How the pandemic exposed faulty links in the supply chain

The pandemic provided a harsh shock to healthcare, but proved particularly tough on the supply chains relied on to support public health. Ben Hargreaves discovers how the stress test exposed weak links and how industry has responded.

The pandemic woke the world up to the threat posed by infectious diseases. For the pharmaceutical industry, of the many lessons taken away, the event highlighted the vulnerability of the global supply chain that forms a crucial part of healthcare delivery and pandemic preparedness. The early stages of the pandemic were marked by shortages: shortages of manufacturing capacity for potential vaccines, shortages of materials to make the vaccines, and shortages of medical equipment.

With enough time having passed from the height of the pandemic, industry has now had the opportunity to review and secure the supply chain. The urgency of the task is equal to the likelihood that another pandemic will arrive, which the world needs to prepare for. What makes the task even more challenging for the industry is that the problems did not begin with the pandemic, but instead only served to highlight the underlying fragility of the supply chain.

Existing issues

The supply chain had been suffering from certain issues for years before COVID-19, with limitations that were known by industry and by governments. One of the major problems facing the supply of medicines and medical equipment is the consolidation of the production of raw materials and equipment in a few countries worldwide.

One area for concern prior to the pandemic was the production of antibiotics, which is dominated by China. It is enough of a concern that the US government has investigated the country’s influence in the area as a form of economic warfare.

With the production of certain medicines, such as generics and antibiotics, concentrated in certain countries, the likelihood of one-off events causing shortages is increased. Where the profit margins are lower, such as with lower-priced generics and medications that have been on the market for a long time, the likelihood of shortages is increased.

Preceding the pandemic, the US FDA had even released a statement on its investigation into the root causes of shortages. The agency concluded that drug shortages were on the rise and that they were a result of a “broken marketplace,” where problems in drug supply often were the result of a lack of financial incentives for manufacturers.
Part of the wider issue is the global nature of production, as raw materials may be produced, sourced and then travel through the supply chain at different points across the globe. This makes tracking difficult, but also leads to delays in receiving medicine or equipment when the logistics become difficult at any point in the chain. This must all be balanced against the need to be cost-efficient.

In times of crisis

One of the conclusions of the FDA’s report into drug shortages was that the impact of supply issues was “likely underappreciated” and would continue to exist unless major changes happened to the marketplace. A major change did arrive, but in the form of COVID-19. The pandemic focused attention on the fragility of the global supply of certain medicines, and also the raw materials, active pharmaceutical ingredients (APIs), and basic materials needed for healthcare.

In its report on the fallout on supply chains post-pandemic, Deloitte stated that industry has already adapted to the new environment. One of the changes it outlines is that there has been a move away from ‘just-in-time’ inventory management, which sees raw materials arrive as production is scheduled to begin. The issue is that, with sudden changes in demand such as during the pandemic, this can entirely disrupt scheduled production. Another facet of the supply chain prior to the pandemic was a tendency to work with a small number of suppliers, thereby reducing the cost and management of multiple vendors.

Deloitte suggests that companies have become more strategic about supplies and infrastructure, particularly building up larger inventories of materials. The report notes that this causes new issues for industry to deal with, including requiring larger infrastructure and warehousing, adding cost. The expansion in the number of working relationships with vendors also increases expenses, as the time required to vet the vendors either requires more in-house resources or outsourcing this role to another company.

Digital visibility

A major opportunity for industry is to leverage the increasing sophistication of digital tools to provide greater supply chain visibility. EY stated in its study that one of the most effective tools to instil resilience is to make improvements to supply chain visibility. In the study, it is suggested that digital technologies are the most cost-effective way to achieve greater visibility. These tools should comprise three core elements, the authors state, including being able to identify and access the right data to focus analysis, an AI model capable of analysing data, and a deep understanding of how upstream changes can impact analysis.

The Organisation for Economic Co-operation and Development (OECD) agreed with EY’s take in its report on the lessons to be learned from the pandemic, though it is aimed at regulators. The organisation said that the first action to take would be to improve visibility and harness information from across the whole supply chain. In the report, it outlines that regulators are overly dependent on manufacturers to notify them of potential disruption to supply. In complement to this information, the authors call for the use of existing track and trace systems to be able to follow supply, demand, and available stock of products. In addition, they call for greater information sharing between firms and governments to better anticipate risks.

“Countries need additional capabilities to prepare for and mitigate risks on medical supply chains in the event of a severe crisis. Here, international cooperation and close collaboration between the private sector and governments are important to ensure a cohesive, collective, and efficient response,” the authors conclude.