Flu Vaccine Supply Chain Changes Needed to Stop Shortages

DECEMBER 29, 2015
Antranig Dereyan, Associate Editor
How is your pharmacy’s influenza vaccine supply looking throughout this year’s flu season?
 
Even pharmacies with abundant supplies could see a major shortage of flu shots due to late delivery, according to a recent paper published by Social Science Research Network.

It is imperative to coordinate the influenza vaccine supply chain to avoid such shortages, but because no contract currently in play can fulfill this need, a change to the current business model is in order, the paper concluded.

The researchers observed the following 3 common types of flu vaccine supply chain contracts:

1.     Wholesale Price Contract
This is a simple type of contract stating that both manufactures and retailers gain marginalized profits. However, the gains are dependent on the retailer’s order number, which in turn makes early production more beneficial to the manufacturer.

This might sound like a win-win situation, but according to the paper, this type of contract “lacks the incentive to improve the delivery performance, which leads to potential loss in demand…[and] the demand loss induces the retailer to reduce its order quantity, which further discourages the manufacturer from making an effort to improve on-time delivery.”

2. Delivery-Time-Dependent Quantity Flexibility Contract
This contract allows a retailer to return its leftover inventory at full price up to some level, which is referred to as “return allowance” that depends on the timing of delivery. Although it provides the manufacturer with some degree of incentive to undertake at-risk early production, it is reliant upon the incentive being substantial enough to motivate the manufacturer to do so.

3. Late-Rebate Contract
This contract offers a rebate for orders shipped after the ideal vaccination period. However, it leans favorably towards the manufacturer because it transfers all the risk from early production to the retailer.

To avoid the pitfalls that each of these contract types contains—most notably, eliminating double marginalization and incentivizing the manufacturer’s at-risk early production—the paper authors conceptualized a Buyback-and-Late-Rebate contract, which combines a late-rebate term with a buyback term.

If implemented correctly, this type of contract could coordinate the supply chain and keep the rebate aspect of the Late-Rebate contract in place. The buyback component is a variant of the Delivery-Time-Dependent Quantity Flexibility contract in that it provides a partial buyback credit.

Thus, the Buyback-and-Late Rebate contract offers partial-credit, full-quantity buyback of leftover inventory and a rebate for flu vaccines delivered late.

“The biggest problem pharmacists face with the current influenza vaccine supply chain is that the delivery performance of influenza vaccine is less certain than desired. This problem is exacerbated by the time sensitivity of demand for influenza vaccine: there is a very tight time window for it, typically from late September to early November,” lead paper author Tinglong Dai told Pharmacy Times.

“When you receive only a fraction of your order by October, few unserved customers are willing to wait. In certain cases, customers may become doubtful of the reliability of the health provider simply because of unavailability of flu shots.” 

Dai pointed to the long and uncertain vaccine production and distribution process—which includes strain selection, production, inspection, and delivery—as a major source of frustration for pharmacists, largely because it is completely out of their hands.

Dai believes that the Buyback-and-Late Rebate contract will be beneficial to the pharmacist.

“At a conceptual level, the Buyback-and-Late Rebate contract provides dual assurance to pharmacists in that the vaccine manufacturer provides a rebate for late-delivered vaccines and partial-credit refunds for unused leftover products at the end of the flu season,” Dai said. “In the largest sense, the contract is welfare-enhancing because it brings solid values to patients as well manufacturers and pharmacists.”


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