No More Weakest Links: Examining the Shifting Focus of the Pharmaceutical Supply Chain 17th September 2021
By By Nikunj Desai, Head of Global Supply Chain at ACG Worldwide
The Covid-19 pandemic has exposed and affected all links across the pharmaceutical supply chain. For many decades the industry has relied heavily on a lean principle of inventory, however, this strategy reduced flexibility and the ability of our industry supply chains to absorb even minor disruptions.
From the outset of the pandemic pharmaceutical leaders across the world were forced into re-evaluating how they operate and manage every aspect of their supply chain. Just a few broken links in the global chain exposed a multitude of weaknesses and had a ripple effect, spreading and multiplying until the supply chain was fractured and, in some cases, almost ground to a halt. Now, as the pandemic continues to challenge us all, the perspective on what constitutes ‘optimization’ has undergone an irreversible shift. Efficiency has had to be reassessed, established methods of working are being transformed and the pharmaceutical supply chain is rapidly changing.
This article reviews and assesses the operational and mindset shifts that support the management of current and future challenges, examines how they arose in response to a range of issues and presents a view of the future – empowered by the smart supply chain.
Our industry is undergoing a huge shift in relation to the focus for managing and planning supply chains. This mindset change will be facilitated by the integration of technology, but is fuelled by an emerging emphasis on the need for flexibility and reliability.
Lowest-cost sourcing to supply reliability and supply assurance
Previously, the focus has been on sourcing from the lowest-cost supplier and low-cost countries. This led to a situation of overdependence on either a single source or a single geography for raw materials for life-saving medicines and other essential products.
There are many examples of this overdependence, but the first and most shocking happened at the onset of the pandemic. Almost every manufacturer relied on China for their supply chain needs, particularly for raw materials. With China initially being the epicentre of Covid-19 and a lockdown being implemented across the country in a flash, this affected the supplies before anyone had time to prepare or to respond. This made the dangers of low-cost supplier and low-cost country sourcing abundantly obvious and our industry is now mostly operating with a completely different outlook – reliability of supply is the priority.
De-risking to geographic de-risking
Geopolitics and climate change is presenting a large threat to global supply chains. Trade barriers (official and unofficial) are common, and these undulating regional issues are prompting companies to find suppliers located in different regions, countries and continents.
De-risking is nothing new, alternative suppliers were considered before. However, often the alternative supplier was located in the same region, zone or country and logistics cost limitations mandated that the suppliers were in closer proximity to factories. Whilst it is still efficient to have suppliers in the local area, and as part of geographic de-risking we would expect all factory and manufacturing locations to source at least 20% of supplies locally, in the future each supplier will have a ‘Risk Score’ which will determine the share of business and inventory plans for each supplier. Geographic de-risking will become essential, meaning that alternative suppliers are also identified in different regions and countries, and potentially continents.
Sourcing strategy to scenario management strategy
Business continuity has become a critical concept. In contrast to sourcing strategy the focus will now shift to scenario management. This scenario management principle is based upon reviewing evolving circumstances, learning from other countries or organization’s issues and imagining potential scenarios that may be faced. In response to these, companies need to prepare finalized business continuity strategies which could be quickly implemented when those scenarios arise.
Preparations and adaptations to the supply chain should be made ready for envisaged scenarios, such as cyber attacks, supply disruption, delays and staffing challenges, in order to be ready for these situations should they come to pass. To be effective, business continuity plans need to be created at both an organizational and regional level.
Supplier partnership to supplier business continuity planning
As a result of better data and communication, partnerships between buyer and supplier will become deeper and more transparent. The current system of audit/compliance measurement will have increasingly more emphasis on business continuity planning. As we shift our focus from cost to reliability, suppliers will need to provide greater insight into their operations to prove and monitor the risks to operations. This may also help to support smaller suppliers to prepare in case of adversity, as larger organizations can work closely with their contacts to provide strategies and advice for business continuity.
It will go further than just the immediate partner in the supply chain, with assessments of Tier II and Tier III suppliers and raw material suppliers also likely in order to develop end-to-end supply chain resilience and visibility.
