A simulation study to quantify opportunities for E-business in a drug distribution system

This paper presents and quantifies some of the opportunities of E-business tools to material flow effectiveness. The study was developed at a Brazilian drug distribution system. Results are based on comparing historical data against the simulation of an alternative, which manages the distribution process employing an E-business solution embedded with simple replenishment methods to coordinate the flow of materials along the distribution system (manufacturer, wholesalers and drug retailers). Simulation results show that there is an opportunity to reduce total cost and improve service level to drugstores (and as a result to consumers) at the same time. Another important result was the reduction of the bullwhip effect. Introduction This paper is based on a research project on the drug distribution system of a manufacturer in the Brazilian market. The scope of this system begins at the manufacturer’s inventory of finished products and ends at the flow of materials towards the drug retailers. The main objective of this paper is to identify and quantify the benefits of an Ebusiness tool for the distribution system with centralised planning – taking into account the use of cooperation and information sharing practices between the manufacturer and the wholesalers. It also shows and quantifies the impact of the Bullwhip effect on wholesalers. The main functions of the E-business tool evaluated using stochastic simulation are: a) a VMI method embedded with a periodic review policy, and b) the reduction of order processing costs.