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Emily Tucker is an assistant professor in the Department of Industrial Engineering at Clemson University. Her research focuses on applying operations research to societal problems, including health care policy, operations, and supply chain resiliency, with methods that include stochastic optimization and mathematical programming. Through collaborations with clinical partners, she has studied policies to reduce drug shortages in the United States and worldwide and looked at expectations of kidney transplant recipients, nurse scheduling, disaster-relief efforts, and national HIV/AIDS policy. She has active collaborations with the Emergency Department at Prisma Health.Tucker received her Ph.D. and M.S.E. in industrial and operations engineering from the The University of Michigan. She was part of the National Science Foundation Graduate Research Fellowship, and her dissertation work was awarded the University of Michigan Richard and Eleanor Towner Prize for Outstanding Ph.D. Research. Before graduate school, she worked as a research health economist at RTI International and received her bachelor’s degree in industrial engineering from North Carolina State University.
David Maloney, Editorial Director, DC Velocity 00:00
How vulnerable are pharmaceutical supply chains? A carbon-neutral cargo vessel is unveiled. And what's the current state of logistics?
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the group editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Softeon. Softeon delivers powerful warehouse management, warehouse execution, and distributed order-management solutions, delivered on time, on budget, and on results, with the market's only track record of 100% deployment success. That's why logistics leaders including KC Stores, the Duluth Trading Company, Do it Best, Saddle Creek Logistics, and many more are powered by Softeon. Visit them at Softeon.com.
Victoria Kickham is on vacation this week, so pinch hitting for Victoria is Susan Lacefield, the executive editor of CSCMP’s Supply Chain Quarterly. Ben Ames is also with us to provide insight into the top stories of the week. But to begin today: A majority of the ingredients that we rely on every day for our medicines and pharmaceuticals come from just one or two major trading partner nations. Just how vulnerable are our medical supply chains? And what can we do to safeguard them? To answer those questions, we welcome Dr. Emily Tucker, assistant professor at Clemson University's Department of Industrial Engineering.
Emily, it's a pleasure to have you with us on Logistics Matters. Welcome.
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 01:40
Thank you so much for having me, David.
David Maloney, Editorial Director, DC Velocity 01:42
As I mentioned at the beginning of this segment, most of the ingredients for our medicines and pharmaceuticals come from one main region of the world. Can you explain why that's the case?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 01:52
I would be happy to. Most of our—the main ingredients for our medications come from India and China. We're looking at 75 to 80% of those ingredients. Largely, that's due both to the cost of production tends to be a lot lower in India and China than it does based in the United States, as well as production capabilities. Because they've been producing these ingredients for so long, they've developed the know-how to be able to do it relatively safely.
David Maloney, Editorial Director, DC Velocity 02:19
With that kind of supply coming from just one region of the world, does that make them more vulnerable to shortages or problems with supply chains?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 02:28
Hmm. To some degree it does. Whenever there is sort of a centralized, either region, or a centralized manufacturer or supplier, that means if there's any issue within that region—perhaps political instability or importation issues—that immediately propagates down the rest of the supply chain. That said, even if it's within a given region, if there were a diversity of suppliers, if they, the manufacturers, were to contract with two or three or even more suppliers, that would give you redundancy in terms of the production. That said, that's rarely the case. Oftentimes, manufacturers will have a single supplier of their key raw ingredient, which does make the supply chain vulnerable.
David Maloney, Editorial Director, DC Velocity 03:16
Was that exacerbated by the pandemic, that we saw more shortages of key components and key drugs?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 03:22
It has been. It has been, and that's been twofold: One, on the supply side, there have been labor interruptions because folks haven't been able to get to work in the plants. There have also been other types of plant-related disruptions, and so that's on the supply side. It's affecting how much supply of these ingredients and medications can get to patients. On the demand side, we've also seen surges. For example, this morning, I saw one—let me pull up that name—it's Actemra. This is a drug that's typically used to treat rheumatoid arthritis. It's recently been repurposed to treat patients with severe Covid-19. That means the demand for this drug is much, much higher than it has been typically, and if the supply is staying constant, and the demand is going up, that can also lead to a shortage. So, that's certainly been a concern with the pandemic.
