Another Day, Another Supply Chain Resilience Legislative Proposal

It is now not a question of if but when governments regulate for supply chain resilience. How it’s consistent with tariffs and trade wars is unclear, but one thing is: When it comes, technology will be key to compliance.

Can you legislate supply chain resilience? The US Senate seems to want to find out.

As Trump’s tariffs and rhetoric wreak havoc for supply chain planners, including across pharma supply chains, the US Senate has reintroduced the Promoting Resilient Supply Chains Act, which passed the House of Representatives in May 2024, some months before Trump’s election in November.

Now, as then, the act would oblige the Department of Commerce to promote resilient critical supply chains and “identify, prepare for, and respond to supply chain shocks” to critical industries, critical supply chains, and critical and emerging technologies.

Other duties include assessing the resilience, diversity and strength of critical supply chains and supporting the availability of critical goods from domestic manufacturers.

“From our aerospace manufacturers to our growers, Washington state relies on robust supply chains to produce, grow and ship our products to the world,” said the state’s senator Maria Cantwell, one of the bill’s proponents.

“One supply chain shock can disrupt the entire system, driving shortages and raising costs. Our legislation will get the government, businesses and manufacturers working together to identify gaps and build capacity to prevent supply chain disruptions before they happen.”

Within three months of the act’s passing, the Department of Commerce Assistant Secretary would be required to establish a Supply Chain Resilience Working Group of federal agencies. Within a year, working with the group, it would have, among other things, assessed, mapped and modelled critical supply chains; identified high-priority gaps, vulnerabilities and potential supply chain shocks; identified opportunities to address these vulnerabilities and better respond to supply chain shocks.

Facing both ways? Supply chains and tariffs

The bill enjoys bipartisan support, being put forward to Cantwell with another Democrat, Lisa Blunt Rochester, the senator for Delaware, and a Republican, Tennessee senator Marsha Blackburn.

To some extent, at least, it is not wholly at odds with the President’s policies. Part of resilience, the bill recognises, is bolstering onshore and near-shore critical supplies. The working group’s purpose is partly to “support the availability of critical goods from domestic manufacturers”.

As the Senate Committee’s press release noted, “The US is heavily reliant on single countries for critical supply chain segments, including manufacturing components, critical minerals, and active pharmaceutical ingredients. This concentration poses a significant risk of disruption.”

The Republican senator sponsoring the bill, Blackburn, was more forthright. “To achieve a strong, resilient, supply chain, we must have a coordinated, national strategy that decreases dependence on our adversaries, like Communist China, and leverages American ingenuity,” she said.

Her Democrat colleague Cantwell, too, said the bill would “strengthen American manufacturing jobs, keep our store shelves stocked and lower costs for American families”.

Little of this is out of line with the stated intentions, at least, of the President’s trade wars.

The reality of retaliatory tariffs, however, may well fail to deliver those intentions. Blackburn was keen to see an end to the trade war with China during Trump’s first term. She has also previously criticised the executive for failing to consult with Congress on trade policy and highlighted the impact of tariffs on her home state.

This February, however, she praised Trump for doing a “fantastic job”.

“We know that there will be some tariffs,” she said. “The expectation is that the American people are not going to see increases in prices. What they will see is inflation come down. We are hopeful that they are also going to see wage growth and a more vibrant economy.”

The public-private partnership for supply chain resilience

How successful the Senate bill would be in promoting resilient supply chains amid ongoing battles over trade is uncertain. As one asset manager notes, “Trump 2.0 will drive the global supply chain realignment.”

On the other hand, it says, the worst case scenario of a global trade war remains highly unlikely. Many countries and companies most affected have already made changes to their supply chains during previous skirmishes.

Moreover, whether the bill will even progress and make it into law remains to be seen. But three things do seem increasingly clear.

The first is that, as we’ve noted before, supply chain legislation for critical industries is coming. It’s an idea that just doesn’t go away. Whether it’s the MAPS Act, the previous UK government’s supply chain strategy or TCFD and climate change risks governments around the world are increasingly moving to a more active role in ensuring the resilience of critical supplies.

At the same time, the other thing that is clear is that this will not be the responsibility of governments alone. Under the current bill, as with MAPS, there are obvious obligations, both explicit and implicit, on businesses to contribute to building that resilience. Consulting with industry is among the duties the bill adds to the Assistant Secretary’s responsibilities, for example. More fundamentally, mapping supply chains, identifying vulnerabilities and defining and implementing appropriate mitigations all require significant involvement from the businesses involved.  

To put it plainly, the only way the state can get the information and insights it needs to build resilience in critical supply chains is if the businesses in those supply chains have them themselves.

A critical role for supply chain technology

This leads to the third implication that is increasingly clear: Technology will play an important role in achieving the visibility of supply chains required for regulatory compliance and, ultimately, any realistic efforts to improve resilience.

Again, this is recognised in part explicitly in the bill. The Assistant Secretary, “not later than 1 year after the date of the enactment” of the act would be required to identify and describe “necessary tools, including commercially available risk assessment tools, that leverage data and industry expertise to provide insights into critical supply chain vulnerabilities”.

Within 18 months, the Assistant Secretary is to identify technologies “critical to addressing preparedness, weaknesses, and vulnerabilities relating to critical supply chains”.

Even if the role of technology was not called out in the bill, however, it’s hard to see how the aims of the act could hope to be realised without it. Modern supply chains’ complexities, interdependencies and mutability more or less mandate technological solutions. Even if manual approaches to mapping supply chains were effective, they cannot hope to be efficient. Once we add requirements to report to governments or regulators, they become entirely unrealistic.

The benefits of supply chain risk management tools like SCAIR®, which enable businesses to map their supply chains, identify critical dependencies and concentrations of risk, and calculate the value at risk, will only grow. If or, more realistically, when we finally see legal reporting requirements, those with suitable solutions will be able to rapidly generate and provide the information regulators demand.

But the ease of regulatory compliance and reporting, technology enables will always just be a perk of supply chain technology. The key benefits it brings to business, and the competitive advantage it can confer, can already be realised, and is what such regulation ultimately seeks to achieve: More resilient, efficient, flexible and adaptive supply chains that enable businesses to survive shocks and thrive in an unpredictable world. That is something businesses should want for themselves – regardless of what governments demand.

Managing Supply Chain Risks: The Current Challenges and Strategies for a Credible Solution

If you are a risk manager or management consultant working with a highly regulated industry, getting to grips with myriad supply chain risks is only part of the problem. Your role is also to articulate these risks in a way that makes decision-makers sit up and listen – and give the go-ahead for mitigation budgets and strategies.

Easier said than done. Perhaps some in the industry will relate to Cassandra, the Trojan priestess who was granted a double-edged power: the gift of prophecy and the curse of being believed by no one. And why would businesses release budgets for hugely costly mitigation strategies unless there’s a compelling case for action?

In this article, we’ll look at some of the most compelling current threats to supply chains for highly regulated industries such as life sciences, reinsurance and financial services. We’ll then look at factors that make managing supply chain risks and identifying areas for concern so challenging.

Finally, we’ll introduce a way to navigate the threat landscape more accurately. This can help you to present a case for mitigation that gets buy-in and protects your organisation and its profits.

Before starting, a final thought that we’ll address later. If you could put a plausible number on value at risk – backed up by convincing data – how much easier would it be to convince business leaders that mitigating actions make business sense?

7 Current Threats to Supply Chains

To start, we’ll look at risk using relatively recent developments as our examples. As we have pointed out in a post about enterprise risk management, these are not occasional interruptions but are becoming the new norm.

1. Offshoring and Consolidation

In the quest for cost reduction, some manufacturers – particularly those in pharmaceuticals – rely on a relatively small group of offshore suppliers. But cutting costs can cost you. Moving away from domestic or nearshore production increases risks of trade wars, weather risks and quality concerns. In 2021 – during the Covid pandemic – the European Parliament published a study on post Covid-19 value chains, and options for reshoring production back to Europe in a globalised economy. The message was clear – relying on distant nations, particularly in times of emergency – is something that shouldn’t happen again.

2. Regulatory Risks

A study led by Intersys with the Institute for Manufacturing at the University of Cambridge discovered that more than two-thirds of life sciences shortages were linked to Official Action Indicated Notices issued by the US FDA. Of note is that there was a higher prevalence of issues in China and India than in the US and Europe. From DORA Act compliance for financial services to the Mapping America’s Pharmaceutical Supply (MAPS) Act, suppliers falling foul of regulations can seriously affect your business operations.

