Geopolitical instability, health crises: the risks in the pharmaceutical supply chain, and how to manage them

Federico Caniato: Yes, although the research actually focused on the post-Covid period. It helped make us aware of the vulnerability and the critical issues of the pharmaceutical supply chain, and afterwards other problems emerged that needed to be addressed.

Camilla Borsani: The first step was to try to understand what the main risks were, what the main warning signs are that appear on the desk of a company operating in the pharmaceutical supply chain. We mainly consulted academic sources, analysing all the existing literature to identify the major sources of risk and create a list: we identified about 80, and in order to narrow them down, we tried to establish a ranking of the main risks, considering which ones were mentioned most frequently, identifying 15: among these, the scarcity or unavailability of raw materials, delivery delays, demand instability or unpredictability, changes in government policies and regulations, fluctuations in interest rates, planning errors… In addition to academic input, the real added value of our research was speaking with people who work every day within these companies, involving firms operating at different stages of the pharmaceutical supply chain: we therefore spoke with a producer of pharmaceutical active ingredients, one of generic drugs, one of branded drugs. And then of course we spoke with distributors, who are more subject to certain market dynamics and who connect hospital and pharmacy dispensing points with producers. And finally we spoke with pharmacy consortia, which are the connection point with the final user of this supply chain, namely the patient, the most important figure in the entire chain. In addition, we also had the opportunity to engage with a medicine regulatory authority of a European country, so the interviews extended beyond the national context. We set the different experts involved side by side, on the final set of the 15 most important risks - according to the literature we reviewed. We asked them to compare risks in pairs, indicating which was more important, step by step, thus creating a priority list.

Claudia Ciceri: In the chart, the first column reports the prioritisation of the 15 risks identified in the academic literature, derived from the analysis of studies that have already examined risk prioritisation in the pharmaceutical supply chain. Comparing these results with those of our analysis, it emerges that the ranking changes completely. The second column, in fact, shows the aggregated perception of all the actors involved in our study regarding the relevance of the risks considered, and from this we can see how the position of the different risks in the ranking has also substantially changed. Moreover, the position of the different risks in the ranking varies further when we analyse separately the perspective of each actor in the supply chain. We see, for example, that actor A, a producer of active pharmaceutical ingredients, certainly pays particular attention to the volatility and price of raw materials compared to other factors. Or we see how the scarcity or unavailability of raw materials is critical for the generic drug manufacturer, and obviously less so for pharmacies because they perceive it as more distant; on the other hand, pharmacies are more concerned about delays in shipments.

CB: The major revelation, from which the article originated, is that there are strongly conflicting priorities along the supply chain. A siloed perspective emerged among the different actors, exactly the approach that proved to be a problem and whose limits became evident during the pandemic. If everyone is not rowing in the same direction, the risk is precisely to prioritise one’s own perimeter at the expense of the final user of the supply chain who, in this case, is a patient in need of the drug. Starting from this misalignment of priorities among the different companies, through our article we tried to stimulate a common approach to supply chain risk management, meant to be shared by all the actors involved.

FC: The various actors in the pharmaceutical supply chain were ultimately aware of risks, but each saw different risks, clearly those that affected them more closely, which, however, all have an impact because they influence one another in a trickle down effect. In fact, the fragmented vision that emerged is no small problem in a context - the global supply chains - that is constantly changing. It's no longer possible to rely on a single country for everything: the limits shown by the system during Covid later reappeared with events such as the war in Ukraine, or the blockage of the Suez Canal due to Houthi armed groups in Yemen, and now with tensions between Iran, the USA and Israel. In short, risk perception changed with Covid, and continues to change as new problems arise: from Covid we learned a lesson, namely to increase redundancy, that is, the fact that one can no longer rely on a single source of supply for a critical active ingredient, and this is now an acquired awareness.

Marco Farinelli: In fact, the problem we found stems from the fact that the pharmaceutical supply chain used to be very global. Now there's indeed an attempt to segment it more, but this isn't always possible: one cannot think of building active ingredient plants in every region of the world. It would be easier for packaging, more difficult for earlier stages of production; however, there's a reversal of trend and more attempts to regionalise investments, for example.