David Maloney, Editorial Director, DC Velocity 04:16
So, Emily, what does it do to medical supply chains when we can't get the drugs that we need?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 04:23
Oh, it's concerning. It's concerning. And the major effect is downstream, at the hospitals, the health centers, and to the patients themselves. At the health-center level, it's very, very expensive. If your main drug that you typically use is unavailable, there might be a second-tier product, which isn't as good, but may be able to be used for the patients. And so that leads to substantial number of hours of labor, to make the changes in terms of managing and figuring out how to procure the supplies, and that's millions of hours a year. It's been estimated that's close to nine million additional hours that hospital workers spend, even pre-pandemic, dealing with and managing the shortages, and it leads to an immense cost. So, it's been estimated about half a billion dollars annually for health centers across the U.S. to be able to deal with these shortages. And so—and that's not borne by the manufacturers; that's borne by the recipients and purchasers of these drugs. Unfortunately, downstream one more level, the patients that need these medications, it's been concerning. Care has been delayed if a drug is unavailable. Care has been cancelled, and so there have been cases where chemotherapy has been canceled because that key chemotherapy agent hasn't been available. Surgeries have been delayed. It's hard to measure exactly what the impact has been, but the literature and the academic science definitely suggest that it is very, very broad.
David Maloney, Editorial Director, DC Velocity 05:55
Yeah, it seems to be, and especially when hospitals are short staffed right now, with the pandemic and the and the crunch of our healthcare system just in general. Are generic drugs, which seem to be in greater supply because of their popularity, any less vulnerable, or is it a matter of greater demand that makes them just as vulnerable?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 06:15
Oh, you might be surprised that they are, in fact, they tend to be more vulnerable than these patent-protected branded drugs, and that's largely because one benefit is—of generic drug—is the prices are much, much cheaper, and so it's cheaper for patients and health systems to be able to purchase these drugs. The downside to that is the profit margins are a lot tighter, which means that when a company is making a generic drug, producing it, they're also making a lot less money, and so there's less of an incentive for them to be able to maintain a more resilient supply chain, and so these lower-price generic drugs tend to be more vulnerable than branded medications.
David Maloney, Editorial Director, DC Velocity 06:58
Of course, you had mentioned that cost is a major factor of why we source and manufacture from this region, and we often hear of the huge profits that drug companies earn. Couldn't they afford the cost of a more secure supply chain?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 07:12
That's a legitimate question, and a question I get a lot when talking about shortages. I think it's twofold. On one hand, if we look at the profit of the manuf—of a pharmaceutical manufacturer overall, say a company like Pfizer, I think because of these very large margins, or very large profits, I think yes, in large part these companies could afford to sort of maintain more resilient supply chains of their lower-profit-margin drugs. That said, if you zoom in to these particular drug products that tend to be short, these generic medications, these injectable medications with very high cost, if we only look at a specific drug that's vulnerable to shortage, there really isn't currently the incentive for them to be resilient for that drug product. But if you zoom out and look at the company as a whole, there would be, I think, in my opinion. And so I think that's a question for the public as well as for companies: sort of how to respond to that. And I think it's, currently it's been unclear how pharma companies would respond.
David Maloney, Editorial Director, DC Velocity 08:23
Are there particular categories or types of drugs that seem to be more vulnerable than others?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 08:28
Oh, that's a great question. Largely, it's this combination of generic drugs and injectable drugs. So, we have these low prices—relatively low prices—and high costs to produce them. There are certain classes of drugs, or types of drugs, that tend to be short more often. These tend to be these chemotherapy agents; drugs that are used to treat central nervous system issues; let's see—cardiovascular drugs tend to be short—and has to come with a manufacturing complexity, that it's very complicated to produce these drugs, and when the prices are incredibly high, that makes it harder for a company to be more resilient.
David Maloney, Editorial Director, DC Velocity 09:12
So, with lives at stake, we're really talking about a critical issue of national security, right?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 09:19
We definitely are, because, as you said, these patient lives are at stake, and so there has been a push at the government level, as well as from advocacy and other medical groups, to consider this an issue of national security. With that designation comes legal status, and so there is an incentive at that point for additional funding, for additional mandates that could require companies to be more resilient. And so, with that coming down the pipeline, it will be interesting in the next few years to see how regulations change. And the justification for all of this, as you said, is that patient's lives are at stake. It's a concern if supply is not available.