3. Just in Time Manufacturing Models

Toyota’s pioneering approach was “Making only what is needed, only when it is needed, and only in the amount that is needed.” This was good for saving money on holding stock, but recent events have questioned the validity of this model when it comes to managing supply chain risks. When the container ship Ever Given, bound for Felixstowe from Malaysia, got stuck in the Suez canal for six days, it cost shipping traffic £730m. The effects were felt at one level by consumers waiting for Amazon deliveries and another by company leaders asking valid questions about the ‘just in time’ model in a fragile global trade environment. For some industries, it may be a useful model but for others – such as pharma –  just in time manufacturing may cause fundamental supply chain issues.

4. Extreme Weather Incidents

Regions where manufacturing is cheap frequently experience a disproportionate amount of weather disruption. The result is that many organisations are heavily exposed to weather-related risk. Overreliance on one region prone to extreme weather can seriously disrupt supply chains. For example, 92% of the world’s most advanced semiconductor manufacturing capacity is based in Taiwan, a country that – despite being technically one of the wettest places on Earth – in recent years has experienced supply chain disrupting drought. Insurers, in particular need to understand the true impact of climate change exposures to their portfolios. More widely, all organisations must ensure that they meet compliance rules concerning climate change.

5. Cyber Risks

A 2023 data breach report from IBM revealed that healthcare and pharmaceuticals breaches cost on average $4.82m – the highest in any sector. Pharmaceutical companies are increasingly working with third-party organisations in areas such as research and development, manufacturing, supply chains, trials and more. This increases vulnerability because these third parties will frequently have access to the parent company’s systems.

While healthcare and pharmaceuticals may suffer most, this is a widespread problem and particularly concerning for highly regulated sectors and those holding valuable intellectual property. Read our post about supply chain cyber security threats.

6. Consolidation Risks (Mergers and Acquisitions)

Managing supply chain risks may include eliminating any single source of product or service. But spreading your risk can be far more complicated than it appears at first glance. Mergers and acquisitions can have an insidious effect on good supply chain risk practices – unless you can keep up with industry developments. For instance, Company A acquires Companies B-F. Meanwhile, your several sources of crucial components become one source and your risk increases.

7. Transport and Logistics Problems

The further away your supply chain, the greater the risk of disruption and uncertainty due to transport and logistics issues. A large journey time can heighten problems associated with political upheaval, strikes, fuel price fluctuations, armed conflicts, compliance and customs regulations, and natural disasters. Quality control can also become an issue, particularly for temperature-controlled products. While Internet of Things devices can track product movements and temperatures to a granular degree, these can be targets for cyber criminals. 

If you work in pharmaceuticals, you might want to read our blog post 10 sources of risk in pharma supply chains.

Managing Supply Chain Risks: Common Solutions

Some of the most common solutions to managing supply chain risks include:

Diversifying suppliers. Ensuring there are multiple sources for critical components and geographically dispersed suppliers can help alleviate some of the most critical issues.

Inventory management. Strategically stockpiling critical materials or components  – and maintaining buffer stocks to manage short disruptions – can help to ride out a supply crisis.

Nearshoring. According to a supply chain article in Forbes, ‘… companies are progressively transferring part of their production to countries close to their markets and with similar time zones, in order to minimize the effects of disruptions in supply chains’. Supply chain risks associated with COVID 19, the Russia-Ukraine war and political and trade tensions between the USA and China are factors driving this emerging strategy.

Insurance and financial hedging. Insurance can transfer some supply chain risk and financial instruments can hedge against price volatility.

But… How Do You Deal with a Problem if You Don’t Know You Have a Problem?

Looking at solutions to supply chain problems may be jumping one step ahead. Before mitigating strategies can be implemented, supply chain risk managers must know that they have a problem in the first place. And that turns out to be a far more complex undertaking than it might appear to be at first glance.

Monitoring suppliers and supply chains is a fundamental function of a risk manager or business consultant. However, several common issues make understanding threats to an organisation – and making the case for mitigating budgets and strategies – extraordinarily difficult.

Firstly, risk managers often work within finance departments and do not intimately understand the manufacturing process. To put it bluntly, an advanced knowledge of risk modelling is not going to cover for that lack of understanding about how Industry A or B works at the granular level. This knowledge gap can be significant in terms of managing supply chain risks and lead to a failure to recognise critical dependencies within the manufacturing chain.

Furthermore, supply chains can be notoriously opaque. Tracing the full extent of their supply networks, especially beyond tier-one suppliers, can be tricky. Weak points lurk, unidentified, until the proverbial hitting-of-the-fan incident occurs. Even if supply chain oversight is fair or good, there’s no guarantee that supplier reporting will be. Incomplete or outdated information (particularly relevant to fast-moving situations such as wars or climate incidents), and different reporting standards and criteria can all lead to an incomplete and complex picture. Consolidating data into anything meaningful may become an impossible task.

The takeaway is that risk managers can find themselves lacking the experience and data to scrutinise potential areas of concern and develop a convincing case for mitigation.

All of these challenges occur in a climate where the case for mitigation must be unassailable. Because, while organisations may offer lip service to a need for supply chain resilience, they’re also likely to push back hard against the cost of mitigating measures – unless there’s an unimpeachable case for action.

There Are Solutions to Supply Chain Monitoring, But They Often Don’t Work

Risk managers or organisations who rely on spreadsheet data may realise this isn’t going to cut it and begin to shop for supply chain risk software. This is a step in the right direction but, in most cases, it’s going to present its own problems.

As the previous section reveals, supply chain mapping can be an incredibly complex and time-consuming problem. Inevitably, risk managers will do what they can and then expect the platform to fill in the gaps. It will, but perhaps not in the accurate and diligent way you require. In a phenomenon brutally described by software engineers as ‘rubbish in, rubbish out’, your outputs are only as good as the data you feed it. And, as we’ve seen, getting the right data can be notoriously difficult.

Essentially, if you don’t dig deeper into your supply chains, you’ll get the same poor-quality data dressed up in shiny user interfaces, colourful reports or next-generation AI analysis. And your case for managing supply chain risk will be swiftly picked apart by your CFO, COO and board of directors.

What SCAIR® Offers and Why It’s Different

At this point, we won’t suggest there’s a one-button solution to this incredibly complex problem. But we will show you how our supply chain risk software, SCAIR®, does something very different to many competitors to help you overcome the issues outlined above and create a powerful case for mitigation.

Launched in 2006 and the first pharma supply chain risk management software to go to market in the UK, SCAIR® can help you to visually map supply chains, assess threat impacts, stress-test supply chains and respond to threats.

SCAIR® is different from many competitors because it is more than a software solution. Our supply chain risk assessment software can help you to identify risks for both internal (owned sites) and external (suppliers and contract manufacturers) sites. We then provide an objective assessment process to help shape your business’ supply chain risk mitigation strategies.

In fact, SCAIR® software and consultancy is an opportunity to finally rethink your whole approach to managing supply chain risk and embrace a powerful new methodology. The outputs will become powerful cases for introducing budgets for risk-mitigating strategies and help you, finally, command the data you need to perform your role to the highest ability. You’ll:

It also does something few if any competitor products can: SCAIR® provides a credible value at risk figure. This can become the centrepiece of your risk mitigation analysis and a compelling motivator for action.

SCAIR® is used in highly regulated industries such as life sciences and financial services by supply chain risk managers, management consultants, insurance managers, business continuity managers, insurers, and procurement managers.

To find out how our supply chain risk management software and consultancy can help you in managing risk, get in touch to find out more.

Call us: +44 (0)20 3005 4440

Email [email protected]

Head Office: 1 Bourne Court, Woodford Green, Essex, IG8 8HD

Cambridge Office: 3 Laundress Lane, Cambridge, CB2 1SD

Ten Supply Chain Risk Mitigation Strategies in Pharma

In our second piece looking at tackling drug shortages, we examine common supplier risk mitigation strategies.

The sources of pharma supply chain risk are varied and ever-changing. As we discussed recently, disruptions can result from anything from conflict to climate change. In most cases, businesses can do little to address the cause; they can only mitigate the consequences.

Partly because of the range of risks, strategies to mitigate them are just as diverse. But it’s not simply the variety of potential causes requiring different responses. It is, first, that in many cases no single strategy can deliver the resilience required; and, second, that, organisations facing the same event, can see very different disruptions to their business. The vulnerabilities of each supply chain and the potential impact of interruptions are unique.

