An Analytic Network Process Model to Support Decision Making in a

Pharmaceutical Supply Chain

V.H. Machado1, A.P. Barroso1, V. Cruz Machado1

Department of Mechanical and Industrial Engineering, Faculdade de Cincias e Tecnologia, FCT, Universidade Nova
de Lisboa, Portugal
(vhm@fct.unl.pt)

Abstract - This paper intends to design an Analytic

Network Process model to assists managers of different
pharmaceutical supply chain entities in identifying and
prioritize the management practices they use or should use
to achieve a competitive position in the market. The model
involves interactions between various criteria for
management practice selection. To this purpose a set of
clusters and elements related to a Portuguese
pharmaceutical supply chain are identified to compose the
model and pairwise compared with respect to a given factor.
The results obtained from the proposed model show that
the most suitable management practice for the
pharmaceutical supply chain studied is Just In Time if the
lean supply chain management paradigm was implemented
and Promoting visibility throughout the supply chain if
was the agile paradigm. Concerning the key performance
measures, On-Time-In-Full delivery and Inventory
value are selected respectively for lean and agile supply
chain management.

superior quality products, at low cost, with on-time

delivery to enhance performance and competitiveness [3].
SC managers must implement new strategies with the
objective of respond rapid, effective and efficiently to
unpredictable market changes, both in terms of volume
and variety [4]. However, decision making is also
important when implementing new strategies, since they
have to be carefully selected in order to cope with the
objectives of each SC.
SCM paradigms, competitive priorities, key
performance indicators (KPIs) and management practices
are issues associated to the SC strategic management
being critical in the decision making process to strive for
high SCM performance. To prioritize the referred topics,
one has to be aware of an adequate decision making tool
considering the problem structure. To attain this purpose
Analytic Network Process (ANP) was selected.
This paper focus on the issues related with decision
making in the pharmaceutical SC because i) the
pharmaceutical industry in Portugal has undergone
substantial changes in the last years in consequence of the
global economic crisis that is affecting Portugal in a very
significant way, ii) it has a high degree of regulation and
control set by the Portuguese government, and iii) there
are few papers addressing both SCM and pharmaceutical
industry.
Apart from this introductory section, the paper is
organized in the following manner. In section II, a
theoretical background covering SCM and ANP is
presented. In section III the methodology applied in the
paper development is described. In section IV a case
study is presented, an ANP model is proposed and the
results analysis is made. Finally, in Section V the
conclusion is drawn.

Keywords - Supply chain management, agile supply

chain, lean supply chain, ANP model, pharmaceutical supply
chain

I. INTRODUCTION
The emerging conditions of the environment where
supply chains (SCs) are evolving, namely, globalization,
high level of markets uncertainty, competition, and
complexity, promoted the development of new priorities
in the last few decades. Supply chain (SC) entities have
had to improve their procedures and their way of thinking
to compete between themselves and the success or failure
in the marketplace is ultimately determined by the end
customer [1]. But, to meet the requirements of the end
customer all SC entities have to contribute [1]. Therefore,
Supply Chain Management (SCM) has arisen to be not
only a way to get a higher performance and achieve
competitive advantage, but also a powerful business tool
to survive in a competitive marketplace, as it focuses on
actions along the whole value chain [2].
Decision making is crucial for companies who strive
to improve their SCM performance and their
competitiveness, whereby collaboration between them is
required. As collaboration between companies is a key
enabler for company success on a continuously changing
global environment, companies establish and reinforce
their partnerships to strengthen their business in the
market. In addition, companies are required to provide

978-1-4799-0986-5/13/$31.00 2013 IEEE

II. THEORETICAL BACKGROUND

A. Supply Chain Management
Nowadays the SCs and networks are increasingly
complex and are defined by a set of interdependent
entities that act together to manage and improve the flow
of materials, products, services and information, from the
nth tier supplier to the end customer of each SC in an
effective and efficient way to all the entities involved [4].
This is also the basis of SCM.
There are a large number of paradigms that can be
used in order to reach the SCM aim. The changing

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conditions of competition, the increasing levels of

environmental turbulence and the requirement for
companies to become more responsive and efficient are
driving the interest in the concept of SCM leanness and
agility [5].
When discussing leanness, efficiency is a central
characteristic related to the paradigm. When it comes to
agility, the main characteristic is responsiveness. A lean
SC employs continuous improvement efforts that focus on
eliminating waste or non-value steps along the SC. In lean
supply chains the focus is on waste elimination,
whereas in agile supply chains the focus is the ability of
comprehension and rapid response to market changes [6].
The agile supply chain intends to have the ability to
respond rapidly and cost-effectively to unpredictable
changes in markets [6].
To attain the desirable performance it is important to
assess the performance of the SCs, to have information
about its positioning in term of some important
competitive priorities related to its more operational side,
such as: customer service level, cost, and lead time.

