A Potentially Fatal Illness, An Unpredictable Vaccine
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Policy Operations Apr 1, 2011

A Poten­tial­ly Fatal Ill­ness, An Unpre­dictable Vaccine

Year­ly flu vac­cine notable for uncer­tain­ty in both sup­ply and demand

Based on the research of

Kenan Arifoğlu

Sarang Deo

Seyed Iravani

Measles, hepati­tis A, yel­low fever: Most peo­ple get vac­cines for dis­eases like these in child­hood, before a trip abroad, or when their doc­tors remind them that they need a boost­er to rein­force resis­tance every five or ten years. Com­pa­nies can stock­pile these vac­cines, which work year after year, and patients can get them on demand. The influen­za vac­cine is dif­fer­ent — in more ways than one.

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To be pro­tect­ed from the achy, sneezy, fever­ish flu, peo­ple need to get a new for­mu­la­tion of the vac­cine every year, for one thing. But few are so con­sis­tent. What’s more, man­u­fac­tur­ers grow the influen­za vac­cine in chick­en eggs, and no one can pre­dict how much vac­cine a giv­en egg will pro­duce. All of that uncer­tain­ty — on both the demand side and the sup­ply side — pro­vides a unique set of chal­lenges for com­pa­nies that want to both pro­duce and prof­it from the influen­za vac­cine. In turn, those man­u­fac­tur­ing con­cerns can cause trou­ble for con­sumers who want to stay healthy but may search in vain for dos­es of the vac­cine, says Sarang Deo, an assis­tant pro­fes­sor of man­age­r­i­al eco­nom­ics and deci­sion sci­ences at the Kel­logg School of Management.

In a new paper, Deo and col­leagues con­sid­er, for the first time, all of the fac­tors that affect the quan­ti­ty of flu vac­cine pro­duced and the num­ber of peo­ple who seek it each year. Their results may help com­pa­nies turn a big­ger prof­it on the flu vac­cine. But more impor­tant, the work sug­gests ways for pub­lic health agen­cies to improve their strate­gies for dol­ing out the vaccine.

This pro­duc­tion uncer­tain­ty is very, very unique to the flu vac­cine,” Deo says. You don’t see that in many oth­er drugs. You can plan to pro­duce a cer­tain num­ber of dos­es, but the actu­al num­ber of dos­es pro­duced is ran­dom. At a basic lev­el, com­pa­nies don’t enter the mar­ket because they don’t think it’s prof­itable. If you com­bine these two things, you can get severe short­ages of the vaccine.”

Roots of Inef­fi­cien­cy

It was the unpre­dictable nature of the flu that sparked Deo’s inter­est in seek­ing new ways of study­ing sup­ply and demand for the vac­cine. His first study on the sub­ject, pub­lished in 2008 in the oper­a­tions man­age­ment jour­nal M&SOM, used math­e­mat­i­cal mod­els to show how uncer­tain­ty in the pro­duc­tion process can ham­per prof­itabil­i­ty for man­u­fac­tur­ers. And that, in turn, makes firms wary to enter the market.

To fol­low up on those find­ings, Deo worked with col­leagues Kenan Ari­foğlu, a doc­tor­al can­di­date at North­west­ern Uni­ver­si­ty, and Seyed Ira­vani, a pro­fes­sor of indus­tri­al engi­neer­ing at North­west­ern. The researchers cre­at­ed a new set of mod­els to com­bine two main ways of think­ing about the flu vaccine’s sup­ply chain problem.

One school of thought focus­es pure­ly on the uncer­tain­ty inher­ent on the sup­ply side, dri­ven whol­ly by the unpre­dictabil­i­ty of chick­en eggs. The oth­er school of thought focus­es pure­ly on the errat­ic demand for the vac­cine, which is dri­ven by the unpre­dictabil­i­ty of human behav­ior. Accord­ing to this behav­ior-based view, it would be best for the health of soci­ety as a whole if every­one got immu­nized. But since the social ben­e­fit of the vac­cine is high­er than the per­son­al ben­e­fit for each indi­vid­ual, econ­o­mists argue, few­er peo­ple get vac­ci­nat­ed than would be best for the entire population.

We see that short­ages are accen­tu­at­ed not only because the quan­ti­ty is low­er than nor­mal but also because more peo­ple are des­per­ate for it.” — Deo

Togeth­er, the uncer­tain­ty of sup­ply and the self-inter­est­ed behav­ior of indi­vid­u­als cre­ate a lot of inef­fi­cien­cy in the dis­tri­b­u­tion of the flu vac­cine. But how much inef­fi­cien­cy is there? The answer, the new study found, is: It depends. Instead of adding up like a math­e­mat­i­cal equa­tion, the two sources of inef­fi­cien­cy actu­al­ly inter­act with each oth­er in com­pli­cat­ed ways each year, the researchers report in a study that has been sub­mit­ted to the jour­nal Man­age­ment Sci­ence. What’s more, demand-side inef­fi­cien­cy depends on sup­ply uncer­tain­ty, and the sup­ply side-inef­fi­cien­cy depends on the infec­tious­ness of each year’s cir­cu­lat­ing strain.