Given the range of risks and difficulty calculating the probability of disruptions, it is the impact – the real-world value at risk – that must determine the appropriate response, both in terms of the nature and extent of mitigation efforts. Here, then, are ten to consider.

1. Map and assess

This is not so much a mitigation measure as the foundation on which all mitigation must be based. Just as you cannot manage what you can’t measure, you cannot mitigate what you can’t map.

Improving transparency in the supply chain can quickly reveal potential vulnerabilities. Crucially, it can also show where there are concentrations of risk, with dependencies on multiple suppliers concentrated in a particular region, for example. Governments increasingly recognise the importance of transparency, too, as is reflected in legislative proposals such as the MAPS (Mapping America’s Pharmaceutical Supply) Act in the US and increasing discussion in the UK and Europe. 

Regardless of regulatory pressure, however, visibility of the supply chain is the prerequisite for effective risk management. And it is eminently achievable with solutions such as SCAIR® available to help map suppliers and identify dependencies and choke points.

2. Monitor

The work is never done. Risk mitigation is an ongoing process and requires continual monitoring. There are multiple moving parts.

First, changes in the supply chain naturally occur as businesses go bust or merge and new threats, risks and vulnerabilities evolve. Supply chain maps and plans must remain current. Second, in a crisis, early warning and detection of disruption can significantly enhance responses, enabling businesses to secure alternative suppliers or services to restore production before those suppliers are overwhelmed by demand from competitors.

Again, supply chain monitoring is not a mitigation measure in itself but supports timely and appropriate action to prevent and alleviate disruptions.

And, again, SCAIR® makes this possible by, for instance, interfacing with Location Risk Intelligence, reinsurer Munich Re’s solution for assessing risks from natural hazards and climate change. It enables users to identify in near real-time where natural disasters impact their supply chain and benefit from robust, location-specific climate change predictions to help direct forward-looking investments in mitigation.

3.  Broadening the supply base: The more the merrier

When moving from monitoring to mitigation measures, increasing the number of suppliers for critical ingredients or products is among the most obvious strategies. If one source is disrupted, they can simply turn to another. But it is, of course, not so simple, and the complications underline the importance of the previous steps.

First, the ability to map the supply chain and bring true transparency to its vulnerabilities will enable businesses to avoid the illusion of diversity: Where alternative suppliers do little to boost resilience because they are exposed to the same risks of disruption as existing suppliers. That is most likely to occur where the new business is located in the same region as existing suppliers and subject to the same weather, regulatory and geopolitical risks.

Second, even with alternative suppliers in place, a rapid response to disruptions can be essential to secure increased orders if a disruption also affects competitors’ supplies. Monitoring enables this.

Finally, the process of finding, validating and approving a new supplier can be time-consuming and costly. Consequently, as with all mitigation measures, it is important to prioritise the critical (but not necessarily costly) supplies essential for high-value products.

4. Quality and quantity: Removing the weak links

Expanding the supply base can improve resilience, but so can cutting out the dead wood. Improved visibility of the supply chain enables businesses to identify recurring issues with suppliers and more closely scrutinise their critical supplies for high-value products.

Where that scrutiny or repeated problems provide cause for concern, businesses can act to not simply identify potential alternative sources but replace unreliable suppliers with these. Again, a value-at-risk approach will inform them where the expense and trouble of doing so is justified.

5. Safety and buffer stock

Sometimes, just in time just isn’t enough. As we explored last month, the rise of just-in-time (JIT) manufacturing has always been, at best, a mixed blessing for pharma. A strategy to cut working capital developed in automotive businesses where suppliers and the assembly plants were relatively close is arguably less suitable for Western pharma businesses relying on China and India for their active ingredients.

Furthermore, as already noted, switching to alternative suppliers may be relatively simple for some manufacturers. In life sciences, by contrast, regulatory and safety issues can require lengthy qualification and process revalidations.

The accounting and business benefits of JIT mean its principles will always have an influence in pharma. Storage costs, particularly for supplies requiring careful control of temperature and humidity, are not negligible. In some cases, long-term storage is not even practical. Nevertheless, where it is, and where the value of end goods supports it, maintaining an extra stock of critical supplies remains a crucial bulwark against disruption.

6. Nearshoring

An obvious answer to some of the challenges of just-in-time production is to bring production closer to home. It’s been an essential element of government thoughts on boosting the resilience of critical drug supplies since the pandemic. Expanding onshore and nearshore production was among the strategies proposed early in the Biden presidency in its 100-day supply chain review report in 2021.

It might be an obvious answer, but it’s not a simple one. There is a reason that about 80% of active pharmaceutical ingredients are produced abroad in countries such as China and India: Cost. As we’ve discussed before, the case for onshoring is complicated by the costs of setting up and running domestic production facilities, particularly for low-margin, generic drugs.

Moreover, while one key public policy priority is ensuring the continuous supply of critical drugs, another is controlling their costs. Those two priorities can conflict.

7. Insurance: Cover for the unavoidable

Not all disruptions can be successfully mitigated. Losses occur, and that should be where insurance steps in.

In this respect, SCAIR®’s exposure assessment and Natural Catastrophe Monitor tools have a double use. First, they enable businesses to assess the potential impact of catastrophic events and respond more rapidly and effectively where they occur, potentially limiting losses. Second, they provide location-specific visibility of exposures and the value at risk to help simplify the task of calculating insurance coverage requirements.

The importance of such tools is likely to grow as the effects of climate change (already being felt in rising losses from “secondary perils”) grow. Here tools such as Location Risk Intelligence can help businesses not just ensure they have adequate business interruption cover today, but also plan for the future by showing how climate change could affect their critical suppliers in years to come.

8. Compliance strategies

Increasing risks from climate change have prompted regulatory requirements for large businesses to report risks to their supply chains from extreme weather. For many, this reporting is likely to be fairly basic – estimating losses from revenue dependency, for example, and using historical data for locations to assess risks (failing to account for the changing climate).


The tools mentioned above, however, provide an opportunity to make this more than a box-ticking exercise. Instead, it can be an exercise that brings value and true insight for risk mitigation efforts. With SCAIR®, users can assess contemporary climate threats, factors in mitigating actions, and calculate a robust value-at-risk assessment.

Since businesses have to do the exercise anyway, they may as well make it count.

9. Reducing dependencies

This entry is perhaps a bit of a cheat, because reducing dependencies is the heart of some of the steps above, such as expanding the supply base and removing weak links.

However, a benefit of the compliance process outlined above is that it enables firms to draw up a list of their most vulnerable manufacturing locations, taking account of the concentration of risk in locations – according to the value-at-risk.

With that information, they can examine solutions to reduce dependencies on these suppliers. That may be through diversifying or finding alternative suppliers, changing ingredients, or even diversifying their business and building up alternative revenue streams where the risks to a product’s supply can’t be sufficiently mitigated.

10. Due Diligence

Finally, it’s vital to remember that supply chain risk management is a dynamic process. Company events and the passage of time can introduce new risks. Mergers and acquisitions are just among the most visible and increasingly frequent examples.

Due diligence is vital to avoid issues, particularly when it comes to the regulatory risks that are so frequently behind supply disruptions in pharma. Failure to recognise and address legacy issues from acquisitions can lead to problems dragging on for years. As with so much when it comes to supply chain risk in life sciences, a stitch in time saves nine.

What is the MAPS Act? A Guide to the Mapping America’s Pharmaceutical Supply Act

In a muddle over MAPS? Read our brief introduction to the pharma supply chain visibility legislation currently making its way through the US Senate.

Pressure for government action to bolster the resilience of pharma supply chains has been building in the US for some time.

Among Joe Biden’s first actions as US President, a little more than a month after coming to power in January 2021, was Executive Order 14017. It aimed to “strengthen the resilience of America’s supply chains”.

Pharmaceuticals were a key focus.

That led to the 100-day supply chain review in June that year and, subsequently, the Department of Health and Human Services (HHS) Essential Medicines Supply Chain and Manufacturing Resilience Assessment the following May.

Background – The Road to the First Pharma Supply Chain Bill

But while the executive continues to cajole the industry, other branches of government are pushing forward their plans. In the legislature, Michigan Senator Gary Peters has long taken an interest in pharma shortages and the supply chain issues that often underpin them.

