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 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.
° By comparison, pharmaceutical organizations with more than $1 billion in revenue are: 1. more likely to have documented and enforced processes and procedures for the management of production waste as well as disposal of damaged or expired product; 2. more likely to have or plan to introduce tamper-resistant packaging and related monitoring technology; and 3. more likely to enforce quality control and related supplier programs through service level agreements. These larger companies tend to have more mature supply relationships and more leverage in terms of supplier compliance.
Challenges to Pharmaceutical Safety
The global nature of today’s life sciences supply chains brings with it inherent risks and rewards. The life sciences industry has recently been experiencing more challenging times as it adapts to increased competition and margin pressures, changing drug discovery trends and regulations, and more geographically dispersed and complex supply chains.
The high profit margins that were created through blockbuster drugs in the 1980s and 1990s are fewer and further between. The increasing recall of so-called “miracle drugs” and disappointing clinical trials for some of the most promising products in the pipeline have had a negative impact on balance sheets for several of the large global life sciences manufacturers. Adding to their woes is the proliferation of grey market, diverted, and counterfeit drugs—all of which erode market share and damage consumer confidence.
This is a vicious cycle—cost constraints are forcing enterprises to outsource and off-shore functions once performed within the safe environs of an FDA-regulated manufacturing facility. Movement of product research, clinical trials, and manufacturing to lower-cost locations—a lure for much of American manufacturing over the past decade—in some cases has resulted in reduced quality controls, re-introducing risk factors that haven’t existed for decades. Despite the parity that is possible through automation and controlled environments, the manufacturing facilities in emerging markets are still subject to the challenges of limited infrastructure, varying levels of education, and standards of hygiene.
The recent debacle related to the processing of pig intestines—a starting ingredient for the production of heparin, a commodity that is used in a high percentage of medical and diagnostic procedures—highlighted what appears to be the tip of an iceberg.
Is the Pharmaceutical Industry Too Complacent?
Overall, responses to questions regarding the selection, management, and monitoring of external entities—suppliers, contract manufacturing, and distribution partners—reflected a perception of “having all the bases covered.” But this complacency may not be justified.
The area of direct supplier management has the most mature approval and monitoring programs in place (see Figures 2 and 3). However, 27% of respondents say they have a documented supplier qualification program for only their critical direct suppliers, not all of them, and nearly 10% say they lack a documented program entirely. In most cases, the area of secondary suppliers, storage and transportation was not well addressed. Because these supply chain roles are increasingly played by globally dispersed organizations, there is increasing vulnerability that needs to be addressed. As the concept of end-to-end supply chain management is embraced, more enterprises are also realizing that distribution channels and customers need to be evaluated to ensure compliance across the complete chain of custody—all the way to the patient.
Figure 2: Supply Chain Auditing and Monitoring Trends
Figure 3. Documented Supplier Qualification Programs
Despite many companies having the standard pharmaceutical safeguards in place, participants indicate that many concerns remain. With growing evidence of counterfeit drugs and increased potential contamination or reduction in efficacy through inadvertent slips in today’s longer and more complex chain of custody, even small glitches can contribute to erosion of brand reputation in the minds of doctors and patients.
Study participants identify a number of areas in which they are concerned about potential supply chain vulnerabilities, including:
- Vendor approval and ongoing compliance issues. Study participants cite such issues as: uncommunicated process changes; vendors making changes to their products without notifying the buyer; vendors having trouble maintaining quality control or yield rates; and unknown impurities in sourced product. “One of our vendors is a small, family-owned business, whose owners sometimes do as they feel is best for meeting customer requests for timing rather than following the full steps,” says one respondent.
- Glitches with continuity of supply. A number of participants say that sole and single sourcing are of concern, citing a lack of secondary suppliers for every component, having only a single “approved” source of a raw materials, raw material shortages, or experiencing issues when vendors unexpectedly stopped offering the product needed.
- Lack of full supply chain transparency. A lack of clear visibility within the end-to-end supply chain was also cited, including not knowing the true supplier of a material. One participant noted that his supply uncertainty was similar to that which created the recent heparin supply crisis—not knowing the original source of materials. Other participants who deal with temperature-sensitive product note that shipper integrity and on-time delivery are important concerns for them.
- Distribution and logistics concerns. Participants also identify a variety of logistics-related concerns, including cross-mixing and mislabeling at the supplier; poor storage practices; and production and shipping delays. “So many materials are imported,” said one person, “and can be affected by strikes. labor unrest, weather impacting ports and shipping lines” and other factors.
Changing Environment Requires Changing Controls
The supply chain environment has subtly changed over a period of years. The current environment now includes players whose identity may be masked through the complexity of second-, third-, and fourth-tier relationships. As such, the net of “supplier compliance and monitoring” programs can fall short—players in the shadows are not accounted for. Mature supply relationships in some cases mask the changing “Country of Origin” for raw materials, components and packaging materials.
As we explore the types of suppliers, trading partners and increased complexity across the global environment, the study responses reflect a lack of visibility into the inter-related links in the chain. Conversations identify areas of growing concern: for example, an emerging trend of substandard packaging of inbound ingredients—which resulted, in one case, in damage to the packaged material, which was a single-sourced, essential ingredient used in manufacturing.
Other conversations reflect some concerns related to the availability and cost of “custom packaging”; the growing trend for single-use packaging adds a level of complexity and cost to an area that played a relatively small role in the past. Another element of the packaging dilemma is the need for chain-of-custody control, which may require auto identification and serialization at the unit level to support e-pedigree requirements.
