Supply chains and the importance of transparency

The pandemic revealed that global supply chains for the pharma industry are more fragile than expected. Ben Hargreaves finds that one of the proposed methods to ensure supply chain stability is to learn from other industries and leverage digital technology to create better oversight.

Pharmaceutical supply chains were tested to breaking point during the pandemic. Other industries were affected just as badly, but the obvious difference was that the world was relying on the pharma industry to produce a vaccine to create a pathway out of the situation. The events brought to light how much work needed to be done to strengthen supply chains – even if shortages are inevitable, having the visibility to see this ahead of time could make a significant difference.

Nearly four years after the pandemic initially hit, there has been sufficient time to reflect and determine exactly where the issues emerged in the supply chain. This is the aim of a recent publication by EY, which explores ways to encourage resilience across the pharma supply chain, and makes the observation that the disruption to delivery times is still not back to pre-pandemic levels. The importance of the issue can be seen up to present, with various antibiotics still being in short supply, years after the worst of the pandemic has passed.

Stress test

In the analysis, the authors link the challenges brought about by the pandemic to a current need to develop a more transparent supply chain. The importance of visibility is key, as there were unforeseen issues that the industry had to deal with. The report notes that this was true for certain basic raw materials, such as ethanol and magnesium, and consumables, such as single-use bioreactor bags, glass vials, and sterile filters. 

As to the reasons why, the authors conclude: “The industry, in common with others, largely failed to predict the shortages because the supply networks companies depend on are extensive, intricate, and often opaque to the pharmaceutical companies themselves.”

The example provided by the report is the creation of single-use bags, which depends on at least five upstream supply tiers. At each stage of the production of a single-use bag, there are a number of raw materials required, beginning with the base materials, including petroleum feedstock and limestone, all the way prior to the second ‘tier’ of products prior to completion, which includes tubing, filters, and optical sensors. 

At the early stages of the product’s creation, the raw materials are generally produced in the Asia-Pacific region, particularly China, where often Western companies do not have a great degree of visibility to understand potential supply issues. It also means that the supply at this stage of production can be impacted by any geopolitical tensions that exist within the political and economic spheres.

Compounding matters in the last few years has been the rise of inflation. Inflation has driven the higher cost of raw materials, fuel, labour, and many other elements necessary in the production of pharmaceuticals. Coupled with inflation has been the increase of interest rates, making working capital and investments more expensive.

Assessing each companies’ risk

Protecting the pharma industry’s supply chain will involve taking account of the most critical suppliers of raw materials, product lines, reagents, and suppliers, the report notes. This demands a process by which companies understand the tiers of production that are involved in making a finished product, and then creating a stakeholder map.

“Using this approach, a pharmaceutical company can examine its own supply chain risk exposures by building a stakeholder map covering the supply of the materials of concern. Suppliers that are exposed to higher risks can be flagged up, whether these risks derive from geopolitical instability, environmental changes, financial pressures, or reliance on high-demand materials,” the report suggests.

Having this kind of visibility across the supply chain then allows companies the option to pursue avenues to offset the risk. This can be achieved through choosing to source multiple suppliers of the same product, or finding a different raw material to work with, among other options. This method of risk management does mean that the companies are required to create an active system, which the report states comprises “implementing appropriate governance and associated processes.” This would allow for proactive simulation and planning, thereby reducing the speed to react in the event of issues occurring in the supply chain.

Learning from other industries

The tools required for this level of visibility across the supply chain do not need to be invented by the pharma industry. The report cites the aerospace and automotive industries as being two leaders when it comes to creating supply chains with good visibility. Key to their success has been the adoption of digital tools. Such tools are able to provide supplier screening and due diligence, risk management services, and extend to services that provide global trade and risk monitoring.

One area that has been offered as a potential tool within this push is blockchain, and its ability to improve supply chain transparency. Blockchain technology offers an immutable and decentralised ledger system that records transactions, and can potentially be used to track pharmaceutical goods and materials globally. In this way, any inefficiencies in supply are evident and can be mitigated. At the end stages of the supply chain, the technology can also be used to protect the consumer and companies from the dangers of falsified medicine.

According to EY, there is a greater awareness across the industry of the limited visibility held on supply chains, and that this is now provoking a response. The report notes that some companies have chosen to remain with the existing protocol of primarily engaging with their main suppliers, while others choose to simply stockpile goods that could be at risk of disruption. However, the authors noted that ‘the majority of companies’ with which they discussed the issue are interested in or are actively pursuing an ‘enhanced visibility’ approach. 

“Deriving maximum value from better supply chain visibility will necessarily require companies to develop the appropriate systems and processes to mitigate risk effectively. Yet, while it is not a solution in itself, better visibility is a major first step for companies looking to improve the robustness of their supply chains,” the report concludes.