In August 2019, as Ranking Member of the Senate Homeland Security and Governmental Affairs Committee, Peters wrote to the FDA expressing concern over ongoing drug shortages – at the time, the highest in almost five years.

“Drug shortages are creating devastating health and economic consequences for patients, hospitals, and consumers. For patients, the impact on care is significant, as shortages cause delays when receiving emergency medications, undergoing medical procedures, and obtaining needed prescription drugs,” he warned.

That led to a report later in the year on “skyrocketing prescription drug prices and drug shortages”. It noted many of the now familiar issues around drug supply chain resilience, such as the reliance on China and India for active pharmaceutical ingredients. Rising prices and the shortages that often prompted them weren’t just a public health issue, Peters maintained, but a “national security crisis”.

By this year, and in the aftermath of the pandemic, the senator’s focus on supply chain vulnerabilities had intensified. A new report in March showed that “[D]rug shortages, as well as a lack of transparency into our pharmaceutical supply chains, present an ongoing national security risk and have made it harder for health care professionals to treat patients.”

The report found that between 2021 and 2022, new drug shortages increased by nearly 30 per cent. It also found that over 90 per cent of generic injectable drugs used to treat serious injuries or illnesses in the US relied on critical materials from China and India, and nearly 90 per cent of generic API manufacturing sites were located overseas.

Supply Chain Visibility as a Critical Issue

According to the report, tackling vulnerabilities was complicated by a lack of visibility in the supply chain.

“Neither the federal government nor industry has end-to-end visibility of the pharmaceutical supply chain – from the key starting materials, APIs, finished dosage and various other manufacturers that are ‘upstream’ – to the ‘downstream’ suppliers, which include purchasers and providers. This lack of transparency limits the federal government’s ability to proactively identify and address drug shortages,” the report notes.

It continues: “Although some generic drugs appear to have multiple and diverse drug suppliers, they in fact may rely on the same API source or manufacturer. As a result, the universe of actual suppliers for a particular drug may be much smaller than it appears, increasing the risk of shortage if that API source or manufacturer withdraws supply. The FDA is currently unable to assess the percentage of life-supporting and life-sustaining medications that have fewer than three manufacturers or rely on only one API supplier because the FDA does not have a list of life-supporting and life-sustaining drugs.”

Following the report’s release, Peters convened a full Homeland Security and Governmental Affairs Committee hearing  to discuss its findings and recommendations.

“Drug shortages are not new. There are a number of factors that contribute to drug shortages, including economic drivers that lead to a lack of manufacturers willing to enter or remain in the market or invest in quality manufacturing systems, insufficient visibility into the entire supply chain for critical medications, and an overreliance on foreign and geographically concentrated sources for the materials needed to make these drugs,” Peters said at the opening of the hearing.

MAPS Introduced

All this led Peters and other senators to introduce two pieces of legislation to the Senate in July.

One, the Rolling Active Pharmaceutical Ingredient and Drug (RAPID) Reserve Act, introduced on July 26, 2023, aims to increase the supply of critical medications and mitigate “the national security threat posed by our nation’s overreliance on China for critical medications”.

It would do so by requiring the Department of Health and Human Services (HHS) to award contracts to “quality generic drug manufacturers” in the US or another OECD country to build and maintain reserves of critical drugs; oblige these contractors to keep sufficient reserves of key ingredients and finished drug products and production capacity to prevent potential shortages; and prioritise domestic producers for federal contracts.

The other, introduced just over a week before on July 18, with senators James Lankford and Mike Braun, was The Mapping America’s Pharmaceutical Supply (MAPS) Act – specifically aimed at boosting supply chain visibility as key to building resilience.

“As we saw firsthand during the COVID-19 pandemic, federal agencies did not have enough visibility into our reliance on foreign manufacturers and other chokepoints in the supply chain, limiting their ability to anticipate and respond to drug shortages and related challenges,” said Peters, introducing the bill. “This bipartisan legislation will provide the federal government with a more comprehensive understanding of the weaknesses in our pharmaceutical supply chains so we can take steps to address them and prevent future shortages.”

“This bill will shed light on the weaknesses in our pharmaceutical supply chains and allow us to make better informed decisions to address vulnerabilities in our drug supply chain,” added his cosponsor Senator Braun.

Mapping America’s Pharmaceutical Supply Act – Key Provisions

The bill consists of three key requirements:

It also requires the HSS to identify and regularly update a list of essential medicines, including both the drugs of their APIs.

These are defined as those likely to be required to respond to a public health emergency or chemical, biological, radiological, or nuclear threat and those for which a shortage would pose a significant risk to the US health system or at-risk populations.

The bill's text makes clear how ambitious this is, stating that the intention is to map “the entire United States pharmaceutical supply chain, from inception to distribution”.

That includes the location of API and finished dosage forms of the essential medicines, including “the amount of such ingredients and finished dosage forms produced at each such establishment” and establishments involved in producing the key starting materials and excipients needed to produce the APIs.

It also requires the HSS to keep a database of regulatory actions, including with respect to labelling requirements, registration and listing information, recalls, inclusion on current and prior drug shortage lists and discontinuances of the medicines.

A Joint Effort – Pharma Industry Responsibilities Under MAPS

The need for private sector involvement is clearly stated in the bill’s text.

First, right at the outset, the proposed legislation clarifies that the supply chain mapping by the HSS is to be done in coordination with other relevant agencies, such as the Secretary of Defense and the Secretary of Homeland Security, “including through public-private partnerships”.

Second, the list of essential medicines is also to be drawn up (and maintained) “in coordination with the private sector”.

Moreover, where obligations on the industry are not explicitly set out in the text, they are heavily implied. Without massive industry input, it is impossible to see how the HSS could map the “entire” supply chain – from inception to distribution.

Should it try, its efforts are unlikely to be the last word: The bill provides that within 18 months of its enactment, the HSS must report on “gaps in data needed for full implementation”.

Next Steps for the MAPS Act

The Act has already received significant bipartisan support inside the Senate and from outside organisations, such as the American Society of Health-System Pharmacists (ASHP), the American Society of Clinical Oncology, the American Hospital Association (AHA), United States Pharmacopeia (USP).

In a virtual summit in September on Drug Shortages co-hosted by USP, Peters reiterated his call to push through legislation: “We must urgently put these solutions in place to ensure that everyone can access the lifesaving medications that they need,” Peters told summit attendees.

While MAPS is not yet law, previous efforts will give supporters cause for optimism: In June, the President signed three bipartisan bills authored by Peters to bolster cybersecurity, including the Supply Chain Security Training Act.

His bill to strengthen US supply chains and domestic production capacity in relation to homeland security has also passed the committee stage.

It may be some time before MAPS is signed into law – or perhaps it will be usurped by legislation originating elsewhere. However, as we’ve said before, change is coming. The proposed legislation vindicates what we’ve long argued: That supply chain resilience begins with supply chain visibility.

Pharmaceutical supply chain risk management software such as SCAIR® is specifically designed to address the issues highlighted by the Senate report that helped prompt the legislation, such as the concentration of risk through reliance on common API or manufacturing sources. As it noted, the “universe of actual suppliers for a particular drug may be much smaller than it appears”. SCAIR® is the x-ray vision that reveals these hidden vulnerabilities.

Likewise, the Act is right to focus on identifying critical drugs and points of vulnerability – not relying on the impossible task of identifying all the potential sources of disruption. Again, this is the approach we’ve long taken with SCAIR® – helping focus on impacts, not causes.  

We’ve long believed this is the best route to supply chain resilience. Increasingly, it seems likely to be the approach governments will insist the industry takes to ensure the supply of critical drugs is maintained.

Acting now, using tools such as SCAIR® to gain visibility – and sharing it as required – will enable pharma businesses to ensure the relevant authorities see them as allies rather than obstacles in that effort.

An Enterprise Risk Management Approach for Pharma Supply Chains

A changing risk landscape as disruptions become more persistent and frequent while regulators’ demands for resilience grow calls for a broader, more structured approach to managing supply chains.

When does “disruption” become the norm? Whether it is extreme weather, political and trade disputes or regulatory action, pharma and life sciences businesses – and their customers – have long contended with periodic interruptions to supplies.

Various trends in recent decades have put increasing strain on pharmaceutical supply chains. The complexity of pharma supplies, the move towards just-in-time manufacturing, the reliance on India and China for active ingredients, low prices, climate change and ever tighter regulatory requirements (more on this later) have all contributed to an environment where disruption, if not inevitable, is expected.