David Maloney, Editorial Director, DC Velocity 10:02
You had mentioned about regulation, and that is part of the problem, I understand, is that these are highly regulated, and there are a lot of hoops to jump through to make any changes in the supply. Can you explain how that affects, those regulations affect our drug supplies?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 10:16
Very much, so, and when we consider the pharmaceutical industry in general, it's very different from a lot of other types of industries that the listeners might be more familiar with because of this regulation. One example of this is the approval process that a company needs to go through to produce the drug, even on a different manufacturing line within a given plant, much less to start producing that drug at a different plant entirely. That adds a lot of time, as well as some costs, to the process, and in general what that does is it makes the pharmaceutical industry a lot less adaptable or flexible if a disruption happens. So, I go back to this example of, there is an auto manufacturer whose plant went down. Within a week, they were producing that particular truck at different plants. Within pharmaceutical, that could never happen—or can't happen, in our given situation, the way regulations are set up. If a disruption happens, it can take months to be able to start producing it elsewhere, and so that certainly is something that I think the FDA is trying to work on, but is a part of the conversation as well. If disruptions happen, how can we help companies do the right thing and help them be flexible, while maintaining these very important safety standards that we require for medical products?
David Maloney, Editorial Director, DC Velocity 11:38
So, we've talked a little bit about why there are shortages and the problems that we're facing with our pharmaceutical supply chains. Is it enough to just better diversify the sources of those supplies and make them more resilient?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 11:51
That would, that would definitely be a very solid option, I think. When it comes to making a supply chain more resilient, there are a lot of different strategies. Diversifying the supplier, base, as well as diversifying the plants the drug is made in, that would certainly add redundancy to the supply chain and would help support a more stable drug supply. Another option for companies that perhaps don't have the resources to do that, or don't have the ability to do that, would be to invest in higher quality production processes. And so rather than relying on another plant to pick up the pace if one plant is disrupted, if that single plant that a company is using is a lot more reliable, it's less likely to become disrupted. That would be another option. And so, I think two of the main strategies would be diversifying the suppliers and the plants or investing in very high-quality production processes, so that the disruptions don't happen.
David Maloney, Editorial Director, DC Velocity 12:55
But of course, that comes with more costs, which means the drugs would be more costly to, to create, and they would then have to charge more for them when we already have talked about the cost of drugs being so high already, especially when the government pays a lot of that with Medicare. So, how do you get around that problem, cost?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 13:12
Absolutely. I think cost is a major issue and has been, I think, is the main limiting factor to investing in strategies to improve resiliency. I think my argument, in terms of investing in these strategies, would be stepping back and looking at the cost of the system as a whole. We talked earlier that health systems incur major costs to deal with the shortages. I think if we shifted that cost to pay for higher-quality supply chains, to prevent them needing to pay for additional staff to pay for substitute medications, things like that, if we were to reallocate sort of the cost to deal with shortages, upstream to the cost to invest in preventing shortages, I would need to look at the numbers, but I think that would be a worthwhile investment, and certainly lead to a more stable supply chain.
David Maloney, Editorial Director, DC Velocity 14:04
Yeah, that seems to make a lot of sense. Would it also helped to move some of the manufacturing closer to consumption here in the U.S., such as bringing it back to the North American continent somewhere.
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 14:14
Yes. So, I think it's important to remember that the causes of shortages are not only the fact that our supply is too far away, but that if a disruption happens, there's nowhere to go. And so, I think if we do decide as a country, or if the companies decide to bring manufacturing back, it's important not only simply to bring it back, but to invest in these higher-quality facilities, and/or to invest in multiple facilities, to have that redundancy in the supply chain.
David Maloney, Editorial Director, DC Velocity 14:44
So, should companies also be looking at carrying more safety stock to ensure an adequate buffer of supply? Or is it a matter of that just not enough that's produced, or do expirations also play a role in that, that they have a limited shelf life with some of these medications?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 15:00
That definitely plays a role, and I think is one result of sort of contributing to this vulnerability: that if a disruption happens, the supply is just out. It's—no one is—very little safety stock is being held at any layer of the supply chain, whether it's the manufacturer, the wholesaler, or within the hospital system, and that's due to this very cost-constrained situation that the health system is in. That could be an option. I think one of the main deterrents to that is how long these shortages tend to last. The average shortage is over a year, and so to be able to support sort of continued supply during that, the safety-stock levels would need to be very, very high. And so in some of my research, I found that safety stock would be useful, but the cost of maintaining that level would essentially pay for a company to be able to—or it would be equivalent to them simply having a second supplier or investing in higher quality manufacturing, and so it could be an option, but it's probably not the most cost-effective option. Perishability definitely comes into play as well, and so if a company were to start maintaining large levels of safety stock, it would be important for them to rotate their stock. And so, the inventory they're sending out, or the supply they're sending out, is from their oldest inventory, and continuing to move forward, and so that way, we're not having the case that drugs are expiring on the shelf.
