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Mitigating Supply Chain Disruptions in Pharmaceuticals 

Pharmaceuticals are part of a larger supply chain issue. Continued globalization and the multi-step approval process drugs must undergo prior to getting to the market create barriers for pharmaceutical companies. Over the past three decades, globalization of the supply chain has continued to evolve, leading to supplier dependency. Further, complex FDA procedures coupled with low-profit margins make generic drugs undesirable for production in the U.S. and can lead to national health threats for the population. Future disruptions in not only the pharmaceutical industry, but any industry, should be anticipated. Below, we outline our recommendations for mitigating future pharmaceutical supply chain disruptions in the industry.

Globalization & Dependency 

One of the biggest risk factors in globalization is dependency. Lead times are longer due to overseas production, which escalates shortages. When depending on suppliers that are overseas, companies need to consider the risks of potential wars, famines, social instabilities, natural disasters, financial impacts, or even prioritization of the country of origin’s citizens during times of global shortages. In a stable political and economic environment, globalization can be efficient and cost-friendly, but there is a high-risk factor when the environment is destabilized. 

When vital medications become unavailable, it becomes a national health risk. Individuals feel threatened when they cannot provide basic needs for themselves and their loved ones. These fears result in hoarding mentalities, where individuals buy more supplies to stock up resulting in even further shortages on the shelves. Most recently, we have seen the great lengths that patients have gone to in attempt to locate Adderall during the nationwide shortage. 

Profit Margins 

Manufacturing locally allows for quick delivery of supplies, which is essential during peak demand spikes. For pharmaceuticals in the United States, local manufacturing requires a technically sophisticated production process in addition to meeting FDA safety and quality requirements. Facilities must meet federal safety requirements ensuring all ingredients are safe, clean, and handled by proper protocols while producing for a profit margin.  

Generic drugs are run as cost effective as possible, which means they are outsourced to low-cost countries due to low profit margins. In contrast, even with high holding costs, companies will choose to produce high-margin drugs due to the high-profit margins. Additionally, excess supply creates issues because stores don’t want to stock up on inventory that will not sell or expire while sitting on shelves. Low profit margins encourage suppliers to meet the forecast and not produce excess 

Bringing Production Back 

The trend for bringing manufacturing back into the United States is starting to evolve. One example is USAntibiotics, the sole licensed American maker of penicillin. USAntibiotics re-opened in Bristol, Tennessee, in 2021 with the goal of reducing dependency on global outsourcing. 

To help minimize disruptions and provide stability during dire times, companies should consider manufacturing pharmaceuticals in the United States to improve resiliency. Outsourcing pharmaceuticals is convenient but leads to dire shortages when initial forecasts don’t meet demand. Manufacturing locally provides a stable solution that helps minimize and shorten time to replenishment. To help promote local manufacturing, government funding and subsidies would be key to supporting domestic capabilities. Companies would also need to work with the FDA to create faster drug approval processes that would continue to keep production safe while enabling drugs to get to market at a quicker pace.  

Clarkston’s Supply Chain Experts Can Help 

Clarkston has experience in the life sciences partnering with clients who are working to advance manufacturing in the United States and aiming to end essential medicinal shortages for residents. To learn more about how we can help, reach out to our supply chain experts 

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Contributions from Katarzyna Leszczuk

Tags: Supply Chain Planning & Execution