Background

Mitchell, a manager at the leading flu vaccine manufacturer, CSP Inc., needs to determine the optimal production plan for the upcoming flu season while balancing the interests of the company with the need to promote public health. The flu vaccine industry is characterized by unpredictable demand, with production lead time of 6-8 months and distribution through direct sales or distributors. Michael is torn between the "just-in-time" and "just-in-case" production strategies and needs to consider the role of the government in the value chain. The objective is to suggest a production plan that benefits both the company and public health while estimating all possible demand scenarios.

In-Depth Case:

Introduction

In this case study, we analyze the influenza vaccine production strategy for a hypothetical pharmaceutical company named CSP. The objective is to determine the most suitable approach for the 2010-2011 flu season in the U.S. market. The two approaches under consideration are the "just-in-time" strategy and the "just-in-case" strategy. The former prioritizes minimizing costs and maximizing profit for the company, while the latter focuses on public health preparedness by having a surplus of vaccines to serve communities during potential outbreaks.

Problem Statement

CSP's dilemma revolves around choosing between the "just-in-time" and "just-in-case" strategies for influenza vaccine production for the upcoming flu season. The company aims to optimize its bottom line while ensuring that sufficient vaccines are available to meet potential demand, thereby promoting public health.

Background and Assumptions

• Vaccine Production and Costs: CSP's variable production cost is $3 per dose, and the selling price per dose is $10.

• Market Share: CSP's market share varies based on historical data, ranging from 37% to 55% in recent years.

• Demand Uncertainty: The demand for vaccines in the U.S. is uncertain, with varying probabilities for different demand levels.

• Production Yield: The production yield per egg is uncertain and follows a log-normal distribution, representing different probabilities of yield per egg.

• Planned Production Quantity: CSP plans to produce 4% more than the previous year's sales of 55 million doses.

Analysis and Insights

To address CSP's dilemma, a deterministic model was developed, and a simulation approach using @Risk in Excel was employed. Several analyses were conducted to assess the impact of different strategies on CSP's expected profit and vaccine availability.

1. Modeling Uncertain Demand and Market Share: Uncertain demand was modeled using probability distributions. CSP's market share was assumed to vary within a given range. Using @Risk, probabilities of different scenarios were calculated, allowing for more accurate predictions of outcomes.

2. Modeling Production Yield: Production yield per egg was modeled as a log-normal distribution with parameters to match the production process description. The probability of yield per egg being less than 1/3 was calculated using @Risk's distribution parameters.

3. Simulation Model: The simulation model integrated uncertain inputs, such as demand, market share, and production yield, into the deterministic model. By running the simulation, different production quantities and corresponding outcomes were generated, including vaccine sales, leftovers, shortages, and CSP's profit.

4. Analysis of Production Strategies: Several production quantities were analyzed, considering the "just-in-time" and "just-in-case" strategies. Expected outcomes were computed, including vaccine sales, leftover vaccines, shortages, and CSP's profit.

Recommendations

Based on thorough analyses and simulations, the following recommendations are made:

1. Optimal Production Quantity: With a planned production quantity of 82 million doses, CSP is projected to achieve an expected profit of $409.44 million. This quantity optimizes the company's bottom line while providing a significant buffer against potential shortages.

2. Impact on Society: CSP's production strategy takes into account uncertainties in demand, market share, and production yield. The chosen approach, with an expected profit of $409.44 million, also ensures that CSP can be fully prepared to meet 88% of demand scenarios. This strategy promotes public health by having enough vaccines available for communities during most seasons.

3. Best Course of Action: The simulation results are consistent and exhibit a high level of confidence in the selected production quantity. The "just-in-case" strategy aligns with CSP's goal of balancing profit and public health preparedness, by optimizing costs and profit margins while ensuring vaccine availability for potential outbreaks.

Conclusion

This case study demonstrates the complexity of influenza vaccine production decisions, considering uncertainties in demand, market share, and production yield. By utilizing simulation techniques and @Risk software, CSP was able to identify the optimal production strategy that not only maximizes profit but also contributes to public health preparedness. The "just-in-case" strategy emerged as the preferred approach, striking a balance between financial interests and societal well-being.