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BIG PICTURE: Fixing the medicines shortage crisis


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From over-the-counter flu tablets to crucial antibiotics and antidepressants, medicines are running scarce in UK pharmacies this year, causing concerns among patients, the government, and the wider pharma industry.

Drug shortages have accelerated over the past year due to a clutch of problems including the after-effects of the pandemic on supply chains, the war in Ukraine, and soaring input costs weighing on manufacturers. More recently, a sudden spike in respiratory infections – another by-product of Covid-19 that neither pharma companies nor the government were able to predict – has deepened the crisis, with 70 commonly taken drugs out of stock in Britain as of February.

The problem is not unique to the UK. In a recent survey of groups representing pharmacies in 29 European countries, three quarters said shortages were worse this winter than a year ago, with a quarter reporting more than 600 drugs in short supply. The US is also facing significant shortages of popular prescription drugs like amoxicillin and Adderall, an ADHD medication.

To some extent, the current disruption is laying bare wider challenges facing the industry for several years that were only exacerbated by the pandemic.

The over-reliance on foreign suppliers for most active pharmaceutical ingredients (APIs) is one of them. This model has left companies more susceptible to supply shocks, which have in turn increased in frequency and severity due to pandemic lockdowns, the war in Ukraine and other issues such as the shortage of shipping containers.

Pharma’s long and opaque supply chains, alongside regulatory complexities, also mean it is taking longer for drugmakers to reconfigure manufacturing and distribution in times of additional need.

Moreover, recent shocks have exposed vulnerabilities of just-in-time inventory systems – another dominant practice that implies buying smaller quantities of raw materials and keeping less materials in inventory. Pharma companies working on this principle have struggled more than others to scale up or down to respond to rapid swings in supply and demand due to the lack of buffer stock.

But how can businesses tackle these systemic issues to help mitigate current shortages and ensure sustainable supply in the future?

  1. Sharper forecasting: Pharma companies have failed to effectively predict the surge in demand for certain medicines in recent months. Even if the unusual confluence of respiratory illnesses this winter was too difficult to forecast, handling exploding demand would have been made easier if supply chains were in a less precarious state. In this context, there is always scope for drug companies to improve their sales and operational planning (S&OP) to better understand demand profiles and detect early warning signals of shortages in the future. Advanced analytics platforms, for example, can give companies the ability to predict future customer demand and take steps before an actual increase in sales happens. Big data analytics using inputs from social media and other types of unstructured data sources, on top of historical sales and order data, is another possibility available to drugmakers looking to boost forecast accuracy. On the supply side, predictive analytics can increase visibility of supply chain risks to enable a more proactive – and efficient – approach to managing shortages.
  2. Shorter supply chain: Pharma companies must consider shortening their supply chains and identify alternative sourcing where possible to alleviate some of the current woes. Turning to nearby countries for outsourcing helps maintain greater levels of control and visibility compared to offshoring in far-flung locations such as India and China, therefore increasing responsiveness to changing consumer demand. Currently, true supply risk assessment in these countries can be hard to perform due to regulatory and transparency issues. Better quality of goods and shorter lead times are other benefits of the strategy. Businesses may also explore the idea of parallel sourcing where only a fraction of its suppliers would be in the region and the rest overseas. Overall, diversifying production and suppliers to reduce the dependency on single sources, especially those in the Far East, is critical to improve control over supply availability. Similarly, being able to flex production among different locations can ensure production holds up when localised disruptions arise.Nearshoring comes with its challenges too. Bringing production closer to home is expensive, especially as labour costs continue to increase in Europe and beyond, requiring detailed cost analysis from businesses. Companies must also ensure they have the processes, personnel, and technology in place to support the strategic reconfiguration. This includes reliable assessment of Contract Manufacturing Organisations (CMOs) in areas such as quality, cost, delivery performance and ability to scale.3. Postponement strategy: Pharma companies can turn to postponement, or late-stage customisation, to make stock more flexible and better address demand in local markets.

    In contrast to traditional “make-to-forecast” models, postponement is a “make-to-order” tactic, where drugs are rapidly finalized from stocks of almost-complete products. For example, labelling and packaging are completed late in the process, with lean production methods, including rapid quality checks, supporting the final stages of manufacturing.

    Under the strategy, companies can keep lower inventories of finished products in one central postponement hub and only make it market specific at the moment demand arises. In pharma, it has the potential to allow manufacturers to react more efficiently to market demand fluctuations than other supply models. The model can also drastically shorten lead times as well as reduce working capital and excess inventory.

    While postponement strategies can help build responsiveness and resilience into supply chains, they also present complexities. For instance, product characteristics such as shelf-life, temperature requirements, formats and pack sizes need to be analyzed and commonalities identified. Groupings of similar products can help to optimize utilization of assets within a postponement setup.

In addition, pharma leaders should map out the product, informational, and financial flows to understand the issues and how the many stakeholders along the supply chain are involved. Another issue to consider is tech capability, and whether robust IT systems and software are in place to reflect the new processes.

Supply chain disruptions and spikes in demand will continue to put global pharmaceutical value chains under stress for the foreseeable future. From using better data to anticipate demand to measures such as nearshoring and postponement, there are myriad of proactive actions available to manufacturers looking to adjust their operations to this new market reality. Companies must take leadership on this issue if they wish to serve patients well in both boom times and in moments of crisis.


Lee Feander is a senior director with Alvarez & Marsal Healthcare and Life Sciences practice.


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