In that context, the Covid pandemic and its impact (including drug shortages from surging demand) added to the supply chain risk vocabulary, but it didn’t invent the language.

Cancer Drug Shortages

There are, however, two trends in the aftermath that have subtly altered the landscape. The first is the persistence of shortages.

One commentator notes: “The US has faced shortages of medical devices, drugs, and other key healthcare products since the onset of the pandemic, but these shortages have continued into this year.”

For some supply chains, disruptions are not just temporary blips in production but evolving yet permanent features. In US non-profit ECRI’s survey of nearly 2,000 respondents on drug, supply, and equipment shortages, a majority said shortages compromised patient care.

“Many of the respondents clearly communicated their struggles to address shortages which are occurring at an alarming rate, making it nearly impossible to provide safe, high-quality patient care in a fiscally responsible manner,” it noted. For good measure, it added that many were concerned that tornado damage to the Pfizer plant in North Carolina could worsen drug shortages – a reminder that traditional disruptions are never far away.

Disruptions are increasingly persistent, frequent and widespread. And they’re often as serious as can be. Only in September was the Biden administration in the US able to announce that supplies of cisplatin, a critical chemotherapy drug, were up to almost pre-shortage levels, but even for it, shortages remain, while shortages of carboplatin and methotrexate, though improving, persisted and concerns were growing for other cancer drugs.

In the National Comprehensive Cancer Network survey of 29 cancer centres over 86% reported a shortage of at least one cancer drug.

New Supply Chain Regulation

The other trend is not unrelated: A new interest in and interventionist attitude to supply chain shortages on the part of governments.

Of course, as mentioned, regulation has long been a contributor to supply chain shortages. High quality and safety standards across life sciences ensure safety but frequently jeopardise supply. Non-compliance with consequent regulatory action is a common cause underlying many shortages. It’s why SCAIR®'s Regulatory Incident Monitor, providing compliance trending and alerts, is such a simple yet powerful tool, giving rapid access to any supplier’s complete non-compliance history.

Regulatory enforcement actions continue to cause disruptions to supply chains. More broadly, new regulations can threaten to disrupt supplies. (The European Federation of Pharmaceutical Industries and Associations is currently warning that EU proposals to ban fluorinated substances could put 600 essential medicines at risk, leading manufacturing in Europe to “grind to a halt). Rule makers rightly determined to protect the public, sometimes can inadvertently put them at risk.  

But in addition to restrictions that can disrupt supplies, recent regulatory developments could arguably put more direct pressure on businesses to enhance their supply chain resilience. Governments are increasingly looking at positive obligations to ensure supply. As one consultant has written, the stream of disruptions we’ve seen, from Covid and Brexit to the invasion of Ukraine and the Suez Canal obstructions, have focused governments and public bodies on the issue.

“[M]ajor health authorities around the world have been issuing new recommendations to Life Sciences manufacturers and their supply chain partners to ensure that in the future vital drug supplies remain continuously, safely and conveniently available to the patients that need them, right around the world,” he writes.

That move has seen new guidance on risk management from the FDA requiring risk management plans for critical products that identify stakeholders, drugs for which shortage assessments are needed, and risk mitigation plans, ideally based on ICH Q9 principles (defined by the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use to encourage science and risk-based approaches to ensuring quality).

And outside the US, where businesses may have yet to see regulation, they face investor pressure. As we’ve noted before, change is coming.

A New Enterprise Risk Management Framework for the Pharmaceutical Industry

Crucially, the change in the nature of the risk they face requires a new response from the industry.

First, the regulatory focus on proactive steps to ensure resilience (rather than just reactive responses to tackle quality issues) argues for a more systematic, documented approach to supply chain risk management. That will require an investment of effort, time and probably money.

Fortunately, at the same time – the trend (recently accelerated) for more long-term and more frequent disruptions also helps justify investment in resilience. Sourcing and validating alternative supplies, building up inventories, or looking to more expensive but more reliable (whether in terms of quality or logistical simplicity through sourcing close to end markets) is hard to justify if disruptions are short and infrequent. The return on investment is more obvious when the impact of disruptions and fragility of supplies have been clearly and repeatedly illustrated.

One approach long suggested is to take lessons from other highly regulated industries, such as financial services and energy sectors, which have faced their own challenges with heavy regulation, increased government expectations and evolving risks.

As a piece by consultants McKinsey noted a few years ago, while pharma businesses face unique risks there are also plenty of similarities between it and other industries.

“Like energy companies, pharma companies have high capital expenditure and long payoff periods for assets. Like banks, pharma companies operate in a highly regulated environment in which compliance risks are very high (for instance, for improper or poor filings) and other risks (such as sales-conduct risks) are present across many markets globally.”

Crucially, the key lesson to learn is to put supply chain risk management within the context of enterprise risk management – linking risks and mitigations back to the organisation’s objectives.

That means identifying, evaluating and prioritising risks according to their potential impact on the business; reviewing risk mitigation – both reactive and proactive, so that due diligence on new suppliers, products and markets considers risks; establishing a risk appetite so that decisions to mitigate or accept risk are conscious, considered and weighed against the impact to the business, and stakeholders, including customers; and putting in place crisis management plans – so that mitigation plans swing swiftly into place should disruptions occur.

The Cost of Mitigation and the Value at Risk

The benefits of such a structured, considered approach are numerous. For a start, setting the risks of disruption in the context of the overall business case takes us beyond simple mitigations to consider broader questions such as the sustainability of low-price production for some generic drugs, that might prevent effective mitigation. Even where there is no resolution, it enables businesses to distinguish between problems they can solve and those they cannot to make the best use of their time and resources.

Moreover, the exercise, properly structured and documented, will go a long way to reassuring stakeholders, such as investors, and, should the time come, satisfying regulators’ demands for evidence that supply chain risks are being appropriately and proportionately mitigated.

Finally, it enables the business to determine their risks and define and justify appropriate investments in mitigation more accurately. It does so by helping focus businesses on what really matters: Not defining and anticipating the wide range of risks they may face through their suppliers (which are often impossible to predict and outside the business’s control) but the value at risk from each supplier.

That’s where SCAIR® comes into its own, helping identify the single source, long lead time suppliers for high-value products for better business decisions, mitigation and contingency plans. As we work towards more resilient supply chains, it’s such tools that will help chart the way.

Pharma Supply Chain Challenges: Common Vulnerabilities that Must be Addressed

It’s a standard refrain when looking at pharma supply chain challenges that every company is different: Businesses face unique vulnerabilities that can only be understood and addressed by an in-depth understanding of their particular supply chain.

And yet, as is repeatedly illustrated, many have common points of failure: Significant sections of the pharmaceutical industry, like others, are frequently hit with widespread shortages due to common dependencies. They are, in a sense, similar to the systemic risks of the financial centre revealed during the financial crisis. Or, to put it another way, they are an example of “the seemingly unrelated consequences and vulnerabilities stemming from global connectivity”.

Often, these dependencies are buried deep in the supply chain: second or third-order suppliers that share a common critical source of raw materials, for example. As a result, such risks can evade detection – until the problem materialises. Even if they are detected, the major challenge remains: Identifying them is one thing; addressing them is another.

Nevertheless, as ever, understanding and identifying the causes of common vulnerabilities is an essential first step.

Regional Supply Chain Dependencies 

Perhaps the most obvious and most exposed source of common points of vulnerability is the geographic concentration of certain suppliers. Past years have seen numerous examples across industries – from the Thai floods and Japanese earthquake over a decade ago that disrupted automotive supply chains; to semi-conductor shortages during Covid –  exacerbated by the fact that 75 percent of the manufacturing capacity and key materials are located in China and East Asia.

Examples in pharmaceuticals and life sciences are relatively easy to find, too: from the hurricanes that continually hit key pharma production centres such as Puerto Rico to the dependency on China and India for active pharmaceutical ingredients.

The incidents that may see such risks manifest will depend, in large part, on the extent of the concentration in supply: Often, suppliers are tightly clustered regionally within a county so that even a localised weather event can cause widespread disruption. Even if suppliers are dispersed nationally, they remain vulnerable to common risks – whether that’s a pandemic, trade war, civil unrest or regulatory issues.

