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Bindiya Vakil is the CEO and founder of Resilinc and is an award-winning expert in supply chain risk management.
In the first half of 2023, we witnessed a levelling off in the number of supply chain disruptions, yet drug shortages continued to impact pharmaceutical manufacturers and suppliers across Europe. The Life Sciences industry has had the highest number of disruption alerts of any industry Resilinc tracks, according to our global monitoring platform, EventWatch, which monitors millions of news and social feeds worldwide, spanning 100 languages. These supply chain disruptions have put significant strain on organisations - large and small - as they battle to ensure supply continuity. Pharmaceutical companies are eager for supply disruptions to ease; however, unless action is taken to boost resiliency, significant impact from disruption is inevitable.
While drug shortages are making headlines, a number of supply issues are impacting the Life Sciences industry. According to Resilinc data, the three most disruptive event types in 2023 so far have been factory fires, mergers and acquisitions, and business sales, with increases in product recalls and legal action not far behind. These events pose considerable risks and contribute to drug shortages, which is why a commitment to enhancing supply chain resiliency is an essential strategy for pharmaceutical companies looking to future-proof their operations.
The ripple effect of factory fires
Factory fires continue to plague not only the pharmaceutical sector but many others too; it’s been the number one supply chain disruption for five years in a row. Resilinc’s most recent report on factory fires found that 59% of fires were caused by faulty machinery and equipment, and nearly half of these fires (47%) caused medium or even high levels of damage to factories and sites. Factory fires pose a significant risk to pharmaceutical manufacturers and will inevitably delay production schedules as time is spent on incident reporting, cleaning, repairs, and quality control.
To cite a recent example, a factory fire at pharmaceutical company Solara Active Pharma Sciences in Kalapet, Puducherry, India, left 13 workers injured. As a result, the production of active pharmaceutical ingredients (APIs) like albendazole, artesunate, bumetanide, cetirizine dihydrochloride, and chlorpromazine was taken offline. This will likely continue for many months as a safety audit was commissioned and is ongoing. Elsewhere, a factory fire at Kwality Pharmaceuticals Facility in Amritsar, Punjab, India, led to supply disruption to exports of products including liquid orals, powder for oral suspension, tablets, capsules, and sterile powder for injections.
Consider the wider impact of a single factory fire on a lower-tier supplier, in China, for example. This event creates a ripple effect across the drug production supply chain in India which further disrupts pharmaceutical suppliers in Europe. With no visibility over ‘upstream’ manufacturers, ‘downstream’ suppliers in Europe also bear the brunt of this initial factory fire, the impact of which extends to multiple companies along the chain.
A chain reaction caused by global uncertainty
A weak global economy is also playing its part in pharma supply chain disruptions; the number of businesses undergoing mergers and acquisitions, business sales, and leadership transitions is increasing significantly. Our Resilinc data reveals that bankruptcies have surged globally by 196% in H1 2023 year-over-year, profit warnings are up by 300% and corporate restructuring increased by 125% during the same time frame. In the UK, insolvencies of companies in England and Wales reached the highest level since 2009, up 10% from a year ago in the three months to the end of September. Last year, three major pharmaceutical manufacturers in the UK, all part of the Converse Pharma Group, entered administration, costing 1000 jobs and disrupting established supply networks.
The impact of high inflation impacts the whole of the pharmaceutical industry and has also destabilised the generics industry. With small profit margins and high production costs, generics producers across Europe have warned that their manufacture is no longer economically viable, leading to limited supply. For instance, when demand for particular generics increased globally, as was the case for supplies of ADHD medications, supply in the UK became strained, disrupting the supply chains of the NHS. Escalating costs are likely to continue affecting standard pharmaceutical practices such as VPAS, with smaller manufacturers expected to be especially disrupted.
Issues within the lower tier of the supply chain provide the greatest risk to maintaining continuous supply. In fact, 85% of disruptions occur in the indirect (tier 2+) supply chain. This is why pharmaceutical companies need to ‘de-risk’ their supply chain by focusing not on the top 20% of suppliers that make up 80% of the spend, but on the 80% of suppliers that compose 20% of the spend.
Mapping and monitoring is key to building resilient supply chains
Unmonitored supply chains are a big problem for the pharmaceutical industry across Europe, which are often single-source dependent on drug production in India. India also maintains its own dependence on China for APIs and generics. Despite moves to diversify, a number of critical failure points are present, with production still concentrated in just a handful of regions within these two countries. Without clear, end-to-end visibility within the pharmaceutical supply chain, significant threats to business continuity will remain.
AI-powered supply chain mapping and 24/7 risk monitoring are essential for building resilient supply chains. Organisations must start by establishing multi-tier mapping; they can only identify where supply disruption may emerge in advance if they have a bird’s-eye view of their supply chain. Organisations can then conduct supplier risk assessments so that they identify gaps in supplier processes, encouraging better management practices. Through increased collaboration, organisations in the pharmaceutical industry can rest assured that they have selected the most suitable suppliers for their needs, with transparent safety standards and robust back up plans to ensure continuity of supply.
Building a secure future with risk management
To mitigate these and other disruptions in the future, pharmaceutical companies must invest in supply chain risk management (SCRM). This involves supply chain mapping down to material origin to give the greatest insight into supply network weaknesses, as well as utilising AI tools such as real-time event monitoring to track potential threats.
Organisations must look to resiliency rather than reaction. By monitoring supply chain vulnerabilities and enhancing efforts to predict and mitigate potential disruptions, organisations within the pharmaceutical sector can better prepare for future disruption or even offset it altogether.
Mapping and monitoring enable organisations to minimise risk by tracking critical failure points, increasing collaboration on long-term contracts, and responding quickly to disruptions (like supply shortages). Only with a responsive and resilient supply chain will pharmaceutical manufacturers have a lifeline to avoid drug shortages when disruption occurs.