Imag­ine, for exam­ple, a year in which man­u­fac­tur­ers have pro­duced few­er-than-expect­ed dos­es of the influen­za vac­cine and the virus is par­tic­u­lar­ly nasty, so that more peo­ple than usu­al are vul­ner­a­ble to it, much like last year’s epi­dem­ic-induc­ing strain of H1N1. In cas­es like these, demand exceeds sup­ply. Short­ages fol­low. And the result, the new mod­el pre­dicts, is an ensu­ing cycle that makes the sit­u­a­tion worse.

We see that short­ages are accen­tu­at­ed not only because the quan­ti­ty is low­er than nor­mal but also because more peo­ple are des­per­ate for it,” Deo says. More peo­ple come out and search for the vac­cine pre­cise­ly because the quan­ti­ties pro­duced are low­er. And every­body knows that if my chances of get­ting the vac­cine are low­er, that’s true for every­one and that means my chances of get­ting infect­ed are higher.”

If there’s a huge sur­plus, then the effect sort of revers­es,” he adds. Peo­ple think: Oh, there’s a lot of vac­cine, peo­ple will go and get it, so my incen­tive is that much less.”

From Math­e­mat­i­cal Mod­els to Pub­lic Health

By offer­ing a nuanced and com­pre­hen­sive way of think­ing about the dynam­ics of flu-vac­cine sup­ply and demand, Deo’s mod­els might change the way pub­lic health offi­cials devel­op their year­ly strat­e­gy for dol­ing out the vac­cine in a way that ben­e­fits the great­est num­ber of peo­ple. The new work, for exam­ple, coun­ters the advice of tra­di­tion­al eco­nom­ic the­o­ry, which argues that because peo­ple as a rule don’t get vac­ci­nat­ed as often as they should, pol­i­cy-mak­ers should do what­ev­er they need to do to pro­vide incen­tives for every­one to get the vaccine.

Instead, Deo says, the ben­e­fits of inter­ven­ing on the sup­ply side in a giv­en year will depend on how much and what kind of demand there is for the vac­cine. Like­wise, the ben­e­fits of inter­ven­ing on the demand side will depend on the year’s sup­ply issues.

In a year where there is a lot of uncer­tain­ty in pro­duc­tion and the dis­ease is par­tic­u­lar­ly infec­tious, for exam­ple, the most effec­tive strat­e­gy for the Cen­ters for Dis­ease Con­trol and Pre­ven­tion (CDC) is to focus its ener­gies on boost­ing sup­plies. In fact, the more infec­tious the dis­ease becomes, the less effec­tive it is for the CDC to work on influ­enc­ing demand, because peo­ple will nat­u­ral­ly seek out the vac­cine at high­er rates than normal.

The orga­ni­za­tion does its best to inter­vene in both sup­ply and demand, but it doesn’t always strike the right bal­ance. A more sci­en­tif­ic-based strat­e­gy might help.

We found using our mod­el that if you don’t pri­or­i­tize high-risk groups when there is high­er demand, there is a low­er chance that peo­ple with the high­est pri­or­i­ty will get vac­ci­nat­ed,” Deo says. Peo­ple focus on how many peo­ple get vac­ci­nat­ed. But our mod­el shows that it also mat­ters who gets vaccinated.”

Deo’s work could also help pol­i­cy-mak­ers and pub­lic health offi­cials decide, in any giv­en year, whether they need to focus their efforts on what con­sumers are doing or on what vac­cine man­u­fac­tur­ers are doing. What our mod­el real­ly gave us,” Deo says, was a set of insights which said that the effec­tive­ness of inter­ven­ing on the demand side depends on how big the prob­lem is on the sup­ply side, and vice versa.”

If influ­en­tial orga­ni­za­tions and reg­u­la­to­ry bod­ies catch on, his work may lead to health­i­er, less achy win­ters and few­er sick days on the couch for a big­ger chunk of the pop­u­la­tion. I would like to strike a dia­log with the CDC,” Deo says, and maybe influ­ence their thought process.”

Relat­ed read­ing on Kel­logg Insight

Ratio­nal Rationing: Allo­cat­ing scarce resources in uncer­tain conditions

Fetal Influ­ence on Famil­iar Ail­ments: The effect of in-utero con­di­tions on long term health

Featured Faculty

Sarang Deo

Faculty member in the Department of Managerial Economics & Decision Sciences until 2011

About the Writer

Emily Sohn is a freelance writer based in Minneapolis, Minnesota.

About the Research

Arifoğlu, Kenan, Sarang Deo and Seyed Iravani. 2012. Consumption Externality and Yield Uncertainty in the Influenza Vaccine Supply Chain: Interventions in Demand and Supply Sides. Management Science, June, 58(6): 1072-1091

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