An optimization-simulation approach to the network redesign problem of pharmaceutical wholesalers

Hybrid optimization-simulation approach for the wholesalers network redesign problem.Mixed-integer linear programing model to optimize the network redesign strategic decisions.Discrete event simulation model assess the impact of the redesign at operational level.A case-study validated the models and exposed the benefits of the hybrid approach. The pharmaceutical industry operates in a very competitive and regulated market. The increased pressure of pharmacies to order fewer products and to receive them more frequently is overcharging the pharmaceuticals distribution network. Furthermore, the tight margins and the continuous growth of generic drugs consumption are pressing wholesalers to optimize their supply chains. In order to survive, wholesalers are rethinking their strategies to increase competitiveness. This paper proposes an optimization-simulation approach to address the wholesalers network redesign problem, trading off the operational costs and customer service level. Firstly, at a strategic-tactical level, the supply chain network redesign decisions are optimized via a mixed integer programming model. Here, the number, location, function and capacity of the warehouses, the allocation of customers to the warehouses and the capacity and function of the distribution channels are defined. Secondly, at an operation level, the solution found is evaluated by means of a discrete event simulation model to assess the impact of the redesign in the wholesalers daily activities. Computational results on a pharmaceutical wholesaler case-study are discussed and the benefits of this solution approach exposed.