Weak Links

A recent survey suggests that manufacturers don’t have as much control over supply chain security as they think they do.

By Carla Reed, Marsh Inc.

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Among the litany of problems facing life sciences companies, none has garnered as much attention lately as supply chain security. Media focus on the heparin crisis and other supply-related incidents has highlighted the challenge of managing trading networks that spiderweb around the globe, and the disparity of quality standards and controls across those networks. New sources of raw materials and labor offer cost advantages, but need to be evaluated carefully in terms of risk and reward.


Survey Demographics
Survey participants consisted of representatives from 66 life sciences organizations. Of these, 62% were vertically integrated pharmaceutical manufacturers, with the remainder of respondents evenly split between outsourcing-intensive pharmaceutical manufacturers and contract manufacturers.
Of the respondents, 43% were from business units or companies with less than US$100 million in annual revenue, 23% from organizations with between $100 million and $1 billion in revenue, and 34% from organizations with more than $1 billion in revenue.


To gauge strengths of vulnerabilities of the current life sciences supply chain, Marsh Inc., in conjunction with Pharmaceutical Manufacturing, conducted a survey of representatives from 66 leading life sciences organizations (Box). The survey results reveal major inconsistencies in the way that drug companies address supply chain security and a clear need for improved practices and intra-industry benchmarking.

Inconsistencies in Supply Chain Safety and Security

Study results show that different segments of the life sciences industry are moving at different paces to fully safeguard their supply chains.

° Outsourcing is challenging traditional safeguards. Although the general perception of study participants is that their security and product integrity processes are sufficient, survey results show the contrary, especially within those enterprises that have adopted an outsourcing-intensive model, in which there is significant outsourcing of discovery, clinical trials and manufacturing activity.

Fully 91% of outsourcing-intensive pharmaceutical participants in the study report having had a “significant incident” (i.e., causing a loss of $10,000 or more) due to quality problems or delays with contract partners. Only 59% of their more vertically integrated peers, which have mostly in-house discovery, clinical trial and manufacturing processes, reported having incidents.

Figure 1 shows the areas in which these outsourcing-intensive pharmaceutical companies are lagging behind their more vertically integrated peers in supply chain safeguards. Because an outsourced business model is more complex to oversee, companies with this model need to be especially vigilant in their safety- and security-related processes.

Figure 1: How Vertically Integrated and Outsourcing-Intensive Pharma Companies Differ in Safeguarding the Supply Chain

Contract manufacturers serving the life sciences industry have notable differences from other manufacturers. They are significantly more likely to include their raw material suppliers in a supplier qualification program (90%). But they are the least likely to enforce quality control and related supplier programs through service level agreements (SLAs); only 56% of contract manufacturer respondents report having SLAs. In addition, three-quarters of contract manufacturers surveyed say they have or plan to introduce tamper-resistant packaging and related monitoring technology, compared with about one-half of the pharmaceutical manufacturers.

It may be helpful to note that vertically integrated pharma manufacturers consider manufacturing to be a core competency, performing key functions in-house. They enforce GMP and controls in their global manufacturing locations, ensuring a consistent environment. Contract manufacturers, with an extended network of suppliers, enforce controls through technology enablers and quality control at each of the nodes.

° Protection is greatest where incidents have occurred. Life sciences organizations that have experienced a recall or supplier incident are much more likely than their peers to have put in place the following policies, procedures and technology enablers:

  • Auditing and monitoring of transportation providers. Companies that have had previous incidents are three times as likely to now be auditing and monitoring transportation providers (55.6%) as are those companies that have not had a recall (18.2%)
  • Auditing and monitoring of indirect suppliers. Companies with prior events are twice as likely to now be auditing and monitoring indirect suppliers (44.4%) as are  those that have not had a recall (24.2%)
  • Documented guidelines for ensuring the physical security of manufacturing and distribution facilities—99.4% vs. 68.8% for those manufacturers with no recalls or incidents
  • Current capabilities or future plans to introduce tamper-resistant packaging and related monitoring technology—88.9% for those with prior incidents, vs. 75.4% for those without

° Small companies struggle to implement full safety and security capabilities—and maintain them as they scale. Organizations with under US$100 million in revenue are less likely to have the in-depth policies and procedures of mid-size organizations and large enterprises. They trail their larger counterparts (26.9% of small respondents vs. 71.4% of medium respondents and 80% of large respondents) in having a fully documented supplier qualification program and in auditing and monitoring indirect suppliers.

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