Pharma supply chains move from global to local

Pharmaceutical supply chains are shortening in response to the need for greater resilience, as global uncertainty and instability hold sway

Supply chain is a complicated discipline that typically requires highly-trained engineers to oversee the entire process, but pharmaceutical (pharma) supply chains take complexity to another level.

As well as the usual litany of supply challenges, pharma has a cold chain element for vaccines and other temperature-controlled medicines, and, because the field of medicine is just about the most regulated sector there is, it also faces the perils of frequent product recalls and compliance issues. 

Then, of course, there’s the added pressure of how catastrophic any delays might prove, with the medicines being shipped critical for either ensuring patients maintain their health or keeping them alive.

Pharma supply chains begin with the sourcing of raw materials – chemicals and ingredients – used to manufacture drugs. The manufacturing process involves several stages: formulation, quality control, packaging and labelling. Once the drugs are ready, they are shipped to warehouses or distribution centres, from where they are distributed to healthcare providers, pharmacies, and hospitals.

The supply chain is also responsible for ensuring products are stored at the right temperature and humidity, and with tracking shipments to prevent counterfeiting and diversion. 

The pandemic showed us just how important – and fragile – the pharma supply chain can be. To address these and other challenges, pharma companies are adopting digital technologies such as blockchain, artificial intelligence, and the Internet of Things (IoT) to enhance transparency, traceability, and efficiency in their supply chains. 

But in many regards, it is not the ‘how’ of pharma supply chains that is a defining area of change, but the ‘where’, because in the wake of geopolitical instability (Russia-Ukraine and China-Taiwan, for example) – and ongoing post-pandemic supply shocks – pharma companies are moving away from globalisation, and towards regional hubs, which help deliver greater levels of flexibility and resilience.

The changing face of pharma supply chain is explored at length by EY, in its paper, Pharma Supply Chains of the Future, one of whose co-authors is Olaf Zweig, a Life Sciences Partner at EY-Parthenon, EY’s global strategy consulting arm.

Zweig says that, regardless of market conditions, those connected to pharma supply chains – whether it’s supply chain managers, policymakers or vendors – must never lose sight of the ultimate goal: to give patients access to the right drug at the right time. 

With this overarching principle in place, Zweig adds that pharma firms looking to regionalise supply must understand that any such strategy will involve costs and benefits, and that the challenge is “to find the optimal balance in each regional context”.

He adds: “While the industry can expect to see some moves toward localisation, these moves are likely to be combined with other new approaches. 

“The practical implications of localisation depend on what steps of the supply chain are considered. At the simplest level localisation could just denote companies ensuring local stockpiles of finished goods inventory.”

Zweig explains that the different steps of the pharma manufacturing process entail different levels of investment in order to localise: “A pharma company could relatively easily localise secondary 

Packaging. This would entail building a local GMP-approved, licensed site, or outsourcing the same to a local contract development and manufacturing organisation.”

(GMP stands for Good Manufacturing Practice and describes the minimum standard a medicine manufacturer must meet in their production processes.)

Zweig adds that such an approach would also require infrastructure to receive and store the primary packaged product from the previous stages of the supply chain. “Carrying out the on-site secondary packaging would need basic additional raw materials, such as cardboard, adhesives and printer cartridges, plus manual labour supplied locally, and the presence of a quality organisation and maintenance team.” 

If companies seek to localise earlier stages of the manufacturing process, Zweig states that complexity levels then rise correspondingly, “with increased needs for complex raw materials, skilled labour and higher capital outlay to build sites for higher-technology manufacturing”.

In terms of localising at the earliest stage of pharma supply chains – or API (Active Pharmaceutical Ingredient) manufacturing, which is the biologically active component of a drug product – Zweig says it is “the most significant challenge”. 

In its paper, EY concludes that although localising API manufacturing will result in far greater agility, there would be negative impacts on other important supply chain metrics, such as reliability, time to innovate, risk exposure and efficiency.

Zweig says that focusing on the lower-cost, lower-complexity option of localising finished goods rather than the manufacturing process itself “will likely improve the reliability of product supply because more of the product would be locally stockpiled for distribution”. But he also goes on to warn that “this process would be unlikely to significantly enhance any of the other aspects of resilience”. In practice, the merits of localisation must be assessed “relative to alternative options that exist for bolstering pharma supply resilience”. 

Such measures might include industry-level initiatives, such as a procurement clearing house or joint warehouses, company-level measures like multiple sourcing of raw materials, or government-level steps, such as shortening regulatory processing timelines.

“Multiple plausible approaches exist,” says Zweig. “Initiatives can be led by an individual pharma company, by the broader industry working collaboratively or by policymakers and regulatory bodies interacting with pharma and having a stake in the future of its supply chain operations.”

He concludes: “Greater collaboration and cooperation between pharma and its stakeholders will be key to successfully building resilient and sustainable supply chains for the future, and delivering the outcomes sought by patients and by all parties in the ecosystem that serve them. But it’s important to say there is no single nor simple path forward from this point.”

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