The methodology employed to guide this paper is

summarized in Figure 1. Firstly, a literature review was
conducted to determine a comprehensive listing of factors
which will be used to select a set of SCM practices and
KPIs in the aim of lean and agile SCM paradigms. In
sequence, four experts of a Portuguese pharmaceutical SC
contributed with their knowledge and experience to
identify the most representative elements of each cluster
and the ANP model was structured. To gather the
pairwise comparisons between clusters/elements of the
ANP model a questionnaire was made and directed to the
responsible of some SC entities. According to SC experts,
each question was measured by a nine point scale [11].
As there are various experts involved in the
evaluation it was necessary to aggregate the scores
attributed to each questionnaire question. To preserve the
equal weight to the priorities defined by each SC level,
first it was calculated the geometric mean [12] of the
scores attributed to each question per SC level, after it
was calculated the geometric mean of the values obtained
per question. Finally, the ANP model was implemented
by the Super Decisions software and the results analyzed.

B. Analytical Network Process

Our intuition is capable of dealing with simple
problems, but has to be supported by rationality as the
degree of complexity of the problem gets higher as is the
case of the SCM. Since complex problems generally have
many related variables, logical thinking may be quite
difficult. Thus, there are situations where logic and
intuition must be combined [7].
The ANP is a multicriteria theory that allows the
decision maker to structure a decision in the most general
way conceivable. The network structure makes possible
the representation of any decision problem without
concern for what comes first and what comes next, and
deals with sources, cycles and sinks [7]. The ANP
captures the outcome of influence and feedback between
of cluster elements.
Two kinds of influence (outer and inner) can be
defined between the clusters network, and the clusters
elements. In outer influence one compares the influence
with elements in a cluster on elements in another cluster
with respect to a control criterion. In inner influence one
compares the influence of elements in a cluster on each
one.
ANP has been validated as a powerful decision
making tool in many different areas namely SCs, being
known to be a suitable approach to analyze the dynamic
characteristics and complexity of SCM [8]. It is widely
used in decision making in supplier evaluation [9] and in
performance measures [10].
Despite the number of studies developed in ANP, to
our knowledge there are few studies in the aim of
pharmaceutical industry SCM.

IV. CASE STUDY

A. Supply Chain
The SC under study is defined by three levels and
four entities, one distributor, one wholesaler, and two
pharmacies.
The distributor is one of the largest pharmaceutical
companies worldwide but in Portugal only act as a
distributor. The products quantity received from the
manufacturing sites is synchronized with the wholesalers
demand. The wholesaler is leader in European
pharmaceutical distribution providing value adding
services to pharmaceutics and laboratories. In Portugal it
distributes drugs and health products to over two thousand
pharmacies.

III. METHODOLOGY

Fig. 1. Methodology.

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The pharmacies are the end customers of the case

study SC. Two pharmacies located in the Lisbon region of
Portugal were involved in the study. One is the biggest
pharmacy of a town with about 0.5 million people (in
2011), and the other is located inside a big shopping
center. Pharmacies and wholesaler have a common
information system that permits to a pharmacy see the
inventory level of the wholesaler, regarding all products,
and enter the amount of product to be ordered.
Pharmacies are supplied by the wholesaler up to five
times a day with no additional costs, applying a JIT
supply for almost all products. The wholesaler does not
informs the distributor about the products inventory level
nor the orders received from the pharmacies so that the
distributor is able of organizing inventory levels in a way
that permits the waste reduction.

Goal:

SC competitiveness and performance

Criteria
Competitive priorities
Cost
Service Level
Lead Time

SC entities
Distributor
Wholesaler
Pharmacy

Subcriteria
KPIs

SCM paradigms

On-Time-In-Full
Inventory value
Responsiveness to
urgent deliveries

Lean paradigm
Agile paradigm

Alternatives
Management practices
Just In Time
Visibility in SC
Ability to change delivery dates and/or quantities

B. ANP Model Proposed

Fig. 2. The ANP model proposed.

