In the last few years we have seen a raft of supply chain disruptions hit the pharmaceutical sector including billions of dollars paid out in fines and news of counterfeit drugs, quality excursions and ethical lapses hitting the headlines nearly everyday. These incidents reveal the diverse spectrum of supplier risks modern pharmaceutical and healthcare companies now need to manage.
These issues also demonstrate how third parties can directly affect the reputation of global brands via inevitable concern over public health and safety, loss of supply of critical products, contamination of raw materials and a “domino effect” of instability.
Longer term there is also the impact on share price, insurance premiums, reputation and, ultimately, the bottom line. We have also seen the potential for breaches in the Foreign & Corrupt Practices Act, the United Kingdom’s AntiBribery Act and any Corporate Integrity Agreement that might be in place with the U.S. Department of Justice.
The Role of the Supply Chain
What links the vast majority of high-profile disruptions in pharmaceutical and healthcare is the involvement of suppliers at lower levels within the chain. For example, in a 2010 guidance document to industry, the Pharmaceutical Quality Group of The Chartered Quality Institute cited 19 incidents which disrupted the supply chain, most of which involved suppliers and their supply chains. Pharmaceutical and healthcare are truly globalized industries with complex international supply chains. Industry must now work to scrutinize their supply chains to the same level they do for commercial or manufacturing operations.
Pharma and healthcare companies face a perfect storm. Materials are procured, manufactured, packaged, distributed and sold in different locations across the world. And in a recent survey of global businesses, most said that “failure of a supplier to deliver the required service” was the biggest risk they currently face. However, research shows they have limited information about suppliers involved in each activity.
Three separate reports, by KPMG, IBM and Achilles, show that worldwide, major corporations are showing a worrying lack of knowledge about who is in their supply chain — let alone the risk posed by each individual company. A buyer may well know its main suppliers (Tier 1s) but what about their suppliers, or their suppliers’ suppliers.
CREATING VISIBILITY OF SUPPLIERS
The pharmaceutical and healthcare industries must mitigate the risk of potential supply chain disruption by gaining visibility of, and managing their entire supply chain. In Achilles’ experience working in complex, highly regulated industries such as oil and gas, this works best when whole industries collaborate and implement a standardized, global supply chain risk evaluation and management process.
Such a system can collect, manage and evaluate the risk from suppliers across all countries on a single platform accessed via the “cloud.” Everything is coordinated — from basic company information to in-depth information including audit results, financial assessments, corporate social responsibility (CSR) information, bribery and corruption policies, as well as details on ethics and sustainability practices.
With one standardized process, pharma companies could evaluate and benchmark suppliers, identify high-risk companies, audit them and take proactive, preventative action. This could include actions such as implementing improvement plans or addressing “pinch” points, bottlenecks and sourcing alternative suppliers.
This would help companies to reduce procurement cost, eliminate duplication and generate data which can be used to make real business decisions.
Most recently we saw this when, according to the Wall Street Journal, 70 retailers joined forces to tackle supply chain risk in Bangladesh — but there is nothing to stop pharma taking this one step further and addressing all supply chain risk, in all countries, simultaneously through one process.
MAPPING THE SUPPLY CHAIN
With additional visibility, pharma companies collaborating with their suppliers could then create “supply chain maps,” gaining a complete picture of all the companies in their supply chains. This works when buyers invite their suppliers to provide information about their business operations via the online system. The suppliers then repeat the process with their own service providers until the whole supply chain is mapped.