By Eric Johnson
As the Pharmaceutical industry begins to ramp up pursuit of both sets of treatment and vaccines, a surprisingly high level of attention is now being placed on aspects of the industry that formulate around logistics and supply chain, especially considering the level of disruption that has taken place in general industry during this time. Here are some elements of that impact that pharmaceutical companies will need to consider.
The offshore supply chain is a main input
It may come as a surprise to the general public that a large part of the pharmaceutical activity in the United States originates in China and India. Further compounding this is the fact that India has over the past 20 years been increasingly procuring a large percentage of its ingredients from China itself. Thus China supports both the US industry and the Indian industry which then supports the US industry as well. This creates an interesting situation as both countries are in very different phases of their curve in the current pandemic. While China is on the downward plateau of their virus infection rate, India is at an earlier stage and may experience increased infection rates that can impact their supply chains in the future. While the Indian government is currently giving assurances that it has the outbreak under control, there are emerging indications that the viral spread may be increasing in its rate.
Considering this, organizations may want to increase their inventory levels to account for future risks. The difficulty comes with ingredients that have short shelf lives. This will be an area of challenge for some organizations, as there has been a shortage of certain ingredients well before the COVID-19 situation. Additionally, this will be compounded by the limited visibility into some supply chains within offshore locations.
Quality now becomes a critical driver
Quality can also become an issue, especially when larger volumes of supplies are needed. As early participants in the supply chain ramp up, there is the potential for increased defects which can have major ramifications further down the line. US organizations should ensure that they have the capability and resources to ramp up quality control to reduce the impacts on final products.
Potential regulatory impacts for the future
While pharma is heavily regulated by the FDA, the opaqueness of the supply chain further up is beginning to gain awareness in US regulatory circles. Organizations may want to consider that due to the current emergency situation, regulators may in the future create legislation around greater visibility into suppliers outside of the US. This may mean creating audit style certifications with suppliers or greater information system linkages. As the effects of the virus on operations becomes clear, it is expected that there will be increased scrutiny around visibility and that there will be changes to how things have been done in the past.
At Propulo, our focus has always been on safety culture and operational excellence. Please visit our website (Propulo Consulting) for more business insights and leadership resources.
By Dale Lawrence
Every company is impacted in some way by Coronavirus and in many organizations, their supply chain experienced great challenges. After decades of supply chain integration, the wave of countries going into quarantine illustrated how interconnected we all have become. In only a few weeks, organizations around the world quickly felt the impacts from shortages of spare parts, natural resource shipments, disrupted human capital, shifting human behavior and buying patterns, gaps in information and technology, customer orders in progress and outstanding payments.
While natural disasters often are seen in human cost and economic damage, another impact is the disruption in the supply chain. Some examples of how impactful disasters can be to supply chains:
• The Tohoku earthquake and tsunami (2011) disrupted car manufacturers in Japan, Europe, Canada and the United States. Just-In-Time (JIT) inventories, a core pillar of Lean manufacturing was especially impacted.
• Hurricane Florence (2018) hit North Carolina and caused damage to the port, warehouses and surrounding railroads resulting in delays to a number of supply chains.
• Hurricane Maria (2017) was especially damaging to the electrical grid and supply chain in Puerto Rico causing massive disruptions to medical supplies and logistics for delivering aid.
• While the Coronavirus pandemic supply chain impact is still being assessed, by early March (before North America saw the main economic effect) at least $50B (Source: United Nations Conference on Trade And Development) in reduced exports had occurred. This will be a fraction of the full damage to global supply chains.
How Can a Company Mitigate Risk of a Massive Supply Chain Disruption?
Implement Your Supply Chain Recovery Plan. This includes an Impact Analysis (identify issues and exposure) that:
• reviews insurance policies;
• assesses detectable metrics and look for non-detectable ones;
• examines supplier and customer dependencies;
• evaluates any disaster recovery tactics and business continuity options.
