Will Your Competition Take Advantage of Your Supply Chain Outage?

Posted by Philip Bigge on March 7, 2017
Philip Bigge

Your supply chain is more than just a means to get the materials and components you need sustain production. It often can be the lifeblood of your business—an important step in maintaining a healthy bottom line. If operations slow because you are lacking a key component of your product, profits will suffer and (more ominously) customers will turn to another company to buy the goods they need. supplychainmanagement.jpg

Of all the adverse effects of a supply chain disruption, the possibility that your competition will swoop in on your client base might be the most serious. After all, these are customers you may never get back. This loss of business would have nothing to do with the quality of your product or your commitment to customer service, but rather, the ability for a supplier to deliver as promised—which further underscores the importance of vendor continuity.

Business continuity already is such an important initiative for companies, many of which are realizing the continuity efforts of their key suppliers is just as, if not more, important. The supply chain must be maintained, and organizations can’t simply sit back and hope their vendors are taking resilience as seriously as they do. Perhaps nowhere is this concern more urgent than in the pharmaceutical industry.

The Ingredient Challenge

Unlike other industries, in which components for products can sit in a warehouse for months before they are needed, pharma and healthcare device manufacturer’s ingredients and materials often carry a shelf life. Companies simply can’t stockpile ingredients: Expiration dates come into play, especially with rarer or more complex materials such as those used in biologics. Furthermore, efficacy and chain of custody need to be maintained during shipment of ingredients; if a material must stay refrigerated during transport but arrives at room temperature, it’s likely worthless—and no refund or replacement is going to make up for the lost production of a drug because a key component is missing.

Maintaining the Supply Chain

Supply chain management is an art—you must be efficient and cost-effective, but you also need the components in hand and on time or, otherwise, production suffers. According to a 2013 survey co-sponsored by PwC, 28 percent of responding organizations identified raw material scarcity as a great risk to their supply chains. Raw material price fluctuation was an even bigger concern at 53 percent. Pharmaceutical companies that fail to receive key materials might find themselves with few, if any, options to overcome the situation. Many ingredients are rare, with perhaps only a handful of suppliers (or just one) manufacturing the material; a drug company can’t just call another a vendor and easily place an order for the absent supply. Moreover, because of efficacy issues, many alternate suppliers wouldn’t even have immediate stock for the missing ingredient and would be unable to ramp up production to meet your need.

Biosimilar Competition

What puts pharmaceutical companies in so much peril when a supplier can’t deliver is the specter of biosimilar competition. Other companies may create drugs that are near identical to a better-known brand, and when that better-known brand suddenly isn’t as available because of a vendor problem, doctors and hospital may turn to the alternatives and never return. Moreover, if a name brand is scarce for long enough, the FDA might be inclined to speed up approval of generics, which obviously is going to negatively impact the name brand’s long-term sales as well. Pharma companies that don’t maintain a good supply of their major seller risk getting their legs cut out from biosimilar competition.

Learn more about vendor continuity in the guide, The Ideal Route to Better  Vendor Continuity.

Vendor Continuity to the Rescue

The seemingly simple answer to this problem is for a company to be ready to turn to another supplier when one doesn’t deliver, but in many industries, including pharmaceuticals, this isn’t so simple. A better approach is to address a vendor’s continuity program before a supply disruption occurs. Both you and the supplier can identify potential gaps and take steps so that the vendor has some sort of plan in case something is preventing it from delivering materials critical to your production. Ultimately, a key supplier’s continuity is your continuity—both parties require a strong resilience strategy to overcome adversity.

More Than Pharma

Although the pharmaceutical industry is especially vulnerable to supply chain outages, other industries can lose ground to the competition if production withers due to supplier issues. The aforementioned PwC report talks about a Japanese automaker whose production suffered after the 2011 earthquake and tsunami. If a car from this company was not as available to a consumer because of a supply disruption, there are plenty of quality Japanese cars from other manufacturers that can fill the void. Good vendor continuity helps stave off supply chain outages as well as the competition.

How vulnerable is your company’s production lines to a supply chain outage?

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Topics: Business Continuity