A Volume Allocation Model for DMPA Procurement

The Chair of Logistics and Quantitative Methods released the report of a research project concerning the volume allocation in the market of Depot medroxyprogesterone acetate (DMPA).

The researchers developed a simulation model to assess how the large procurers of DMPA – USAID and UNFPA – should split volume among an incumbent supplier and a potential new entrant. The model captures the most important trade-off between competition among suppliers and supply risks, which are induced by uncertain supplier lead times and potential supplier defaults. Publicly available data was used to carry out extensive analyses and to explore a variety of particular research questions.

“Our simulation model provides decision makers with directional insights into how they should split their procurement volume; moreover, it allows to verify how a variety of parameters, such as supplier capacities, lead times, and prices drive the optimal split”, says Dr. Alexander Rothkopf. Hence, it fosters the understanding of a very complicated decision making problem and provides hard facts supporting a more informed decision.

For example, the results show how strongly a buyer can participate in a diversification effect if he contracts more than one supplier. This diversification lowers his exposure to risks if the split is chosen correctly. Thus, a new entrant not only provides value in terms of competitive pressure or higher capacity; he can also lower exposure to operational risks. “Our simulation model puts verifiable numbers to these effects”, says Dr. Rothkopf. The research was initiated in 2014 and partly funded by the William Davidson Institute (WDI) of the University of Michigan in Ann Arbor. Prashant Yadav and his colleague Leslie Arney of WDI collaborated closely with the team at the University of Würzburg.