David Maloney, Editorial Director, DC Velocity 16:35
Right, that makes a lot of sense. Are there any other things that we should be doing to look at this issue and make sure that we maintain a resilient supply chain for our pharmaceuticals?
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 16:46
I think one thing we need to do is start making big changes in the pharmaceutical industry. Drug shortages have been an issue for 20 years now. It's really only in this Covid time that a spotlight has been shone on the medical supply chain, but unfortunately, this has happened for years, leading to immense cost and deaths and patient health issues. And so, there have been pushes, whether that's regulatory, in terms of mandates for companies to be more resilient, if the drug is critical and life-saving to patient health. I think companies could also take the lead on some of this, investing in higher-quality supply chains. I think the main issue is, we know it's an issue, it's been shown it's an issue, but we need to start making some changes to address that. And I think that's where the industry is currently lacking, either both from the companies or from the regulators' perspective. It's an issue, but changes aren't happening to actually fix it, and I think we're at the point that we have enough information to be able to start making some of these changes.
David Maloney, Editorial Director, DC Velocity 17:52
We've been talking to Dr. Emily Tucker, the assistant professor at Clemson University's Department of Industrial Engineering. Emily, it's been a pleasure. Thanks for being with us and helping to share some of these insights into our pharmaceutical supply chains today.
Emily Tucker, Assistant Professor, Department of Industrial Engineering, Clemson University 18:05
Thank you so much for having me. It's been a pleasure to talk to you.
David Maloney, Editorial Director, DC Velocity 18:09
Now let's take a look at some of the other supply chain news from the week. And Ben, you wrote this week about how one ocean carrier is looking into the purchase of carbon-neutral container ships. What more can you tell us?
Ben Ames, Senior News Editor, DC Velocity 18:21
Yeah, that's right. We heard this week that the maritime container giant Maersk is taking steps towards its existing pledge to decarbonize its operations. It said that it would replace some of its typical oil-burning—it's called bunker-fuel—burning ships with cleaner-emissions methanol-powered versions, beginning when it takes possession of the first of those new ships in the first quarter of 2024, about three years from now. So, that's significant, because maritime shipping is a large source of emissions, and container lines have recently begun moving throughout the industry toward more carbon-neutral goals to fix that. In part, that was forced by the launch last year of what's called the IMO 2020 regulations, which is a set of environmental standards issued by the International Maritime Organization—that's the IMO—that are designed to curb air pollution by banning the burning of high-sulfur fuels. The problem so far has been that finding alternative fuels with low sulfur is more expensive than the traditional stuff, so that leaves a lot of the container lines looking for alternative solutions. So, previous designs of methanol burning ships, which would fit that demand, have been small—just about 2000 container loads on them—but the capacity of this new one that Maersk is buying is 16,000, which is really on a comparable scale to the enormous ships that you see typically entering cargo ports today. It's built by Hyundai Heavy Industries. and Maersk has an option for four more vessels the same year—or the following year, I'm sorry, in 2025. Another reason that a lot of the container lines are moving in this direction comes from consumers, and, therefore, from the retailers that serve them, who are of course, the container lines' customers, when those retailers send the shipments, because Maersk gave an example that saying more than half of its 200 largest customers have low-carbon targets for their supply chains, and those customers of Maersk include some huge names: Amazon, Disney, you know, Microsoft, Procter and Gamble—so, all the companies that really fill the shelves where we all shop.
David Maloney, Editorial Director, DC Velocity 20:48
Yeah. That's interesting that that's helping to drive it. When can we expect to see these ships make a real difference, though, in climate efforts?
Ben Ames, Senior News Editor, DC Velocity 20:57
Yeah, great question, because that's where it gets a little more complicated. As we said, those new fuels are more expensive, and in some cases, they're not widely available, even, so. Maersk's new vessels will actually come with a dual-fuel engine setup that allows them to run on either methanol or a more conventional low-sulfur fuel, so Maersk says that finding the new methanol might be a challenge, because it plans to run its new ships on that carbon-neutral methanol "as soon as possible," quote unquote, just saying that sourcing enough of the carbon-neutral fuel could be a challenge. You know, a Maersk executive, Henrietta Thygesen-and my apologies to her if I mispronounced her name—the company's CEO for fleet and strategic brands, said that the addition to their fleet will give their customers access to the carbon-neutral transport that they're demanding while balancing that need for competitive costs and flexible operations. So, as you can see, they have a lot of different, sometimes conflicting, goals to keep in mind with this.
