The Unexpected Impact of Information Sharing on US Pharmaceutical Supply Chains

Authors:
Leroy B. Schwarz;Hui Zhao
Affiliations:
Krannert School of Management, Purdue University, West Lafayette, Indiana 47907;Krannert School of Management, Purdue University, West Lafayette, Indiana 47907
Venue:
Interfaces
Year:
2011

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Abstract

This paper examines a change in business practices in the pharmaceutical manufacturer-to-distributor supply chain, a change that essentially forced pharmaceutical distributors to maintain lower inventories. This change also provided pharmaceutical manufacturers with information about distributor customer demand and inventories that had previously been withheld from them. Supply chain theory and practice in other industries suggest that by improving decision making and implementation, companies can operate with substantially lower inventories. This happened in pharmaceutical distribution when a Securities and Exchange Commission investigation led manufacturers to force distributors to operate with less inventory. Theory and practice further suggest that manufacturers who are provided with relevant information that they did not have previously would take advantage of this information to reduce their inventories. This evidently did not happen in pharmaceutical manufacturing. We contend that pharmaceutical manufacturers either do not know how to take advantage of such information or they do not care.