This closer relationship will also be facilitated by information communicated through blockchain Distributed Ledger Technology (DLT) and smart contracts. Through this system, all stakeholders in the supply chain, from suppliers, to manufacturers, logistics partners and retailers can be included and registered in one secure network. Each stakeholder can access only the information they are authorized to access and it is impossible for members, or outsiders, to manipulate the data in the supply chain without detection.
In-sourcing to outsourcing and flexi-sourcing
Earlier efficiency models were focused on exclusively insourcing or outsourcing based on cost or capability. The model of the future will be flexi-sourcing. Organizations will adapt their sourcing model to suit the situation, having options for both insourcing and outsourcing prepared as part of their business continuity plan.
JIT supplies to inventory optimization
Just in time (JIT) deliveries have been the primary way of managing supply over the past decade, but organizations will now be operating with ‘just in case’ inventory. Inventory planning will be based on AI analytics and established parameters, as well as business continuity planning and risk scores of suppliers, and optimized to absorb any delays or issues.
Embracing technology adoption – smart supply chains
Digitalization and industry 4.0 were big topics in our sector, even before Covid-19 struck. However, the pandemic has proved a catalyst for the implementation of smart supply chains, digitizing every aspect of the process and introducing AI and live analytics.
Whilst some companies have embraced and invested in technology, others have held fast to the traditional, old ways of working. The pandemic has prompted a huge learning curve, laying bare the importance of accepting technological change and making the benefits obvious for companies that were early adopters of systems such as track and trace, aggregation, blockchain, AI analytics and IoT, as they were more capable of adapting and finding solutions to supply chain disruption. Speaking from experience, it was possible to not lose a single minute of production across global locations, but only with the right systems in place and an agile approach adopted throughout the organization.
Smart supply chains are critical for the future. However, just integrating technology into the system does not make a smart supply chain. A supply chain can only be defined as smart when it combines various tools to provide agility, visibility, and resilience from manufacturer to end consumer. Proper training and education for all associates involved in managing the technology and the supply chain process is crucial, as the technology must be properly employed in order to be effective and reap the full benefits.
So why are smart supply chains so important? Primarily because of the data. Through an IoT system, data can be gathered and then assessed using AI and analytics software. Data is power in today’s world. Companies with accurate, up-to-date information are better prepared to counter issues, such as shipment delays or supply failure. Their decision-making process can be quicker, more informed (based upon live data) and better exercised.
The supply chain continues to face delays and exponential cost rises across all transportation methods, and, if we look to the near future, the effects of climate change and political instability will increasingly affect freightage. Geographic de-risking is an important part of offsetting these challenges, but live data will also help to counter delays and issues with transportation. For example, the ACG app will provide mobile push notifications to alert of any delays or deviation to the planned route. Not only does visibility across the entire journey offer greater security and guarantee quality, it also ensures preparations can be made early for delays and alternative transportation methods used. Decisions can be made through utilizing this data on the optimal strategy for ensuring delivery or solving issues.
Initial costs when using alternative, last-minute transportation can be much higher, but with product moving faster and sales facilitated it means better cash flow, positive customer relationships and the prevention of any delays in the production of lifesaving medicines – an invaluable benefit.
The future smart supply chain
In the next five to 10 years, the buyer-supplier relationship will become increasingly digitized. Source-to-contract and procure-to-pay will be completely digitized and automated. However, I do believe a major portion of supplier relationship management (SRM) will still need a human contact aspect. Nothing can fully replace the importance of person-to-person interaction and established interpersonal trust.
The digitization of the system will make vendor selection more efficient, as it will happen more through crowdsourcing as a result of open vendor information, ‘risk scores’ and pricing transparency. With technologies such as AI and IoT, supply chains could move quickly to alternative suppliers when established suppliers face disruption, or are predicted to do so. This system also opens us up to the potential for vendor selection to be automated based on live, open pricing through secure blockchain platforms. Purchase orders (PO) will be automated. Payment could take place via robotics, as well as smart contracts.
The future supply chain is smart, and will be more flexible, agile and resilient than ever. It will provide end-to-end visibility right from the supplier to the end consumer. Through track and trace systems, AI analytics, IoT, and blockchain our supply chains will develop an incredible resilience to shock. This will ensure greater reliability and availability for consumers and hopefully have an impact on the accessibility and cost-effectiveness of manufacturing and transporting essential medicines.