David Maloney, Editorial Director, DC Velocity 22:06
Yeah. Yeah, it certainly looks like it might be a bit of a challenge, especially finding all the fuel that it's going to be needed, but, also, it looks like a step in the right direction for oceangoing vessels. Thanks, Ben. And this week, we welcome back Susan Lacefield, the executive editor of CSCMP’s Supply Chain Quarterly. Susan, you've been very hard at work the past couple of months on the annual State of Logistics issue of the Quarterly, right?
Susan Lacefield, Executive Editor, Supply Chain Quarterly 22:29
Yes, that's right, Dave. So, your listeners who may not be familiar with Supply Chain Quarterly: We are a joint venture between Agile Business Media, which also publishes DC Velocity, and the industry association the Council of Supply Chain Management Professionals. For the past 11 years, the Quarterly has been putting out a special issue of the magazine that is tied to CSCMP's annual State of Logistics report. The State of Logistics report is now in its third decade, and what it seeks to do is quantify the impact of logistics on the U.S. economy. One of the main metrics that it produces is the annual U.S. business logistics costs, and the report compiles together leading logistics data and intelligence and tries to provide a sense of upcoming trends. What our special issue does is first, summarize the main findings of that report, and then we have industry experts take a deeper look at each of the key transportation modes and sectors for logistics. So, for example, we'll have an analyst from Drewry talk about the upcoming trends in [the] ocean-shipping sector and someone from FTR talk about the rail sector. The report summary really looks back on the past year, while the articles that we have from the industry experts are a little more forward-looking, at trends that might be affecting rates and capacities for the rest of the year. So, that's what it basically is.
David Maloney, Editorial Director, DC Velocity 23:55
Yeah. Were there any trends or insights that jumped out to you when you look at trucking and rail and ocean and inventory and all these other categories that are included within the report?
Susan Lacefield, Executive Editor, Supply Chain Quarterly 24:04
Sure. You know, I think, first off, it's really important to remember that even before the pandemic, transportation modes and logistics systems were strained and tight. There were capacity issues, labor issues, regulatory issues. In fact, if you think back, in 2018, U.S. business logistics costs jumped a huge amount of, by 11.4%, because of capacity constraints and rising rates. It was actually called a once-in-a-lifetime experience, and the expectation was that shippers would be remembering this year for decades on. You know, 2019 hit, things settled down a bit, but then Covid-19 happened, and what we saw was, business logistics costs went down, but that wasn't because of any increased efficiency in the logistic systems, it was because the economy overall was down, and rates were actually high; service levels were not great. Now in 2021, we're seeing the economy recovering, so capacity is even tighter across the boards. Rates are still high. Service is still down across all modes, and it looks like things aren't gonna settle down anytime soon. There's actually a domino effect, where tight capacity in one mode is making other modes tight, and labor shortages are making it hard to even get inventory off the ships or out of airports. So, volatility is going to continue, and logistics systems just don't handle extreme shifts well, and I think we're going to see the after effects of Covid-19 continue at least into to 2022.
David Maloney, Editorial Director, DC Velocity 25:39
Yeah, certainly looks true. And we also want remind our listeners, too, that for details on this year's State of Logistics special articles, you can go to SupplyChainQuarterly.com to see each of those individual articles that take a slice of the logistics segment and provide a lot of detail of what's happening in the industry right now, as we stand. Thanks, Susan. We really appreciate you being with us.
Susan Lacefield, Executive Editor, Supply Chain Quarterly 26:02
Thanks for having me again, Dave.
David Maloney, Editorial Director, DC Velocity 26:04
And we also encourage our listeners to go to DC Velocity.com for more on some of the stories that we talked about, and news and things that we've been covering during the course of the week. And check out the podcast Notes section for some direct links on the topics that we discussed today. Thanks, Ben and Susan, for sharing highlights of what's happening this week.
Ben Ames, Senior News Editor, DC Velocity 26:23
Always glad to do it.
Susan Lacefield, Executive Editor, Supply Chain Quarterly 26:24
It's a pleasure to be here, Dave.
David Maloney, Editorial Director, DC Velocity 26:26
Thanks. And again, our thanks to Dr. Emily Tucker of Clemson University for being our guest.
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