Such concentration is not always possible to avoid. As we’ve noted before, tight margins favour particular production centres, particularly for low-cost generics, while regulatory requirements add to the cost of establishing new manufacturing bases.

Scarce Resources

It is a similar story when industries rely on rare materials, where regional or supplier–based concentrations may be unavoidable.

Technetium-99m (Tc-99m) is a good example. Used in approximately 80 percent of radiopharmaceuticals (pharmaceutical drugs containing radioactive isotopes), it is produced at only five reactors in the world. It saw shortages in the late 2000s due to repeated shutdowns of two of these, in Canada and the Netherlands, responsible for about two-thirds of global production of molybdenum-99, which decays to Tc-99m. The problem persists today. As recently as November 2022, a mechanical failure in one reactor impacted the world's supply.  

In some cases, shortages are naturally occurring. In others, they result from high barriers to entry that limit supply. That can be particularly common in highly regulated industries, such as pharmaceuticals.

Many pharma businesses are dependent across their portfolios on common feedstocks such as tablet excipients. Despite these being unsophisticated chemicals and theoretically simple to produce, strict regulatory requirements mean few chemical manufacturers have the capability to deliver a product to the United States Pharmacopeia standards. That was graphically illustrated by the explosion in March 2007 at chemical company Shin Etsu’s facility in Naoetsu, Japan, leading to a shortfall in a key ingredient for tablet formulations and coatings. The shortage lasted more than a year. Let’s hope that a recent FDA Warning Letter to Dupont’s manufacturing plant in Newark (which supplies many pharma companies with Microcrystalline Cellulose, a common tablet excipient) does not trigger a similar situation.

There, again is no easy answer, given the obvious need for strict regulation. Indeed, the shortages themselves illustrate this. See, for instance, the 2008 recall of heparin, an anticoagulant, by multiple companies following the identification of a contaminant, oversulfated chondroitin sulfate, responsible for the numerous deaths and traced to a chemical plant in Changzhou, China.

The Difficulty of Going it Alone

With potentially whole sectors exposed to single points of failure, a significant pharma supply chain challenge exists for individual companies seeking to address such risks.

The extent to which they can be mitigated will, in large part, depend on the particular circumstances. Where required commodities are necessarily constrained by the requirements for a specific environment or access to natural resources, there may be little companies can do to ensure resilience against weather or other disruptive events. In such cases, the best they may be able to manage is to offset potential losses through financial instruments.

Likewise, dependence on particular suppliers for highly specialised materials exposed to common threats, the opportunities to source or create another supply base may be few.

The challenge is exacerbated by two factors: First, the reliance on just-in-time manufacturing so that many manufacturers hold minimal stock. As a result, disruptions to the supply of anything more than a few days can halt production. This can be remedied to an extent, but not without cost, which could reduce competitiveness.

The second factor presents even more difficulties: the concentrations of risk are often not in their direct supply base but in their second or third-tier suppliers, over which their control is limited. Any solution requires oversight of not just vendors but their suppliers.

Building Supply Chain Resilience: Knowledge is Power

Acknowledging that there are pharma supply chain challenges is not, however, a counsel of despair.

For one thing, identifying common points of weakness that cannot be addressed individually makes it possible to at least make a case for industry or even state-sponsored efforts to manage them.

The Covid pandemic, for instance, has prompted public-private manufacturing partnerships, such as contract development and manufacturing organizations (CDMO). The UK, likewise, has established the Medicines Manufacturing Innovation Centre, funded jointly by the industry and regulators, a state-of-the-art facility for small molecule and fine chemical manufacturing. Increasingly, governments see the value of onshoring.

Even more recently, the war in Ukraine saw governments stockpiling iodine pills, offering protection against radioactive exposure. Outside pharma, we’ve witnessed joint anti-piracy initiatives from the shipping industry.

Such cases will, necessarily, be rare, however. In their absence, though, increased visibility of weaknesses in the supply chain and their potential impact are rarely wasted. It gives businesses the tools to focus their efforts – whether that’s in discussions with vendors to strengthen their own supply chain risk assessments and mitigation; seek alternatives; or increase inventories.

It also prevents manufacturers from taking – and potentially wasting time with – alternative suppliers that ultimately share the same points of vulnerability.

Common vulnerabilities are not easily overcome. However, as with any supply chain challenge, they are never best ignored. And, if they cannot be successfully addressed, businesses at least have one comfort: We’re all in it together.

SCAIR® highlights supply chain dependencies and vulnerabilities within pharma supply chains. It quantifies value at risk to help build resilience and improve profitability.

Get supply chain risk management consulting services

Calling Time on Just in Time: New Answers to Efficiency and Resilience in Life Sciences Manufacturing

Like many disasters, just-in-time (JIT) manufacturing started as a good idea. Pioneered by the car manufacturers, notably Japan’s Toyota, in the 1950s and 1960s, aligning production directly with demand in terms of orders and supplies with the consequent production schedules. As Toyota’s handbook explained: “Making only what is needed, only when it is needed, and only in the amount that is needed.”

It brought significant efficiencies to the industry, eliminating waste from overproduction, transport and excess inventory, among other areas. Little wonder, then, that it has been widely adopted across other industries, from retail to technology. Apple’s Tim Cook has been among its most evangelical supporters, describing inventory as “fundamentally evil”. Inevitably, it was also widely adopted in pharmaceuticals.

But while accountants seized on the JIT concept because it meant less working capital on the books (they love stock reduction), something got lost in translation. Two things specifically.

First, JIT worked for the auto industry because suppliers to the continuous production lines were close to the main assembly plants. There was usually not much that could go wrong between supplier and manufacturer. Second, JIT works better for industries where, if problems do arise, it’s easy to switch to alternative (also probably local) suppliers if one does not deliver.

Neither was necessarily true for many businesses and industries that eagerly took it up. JIT came to be applied regardless of the geographic relationship between site and supplier; production and inventory management was applied to supply chains that were not just national but international. Moreover, it was applied in industries like pharma, where manufacturers couldn’t simply switch to another supplier in case of a delivery failure;  suppliers of quality critical components need to undergo lengthy qualification or process revalidations, making swapping suppliers much harder.

Both factors make it much harder to meet customer demand without significant stock inventories to cover delays in sourcing and securing a new supply.

Time’s Up for Pharma JIT

That was graphically illustrated during the Covid crisis.

The crisis facing pharma supply chains was, in fact, two-fold: Massive disruptions to logistics, and especially cross-border supplies, due to restrictions and worker shortages, which were common to all industries; and, more pertinently for pharma specifically, a massive surge in demand – particularly for certain drugs and components and materials needed by vaccine manufacturers, such as syringes, stoppers, vials, hygienic filters and processing equipment, with a knock-on effect for the wider pharma industry.

It was the perfect storm, and while JIT cannot be solely blamed for the shortages seen, given the scale of the crisis, it undoubtedly made it worse in many cases.

Moreover, it’s not a crisis we can confidently predict will not happen again. For a start, supply chain disruptions persisted long after the worst of the pandemic had passed. The war in Ukraine should tell us that it’s never possible to be sure that international supply chains won’t face sudden and significant derailment. And demand can quickly again become volatile: If not a pandemic, then perhaps just a very bad flu season. After all, supply chain problems did not start with the pandemic.

It's not surprising then that even relatively early in the pandemic, some were asking whether JIT was finished. Moreover, at that point, it was assumed it would simply be for industry to decide; that’s unlikely to be entirely true for pharma, where it’s increasingly clear governments intend to have a say in ensuring the supply of critical drugs.

Even without regulatory pressure outside pharma, many businesses are voting with their feet. As the FT has put it, companies are shifting from just-in-time to “just in case” when it comes to managing stock.

Long Live Low Inventories

In manufacturing more broadly, it’s unlikely that JIT has had its day. Instead, for many, it might go back to first principles. A significant consequence of the disruption seen across industries is an increase in onshoring. A recent survey of British manufacturers by industry body Make UK, meanwhile, shows more than a third (35%) planning to switch to home-based rather than international suppliers.

In bringing suppliers in closer proximity to manufacturing sites, some manufacturers will be able to save JIT, which was always a legitimate efficiency drive in the right circumstances.

For many pharma manufacturers, this is unlikely to be a solution, however. For onshoring to really work and maintain supply chain efficiencies, the supply base would need to relocate, along with the main manufacturing. As we’ve discussed before, that may be possible for new in-patent products and high-value materials and components. They already have the margins to support investment in stock, secondary suppliers and other mitigations that ensure high-quality, resilient supply chains. That could likewise support investments to bring supplies and manufacturing together.

