a multi-site, multi-echelon, and global network of a pharmaceutical company. One key aspect of our model is to consider the entire enterprise in a seamless fashion with a granularity of individual task campaigns on each production line. The model integrates procurement, production, and distribution along with the effects of international tax differentials, inventory holding costs, material shelf-lives, waste treatment/disposal, and other real-life factors on the after-tax profit of the company. In addition, our proposed LP–MILP algorithm seems to work well on two examples based on an existing pharmaceutical company. Thus, this work has the potential to serve as a decision-support tool for long-term planning.
