Pharmaceutical supply chain procurement strategies: group or decentralized

As drug expenditures continue to rise, healthcare systems face growing pressure to improve procurement efficiency and control supply costs. Using game theory, this study identifies optimal procurement strategies for each stakeholder in the pharmaceutical supply chain, depending on market size, discount levels, and the group purchasing organisation’s (GPO) bargaining power. Specifically, medical institutions tend to engage in group procurement to aggregate demand in smaller markets, while in larger markets, they favour diversified strategies to maintain sourcing flexibility. The pharmaceutical manufacturer is more likely to adopt low-discount group procurement in both small and large markets, but shifts towards diversified procurement under medium or high discounts to maximise profits. A further comparison between decentralised and group procurement, with the manufacturer remaining the leader and the decision sequence unchanged, shows that medical institutions benefit more from group procurement as discounts strengthen. However, the manufacturer benefits only when demand expansion and economies of scale offset price concessions. Moreover, GPO bargaining power emerges as a pivotal factor that can alter the game’s dynamics, with its relative strength or weakness even capable of reversing the strategic choices of both buyers and suppliers. Managerial implications for medical institutions and pharmaceutical manufacturers regarding their procurement strategy are discussed. This study offers practical guidance for medical institutions, pharmaceutical manufacturers, and group purchasing organisations (GPOs) on improving pharmaceutical procurement decisions. The findings show that the most effective purchasing approach depends on market size, manufacturer discounts, and GPOs’ bargaining power. Medical institutions should assess these conditions before choosing between purchasing directly from manufacturers and purchasing through a GPO. In smaller markets, working with a GPO can help institutions combine demand and obtain better prices. Institutions should also evaluate a GPO’s bargaining strength and, importantly, whether the savings achieved by the GPO are passed on to them through lower prices or better contract terms. Pharmaceutical manufacturers can improve profitability by adapting their discount policies to different market conditions. Manufacturers should also strengthen their negotiating capabilities and diversify sales channels when dealing with powerful GPOs. GPOs can create greater value by expanding their purchasing scale, developing negotiation and market-analysis expertise, and designing contracts that reflect differences among participating institutions. Finally, coordination mechanisms such as two-part tariff contracts, with appropriately designed membership fees and commissions, can help manufacturers and medical institutions share benefits more effectively and support stable, long-term supply-chain relationships.