Our vulnerable pharmaceutical supply chains: interview with Emily Tucker
Drug shortages are becoming more common, says health-care supply chain expert Emily Tucker, and there is little incentive for drug makers to fix some of the more pressing problems.
David Maloney has been a journalist for more than 35 years and is currently the group editorial director for DC Velocity and Supply Chain Quarterly magazines. In this role, he is responsible for the editorial content of both brands of Agile Business Media. Dave joined DC Velocity in April of 2004. Prior to that, he was a senior editor for Modern Materials Handling magazine. Dave also has extensive experience as a broadcast journalist. Before writing for supply chain publications, he was a journalist, television producer and director in Pittsburgh. Dave combines a background of reporting on logistics with his video production experience to bring new opportunities to DC Velocity readers, including web videos highlighting top distribution and logistics facilities, webcasts and other cross-media projects. He continues to live and work in the Pittsburgh area.
Our nation faces a drug crisis. No, it is not the crisis of drug abuse, but one of potential scarcity for the drugs we rely upon every day for our health and wellbeing. Few people realize just how fragile our pharmaceutical supply chains are. For instance, most of the ingredients for drugs—and many of the finished products—are sourced from a single region of the world. Shortages are already common, including critical drugs that can save lives. Just how vulnerable are we to a pharmaceutical crisis?
Dr. Emily Tucker is an assistant professor at Clemson University’s Department of Industrial Engineering. Her main research focus is societal problems, including health-care policy, drug shortages, and supply chain resiliency. She recently spoke to DC Velocity’s David Maloney about our vulnerable pharmaceutical supply chains.
Q: A lot of people would be surprised to learn that most of the ingredients for our medicines and pharmaceuticals come from just one part of the world. Why is that the case?
A: Yes, about 75% to 80% of ingredients come from India and China. Largely, that is due both to the cost of production, which tends to be a lot lower in those countries than in the U.S., and production capabilities. Because they have been producing these ingredients for so long, they have developed the know-how to be able to do it relatively safely.
Q: Does that reliance on just two countries make those ingredients more vulnerable to shortages or supply chain disruptions?
A: To some degree it does. Whenever there is a centralized source of supply, it means if there is any issue within that geographic region—perhaps political instability or importation issues—it immediately propagates down the rest of the supply chain. If manufacturers were to contract with two or three or even more suppliers, that would give you diversity and redundancy in terms of production. However, that is rarely the case. Oftentimes, manufacturers will rely on a single supplier of their key raw ingredient, which does make the supply chain vulnerable.
Q: We have seen shortages with certain drugs throughout the pandemic. Is that because of a scarcity of key ingredients?
A: It has been an issue of both supply and demand. 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 that affected the supply of these ingredients and medications.
On the demand side, we have seen some surges. For example, this morning I saw a report on a drug named Actemra, which is typically used to treat rheumatoid arthritis. It has 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 remains constant, we could see shortages. That has certainly been a concern during the pandemic.
Q: What does it do to medical supply chains when we can’t get the drugs we need?
A: It is concerning. The major effect is downstream at the hospitals, at the health centers, and on the patients themselves, and it becomes very expensive. If the drug you typically use is unavailable, then you have to search for alternatives, and that can be costly. Managing and procuring these alternative supplies requires an estimated 9 million additional hours of labor per year, which costs health centers across the U.S. an estimated half billion dollars annually. And that cost is not borne by the manufacturers. It is borne by the recipients and purchasers of these drugs.
Then there are the downstream effects of shortages on the patients who need these medications. There have been cases where chemotherapy has been canceled because a key chemotherapy agent hasn’t been available. Surgeries have been delayed. It is hard to measure exactly what the impact has been, but the literature and the academic findings definitely suggest that it is very, very broad.
Q: Are generic drugs any less vulnerable than their branded counterparts to these supply disruptions?
A: You might be surprised to learn that they tend to be more vulnerable than patent-protected branded drugs. That is largely because generic drugs are much cheaper for patients and health systems to purchase. The downside to that is the profit margins are a lot tighter, which means that when a company is producing a generic drug, it is making a lot less money. So, there is less of an incentive for it to develop and maintain a more resilient supply chain, and, as a result, lower-priced generic drugs tend to be more vulnerable to supply disruptions than branded medications.
Q: Are there particular types of drugs that seem to be more vulnerable than others?
A: Largely, it is a combination of generic drugs and injectable drugs that have relatively low prices but are costly to produce. These tend to be chemotherapy agents, drugs that are used to treat central nervous system disorders, and cardiovascular drugs. These drugs are very complicated to manufacture.
