All industries are prone to supply chain disruptions but for the life sciences industry, disruptions present more risk and may bring more significant consequences. Disruptions caused by anything from natural disasters to supplier insolvency may lead to increased regulatory scrutiny, financial penalties, declining sales, shareholder apprehension, damaged brand and reputation, and, potentially, compromised patient safety.

 

Writing in Pharmaceutical Processing, Jamie T. Hintlian, a principal, and Ryan Kelly, a manager, in Ernst & Young LLP’s Advisory Services practice, focusing on the life sciences supply chain, note that to mitigate risk, build business continuity and reliably deliver critical products to patients, manufacturers need to create comprehensive crisis management plans that provide an immediate response to emergencies. Since effective risk management begins with sourcing, manufacturers must thoroughly understand and audit the operations of key suppliers, measuring their performance and quantifying the potential cost of supply disruption, damaged brand reputation, and the impact to company profitability, Hintlian and Kelly write. In this qualification process, it is vital for manufacturers to collect and analyze a full range of supplier financial and compliance information.

 

This same level of scrutiny for material suppliers must also be applied to production assets used to manufacture and package pharmaceutical products as well as supporting infrastructure and technology, Hintlian and Kelly write. Furthermore, quality control must be managed at every level, which means each product and ingredient must come from a qualified supplier, and its quality must be validated to maintain supply reliability.

 

As companies continue to outsource logistics and storage, they must also validate that logistics providers have comprehensive quality and risk management programs in place. Pharmaceutical companies must consider all logistics capabilities and permitting required to preserve product integrity—including management of import and export, strategic routes, compliant packaging and storage conditions, and adherence to standard operating procedures and good documentation practices, Hintlian and Kelly write.

 

Finally, new legislation in the U.S. makes compliance more rigorous. For instance, the Drug Quality and Security Act (DQSA) and the related Title II of the DQSA, the Drug Supply Chain Security Act (DSCSA), are intended to protect consumers by increasing compliance vigilance. To comply with these—and other—laws, manufacturers will need to focus on authenticating their products, integrating disparate systems across supply chain partners and updating storage, facility equipment and information technology, Hintlian and Kelly write.

 

There are a great number of necessary steps for companies to take, so I was interested to see Hintlian and Kelly propose many action steps, including to develop clear processes and governance for qualifying and managing the portfolio of suppliers; and to create redundancy plans to develop on-site and in-network equipment redundancy for critical production equipment that may not have back-ups. I was also interested to see Hintlian and Kelly note the critical need for C-level executive involvement.

 

In a survey of 1,000 senior executives from large global companies earlier this year, Accenture found that leading companies have a greater centralization of responsibility for supply chain risk management. Indeed, 43 percent of leaders (versus 32 percent of others) said they have a central risk management function, led by a C-level or VP-level executive, to oversee all risk management activities. With that type of involvement, it isn’t surprising that those companies make operations risk management a higher priority than other companies. Sixty-one percent of leaders (compared with 37 percent of others) consider supply chain risk management very important.

 

As the Accenture report further explains, leading companies invest aggressively in supply chain risk management capabilities. More than 50 percent of the surveyed executives said their company is increasing investment in supply chain risk management by up to 20 percent—and another 25 percent of the respondents said their company is increasing spending by 20 percent or more.

 

Does your company have a central risk management function, led by a C-level or VP-level executive, to oversee all risk management activities?