As of 2021, 27 per cent of drug shortages in the US are due to supply chain issues. As pharmaceutical supply chains reel under the expectations and pressure of the pandemic, drug shortages have skyrocketed over the past couple of years. In fact, according to a study by McKinsey, 90 per cent of pharma companies have experienced at least one supply chain disruption in the past year.
The pharma supply chain is quite complex with several stakeholders including manufacturers, wholesale distributors, and PBMs. Considering multiple bottlenecks like logistics, regulations, and distribution now is the time to redesign pharmaceutical supply chains so they can mitigate risk and deliver life-saving healthcare in an efficient manner.
Challenges before the pharma industry
From supply chain visibility to drug counterfeiting and cold-chain shipping to rising prescription costs, the pharma supply chain must constantly work to overcome numerous hurdles. Following are some of the most significant challenges that this industry faces:
Regional dependencies: Traditionally, most pharma products have been sourced from a single region. Around 40 per cent of pharma trade occurs within a particular region. For example, 86 per cent of the streptomycin found in North America is produced in China. When faced with a critical event like COVID-19, this dependency on one region can prove disastrous for pharma companies and public health.
Regulations complexity: Pharma industry is heavily regulated by the Food and Drug Administration (FDA) in the US. In Europe, it’s the European Medical Agency (EMA). The Drug Quality and Security Act (DQSA) by FDA outlines a challenging process of implementing an electronic tracing system at the package level. While these regulations are essential to identify potential counterfeit drugs that could harm consumers, they place additional requirements on pharma companies. Thus, further adding to the complexity of the industry and regulations.
Tracking shipment condition: FDA track and trace law mandates specific shipment conditions, especially when keeping their products in a specific temperature range.
Transportation management: With high demand and a limited supply of carriers, their rates have gone through the roof. Frequent delays and cancellations add to the pressure pharma companies are under.
In light of these challenges, it’s more important than ever for industry leaders to take proactive steps to strengthen their supply chains and ensure the continuity of operations.
The good news is industry leaders, and governments have recognised that the problem is real. Governments also recognise the pharma industry as a means to strengthen national security. How do we address these challenges? Here are some ways the pharma industry can bolster its operations and become more resilient.
Promoting end-to-end transparency
Pharma companies need visibility into the business practices of their suppliers and suppliers’ suppliers to avoid major risks, as major consumer brands have been accused of unfair labour practices when overseas suppliers have been found to use child labour.
Mapping suppliers by tier is essential for a completely visible supply chain and for identifying potential vulnerabilities.
Also, a company needs a clear understanding of exposures beyond this, such as how products are developed, delivered, and stored – each stage poses its own problems that must be considered.
To make the supply chain more transparent, some pharma organisations, for example, are utilising AI-driven root-cause detection to improve quality performance. Others have established reliability rooms to track performance and risk metrics throughout their end-to-end networks in near real-time to discover and rectify problems before they create disruptions.
Routine stress testing and reassessment
Companies frequently utilise scenario planning and simulation models to predict vulnerabilities, quantify potential consequences, and minimise the repercussions. During the COVID-19 pandemic, for example, businesses employed a digital-twin simulation. It evaluated the impact of production slowdowns and shutdowns on patient drug supply. This assisted the firm in realising that it had more time than expected to create and implement safer working methods in its production plants. Thus, it could take more time to research and find the best solutions.
Reduced exposure to shocks
Businesses around the world are recognising the importance of supply-chain risk diversification. By diversifying where they buy materials, companies can reduce their exposure to single sources and other risks. Fortunately, reducing that risk doesn’t require limiting yourself to just domestic production — nearshoring and offshoring also offer viable solutions. According to a McKinsey study, of all pharmaceuticals purchased on the international market, 38-60 per cent could be possible candidates for nearshore and offshore sourcing diversification strategies. This amounts to $236 – $377 billion across the industry.
Digital transformation through AI and ML
Artificial Intelligence is revolutionising the pharma industry, allowing companies to leverage machine learning in previously impossible ways. Along with machine learning and deep learning, AI is being applied to enable efficient drug development, supply chain optimisation, improved cybersecurity, PV initiatives and more.
Leading pharma companies such as Johnson & Johnson, Bristol-Myers Squibb, AbbVie, AstraZeneca, Pfizer, Roche, Merck, GSK and Sanofi are leveraging AI technology to stay ahead of the curve and gain a competitive edge.
Predictive maintenance and process analytical technologies are also used to increase yield and throughput without fear of failure, leading to a more saleable product. According to McKinsey, predictive analytics shows an estimated 70 per cent improvement in overall equipment effectiveness.
Putting supply chain resilience on the executive agenda
Supply-chain risk and resilience should always be top of mind in a company’s strategic planning and execution. It’s important to keep supply chain resilience embedded in existing forums and talking points to ensure everyone is aware of potential risks.
To that end, Moglix has observed that companies which create a risk committee can react to potential risks much better. These committees comprise a subset of operational leaders and risk experts to ensure that issues are managed at the right level and at the right time.
The way forward
The way forward for pharma supply chains is clear: greater collaboration and cooperation between pharma and its stakeholders along with the right technological interventions. The fully globalised supply model will be transformed into a hybrid, balanced more strategically across global, regional, and local sites.
This hybrid model, combined with other resilience-boosting measures, will make future supply chains more expensive, at least until the introduction of newer enabling technologies. However, the benefits of a more resilient and adaptable supply chain will far outweigh the costs.
By working together, pharma companies and their partners can ensure the continuity of operations and, ultimately, the delivery of life-saving medicines to patients in need. The future of pharma supply chains is one of collaboration and innovation. Let’s pave the way towards it.