Supply Chain Simulation Foundations���Data Science for Modeling Workshop�Addis Ababa, Ethiopia�February 4, 2026���Sachiko Ozawa�Professor�Practice Advancement & Clinical Education�UNC Eshelman School of Pharmacy �Ozawa@unc.edu��

This session’s objectives

• Understand key supply chain concepts

​

• Examine existing supply chain models

​

• Start to sketch a supply chain model

​

​

Supply chain concepts

What is a medicine supply chain?

• A network of actors, processes, and resources that ensures medicines move from suppliers/manufacturers to patients

​

• For medicines this includes: manufacturers → distributors → central stores → health facilities → patients.

​

• Key flows: product, information, and funds.

​

• Objectives: ensure availability, quality, and affordability

Supply Chain Optimization

Key Objectives

• Ensure availability of essential medicines
• Balance costs and service levels
• Minimize stockouts (shortages)
• Reduce wastage (expired or unused stock)

​

Modeling demand variability

Demand for medicines fluctuates due to:

• Seasonal disease patterns
• Disease outbreaks
• Patient care-seeking patterns
• Changes in medication prescribing
• Direct consumer advertising

Lead Times

• Lead time = time between placing order and receiving stock.
• Includes time for procurement, shipping, customs, internal distribution
• Safety stock = Extra inventory to prevent stockouts due to variability in demand or supply delays.
• Longer lead times increase uncertainty and require larger safety stock.
• Lead time variability interacts with demand variability to affect inventory and order policies.

Bullwhip effect

Causes of the Bullwhip effect:

1. Demand Variability – Fluctuations in consumer demand can lead to exaggerated responses from retailers and suppliers, who may order more than necessary to compensate for perceived increases in demand.
2. Poor Communication – Lack of information sharing between supply chain partners can result in misinterpretations of demand signals, leading to excessive ordering.
3. Long Lead Times – Delays in the supply chain can cause businesses to overreact to changes in demand, further amplifying the bullwhip effect.
4. Fear of Stockouts – Retailers may order larger quantities to avoid running out of stock, which can lead to excess inventory when demand stabilizes.

Supply chain phenomenon where small changes in consumer demand lead to larger fluctuations in orders and inventory levels as you move upstream  in the supply chain

​

Medicine Order Policy

A medicine order policy is a structured approach that defines:

• When to place an order: Based on stock levels, usage rates, or time intervals.
• How much to order: Based on demand forecasts, safety stock, or economic order quantity.
• How often to order: Daily, weekly, monthly, or as needed.

​

Medicine Order Policies

Common Inventory Concepts

• Reorder Point (ROP): The stock level at which a new order should be placed.
• Order-Up-To (S): Order enough to bring inventory up to a target
• Economic Order Quantity (EOQ): Optimal order size that minimizes total costs (ordering + holding).�

Good policies balance stock holding cost vs. availability.

​

Medicine Order Policies

Stockouts

Causes

​

• Inaccurate records
• Poor demand forecasting
• Supplier delays
• Manufacturing issues
• Supply chain disruptions
• Poor cash flow management
• Poor communication
• Unexpected increase in demand

​

Impacts

​

• Interrupted treatments
• Treatment failures
• AMR resistance
• Prolonged illness
• Preventable deaths, disability
• Reduced trust in health systems
• Increased emergency spending

​

Wastage

Sources of Wastage

• Overstocking / excess inventory.
• Expiry due to long storage or poor rotation.
• Storage issues (temperature, humidity).

​

Mitigation Strategies

• FIFO / FEFO rotation (first-in, first out, and first-expired, first-out).
• Real‑time tracking systems (eLMIS).
• Collaborative redistribution networks.
• Forecast refinement & demand signals.

​

Centralized vs. Decentralized Stocking

​

Centralized Stocking

​

• Definition: Medicines are stored in a single or a few central warehouses before distribution.

​

• Advantages:
• Economies of scale in procurement and storage.
• Easier quality control and regulatory compliance.
• Simplified inventory management at the central level.

​

• Disadvantages:
• Longer lead times to peripheral facilities.
• Higher risk of widespread stockouts if central warehouse experiences disruption.
• Less responsive to local demand fluctuations.

​

• Best Use: National programs or essential medicines with predictable demand patterns.

Centralized vs. Decentralized Stocking

​

Decentralized Stocking

​

• Definition: Medicines are stored at multiple local or regional facilities closer to the point of use.

​

• Advantages:
• Faster response to local demand changes.
• Reduces transportation delays and lead times.
• Can improve service levels in remote or rural areas.

​

• Disadvantages:
• Higher total inventory and storage costs.
• More complex coordination and monitoring required.
• Potential for inconsistent quality management across sites.

​

• Best Use: Diverse or unpredictable demand, emergency supplies, or perishable medications.

​

​

Public vs. Private Distribution Channels

​

​

​

​

​

​

​

Public Sector

​

• Procurement & Pricing: Centralized procurement; medicines are often subsidized or may be free at point of care.

​

Strengths:

• Ensures essential medicines reach vulnerable populations.
• Standardized quality and regulatory oversight.

​

Challenges:

• Stockouts due to bureaucratic delays or limited budgets.
• Less flexible in responding to sudden changes in demand.
• Sometimes longer lead times due to centralized distribution systems.

Public vs. Private Distribution Channels

​

​

​

​

​

​

​

Private Sector

​

• Ownership: Operated by private pharmacies, wholesalers, or commercial distributors; profit-driven. Decentralized purchasing; prices are market-driven

​

• Strengths:
• Rapid response to changes in demand.
• Better stock management practices due to competition.
• Can offer wider product range and faster replenishment.

​

• Challenges:
• Limited access in rural or low-income areas.
• Risk of uneven quality control if regulation is weak.

Supply Chain Performance Metrics

1. Availability Metrics

• Stockout Rate / Stockout Frequency
• % of time a medicine is out of stock at a facility.
• Lower rates indicate better availability.
• Order Fulfillment Rate / Service Level
• % of orders fulfilled completely and on time.
• High rates indicate responsiveness of the supply chain.
• Days of Stock / Inventory Coverage
• How many days the current inventory can meet demand.
• Helps balance overstocking vs. stockouts.

Supply Chain Performance Metrics

2. Efficiency Metrics

• Inventory Turnover
• Number of times inventory is used or replaced over a period.
• High turnover can indicate efficient use; too high may risk stockouts.
• Lead Time
• Time from placing an order to receiving it.
• Shorter and more predictable lead times improve reliability.
• Order Cycle Time
• Time taken to process and fulfill an order within the system.

​

Supply Chain Performance Metrics

3. Quality & Waste Metrics

• Expiry / Wastage Rate
• % of medicines expired or wasted before use.
• Lower rates indicate better forecasting and inventory management.
• Damage / Loss Rate
• Medicines lost due to breakage, mishandling, or theft.

​

4. Cost & Financial Metrics

• Cost per Order / Cost per Unit Delivered
• Measures efficiency of procurement and distribution.
• Holding Costs
• Costs related to storing medicines, including storage space, refrigeration, and capital tied up in inventory

​

​

Supply Chain Performance Metrics

5. Responsiveness & Flexibility Metrics

• Backorder Rate
• % of orders delayed due to unavailability.
• Fill Rate under Surge Demand
• Ability to supply medicines during unexpected spikes in demand.

​

6. Data & Information Metrics

• Reporting Accuracy / Timeliness
• Accuracy of stock reporting in logistics management information systems (LMIS).
• Forecast Accuracy
• How closely predicted demand matches actual consumption.

​

​

Any Questions?

ozawa@unc.edu

​