Classical and Deep Reinforcement Learning Inventory Control Policies for Pharmaceutical Supply Chains with Perishability and Non-Stationarity

Abstract: We study inventory control policies for pharmaceutical supply chains, addressing challenges such as perishability, yield uncertainty, and non-stationary demand, combined with batching constraints, lead times, and lost sales. Collaborating with Bristol-Myers Squibb (BMS), we develop a realistic case study incorporating these factors and benchmark three policies--order-up-to (OUT), projected inventory level (PIL), and deep reinforcement learning (DRL) using the proximal policy optimization (PPO) algorithm--against a BMS baseline based on human expertise. We derive and validate bounds-based procedures for optimizing OUT and PIL policy parameters and propose a methodology for estimating projected inventory levels, which are also integrated into the DRL policy with demand forecasts to improve decision-making under non-stationarity. Compared to a human-driven policy, which avoids lost sales through higher holding costs, all three implemented policies achieve lower average costs but exhibit greater cost variability. While PIL demonstrates robust and consistent performance, OUT struggles under high lost sales costs, and PPO excels in complex and variable scenarios but requires significant computational effort. The findings suggest that while DRL shows potential, it does not outperform classical policies in all numerical experiments, highlighting 1) the need to integrate diverse policies to manage pharmaceutical challenges effectively, based on the current state-of-the-art, and 2) that practical problems in this domain seem to lack a single policy class that yields universally acceptable performance.