The first step in the ANP model development is to

build a network consisting of clusters, elements and the
respective relationships. The network was constructed
based on both, literature review and SC experts opinion.
The experts opinion was considered right in the
beginning of the model development to construct a valid
one.
Three elements on each cluster were considered due
the high number of pairwise comparisons would need to
do.
The development of any model requires the definition
of a goal to be achieved. Selecting the best management
practices to make the distribution pharmaceutical SC
competitive is the goal to achieve by the ANP model
proposed, Figure 2.
Competitive priorities are key enablers to achieve SC
competitiveness. Thus, competitive priorities will be the
Criteria cluster. Reference [13] suggests that Cost, Service
Level, Lead Time and Quality, are market winners and
qualifiers for the Lean and Agile SCs. As Quality is a
prerequisite in the pharmaceutical industry, Cost, Service
Level, and Lead Time are selected as Criteria cluster
elements. Cost correspond to the aggregated costs along
the SC; Service level is the on time delivery in the right
quantity to the customer; and Lead time is the period of
time between the customer order placement and its
delivery. As these elements contribute to the evaluation of
SC performance and competitiveness, the Criteria cluster
is connected to the Goal cluster.
In Figure 2 a unidirectional arrow indicates that one
cluster influences another (outer influence), namely the
arrow that goes from the Goal to the Criteria means that
the Goal cluster value depends on the judgments of the
Criteria cluster. Additionally, the Criteria cluster also
contains inner influences, i.e. if Lead time increases it is
very likely that Service level decreases and Cost
increases. This interrelationship is represented by the
circular arrow.

To measure the competitive priorities (Criteria

cluster) three key performance indicators are selected and
will constitute the KPIs cluster (Subcriteria cluster).
specifically: 1) On-Time-In-Full delivery (OTIF)
represents the percentage of orders that arrive on time and
in the right quantity; 2) Inventory Value (IV) is the
inventory quantity that meets the demand, measured in
weeks; and 3) Responsiveness to Urgent Deliveries
(RUD) is the SC ability to respond to urgent deliveries
and orders placed outside the previously established time
period. Although there are inner influences in this cluster
they are not considered to simplify the model.
To enhance SC performance and competitiveness,
three management practices are selected from the ones
proposed by the pharmaceutical SC experts, which
constitute the Alternatives cluster: 1) Just In Time (JIT) is
a philosophy that strives to reduce waste in the form of
time, material and information, such as inventory
reduction and batch size reduction; 2) Promoting visibility
throughout the SC (SCV) is the ability to assess detailed
data related with logistics and SC, namely, orders and
inventory levels, regardless of the point in the SC where
the data exists. This management practice will allow
making the prioritization of the orders; and 3) Promoting
the ability to change delivery dates and/or quantities
(DQC) provides the possibility to a supplier to cope up
with changes in the quantity and/or lead times of
customer orders.
As the implementation of management practices
influences the competitive priorities and KPIs,
Alternatives cluster will be connected to both Criteria and
Subcriteria clusters.
In the SC entities cluster three entity types were
involved in the case study: distributor, wholesaler and
pharmacy (end customer). These elements are essential to
the decision making, which makes this cluster crucial to
analyze different perspectives of the same SC. This
cluster is connected to others clusters (Criteria,
Subcriteria, and Alternatives) because management

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practices implementation by SC entities influences the

KPIs and the respective competitive priorities.
Each SC entity is managed to attain competitiveness
according to principles based on market rules being
crucial the existence of relationships between business
partners to achieve a high customer service level. To
attain this objective different management paradigms may
be implemented, in a pure or hybrid way. The connection
from SC entities cluster to SCM paradigms cluster will
allow to evaluating which management paradigm is the
most important in each SC level. The SCM paradigms
cluster contains two elements, Lean and Agile paradigms.
The inner influence between these elements is not
considered in the case study to not increase the number of
pairwise questions and, consequently, the questionnaire
dimension.
Priorities between clusters, between cluster elements,
and between different clusters elements were established
using pairwise comparisons and judgment.

TABLE I
CLUSTER MATRIX - CLUSTERS PAIRWISE COMPARISON
Cluster

A
0.000
0.000
0.000
0.000
0.000
0.000
B
0.097
0.000
0.000
0.000
0.073
1.000
C
0.000
0.333
0.000
0.333
0.326
1.000
D
0.000
0.000
0.570
1.000
0.667
0.506
E
0.000
0.000
0.000
0.000
0.000
0.095
F
0.000
0.000
0.000
0.000
0.000
0.000
A - Goal; B - Competitive priorities; C - KPIs;
D - Management practices; E - SCM paradigms; F - SC entities.

Namely, Selecting the best management practices to

make the distribution pharmaceutical SC competitive
(Goal cluster) depends on the Competitive priorities
(Criteria cluster).
This model result was awaited once the competitive
priorities are key enablers to achieve SC competitiveness.
On the other hand KPIs (Subcriteria cluster) depends on
the Management practices (Alternatives cluster), and
Management practices depends on the KPIs. This
mutual influence had been expressed by a bidirectional
arrow on the proposed model. Although the KPIs are
defined based on the implemented management practices,
the management practices are influenced by the KPIs.
Concerning to the Competitive priorities (Criteria
cluster), SCM paradigms and SC entities are all
mainly dependent on the Management practices
(Alternatives).
The pairwise comparisons reported in Table II
evaluate the influence of the Management practices
(Alternatives cluster) and KPIs (Subcriteria cluster) on
the SCM paradigms cluster. According to experts
judgment Just In Time (JIT) is the Management
practice that has a highest influence in the Lean SCM
paradigm (0.637).
Concerning the KPIs cluster the elements OnTime-In-Full delivery (OTIF) (0.482) and Inventory
value (IV) (0.442) have identical influence on Lean SCM
paradigm assessment. The results are the expected ones,
since for the Lean SCM paradigm Just In Time practice is
crucial to reduce or eliminate wastes.

