Building Resilience: Navigating the Rising Tide of Crises in the Pharmaceutical Industry
In the global landscape, the increasing frequency of crises poses significant challenges for pharmaceutical companies. The globalization of active pharmaceutical ingredients (API) and raw materials supply systems means that pharmaceutical supply chains are exposed to more regular and diverse crises than ever before. Even if events such as the Covid-19 pandemic, the war in Ukraine and inflation have recently perturbed the pharmaceutical industry, the sector has managed to absorb them relatively well.
However, while recent crises have been managed with some resilience, three key issues remain:
- The growing dependency on international suppliers and partners exposes pharmaceutical companies to greater risks of supply chain disruption. Geopolitical events, conflicts or natural disasters in suppliers’ countries can lead to delays, shortages, or interruptions in the supply of APIs or essential raw materials & components.
- The increasing complexity of supply chains makes risk management more difficult. Indeed, pharmaceutical companies must navigate through both external (suppliers and subcontractors) and internal (manufacturing plants, subsidiaries, etc.) networks around the world, making traceability and transparency quite challenging. Regulations, quality standards and compliance requirements also vary from one country to another, adding new layers of operational complexity.
- Global economic pressures and cost fluctuations have a direct impact on industries’ activities. Inflation, currencies instability and raw material prices fluctuations also impact the pharmaceutical industry and can affect production and distribution costs. This can put a strain on pharmaceutical companies’ profitability and requires accurate financial management to maintain stable and sustainable operations.
Redefining Resilience: Adapting to the Changing Landscape of the Pharmaceutical Supply Chain
Resilience is the ability for organizations to avoid, absorb & recover from major disruptions. The concept of resilience traditionally requires to deeply rethink the supply chain organization according to 3 axes:
Figure 1: The 3 pillars of supply chain resilience
1. Developing a Resilient Supply Chain Strategy: Aligning Strategy and Operating Models
- Is your supply chain ecosystem sufficiently flexible and agile to effectively respond to disruptions and maintain seamless operations?
- Does your IT core model provide access to reliable data across the entire value chain, enabling proactive decision-making and enhancing resilience in the face of potential disruptions?
The quest for resilience profoundly alters the ecosystems in which pharmaceutical companies have established themselves. For example, the repatriation of 50 critical drugs manufactures to France participates in restructuring the industrial landscape. The aim is to reduce the dependency on pharmaceutical imports and to strengthen the country's ability to meet its needs in the event of international crisis.
These policies bring new opportunities for the pharmaceutical ecosystem and should give rise to new challenges and decisions:
- Dealing with the insourcing/outsourcing of certain activities in the value chain. While insourcing allows for more direct control of processes, better quality management and greater flexibility, outsourcing can offer advantages in terms of cost, capacity, and expertise.
- Coping with regulatory changes. Among other things, they can influence the selling prices of medicines, or set compulsory safety stocks. This type of policy can have a major impact on margins, and therefore on the entire value chain.
- Integrating IT core-model in operating models. In the pharmaceutical industry, the reliability of data across the entire value chain is essential to ensure more resilience and high-quality standards. It is therefore crucial to put in place an appropriate structure for the IT core-model, capable of supporting essential processes (such as S&OP) and their data across the entire value chain. A well-designed IT architecture promotes the integration of the various supply chain stakeholders, improves information visibility, and facilitates decision-making.
2. Enhancing Processes and Operations: The Key to Resilient Operations
- What mitigation plans have you put in place to ensure your organization can effectively absorb and overcome a crisis? Are your organization’s processes agile enough to adapt to unforeseen disruptions?
- How confident are you that your control tools can ensure the stability of your supply chain operations when facing crises or unforeseen changes?
Processes and operations play a fundamental role in supply chain resilience. Thus, putting in place effective internal processes, proactive risk management and seamless coordination between different functions ensures rapid response and effective business continuity/recovery after disruptions. Regular assessment of these aspects is essential to maintain robust and crisis-resilient supply chains in a sustainable manner.
In the pharmaceutical industry, the challenge of resilience is even more complex as companies must manage many operational constraints that affect their flexibility in the face of crises:
- The obligation of compliance with Good Pharmaceutical Practices adds qualification actions, validation of much equipment and reduces the flexibility of companies during crises,
- The pharmaceutical sector is global and requires diverse sources of raw materials (both for commercial production and for R&D). Their continued availability is essential to maintain pharmaceutical production,
- The manufacturing operations are complex with possible standard lead-times deviation due to different root causes such as planning, material or quality control decisions. This is even more impactful for bioproduction (biopharmaceuticals, vaccines, etc.) for which batch release presents more uncertainty,
- Inventory management in the pharmaceutical industry is particularly challenging due to factors such as product variety, expiration dates, batch regulations, as well as regulatory safety stocks constraints and higher expectations for critical molecules.
The combination of these factors usually results in an increase in working capital. In the pharmaceutical industry, effective management of working capital is crucial to optimize operations and improve the resilience of supply chains. However, it is necessary to determine whether working capital is optimal in terms of financial optimization, while securing operations. Thus, an adequate level of working capital should be maintained to better cope with disruptions and ensure that sufficient financial resources are available to meet operational needs, maintain business continuity and take corrective action.
3. Securing the Value Chain: Effective Risk Management for Business Continuity
- Do you have holistic systems in place to encourage whistleblowing throughout your supply chain, promoting transparency and early identification of potential risks or disruptions?
- Who are the designated risk owners and risk experts within your company, and how do they collaborate to effectively manage and mitigate risks throughout the value chain?
Value chain risk management is crucial to ensure business continuity and reduce vulnerabilities. This is the reason why, pharmaceutical companies should prepare for potential disruptions by understanding the interconnections and risks associated with the supplier networks, promoting transparency, and putting in place appropriate mitigation strategies. This includes moving from a reactive management model to a more proactive one, through different vectors:
- Planning to better adapt needs, optimize value creation and ensure better collaboration between internal departments and external suppliers.
- Supplier relationship management to build strong and lasting relationships with suppliers, with a focus on risk management and collaboration to ensure supply chain quality, reliability, and security.
- Digital tools to improve operational efficiency and increase transparency. For instance, Artificial Intelligence, process automation, the latest Track & Trace technologies and Digital Twins can facilitate sourcing, supply chain E2E management and performance monitoring.
- Data management and modeling to identify trends, optimization opportunities and risks based on reliable data.
- Talent development to strengthen processes and install a corporate culture based on value creation through risk anticipation.
Building Resilience: A Proven Approach for Supply Chain
Implementing a resilience strategy therefore requires extensive knowledge of the company's upstream and downstream supply chain operations. It must integrate the entire supply chain into the corporate system and ensure its links to the company's financial and marketing functions.
Companies in the sector are used to manage pharmaceutical risks as required by regulations and have a cultural base on which to build. In all cases, the implementation of a resilience strategy is based on these 5 steps:
Figure 2: The path to supply chain resilience
In conclusion, implementing a resilience strategy in the pharmaceutical industry is a multi-dimensional program. It requires a systemic approach that includes effective governance, optimized processes in “crisis” and in “non-crisis” situations, proactive anticipation of disruption using transparent data-driven models and a cultural shift towards resilience. By adopting these principles, companies can improve their ability to meet their challenges, ensure business continuity and adapt quickly to changing circumstances.
You can read more about BearingPoint resilience capabilities in the following article: