MHI Solutions Improving Supply Chain Performance
Industry Focus
The pharmaceutical supply chain saw itself thrust into the spotlight during the pandemic. As a result, there is now a growing appreciation for its importance.
“It’s something that people are getting a better grasp of,” said Perry Fri, executive vice president, industry relations and member services, Healthcare Distribution Alliance and COO, HDA Research Foundation. “People know the big brand names of drug manufacturers because those names are on the label of their bottle, and they know their local hospital and their local pharmacy, but I don’t think people really think about the supply chain that gets the medicine there. People are very concerned about whether their medicines are there and how much they’re paying, but they haven’t really thought about how it gets there. The COVID response really brought a lot of that to light. … As we come out of it now, particularly with conversations around some of these new drug therapies and drug shortages, people are paying much closer attention to this supply chain.”
The pharmaceutical supply chain is marked by its complexity and the extreme care that its products require throughout storage and distribution. It’s also a field that is unique in its make-up. In particular, Fri noted that the pharmaceutical industry is “a weirdly big and weirdly small industry.” The Healthcare Distribution Alliance has 39 distributor members today, including three very large ones, and those distributors are linked with 1,500 manufacturers and more than 330,000 pharmacies, providers, clinics and hospitals. “It’s a relatively small number of wholesale distributors in the middle of all that,” Fri said.
Similarly, Angie Boliver, president and CEO of the Healthcare Supply Chain Association (HSCA) said, “The pharmaceutical supply chain is complex, with many unique stakeholders. HSCA, for example, represents traditional health care group purchasing organizations (GPOs), which formed as an efficient means to aggregate purchasing volume, drive competition among suppliers and reduce health care costs. Traditional health care GPOs have long served as sourcing and contracting partners to providers—including large and rural health systems, pediatric hospitals, long-term care facilities and more—to help them secure access to medical products under competitive terms. Traditional health care GPOs were initially formed in the early 1900s, and a broad range of industries have since harnessed group buying power to yield significant cost savings.”
It’s an industry notable for its necessarily tight regulatory environment. David Castanon, senior director of consulting for MHI member Datex, said the pharmaceutical field faces strict regulatory standards and oversight around the world to maintain high standards for safety and the integrity of pharmaceutical goods, including the manufacturing, traceability and distribution of the products.
“Rigorous quality control measures throughout the supply chain and to meet regulatory requirements has aided in ensuring the highest safety and quality standards are being achieved,” Castanon said.
Because of the importance of delivering medications to the people who need them, Fri said the resilience of the pharmaceutical supply chain is critical—”you could argue that it’s a matter of national security.”
“We’re there to ensure that patients have access to their medicine at every single point of care every day,” Fri said. “When you look across virtually every company in this industry—from the manufacturers to distributors to the pharmacies—at some point in their mission statements, they’re talking about the critical role they play in supporting patients.”
An Array of Challenges and New Solutions
Challenges are everywhere in the industry. For instance, Boliver said a key trend creating challenges in the pharmaceutical supply chain is an overreliance on foreign manufacturers.
“Expanding domestic and nearshore manufacturing capabilities in health care is key to fostering supply chain resiliency,” Boliver said. She said HSCA and its member GPOs support additional incentives for domestic manufacturing, as long as the incentives are tied to quality and the amount of product sold in the U.S. “to help ensure they tangibly and positively impact pricing dynamics.”
Meanwhile, Castanon said those in the industry face a need to diversify suppliers and manufacturing locations because both APIs and finished goods have been too concentrated in certain geographic areas or countries.
“More supplier redundancy is needed to reduce dependence on single source suppliers. Increased flexibility in this regard is essential to preventing future supply chain disruptions,” he said.
Periodic shortages of medications are an issue that routinely affects the pharmaceutical industry.
“One of the biggest challenges facing the health care supply chain is drug shortages, which negatively impact hospitals and patients nationwide,” Boliver said. “The causes of these shortages are complex and multifaceted—the FDA identifies manufacturing quality control issues as the primary cause, as well as production delays, lack of raw materials and manufacturer business decisions to discontinue products.”
Castanon said ensuring regulatory compliance remains an ongoing issue.
“Complex and varied regulations exist for dealing with pharmaceutical products across the world—there is no global accepted standard,” Castanon said. “This relates also to the security, traceability, integrity and product recalls of these goods.”
Fortunately, Castanon said digitization and technological advances are leading to better forecasting, security, tracking, transparency and real-time monitoring. In particular, he pointed to tech tools such as the Internet of Things helping to monitor product location, environmental conditions, temperature and other factors and ensure regulatory compliance.
“Digitization of the pharma supply chain has helped to provide more visibility and access to information,” Castanon said. “Use of advanced technologies including artificial intelligence, machine learning and predictive analytics has been employed in a variety of ways, including for the development of new medications and therapies.”
Automation has driven new efficiencies in recent years, Fri said.
“This is a really low-margin business, so trying to figure out how to manage this volume in the most efficient and effective way possible is something that’s really critical, particularly in wholesale distribution,” Fri said. “So, we’ve gotten really good at automation in the warehouses, and this industry’s always been a leader in that space.”
The Drug Supply Chain Security Act and its Influence
The Drug Supply Chain Security Act (DSCSA) was enacted 11 years ago, but a major milestone for the act is approaching in November this year—enforcement of the package-level product tracing requirements that accompanied the legislation. However, the act, which outlined steps for electronically tracking and tracing prescription drugs at the packaging level, has already made a major impact on the industry.
“It changed the way that we monitor the movement of medicines, the physical product, and aligning that with the movement of the data associated with those products,” Fri said. “It also sought to create some standardization around who you’re allowed to do business with, and licensing and that sort of thing. A lot of that had happened at the state level for a long time, and so rolling that up to have a more common framework has been really helpful to the degree that everyone now understands it a little bit better.”
Under the DSCSA, the U.S. joins the European Union, South Korea, China, Brazil, Argentina, Saudi Arabia, Russia, Turkey and India in requiring serialization by saleable unit, Castanon said.
“DSCSA has been transformative in moving the United States to this standard to improve the safety, integrity and traceability of pharmaceutical goods,” Castanon said. “In effect, the implementation of DSCSA has had a global impact by establishing a clear standard for other countries to consider or follow in dealing with their pharmaceutical supply chain issues.”