09/15/2023
How do you optimize the medicines supply chain to prevent shortages?
The supply chain: a key asset in combating medicine shortages.
The 1980s saw the globalization of supply chains and, with it, the large-scale outsourcing of production to low- and middle-income countries with lower cost labor. Pharmaceutical companies were caught up in this trend, with the main aim being to minimize costs. However, by relocating the production of active pharmaceutical ingredients and medicines, they exposed themselves to major risks: losing their independence, their know-how and their ability to secure their production.
France, now the world’s fifth-largest medicine producer, has lost its health sovereignty. According to the CEO of Les Entreprises du Médicament (LEEM), France is mainly dependent on China and India for 40% of its medicines and 60% to 80% of its active ingredients. The Covid pandemic in 2020 suddenly revealed this vulnerability (something not unique to France), leading to shortages of numerous Medicines of Major Therapeutic Interest (MMTI). France’s National Agency for Medicine Safety (ANSM) received no fewer than 2,446 reports of MMTI stock-outs or risks of stock-outs in 2020, compared with 1,504 the year before (+162%) and 871 in 2018 (+280%). In 2008, it received just 44!
From antibiotics to cortisone and paracetamol, in 2022 around 3,000 medicines were in short supply. According to a study by the France Assos Santé monitoring unit, 37% of the French population ran into a medicinal shortage in 2023, compared with just 25% in 2018. Of these, 45% had to change or stop their treatment.
Although supply chain partners do not control the entire pharmaceutical supply chain, they can take action on certain aspects and help to improve it.
Is supply disruption an inherent risk in outsourcing?
Medicines pass through specific channels involving a variety of participants:
- active substance manufacturers, most of which are based in China and India;
- finished product manufacturers that handle packaging, many of which are also located in these two Asian countries, with others located in Eastern Europe;
- operators;
- stockists, which handle storage and distribution operations;
- wholesalers-distributors;
- importers, etc.
As a result, excessive outsourcing has made pharmaceutical supply chains increasingly complex and dispersed, leading to a loss of control over the entire process: the slightest momentary failure in one link is enough to paralyze the entire chain and can lead to a supply disruption. In the pharmaceutical sector, this is defined as “the inability of a dispensing pharmacy or an internal-use pharmacy [...] to dispense a medicine to a patient within 72 hours”. It may be due to a stock shortage further up the line from its manufacture, or a disruption in the distribution chain further down the line.
Possible causes include:
- The unavailability of an active ingredient. This may be due to a temporary issue with its production on account of failing to comply with European quality requirements; it can also be due to transport problems linked to political, climatic or economic difficulties in producing countries or to an unexpected increase in demand.
- The unavailability of a drug due to technical or quality problems, delays in analysis, non-compliant batches, a decrease in the number of pharmaceutical companies capable of manufacturing a drug or simply a halt in production (e.g. for financial reasons).
- Some distribution practices may also be a factor in supply shortages, such as limiting stocks to improve efficiency, building up reserves when there is a risk of a shortage or a price increase for a product, or prioritizing distribution to countries where drug prices are higher, etc.
What are the financial and environmental costs of relocation?
Although relocating sourcing and manufacturing lowers raw material and production costs, transport costs increase dramatically as a result. Air transport costs, which are particularly volatile in times of crisis when capacity is limited, remain very high even though transported volumes are relatively modest.
In addition, many temperature-sensitive medicines need to be stored at low temperatures. This is particularly true of vaccines and labile blood products. Different temperature ranges need to be maintained during transport, humidity levels need to be monitored, a break in the cold chain needs to be avoided when products leave warehouses, etc. Although this type of packaging – known as “smart” packaging – does exist, it is very energy-intensive and therefore expensive, particularly in a high-inflation environment.
On top of these financial considerations, there are also environmental issues that deserve particular attention. To limit the carbon footprint of transport, particularly air transport, efforts such as flow and packaging optimization and the use of more sustainable fuels are needed.
The role of logistics partners in strengthening the pharmaceutical supply chain
To limit the risks of shortages and tackle these economic and environmental challenges, French President Emmanuel Macron has launched the Health Plan 2030: inspired by the Biot report, this plan aims to relocate the production of essential medicines at risk of shortages, diversify raw material sources, secure supply chains and build up a minimum safety stock
Meanwhile, pharma supply chain partners have a role to play at several levels:
- As specialists in organizing transport, they can provide advice on how to optimize transport, for example by maximizing the mode of transport utilisation for pharmaceutical products.
- Using digital tools, they can improve the visibility of flows and stocks and prevent supply disruptions. These tools are used to automatically control incoming and outgoing stock, organize shipping and order preparation, and provide up-to-date, real-time information on each SKU. They facilitate processes and make it possible to identify risks and failures further up the line by triggering "low stock" alerts 24 hours a day, 7 days a week. Thanks to the comprehensive view they provide of supply chain systems, these tools help to optimize flows and manage risks more effectively, the ultimate aim being to achieve zero failures.
- Lastly, to make the supply chain more environmentally friendly, pharmaceutical companies have everything to gain from implementing collaborative and circular solutions – for example, by encouraging the sharing of warehouses used as hubs for the collection and recovery of packaging for reuse.
In addition to the organizational and financial consequences, medicine unavailability has a negative impact on patient care. Although supply chain partners may not be in a position to remove the many obstacles to the smooth running of the chain, they can take action on some of the causes and help achieve supply chain resilience – provided that the financial and human resources needed to implement these solutions are committed and that communication between all health supply chain partners is improved.
Supply chain optimization is one of GEODIS’ key concerns worldwide. Its centers of excellence in France, the US, China, India, Mexico and Serbia offer customers end-to-end visibility, performance monitoring and continuous improvement of supply chain processes, in any language, 24 hours a day, 365 days a year.
