Socially Optimal Contracting between a Regional Blood Bank and Hospitals
Scholarly/refereed, author accepted manuscript
© 2018 Production and Operations Management Society
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Motivated by the operational challenges faced by a Regional Blood Bank (RBB) in distributing the blood (and related products) among the hospitals in its service area, we study socially optimal contracting decisions of an RBB serving multiple hospitals. The supply of blood can be uncertain and insufficient to satisfy the total orders from hospitals. In the face of supply uncertainty, hospitals tend to over-order to compensate for a potential supply shortfall. When all hospitals inflate their order quantities, overall allocation of blood suffers and ultimately inflates the total cost of blood, which in turn lightens the wallets of patients. We model the blood bank as a social planner with the objective of minimizing the total cost of shortages and outdates throughout the supply chain. We assume hospitals need some economic incentive to report demand honestly when multiple hospitals compete for limited blood supply. We show that if the blood bank offers a suitable per unit subsidy for every unit of shortage experienced by a hospital, then hospitals would be induced to report demand to the blood bank without inflation. We also investigate whether or not a consignment contract can be consistent with uninflated ordering by hospitals. Finally, we perform a detailed numerical study based on real demand and supply data to investigate the impact of over-ordering by hospitals on shortages and outdates in the supply chain, and the role of the appropriate contracts and allocation policies in obviating the concomitant social costs.
This is the peer reviewed version of the following article: Paul, A., Rajapakshe, T. and Mallik, S. (2019), Socially Optimal Contracting between a Regional Blood Bank and Hospitals. Prod Oper Manag, 28: 908-932. https://doi.org/10.1111/poms.12960, which has been published in final form at https://doi.org/10.1111/poms.12960. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
Paul, A., Rajapakshe, T. and Mallik, S. (2019), Socially Optimal Contracting between a Regional Blood Bank and Hospitals. Prod Oper Manag, 28: 908-932. https://doi.org/10.1111/poms.12960
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