Q: You mentioned that cost is a major factor in why we source drugs from India and China. We often hear of the huge profits that drug companies earn. Couldn’t they afford the cost of a more secure supply chain?
A: That is a legitimate question and a question I get a lot when talking about shortages. I think it is twofold. On one hand, if you look at the profit of a large pharmaceutical manufacturer overall, I think these companies could afford to develop more resilient supply chains for their lower-profit-margin drugs. That said, if you focus on these particular drug products that tend to be short—generic medications and injectable medications with very high cost—there currently isn’t any incentive for them to develop resiliency plans for those drug products. But if you zoom out and look at the company as a whole, there would be, in my opinion. I think that is a question for the public as well.
Q: So, with lives potentially at stake, we are really talking about an issue of national security, right?
A: We definitely are because, as you said, these patients’ lives are at stake. There has been a push at the government level as well as from advocacy and other medical groups to designate this an issue of national security. With that designation comes real status, and so there is an incentive at that point for funding for additional mandates that could require companies to become more resilient. It will be interesting to see how regulations change over the next few years. The justification for all of these is that patients’ lives are at stake. It is a concern if supply is not available.
Q: You mentioned regulation. I understand that is part of the problem, in that these drugs 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 works?
A: The pharmaceutical industry is very different from most other industries because of the regulations. For instance, a company has to go through an approval process just to begin producing a drug on a different manufacturing line within the same plant. Even more approvals would be needed to start producing that drug at a different plant entirely. That adds a lot of time as well as cost to the process.
What that does is to make the pharmaceutical industry a lot less adaptable or flexible if a disruption occurs. As an example, we might have an auto manufacturer whose truck plant goes down. Within a week, it might begin producing that particular truck at a different plant. That could never happen that quickly with pharmaceuticals because of the way regulations are set up. If a disruption occurs, it can take months for the company to be able to start producing a drug elsewhere. So how can we give companies the flexibility to adjust their operations while maintaining the strict safety standards we have in place for manufacturing medical products? That certainly is something that the FDA is working on and is a part of the conversation as well.
Q: So how can we make our pharma supply chains more resilient? Is it enough to simply diversify the supplier base?
A: 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, such as 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 might not have the resources to do that would be to invest in higher-quality production processes—ones that are less vulnerable to disruption.
Q: But of course, that comes with more cost, which means the drug is going to cost more at a time when many already feel that drug prices are too high.
A: Absolutely. I think cost is a major issue. I think it has been the main limiting factor to investing in strategies to improve resiliency. My argument in terms of investing in strategies would be to step back and look at the cost of the system as a whole. We talked earlier about how health systems tend to bear the costs of dealing with drug shortages. We could take the money we are now spending on additional staffing to procure substitute medications and invest it in higher-quality supply chains. I would need to look at the numbers, but I think that would be a worthwhile investment and would certainly lead to a more stable supply chain.
Q: That makes a lot of sense. Would it also help to bring some of the manufacturing back to North America?
A: Yes. I think it is important to remember that the shortages are not just caused by distance—the fact that our supply is too far away; they also occur because if a disruption happens, there is nowhere to go. I think if the pharmaceutical companies do decide to bring manufacturing back, it is important to invest in higher-quality facilities and/or to invest in multiple facilities to have that redundancy in the supply chain.
Q: Should companies look at carrying more safety stock to ensure an adequate supply of medications? And does the limited shelf life of some medications also play a role?
A: That definitely plays a role and contributes to these vulnerabilities. If a disruption occurs, the supply is just out. Very little safety stock is being held at any layer of the supply chain, whether it is the manufacturer, the wholesaler, or within the hospital system. That is due to this very cost-constrained situation of the health system.
I think one of the main deterrents to that is how long these shortages tend to last. The average shortage is over a year, so to be able to continue to supply that long, the safety stock levels would need to be very, very high. 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 employ a second supplier or invest in higher-quality manufacturing.
Perishability definitely comes into play as well, so if a company were to start maintaining high levels of safety stock, it would be important for it to rotate its stock so that it is shipping out the oldest inventory first.
Q: Are there any other things we should be doing to make our pharmaceutical supply chains more resilient?
A: We need to start making big changes in the pharmaceutical industry. Drug shortages have been an issue for 20 years now, which has led to immense cost and patient health issues. It is really only in Covid times that a spotlight has been put on the medical supply chain. There have been pushes and mandates for companies to be more resilient if the drug is critical to patient health. We know it is an issue; we have been shown it is an issue. But we need to start making some changes to address the issue. We are at the point now that we have enough information to be able to start making some of these changes.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.