Life sciences supply chain: Five steps to proactive risk management

Life sciences supply chain: Five steps to proactive risk management

Life sciences companies can gain a competitive advantage with these five risk management steps that offer insights into their upstream supply chain network.

For patients, pharmaceuticals and medical devices must be in stock or available on demand, but as a global pandemic applies stress to many supply chains, concern about meeting demand is increasing. Everyone from the patient to the pharmaceutical or medical device supplier is asking crucial questions about when they will receive what they need.

Consider these questions as a middle- or smaller-market life sciences (biopharmaceutical or medical device) company. Will you be able to meet patient demand? A proactive supply chain risk management program that gives you valuable insights into your upstream supply chain network can help.

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The problem

A major natural disaster or geopolitical event has occurred, and demand for certain medications and medical devices has changed dramatically overnight. Your suppliers are telling you about upcoming delays, targets they will miss, tariff issues they didn’t plan for, and plants they are closing. Or, they could be reducing capacity due to government-mandated shutdowns or lack of materials within their respective supply chains. Although supply chain uncertainty has been an issue in the life sciences industry for years, the COVID-19 pandemic has accelerated the need for supply chain visibility, awareness, and understanding. Ultimately, patient health and the corporate bottom line are affected.

The impact

Your supply chain could be affected due to an event in a country or region where you have direct operations or in a far-flung location that – unbeknownst to you – houses suppliers buried within your supply chain. Even seemingly localized or contained events can cause global distress upstream.

The current pandemic began as a localized problem and grew into a global issue that is affecting each part of the world differently. A lack of visibility into your supply chain at a global level can leave you unprepared for unexpected short- and long-term impact, both locally and globally. Companies with a resilient supply chain gain a competitive advantage by being prepared for a global event of any scale.

The solution

In a world of uncertainty, life sciences companies can gain a competitive advantage with a proactive risk management program that offers valuable insights into their upstream supply chain network. Addressing supply chain disruptions should involve a systematic approach that not only solves the problem at hand but also gives the organization a framework to use going forward.

1. Identify critical suppliers.
Determinations can be based on a risk assessment of factors such as spend, revenue at risk, and medication or equipment type. Other attributes include vulnerability to natural disasters, geopolitical unrest, or known issues that have occurred in the past. Risk assessment results will help you focus your efforts on the suppliers that meet your demand for critical active pharmaceutical ingredients, medical device components, and clinical trials, for example. Once you’ve identified your critical direct (tier one) suppliers via risk assessment, reach out to them and assess the chances of being unable to meet current and future demand. Part of that assessment can focus on tier two and tier three suppliers – those companies that supply tier one companies with the products they need to manufacture pharmaceuticals or medical devices. 

Identify critical suppliers

2. Gain visibility into suppliers’ upstream supply chain network.
Often, demand issues are with not your direct tier one suppliers but with suppliers further upstream in the supply chain, so it’s important to identify your suppliers’ tier two and tier three suppliers. If necessary, review the supplier contract to determine your right to data and whether you have a “right to audit” clause.

Using the information you have, create a supplier map that shows critical elements of your supply network, such as shared tier two suppliers, single-source situations, potential bottlenecks, and levels of high concentration or risk for your supply chain.

3. Triage events that could affect you or your patients.
As you identify which suppliers within your supply chain overlap, you can prioritize discussions with critical suppliers to plan for potential events and solutions.

A technology provider can offer a competitive advantage in supply chain mapping as well as upcoming event awareness and analysis. As the upstream supply chain is further mapped and refined, greater visibility into your tier two and tier three supplier network allows for the opportunity to appropriately diversify your organization. This can lead to more leverage, better margins, and happier patients.

4. Analyze and make efficient decisions based on potential events.
Once you are aware of critical elements of your supply network, you can think about what to do when a critical supplier of essential raw material supplies other companies. Are you first in line for the supply, or do you have competitors with greater buying power given the size of their demand? What is your contingency plan?

5. Continuously monitor critical suppliers.
After identifying suppliers and considering events, you should explore the development of a continuous monitoring program for critical suppliers. Such a program can help verify that suppliers are in compliance with your contracts and have the proper internal controls in place to safeguard your organization’s information. Assuming your contract includes an audit clause, your organization or an external third party can perform internal reviews focusing on internal controls, key service-level agreements, and regulatory areas. Risks within those areas often include:

  • Information security
  • Physical security
  • Business continuity
  • Compliance
  • Anti-bribery/anti-corruption
  • Sanctions monitoring
  • Operations
  • Privacy
  • Financial health

In addition, life sciences companies might perform contract-based reviews in industry-related areas such as formulary inclusion, royalties, and rebate calculations.

Your life sciences company can create value by discovering and producing effective medicines, vaccines, and devices that will improve well-being around the world. Your supply chain will help you get there. 

Contact us

Learn more about our supply chain visibility approach or our life sciences group. 
Larren McDonald
Larren McDonald
Benjamin Newton
Benjamin Newton
Mike Varney - social
Mike Varney
Partner, Consulting