While the term VUCA (Volatility, Uncertainty, Complexity, Ambiguity) has been around for many years, it is becoming increasingly common in the Life Sciences industry as we live in a world where the demand for supply chain resilience is becoming more and more apparent.
The average Supply Chain Executive is constantly battling the risk of product supply shortages, and unfortunately, in this industry the lack of supply doesn’t just mean lost revenue, it can also mean lost lives.
We have got to a point where being purely reactive is a competitive disadvantage, and companies that work proactively to build business continuity plans, shifting from a “just in time” to “just in case” approach will be the ones that come out on top. Take the Oxford-AstraZeneca vaccine as an example. Prof. Dame Sarah Gilbert had her team working on preparations for “Disease-X” (the known unknown – an unpredictable disease that could emerge any time) well before the COVID-19 pandemic broke out, and when it did, they were able to quickly leverage their work to turn around one of the fastest ever developed antiviral vaccines, which ended up saving millions of lives across the globe.
As with all international supply chains, pharmaceutical companies face potential disruption completely outside of their control. The key to resilience is anticipating them and preparing your network for a fast response.
Likely challenges
There are any number of factors that could disrupt the supply chain, the most likely being:
- Regulatory changes: Governments safeguarding local drug supplies by banning exports and ongoing changes to licencing requirements relating to source and specification of product and/or packaging
- The next pandemic: The speed and breadth of the spread of COVID shook all supply chains, but leads to the conclusion it is only a matter of time until the next one
- Extreme weather conditions: The increase in the number of severe natural disasters, which, as well potentially causing an unforeseen spike in demand for certain products, result in plants becoming inoperable and transportation routes being temporarily blocked
- Political uncertainty: Whether war or policy, closing supply sources or transport routes, adding to cost and leading to shortages
Resilience – preparing for the inevitable
There is one positive about all the risks listed above, which is that to a greater or lesser extent, a similar set of solutions can be adopted to address all the issues.
The chase to reduce costs among Life Science companies has led to almost half of the global manufacturing footprint for Active Pharmaceutical Ingredients (APIs) being focused in India and China. The concentration of manufacturing capability is also reflected in packaging – one of the features of the COVID epidemic was the shortage of glass for medicine bottles, which led to the realisation that the ultimate source for many companies, even if buying from a supplier in a third country, was China. Should war break out in the region, this situation is likely to be repeated, with global governments also likely to embargo imports from what are viewed as the aggressor nations. Pandemics or extreme weather may vary in how widespread the impact, but not in the fact that supply routes will be closed.
Ongoing evaluation of likelihood and impact of risk is vital, but there needs to be recognition that building in supply chain resilience incurs cost, and emphasis should be on accepting this, and identifying how to mitigate it.
Major steps should include:
- Spreading supply source: The biggest single risk is single sourcing of any raw material, ingredient or finished good. Move to dual or multi-sourcing of both primary and secondary suppliers, and spread these geographically
- Develop and invest in strong supplier partnerships: COVID demonstrated that when supply is squeezed, prices will go up, especially with freight and transport providers. This cannot be stopped, but developing long-term non-transactional relationships with core freight forwarders and third parties, and backing these up with secondary suppliers, will help gain priority is given for the limited capacity available
- Move away from focused production plants: Whether by building redundancy into other plants, or actively splitting production of a product family between different sites. Remove the risk of product from an individual site becoming in accessible for whatever reason and there being no viable alternative
- Finish product as late as possible, so maximising supply flexibility: Obviously subject to regulation, but holding product in a semi-finished state optimises the ability to source product from a back-up location
- Hold Finished Goods inventory close to market: Although dispersing inventory increases the total amount needed, once in country the likelihood of disruption reduces dramatically
These actions need underpinning by three other features. The first is end-to-end inventory visibility, which (within regulatory parameters), allows ongoing stock re-allocation in response to uncontrollable events and helps minimise write offs; the second is strong category management, which constantly reviews what is happening with suppliers and sourcing to allow instant response to mitigate risks in advance of likely disruption, and finally, where permitted, have a clear policy as to in times of limited supply, there is clear focus on where priorities lie. The approach to building supply chain resilience needs to shift from “if” to “when” disruption will happen and managing mitigating actions accordingly. The companies that accept this, and invest now, will be those that maintain supplies and “win” financially going forward, as well as fulfil the primary function of pharmaceutical supply chains, to save lives.
Authors: Rob Carlisle, Jon Gibson, Esther Tichauer
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