A simulation model for a continuous review inventory policy for healthcare systems

Healthcare systems in the US and Canada are under significant pressure to cut costs. While the origins of wasteful spending are diverse, until recently, the industry has exclusively focused on reducing product purchase costs. Belatedly, management echelons started addressing logistics and supply chain costs. Inventory management is emerging as the next target. Our ultimate objective is to develop an inventory optimization system for the healthcare industry. Given the magnitude of this challenge, this paper starts with a single product single echelon simulation model that identifies and addresses some of the critical waste factors in healthcare inventory systems with [s, S] continuous review and replenishment policy and stochastic demand and lead times. The simulation is performed over [s, S] space and identifies policies that minimize inventory costs by balancing stockouts costs which drive higher inventory with other costs that drive lower inventory.