Focus on cost cutting also can threaten the efficacy of finished product. Many ingredients share characteristics that imply a sameness (where the specification allows for interpretation and the potential of substitution for a less expensive similar), but are not an identical compound. The quest for new sources of supply has many potential pitfalls—a new supplier offering a lower price should always be questioned to understand how this advantage is possible. Procurement personnel are not usually scientists. As such it is always good practice—and should be enforced through policies and procedures—for the evaluation of new or substitute ingredients, products or packaging to include a team that represents the scientific community and understands the implications of a quality or compound variance.
Several respondents express concern over the increasing isolation of interrelated functions within the discovery to distribution process—even within smaller companies. This is not surprising when critical roles are now played out across different continents and even among different branches of companies. Others express concerns about maintaining the safety culture as start-ups are absorbed by their incubation partners or mature into commercial entities.
How to Protect Your Supply Chain—And Its Patients
Globalization has changed the rules of manufacturing and distribution forever. It is no longer enough to develop policies, processes and procedures at an organizational or regional level. These practices now need to take into account the extended supply chain environment—to include each and every participant, no matter how small. Manufacturers must keep watch for red flags that could signal supply shifts (Box).
Programs need to be developed, implemented and enforced across an end-to-end supply chain, which includes the identification of primary, secondary, and n-tier suppliers of all raw materials, packaging ingredients, components and logistics, and their interrelationships.
Guiding principles to successfully secure and safeguard a pharmaceutical supply chain include:
1. Educate the chain. The key objective is to ensure that all participants in the chain of custody are aware of the risks and possible impact on patients. The concept of “social responsibility” and “patient promise” should be shared across the supply environment, creating a sensitivity and vigilance as each person performs specific tasks across an extended supply network.
It is critical that all supply chain partners are aware of their role in ensuring safety and compliance. Participants should be aware of the data that they will need to validate as goods pass into their custody—as well as the digital audit trail required across the product lifecycle. Service level agreements that are part of the legal terms and conditions of procurement and service contracts should be used to help ensure compliance, a practice used today by about 70% of study respondents.
2. Demand data collection excellence. In many cases, the technical capabilities of suppliers—or lack thereof—can create constraints. These should be understood and planned for, capturing required data elements and required information through media in place, and digitizing this as soon as possible. A combination of electronic data transfer and auto-identification technology, along with telephone prompts, web-based forms and even older technologies like facsimile should be evaluated in order to capture information as close to the source as possible and implemented as part of an end-to-end shipment tracking and tracing process.
Know the Red Flags in Sourcing
To identify changes in sources of supply in your end-to-end process, there are specific red flags that should be looked for; these include changing lead-time variances, changes in packaging and changes in country-of-origin documentation.
One study participant complained that, although their company was dealing with a long-term supplier, there were inconsistencies in lead times, including an extension of up to three weeks in some cases. On questioning this variation, the company found that the primary supplier had started sourcing product from Asia in order to comply with contractual pricing requirements.
Another respondent mentioned that her company had noticed changes in the packaging of inbound raw materials, in some cases resulting in damage to the ingredients, a critical component for starting materials. When questioned, the procurement agent admitted having changed suppliers—without including packaging elements in the product specification.
Both of these cases are examples of the increasing disconnect between constituents in today’s longer and more dynamic supply chains. Diligence on the part of all entities is required to ensure that any changes in source of supply, packaging, labeling, documentation or mode of transportation are noted and reviewed to establish whether an element of risk has been introduced. When a red flag occurs, re-audit this supply line or ask your primary supplier to revalidate the chain of custody and accompanying processes and procedures for this product.
3. Institute documentation and communication consistency. Documentation is critical to ensure that the correct packaging, storage and handling procedures are consistently applied. Ensure that appropriate labels are used to define product receipt, testing, validation, storage and handling. This should include clearly defined parameters related to hazardous products, temperature control, humidity and other restrictions that apply. Color codes should also be used to identify hazardous, fragile and temperature-sensitive items. Although product is usually labeled correctly, instructions may be hard to find or the language in which they are written may be inadequate to support all players across the extended supply chain.
A best practice is the utilization of RFID and temperature and related sensors to monitor items having special handling requirements—eliminating human error as much as possible. To date, these technologies are not widespread, in part due to their expense.
4. Recall and destruction—leave nothing to chance! It is all-important to ensure that members of the extended supply chain know what to do if the product has been compromised and spoiled. This should be clearly outlined in service level agreements between all players in the pharmaceutical supply chain.
5. Be obsessive in continuous monitoring. Because of margin and market growth pressures, life sciences supply chains are more dynamic than ever before. Best practice companies put in place data analysis processes and “human knowledge” collection procedures to spot red flags in their end-to-end supply chains.
Our study results reinforce the idea that pharmaceutical safety is both a philosophy and a core value that needs to be built into the process and inspected and monitored through stringent controls. Standards, policies, procedures and processes to ensure the safety and security of the supply chain should be agreed to by all participants (no matter how small their role) and should be reinforced by clearly defined service level agreements and reporting mechanisms. In this way, the life sciences industry, which is dedicated to developing products that help to save and enrich human life, can better meet its mission.
About the Author
Carla Reed is a senior vice president in Marsh Inc.’s Supply Chain Risk Management Practice. She has more than 20 years experience in the life sciences industry, and is the author of a series of white papers on the subject of RFID, sensors, cold chain, ePedigree, chain of care and product innovation. Ms. Reed can be reached at [email protected].