This should outline ownership of each activity and actions to ensure fast and effective resolutions. A good recovery plan is built to ensure a flexible approach to quickly solve problems. Each action should align to reliable metrics that are detectable and measurable, especially if technology is disrupted (e.g. power failure, earthquake etc.). I personally like to use a pFMEA (Process Failure Mode and Effects Analysis) to align the team around a rapid tool.
Partner with your Suppliers and align Supply Chain contingency plans. By coordinating strategies, you not only ensure your bases are covered but your suppliers have the confidence they are able to work well with your company as well. Designing a scorecard will help all parties have confidence in the unified risk management.
This is especially important with supply chains that cross multiple countries as noted by the initial impacts in China (the initial region hit by the Coronavirus). Very quickly, factories slowed output and container volume from Shanghai had an impact, especially in Japan, Europe and North America. A serious supply problem with PPE (Personal Protection Equipment) and many Pharmaceutical components that are manufactured in China caused shortages in Europe and North America as they were confronted with Coronavirus as well.
Assess impacts to the organization’s brand, consumer confidence and reputation. When a major impact occurs, it is important that your customers have confidence in your ability to fulfill supply in times of trouble. This is especially true if the disaster has a longer duration as your customers may develop new relationships with your competitors. In the age of social media, reputations are quickly built or lost.
Move fast but have the right information. As your organization implements your recovery plan, leverage your trusted data points to monitor the effectiveness of any contingency plans.
By Eric Johnson
In the current COVID-19 crisis, disruptions to the supply chain have become tremendously apparent, as the entire economy shuts down to contain the spread of the virus and flatten the curve. As we move toward a prolonged shutdown, many organizations are looking to do two things: minimize the damage that the supply chain disruption brings and then to position the organization to ramp up quickly if the recovery occurs at a rapid pace amid sharply recovering demand.
Communicate with your supply chain
First and foremost, supply chain leaders should be on daily calls with their suppliers to understand inventory levels, transportation networks, and other elements that will impact the ability to receive raw materials or services. This constant line of communication not only allows for visibility into current resources, but also can reduce unforced errors by highlighting variables and promoting brainstorming on solutions. It is also important to maintain relationships so that your organization will be able to possibly expedite orders once the economy begins to improve.
Just-in-time philosophies may be challenged
The doctrine for supply chain in recent historical times has been to strive for a lean organization, utilizing concepts from just-in-time inventory management and other low-inventory philosophies. However, in a time of uncertainty, the organization is looking to first manage the change and fill any outstanding orders if possible, and then to plan for the end of the uncertainty and a return to normal times. There are two types of segmented supply chains now – those that have had orders frozen and those that are experiencing an increase (e.g. grocery stores, etc.) Having a durables supply that balances unexpected orders with conservation of cash is prudent to maintain a cautious outlook to the future while still maintaining the ability to serve customers – customers that will remember your organization’s ability to manage through crisis.
Ensure your supply chain leaders, procurement, and finance/accounting are in lock-step
As credit and forecasting are critical to managing the supply chain, finance and accounting should be meeting daily with supply chain and operations to ensure that accounts payables and accounts receivables are maximized, and that credit is available to continue operations. This is especially true if certain products experience demand fluctuations or even reversals from normal times.
Lessons learned for the future
This crisis will end, and when it does, management has a prime opportunity to introduce elements into their organization to reduce the impact of supply chain disruptions for the future. The first is to leverage technology for greater visibility into supplier networks. Organizations must push for as much information as possible in order to create forecasts that can respond to sharp changes quickly – forecast integrations are one way to achieve this. Next, the ability to develop a robust supply network demands a continuous monitoring of the industry to secure a network of suppliers that can assist in difficult times. While not too advantageous when an entire industry is affected, diversification of location can provide alternative suppliers in numerous situations.
The COVID-19 crisis will end at some point and leaders should be looking to the future and planning on how they can both rebound from the current state of emergency and plan for greater stability within the supply chain moving forward. Maximizing opportunities in the supply chain is a journey, not a destination, and requires a continuous improvement philosophy to move the emergency current state back into a focus on sustainability.