System Dynamics Approach to Model the Interaction Between Production and Pricing Factors in Pharmaceutical Industry

Pharmaceutical companies need to take advantage of adequate profits to obtain sufficient funds for playing major roles in the competitive market. The purpose of this research is to predict the price of medicine and the volume of production, taking the producer’s profit, the prices of the raw materials, and qualities into consideration. System thinking is employed to develop the cause and effect diagram and system dynamics for preparing the model for simulation and trend analysis. The simulation was carried out using VENSIM software on the amoxicillin capsule as a case study. When the government increases the marginal profit percentage for producers and with high-quality raw materials used by the producer, the companies` profits, production volume, and medicine quality will increase. Sensitivity analysis indicates that our pharmaceutical production company can better deal with the pharmacies, producers, and suppliers. This means that with a two percent lower profit margin for the pharmacy industry, the final medicine price would come down to 40105 from 40601, which is a one percent reduction to the base price suggested by simulation originally. This article makes a significant contribution to the Pharmaceutical field and hence to the patients and health industry.