CB: We stopped at risk assessment, so we didn't go further but indicated four possible paths. It would be important to develop risk mitigation strategies for the entire supply chain, that are not linked to a specific actor, but take into account everyone's priorities. In outlining some macro trends we unfortunately proved quite predictive: it's important to always consider geopolitical aspects, international tensions and keep an eye on them, from the producer of active ingredients to the chemist's, because as long as one reacts to these events only when faced with a “fait accompli”, one can only put up with them. Instead, one should work to try to anticipate possible scenarios.

FC: Risk prevention is fundamental, for example, where there are concentrations of suppliers in areas that are particularly exposed to geopolitical risks or natural disasters: in those cases, as already highlighted, one could work in advance as a supply chain to try to relocate or diversify, where possible, suppliers' locations.

CB: The last theme we included is perhaps the icing on the cake of the approach we propose. Recently, there has been much discussion of ecosystems in supply chains, that is, including actors not directly involved in the value chain but who may, in some way, be considered as stakeholders: this would therefore mean including all those stakeholders who can play a fundamental role within the pharmaceutical supply chain. Above all, I think of the possible involvement of ordinary citizens, the end users: in this supply chain the risk of stock-out is perhaps the worst, because it directly harms the patients. It's not like in a supermarket where, if one brand is unavailable today, one turns to a competitor: if the specific drug for a disease is not available, the impact on people is significant.

CB: In my opinion it is an emblematic case of how the distance from the final customer leads to losing sight of whether a drug is necessary, or when it's used for non-clinical purposes instead. In an ecosystem that works in a 360° way round, where the final patient is included, I find it difficult that a treatment could be sold for aesthetic rather than medical purposes, thus risking depriving patients of it. And if direct inclusion cannot be achieved, in an ideal world one should at least consider as much as possible the interest of the final patients into the pharmaceutical supply chain: I expect that they be considered as a stakeholder in all respects, because they represent the actual recipient of the product.

CC: Supply chain risk management is a very current issue, with which all companies are dealing, and there is great interest in the potential of artificial intelligence. First of all, AI can be used to map supply chains, thus identifying all potential critical issues such as the dependence on a single supplier or the presence of multiple suppliers in areas that are particularly exposed to risks. It can also allow the integration of different information sources, in order to identify potential risks more promptly and to monitor them in real time. It can also help carry out forecasts, simulate the impacts of adverse events and propose possible countermeasures, by identifying mitigation priorities and enabling a quickier response.

FC: We could use artificial intelligence to map supply chains, identify risks in real time, carry out simulations and forecasts. The pharmaceutical supply chain has several advantages: in addition to being highly regulated, it is also traceable. Companies know where their active ingredients come from, thanks to international regulation, something that may not happen in other sectors. Therefore there's also a greater, reliable data base which, all the more so, could be exploited, especially given that we are talking about public health and therefore it should be at the top of government priorities. In fact, our study initially stemmed from the development of a previous work related to the traceability of medicines, because a directive that has been in force in Europe for several years now, has introduced the traceability of each individual package, from the factory to the dispensing point, and it was originally created to tackle counterfeit medications. The implementation of this digital infrastructure at European level, which involves the whole pharmaceutical industry, could help to do more: for example, a better monitoring of drug stocks, where they are and where they're missing, in order to detect in advance if there could be shortages. And it could also help to understand how to react, perhaps by acting through compensation if one understands that there's shortage in one country and a surplus in another. All this would be an opportunity offered to us by technology, but when it comes to putting it into practice there are many regulatory and organisational steps in between… We're in a digital world, we own very powerful tools, but we 're not always able to carry through with them.

MF: Yes, and this is even more striking in light of what is happening now in the world, where solutions based on artificial intelligence are generally being adopted precisely for supply chain risk management. In an increasingly volatile world, these data lie unused, while extensive mappings could be made of how a drug is distributed in batches, for example. Data truly becomes a fundamental factor for managing risk, but at present none of this is being done: opportunities that would be useful for further strengthening the supply chain management are being lost. The gap continues to widen between what could be done, and what we actually decide not to do.