The dependence on offshore locations for cheaper components and active pharmaceutical ingredients for generics did not happen by accident, however. The cost-benefit analysis for tight-margin products in most cases still argues for offshoring. While there have been exceptions, a wholesale move to onshore APIs dominated by China and India looks unlikely. Of course, government intervention, through regulation or subsidy, could change that, but we’ve yet to see it.

But if JIT as a production process might have been fatally undermined by the last couple of years, its drivers in terms of cutting costs remain as critical as ever – and particularly for low-margin products. The need for resilience doesn’t displace the need for efficiency. For a sustainable future, pharma manufacturers need both.

The Best of Both Worlds? Supply Chain Resilience and Efficiency

The key will be to improve supply chains’ visibility and manage them with more granularity. It’s notable that the recent US Department of Health and Human Services (HHS) report on building supply chain resiliency for essential medicines talks of onshoring but also emphasises supply chain transparency.

That’s far from being achieved in many supply chains, given their complexity. A McKinsey survey of pharma businesses and other selected industries in 2020 showed nearly half of respondents citing sole sourcing of inputs as a critical vulnerability, while a quarter pointed to a lack of visibility into supplier risks.

Solutions like SCAIR® are critical to overcoming these obstacles and enabling pharma businesses to ensure that they’re holding stock but doing so efficiently – in the right place in the supply chain to most effectively mitigate potential shocks, rather than across the board. It enables manufacturers to identify their critical, single source, long lead time suppliers effectively. They can then hold the appropriate stock to protect them while taking a leaner approach for easily substituted supplies.

This hybrid approach combines just in time and just in case inventory levels at different points in the supply chain. It provides the resilience businesses need to stand up to sudden demand surges or supply chain shocks, when they inevitably arise; and the efficiency to ensure that the business is still around to see them.

Good Business Insurance Exposure Management Means Quantifying Profit at Risk

The pandemic has brought business interruption (BI) risk into sharp focus for companies with complex supply chains as well as their insurers. However, many firms still struggle to accurately quantify which supply points and exposures pose the biggest threats to their profits.

The wave of insolvencies and production shutdowns caused by recent global supply chain disruption has highlighted the importance of knowing where your exposures lie and having agile business continuity plans in place – particularly in complex manufacturing segments whose supply chains contain multiple suppliers and interdependencies. Unfortunately, these plans are often misguided as they are based on the wrong type of information.

Focus on Profit at Risk, Not Gross Spend

When prioritising where to focus risk management efforts within their supply chains, companies often look first at the gross sum they spend with each supplier. However, this ‘risk by spend’ approach paints a distorted picture of the company’s risk profile as the gross cost of a component tells you little about its impact on business continuity.

The figures that really matter are the revenue or gross profit at risk if any given supply point fails. These are the numbers that tell how much money your company stands to lose every day, week or month you are unable to supply your customers  because of being without any given component.

These are the numbers that define success and failure as a business – and guide you on where most investment should be spent mitigating risk and putting business continuity plans in place.

At present, SCAIR is the only Enterprise Grade supply chain risk assessment tool that calculates value at risk.

Holistic Risk Assessment

To accurately quantify supply chain exposure, several other factors must also be taken into consideration, such as the risk mitigation actions the company has in place. If a contract is already in place with an alternative supplier, for example, this will have a material impact on mitigating the real-world profit exposure and should be factored into calculations.

So should the projected recovery time of specific facility types, the cost and time of onboarding alternative suppliers or building new facilities if supply points fail. It is vital to extend the assessment to tier two suppliers or beyond to root out interdependencies lurking further up the supply chain.

Testing exposures against multiple scenarios is also key. How would an earthquake in Japan affect production? Are there multiple suppliers located in the same Florida floodplain or Californian wildfire zone? How would a regulatory shutdown, cyber-attack or insolvency of one or more suppliers disrupt your organisation – and at what cost?

Failing to assess risk in this level of detail makes it impossible to accurately quantify business interruption exposures across a highly complex supply chain. As well as exposing companies to potentially devastating – and unexpected – financial shocks, this can also result in misplaced allocation of effort and resources, as well as over- or underinsurance.

For insurers, many of whom have been hit with heavy BI losses from the pandemic, it is prudent to ensure clients accurately quantify their BI exposures from both an underwriting and loss mitigation perspective. Scenario testing across portfolios of insured risks can also play a key role in helping insurers manage their own underwriting exposures, rooting out hidden interdependencies and unwanted risk accumulation within their portfolios.

Armed with this information, insurers can more accurately price risk, meaning clients are charged premiums that fairly represent their risk. Overlaying company non-compliance data across the portfolio can also help insurers in the client due diligence process.

Say Goodbye to Spreadsheets

As well as getting the methodology right, companies also need to be using the right infrastructure for their risk assessments. Most firms – including even large brokers with market-leading business interruption assessment capabilities – still quantify their exposures on spreadsheets. This comes with a variety of risks and limitations. While spreadsheets can be easily adapted to suit the characteristics of any given company or supply chain, they become increasingly unfit for purpose as organisational and supply chain complexity increases.

Spreadsheets are easily broken, vulnerable to human error and lack transparency and flexibility. One of the biggest risks is that risk accumulations can go unnoticed. For example, a supplier may have acquired another and although they may operate under two names, they are in fact the same organisation, with many shared risks. If address and supplier name identification is not automated and verified this is easy to miss.  

Spreadsheets also do not integrate easily with third-party datasets, models and overlays and require manual management, making it difficult for the company to view their exposures in real-time or slice and dice data for analysis or visualisation purpose, limiting its agility.

Leading organisations are moving away from spreadsheets for these reasons in favour of tools that enable them to centrally manage, analyse and visualise their evolving supply chains while, crucially, more accurately calculating their exposures.

With supply chains under exceptional pressure, these firms are at a distinct competitive advantage and while the threat to those left behind continues to grow. 

SCAIR's supply chain risk assessment and management tools can help organisations identify, track and manage supply chain exposures.

Technology Will Transform US Pharma Supply Chains: and Data and Analytics are Central to a Government Drive for Resilience

There seems little doubt that regulation is coming for the pharma industry’s supply chain. As previously discussed, the Department of Health and Human Services (HHS) Essential Medicines Supply Chain and Manufacturing Resilience Assessment published on May 23 stems from one of the early acts of the Biden-Harris administration. Indeed, the writing has been on the wall from the moment Covid struck and limited supplies of essential drugs globally – even if that was sometimes more of a product of soaring demand than disrupted supply.

In fact, the seeds of a broader, more interventionalist approach to critical supply chains predate even that. In the early weeks of Trump’s presidency, the US was already looking at a more protectionist future, with the head of the President’s National Trade Council outlining its intention to repatriate international supply chains.

“It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” the Financial Times reported him as saying.

“We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.”

Given the shock to supply chains from Covid, it would be surprising if moves towards reshoring were not seeing a renewed sense of urgency – particularly of what it has determined are “critical goods, products, and services”, as Biden’s Executive Order 14017 puts it. That’s all the more so when 87 per cent of API facilities for the generic drugs (which represent 90 per cent of US prescriptions) are overseas.

Supply Chain Challenges

But if the HHS report is part of a longer-term move toward a more prescriptive approach to supply chain resiliency, that doesn’t mean it’s nothing new. What it gives us is significant on what the US government sees as the key challenges and potential solutions to the resiliency of the pharma supply chains. It’s worth taking these in turn.

In terms of the challenges, it identifies at least six:

What’s noticeable about this list – and explicit elsewhere in the report – is that while some issues may be for the government, much is going to be down to the private sector. Most obviously, regulatory matters and perhaps STEM education might be primarily down to legislators (although even here, there will be a role for business). For much of the rest, businesses have a significant role to play – and, as we’ve said, are increasingly likely to have regulatory obligations.

Supply Chain Risk Assesment Tools Boost Visibilty

That’s perhaps particularly true of the first solution strategy the report puts forward: increased supply chain coordination, security and transparency. 

The benefits of this are apparent. As it states, “Improving supply chain visibility will offer a greater ability to anticipate, prioritize, and respond to critical issues, demands, and potential disruptions.”

It says this can be achieved in several ways. One is “Expanding [the] use of data, analytics, and predictive tools to mitigate and manage risk.”