C. Questionnaire
A questionnaire with 88 questions corresponding to
the relationships resulting by the ANP model proposed
was developed and presented to nine experts of four SC
entities to elicit their opinion regarding business
management and business performance within their
companies. A response rate of 89% was obtained. One
example of a question is presented in Figure 3.
A nine point priority scale, suggested by [11], was
used to pairwise comparison. A score of one indicates
equal importance, while nine indicates the extreme
importance of one element over another.
D. Discussion
In this paper the software Super Decision v.2.2 was
used to compute the pairwise comparisons between
clusters and elements and to determine the consistency
ratios.
A consistency analysis has been carried out for all the
clusters and the calculation showed always consistency
ratio lower than 0.1, which permits concluded that results
are consistent. For the SC studied, as reported in Table
I, results of the pairwise comparison of clusters show that
according to SC experts judgment some clusters depend
only of another cluster.

TABLE II
SCM PARADIGMS VERSUS KPIs AND MANAGEMENT PRACTICES
SCM paradigms

Lean

Agile

JIT
0.306
0.637
Management
SCV
0.111
0.558
practices
DQC
0.253
0.136
IV
0.111
0.442
OTIF
KPIs
0.482
0.372
RUD
0.076
0.517
JIT - Just In Time; SCV - Promoting visibility upstream and
downstream the SC; DQC - Promoting the ability to change delivery
dates and/or quantities; IV - Inventory value; OTIF - On-Time-InFull delivery; RUD- Responsiveness to urgent deliveries.
Fig. 3. A questionnaire question.

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Thus, it is vital to measure lead time, delivery

quantity and inventory level. Regarding the Agile SCM
paradigm,
Promoting
visibility
upstream
and
downstream the SC (SCV) was considered the most
influent Management practice (Alternatives cluster)
(0.558), followed by the Just In Time practice (0.306).
Responsiveness to urgent deliveries (RUD) (0.517), and
On-Time-In-Full delivery (OTIF) (0.372) have been
considered as having a main influence on Agile SCM
paradigm assessment.
These results are also consistent with the paradigms
theoretical basis. The Agile SCM paradigm aims to satisfy
customer needs through quick response, so it is crucial
having visibility through the SC, and measure both the
responsiveness to urgent deliveries, and the fulfillment of
lead times and orders quantity.

Future research should consider the pairwise

comparisons conducted from three different perspectives
corresponding to the different SC levels, distributor,
wholesaler, and pharmacy. Also, a comparative analysis
of the results from the point of view of the pharmaceutical
SC should be done in different countries.
ACKNOWLEDGMENT
The authors would like to thank the Unidade de
Investigao e Desenvolvimento em Engenharia
Mecnica e Industrial for its support (PEstOE/EME/UI0667/2011).
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V. CONCLUSION
This paper aims to propose a managerial decision
model for a Portuguese pharmaceutical SC.
The SCM involves making decisions about
interdependent competitive priorities based on SCM
paradigms that relate to some management goals. Each
decision requires selecting among some management
practices (Alternatives cluster) each of which impacts
differently on various KPIs (Subcriteria cluster). Also,
there are different SC entities participating in the decision
making process with different constraints.
The ANP is used to define the most adequate
priorities in a case study performed by four companies of
a pharmaceutical SC. Also, it allows an accurate analysis
of interdependence of qualitative and quantitative factors
observed in SCM. The model was developed based on in
both the knowledge and experience of experts and the
ANP scientific characteristics. Once the clusters and
respective elements are selected, the respective
relationships identified and the model built, a total of 88
pairwise comparisons between the elements were made.
The major paper contributions lies in i) the
development of a conceptual model based on the ANP,
and ii) the prioritization of management practices and
KPIs related with the Lean and Agile SCM paradigms
based on a Portuguese pharmaceutical SC.
The results obtained contribute to support managers
of the pharmaceutical SC to make decisions that will
permit to obtain competitiveness. It was possible to
conclude that pharmaceutical SC experts consider that
Just In Time practice have the greatest influence on Lean
SCM paradigm, while promoting visibility along the SC
was the one with greatest influence on the Agile SCM
paradigm. Concerning the KPIs, On-Time-In-Full
delivery is common to measure both Lean and Agile SCM
paradigms, although responsiveness to urgent deliveries is
the most suitable for the Agile SCM paradigm.

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