For many organizations, this disruption has meant a reframing of their supply chain approaches. Lean was once the mantra: now the focus is on resilience and whether logistic networks can stand up to continual disruption. A study from the Institute of Supply Management reported that 56% of respondents are concerned over delays in shipment and supply, while 30% are concerned over increased risks to their most important suppliers.
No industry is exempt from these challenges, even those where the commodities being shipped are critical to end-user health, such as in the healthcare and pharmaceutical industry. Logistics issues have long been a direct factor in drug and medicine shortages. A 2016 World Health Organization report noted that “while medicine shortages are not a new phenomenon, they have been increasing in recent years.” In 2019, a report from the U.S. Food and Drug Administration named logistical challenges as one of three economic root causes of drug shortages.
This highlights how challenges with getting medicines to the right places predate the pandemic. However, there is no denying that the COVID-19 crisis has exacerbated underlying issues.
The challenges facing pharma supply chains
Chief among those is the over-reliance on specific geographies for producing drugs. FDA data suggests that nearly 40% of registered manufacturing sites for active pharmaceutical ingredients were in India or China in 2019. Pharmaceutical companies may have chosen these locations to keep the production costs down, but when factories were shut, the effects were felt worldwide.
To increase resilience, manufacturers need more redundancy. They could add more sites, perhaps near- or on-shoring production, though this brings with it significant upfront investment and will take time. However, it would give them greater agility should a specific region face a health crisis, natural disaster or political instability that impacts logistics.
This is a business imperative – a McKinsey study revealed that over a decade, these sort of supply chain “shocks could cause some medtech companies to lose approximately 38% of one year’s earnings,” with pharmaceutical businesses losing nearly a quarter of annual earnings.
At the same time, incorporating new locations will increase complexity, add new, potentially untested partners to transportation networks, and make it harder for pharmaceutical and healthcare companies to have clear visibility of their entire supply chain.
This lack of transparency impacts the ability of companies to adapt to disruption and makes it harder to track the provenance of drugs and equipment. While fake COVID-19 vaccinations and vaccine passports have made the news in India and the U.S., the market for counterfeit pharmaceuticals and medical equipment is not just a result of the pandemic. One manufacturer recently reported that a counterfeit version of its HIV medicine was being sold by pharmacists who were unaware they were selling fake medicine. Some estimates suggest that 10% of all pharmaceuticals in the global supply chain are counterfeit.
There is also the issue of significant, time-consuming paperwork. According to one McKinsey article, “approximately 30% of staff time is spent on documentation-related activities, including product dossiers, machine logs, batch records and more.” This sort of administrative work is to be expected in a highly regulated sector like pharmaceuticals. However, it does increase the chance of human error, with mistakes delaying the distribution of finished medicines and contributing to drug shortages.
Automation, data and ledgers
While the pandemic may have worsened existing problems, it has also acted as an accelerant for certain business areas and driven the uptake of technology. Consequently, many pharmaceutical and healthcare companies are doubling down on the digitization of their supply chains.
For instance, to tackle the issue of onerous paperwork, automation through machine learning could be brought in to help cut back on repetitive, labor-intensive tasks. This frees up workers to focus on the parts of administration that require focus and concentration.
Automation creates data, as does almost every other activity in an organization. With so much data being produced every second, companies have an opportunity to improve visibility across their supply chains while also understanding external factors as they develop in real time. This is only possible, of course, if they can make sense of the enormous volumes of information in the world.
With artificial intelligence and data analytics, businesses could not only understand what’s happening at any given moment, but they could act rapidly to make changes without suffering significant disruption.
In addition, the use of AI can help plan and model demand fluctuations and create detailed scenarios to help guide and predict how a company should act in the event of significant disruption. This could also act as a short- or medium-term solution to the challenge of reliance on a particular geography. By predicting disruptions or other events, decision-makers would have time to identify stop-gap solutions, perhaps with a temporary switch to on-shored manufacturing.
Then there’s the question of provenance. The nature of supply chains makes it harder to prove that an item is what its documentation says it is. With many parties involved having competing commercial interests, trust has traditionally been in short supply in logistics networks. One answer would be the introduction of blockchain technology. Using shared digital ledgers, everyone involved in the transportation of cargo – whether drugs, personal protective equipment or medical devices – can view the data that demonstrates the item’s provenance but cannot alter the information without everyone else seeing the changes.
As well as manufacturers and distributors, organizations such as regulatory bodies, customs officials and transportation partners could be involved, with each viewing the data when they need to without waiting for anyone else to provide the appropriate documentation.
New fixes for age-old issues
Pharmaceutical and healthcare supply chains need to work – the entire world depends on the ability to get drugs and supplies from the point of manufacture to the patient as quickly, safely and securely as possible. Yet the industry is still wrestling with age-old problems. Implementing different technologies could help address the challenges of the pandemic and go some way to fix the structural issues that have long plagued the distribution of medicines.
The global health emergency has made organizations accept the fragility of their ecosystems. Critical gaps must be plugged to ensure end-to-end visibility globally and minimize the risk to business.
To learn more, download the Orange Business Services whitepaper on real-time intelligence and the future of supply chains.