It goes on to suggest several strategies to pursue, with, again, a mix of public and private sector efforts involved. These include improving data sharing and standardisation, strengthening public-private collaboration and coordination and establishing a more comprehensive “centralised control tower platform”, including developing a national critical drug tracking, monitoring and alert system. It also emphasises the importance of physical and cyber security throughout the supply chain.

Quite a number of these plans – particularly those involving the public sector will take time. Strikingly, though, some are readily achievable in the near term. It will probably take time to create the shared data infrastructure for government agencies and supply chain stakeholders that the report suggests.

However, the private sector can already start to gather that data and – at least for their own business, use data analytics to identify the key risks and vulnerabilities in their supply chains.

Solutions like SCAIR® already exist to map, monitor, and analyse critical supply points and relationships. This can help create more resilient supply chains and better business decisions around mitigation and contingency plans.

The HSS report makes it clear this is the direction of travel in efforts to boost pharma supply chain resilience. The winners, as the US and other countries reshape their critical supply chains, will be those that start on the journey now.

Regulatory Due Diligence Remains Key in Pharma M&A

The Importance of Due Dilligence in Pharma M&A

Catherine Geyman offers a word of caution when it comes to the M&A spree in pharma this year.

It looks like a record year for mergers and acquisitions in pharmaceuticals. Time will tell if that’s a good thing.

Beginning, as it did, with Bristol-Myers Squibb’s $74 billion purchase of Celgene, 2019 has looked a promising year for pharma M&A from the off. With AbbVie’s $63 billion takeover of Allergan ending the first half as well, it’s unlikely to disappoint those looking for big numbers.

In fact, with transactions worth $172 billion, the pharma, medical and biotech (PMB) industry led the way for M&A in the months to July and put the last couple of years activity in the shade: the value of the top ten deals announced in 2019 is up by almost half (47%) on the same period last year.

Moreover, we can probably expect activity to continue in the remaining months. New leaders at giants such as Gilead Sciences and Pfizer show continued appetite for deals, and the list of candidates to drive activity remains strong.

Let’s hope, though, that Pfizer has learnt lessons from its takeover of Hospira back in 2015 with respect to the cost of underestimating the regulatory risks presented by a company with a poor compliance history.

Pharma M&A drivers

Senior Female Scientist Works with High Tech Equipment in a Modern Laboratory. Her Colleagues are Working Beside Her.

 

There are, in fact, a number of reasons to be a little cautious about the scale of activity we see.

First, some of the mega mergers mentioned do tend to skew the figures. The bulk of the value is found in just  one or two of the biggest deals (of which the BMS merger was the largest), and overall activity is a little less impressive: by transaction volume, the PMB industry ranks only fourth in the M&A tables, and in the first quarter the number of pharma deals was actually 10% lower than in the same period in 2018.

There also remain significant barriers to deals in some cases, as illustrated by Roche’s continuing attempted takeover of US gene therapy specialist Spark Therapeutics – delayed again in June due to regulators’ competition concerns. Potential regulatory action in other areas, such as over pricing (already being seen in countries such as Canada), could also dampen activity in the future.

Third, it should be noted that the deals are as much of a sign of weakness as they are of strength. Some of the drivers for M&A are benign, including pent-up demand after lower activity in 2017 and 2018, as well as US tax reform in 2018 that left big pharma companies with more cash. Higher activity also reflects significant opportunities in oncology; with M&A being used as a way for big players in pharma to expand into new therapeutic areas – as was the case with the BMS deal and Eli Lilly’s $8bn purchase of Loxo Oncology, among others.

As ratings agency Standard and Poor’s makes clear however, the activity also points to pressures over pricing, continuing patent expiration and fewer alternative avenues for growth. While M&A may stave off some of these issues, it’s hardly a silver bullet. Furthermore, S&P warns that groups’ consequent willingness to “compromise financial policy strength” and buy rivals at higher values could put pressure on some of their credit ratings.

Regulatory due diligence

Pfizer pharmaceuticals building in Tokyo

 

The most important reason we should not get too excited about the rash of deals we’ve seen, however, is that successful mergers and takeovers are notoriously difficult to pull off.

Completion of the purchase is a big milestone in any M&A, but it is really when the real work begins if the deal is to bring anything more than a short-term boost to the businesses involved. And if it’s not handled right, it can end up being a long-term burden.

The industry is awash with less than successful M&A that should force us to take a sober attitude to current activity. Pfizer’s $11bn aquisition of Array is among the headline deals that show M&A strength continuing in the second half of the year, for instance (as well as another example of the continuing attractions in oncology for the big players). But will it prove more successful long-term than the giant’s ill-fated takeover of Hospira?

In 2015 when that deal was announced, Hospira seemed to offer Pfizer an opportunity to dominate the generic sterile injectables drugs market, which was forecast to see rapid growth, as well as the biosimilar market – generic versions of expensive “biologics” medicines. It therefore promised to provide the business with avenues for rapid growth as well as mitigation for expiring patents.

Instead, the deal has helped drag down Pfizer’s sales figures and make a significant contribution to drug shortages affecting the US, with Hospira’s McPherson plant singled out by the American Society of Anesthesiologists in its contribution to the FDA’s public discussion on the root causes of shortages.

“[W]e observed the impact of how business decisions, such as mergers, impact drug shortages. The purchase of Hospira by Pfizer, for example, brings to light what can happen during manufacturer and production consolidation. The quality issues that are facing Pfizer in the McPherson plant have greatly impacted access to sterile injectables,” wrote the society’s President Linda Mason.

It certainly serves as a powerful lesson in the importance of due diligence when it comes to mergers and acquisitions for pharma companies.

A common problem

White lightbox with word fda recall on wood background

 

Hospira had a history of problems with  Rocky Mount, the North Carolina plant when Pfizer bought the business. In the three years before the deal, there were 239 recalls relating to the plant, according to the FDA. Despite assurances the problems had been largely addressed by 2015, these persisted afterwards, with a further 45 or more in the three years following. It’s been a continuing headache for Pfizer.

As recently as March, the company announced a recall of three lots of 8.4% sodium bicarbonate injection due to contamination by glass particles in some vials. In January, it also announced the closure of two manufacturing facilities in India, which have long been troubled, too.

Such problems are hardly unique to Pfizer and there is a range of other examples we could examine:

In other cases, businesses have had lucky escapes– such as Fresenius in 2018, when it realised the scale of the data integrity non compliance issues just in time to back out of its acquisition of Akorn.

For all of the above examples, major non compliance notices had been published by regulators such as the FDA or EMA prior to these acquisitions, suggesting that regulatory due diligence was either lacking or the potential impacts of ongoing issues seriously underestimated.

Nevertheless, these cases don’t necessarily reflect badly on the businesses involved so much as reflect the scale of the challenge. There are of course, risks for any industry when it comes to M&A. Often in pharma, as elsewhere, it’s the “soft factors”, such as culture, brand and people – and whether those of the two businesses fit well together – that determine the success or otherwise of the venture. That’s a handy reminder to those of us too tempted to be impressed by the big values being bandied about: It’s not all about the numbers.

But pharma also faces some unique issues relating to the tight regulation of the industry. Indeed, as this piece by Jenny Yu at insurer Munich Re makes clear, the regulatory risk facing the industry has been exacerbated in recent years by two factors: first, the move to outsourcing much of the pharma supply chain and second, ever expanding regulatory requirements.

As Pfizer’s woes with Hospira (and Bayer’s issues with its Leverkuesen plant) illustrate, there is a significant challenge in  addressing problems such as contamination and other regulatory issues when they do occur – not to mention potentially massive expense; major manufacturing issues have cost the biopharma industry over $12bn in lost revenues and remediation in the last two decades.

The key is to make sure you thoroughly do your due diligence on the business and its entire supply chain and then do it again. To do so, businesses should use all the tools at their disposal, including developments such as SCAIR’s Regulatory Incident Monitor tool. It collects a wide range of regulatory non compliance data from major North American and European regulators into a single historical report for each company – giving you an at-a-glance warning of any red flags.

It not only provides businesses with an early warning system for potential acquisition targets, but also a way to continually monitor and keep ahead of supplier issues. It can help businesses make sure they make the right decisions at the outset – so they don’t end up paying for others’ mistakes later.

Catherine Geyman, Director, Intersys Risk Ltd

Head shot of Catherine Geyman, Director, Intersys Risk Ltd