Pharmaceutical firms faced a moment of reality when Covid-19 squeezed off vital supplies of drug components from Asia. There was a dangerous risk in their dependency on far-flung supply chains. In the wake of Covid-19, pharma companies now understand the fundamental need to control supply chain risk, maintain network visibility, identify alternative sources of supply
COVID-19 disrupting the supply chain
Pharmaceutical companies have sought to reduce costs for more than a decade by relocating a significant proportion of their manufacturing capacities to China and India, especially in the small molecules market, which includes active pharmaceutical ingredients (API) and drug development and packaging. As a result, these countries’ production volumes increased much faster than demand. According to US FDA data, nearly 40 percent of registered manufacturing sites for APIs were in India or China in 2019.
The transfer to Asia for pharma sourcing and manufacturing has directly affected the stability of the supply chain. FDA data indicates that drug shortages are growing due to many causes, including quality problems and disruptive events. In February 2020, the US FDA announced that “the COVID-19 outbreak would likely impact the supply chain of medical products, including potential supply disruptions or shortages of critical medical products.”
Subsequently, COVID-19 led the FDA to classify 20 drugs manufactured in China which, including protease inhibitors, paracetamol, and generics, may be subject to supply chain disruption. As a result, more than 180 pharmaceutical companies were required by the FDA to audit their supply chains and products made in China, as well as their relations with 63 Chinese manufacturers manufacturing important medical devices.
Mitigating supply chain risk in a global pandemic
The FDA proposed four measures to address supply chain risk caused by the COVID-19 pandemic:
- Lengthen expiration dates to alleviate shortages of critical human drugs
- Reinforce critical infrastructure by requiring plans for risk management
- Improve critical infrastructure by enhanced data exchange and sharing of more detailed knowledge about the supply chain
- Create reporting requirements for device manufacturers
Building resilient pharma supply chains
The stability of current supply chains can be improved by a more realistic two-step method.First, companies need a more complete understanding of the risks that span the entire supply chain. To increase transparency, leadership teams map production sites, distribution centers, and material flows (including APIs, excipients, and packaging) against potential hazards.They take into account geopolitical developments (such as trade wars, natural disasters, epidemics, and strikes) that could affect supply and demand and lead to drug shortages.
Second, leadership teams build new supply chain plans by reducing risk exposure or by increasing resilience capacities, or by doing both, based on the outcomes of risk assessments. Four critical components should be used in effective strategies:-
- Redundancy:Building capacity buffers in manufacturing facilities helps businesses to rapidly increase or decrease the amount of production. These buffers include safety inventories of essential drug materials, versatile extra-capacity production lines, and shift models designed to respond rapidly, such as night shifts when required, including a mix of staff and temporary staff. Via flexible contracts with suppliers and manufacturers, leaders build an agile manufacturing environment so that they can adjust the volume and location of production as required across a wide range of options.
- Adaptability: A modular production approach allows businesses to move production to other sites around the globe as required. Adaptability is also strengthened by rising production line digitization and automation. That, in turn, helps operators when they need to make fast adjustments to deal with disruption. Developing specific response plans to various situations is the third facet of adaptability.
- Prediction:Technology for control towers and solutions for artificial intelligence offer leadership teams dramatically enhanced visibility across the entire network; they also help predict fluctuations and risks in demand. Leaders use these resources to provide consumers as well as suppliers with greater visibility, exchanging real-time product demand and stock data.
- Empowerment: Effective organizations improve problem-solving capabilities within their enterprise and at production sites to get the most from resilient supply chains. Importantly, in the middle of a crisis, they empower local organizations to make decisions that will maintain business sustainability.
In pharma supply chain strategies, Covid-19 has triggered a pivotal change. Resilient networks will be the key to managing an increasingly turbulent market over the coming decade. Pharmaceutical companies that incorporate versatility and redundancy into the entire value chain and enhance visibility would be better placed to effectively anticipate and react to chain disruptions quickly.