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From Lab to Life: Unpacking the Pharmaceutical Supply Chain

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Supply Chain network with earth globe on white backgroundGetting finished goods from the point of manufacture into a user’s home is a long and complicated process commonly referred to as supply chain management. For the whole process to work properly, each step in the chain has to be integrated with the preceding and following phases. A chain is only as strong as the weakest link, so attention has to be paid equally to every step. Any breaks in the chain can result in people not getting the goods they have ordered. While a delay like this can be annoying for general products, in the case of medications, there is a lot more at stake. It can even endanger lives if essential medicines can’t reach their end users as and when needed. The steps involved in producing pharmaceutical products differ significantly from those of other major industries, such as automobiles, appliances, and electronic devices. For example, auto or TV manufacturers rely heavily on the supply of parts and assembled sub-components that they then put together on an assembly line to build the end product. Drug manufacturing is different because there is little dependence on labor or manufactured subcomponents. It is a highly mechanized and automated process in which pills, capsules, syrups, and other end-products are all produced and packaged from raw materials in a single process in one location. Drug manufacturers are more dependent on raw materials’ availability than other producers. 

Where does supply chain management start?

All manufacturers must start with an estimate of customer demand to know how much to produce. This, in turn, drives the process of raw material acquisition so that they have the ingredients, parts, or subcomponents needed to produce that output volume. It can even drive decisions on whether and where to build new factories.  Based on these estimates, drug companies calculate the input of raw materials needed to achieve the required output. Orders go out to suppliers for everything that has to be available at the factory, normally scheduled to arrive as close to the required time as possible, so there’s no need to carry massive stocks of raw materials. These raw materials are combined, processed, formulated, and packaged into finished drugs at manufacturing sites. This is the first point at which supply chain management becomes essential. The process could halt if the required raw materials aren’t on hand to be fed into the production lines.  Pharmaceutical manufacturing is more vulnerable than other industries to disruption if raw material supplies fail to arrive on schedule. This is because the chemical processes that build the end products are time-dependent, so whole batches of incomplete output may have to be dumped at a cost in terms of both money and production volume if even a single minor component is missing. In other industries, production lines can pause if components or subassemblies are unavailable. They can then be restarted when the missing items appear or substitutes are found. Pharmaceuticals don’t have leeway regarding what goes into the end product or how the product was produced. They must adhere to stringent regulatory standards, including Good Manufacturing Practices (GMP), to ensure the safety and efficacy of their products. Any deviations in the time of manufacture or components will make the output ineligible for resale.

How much does supply chain management depend on customer demand?

A recent case illustrated how incorrect estimation of customer demand can have serious consequences. It occurred when Ozempic started to take off as a weight-loss medication. The initial customer demand estimates were based on its main use as a treatment for diabetics. Those numbers could be calculated with reasonable accuracy based on years of research. But when overweight and obese people started to request prescriptions for the new “wonder weight-loss drug” that they were hearing about, all of the estimates of customer demand were suddenly irrelevant. Demand for Ozempic and its sister medication, Mounjaro, quickly outstripped the production capacity of the manufacturers, even when they ran their factories 24×7.  What complicates issues like this is that there’s no quick fix. The production lines built to manufacture drugs like Ozempic and Mounjaro are designed to perform a single process with maximum efficiency. This means that other production facilities can’t be easily or quickly switched to produce these products. Building new factories takes many years. The result was a worldwide shortage of Ozempic and Mounjaro that affected not just the new customers looking for an obesity treatment but also had serious consequences for people with diabetes who were reliant on this improved medication and now had to find another treatment.

How do drugs move from a manufacturer to a pharmacy?

This part of the supply chain cycle is known as distribution, in which finished medications are moved through a network that includes wholesalers, distributors, and sometimes even directly to pharmacies, hospitals, or clinics. This is a critical part of ensuring the timely and efficient delivery of medications to stockists worldwide.  The medication is usually prepacked in the format closest to the typical prescription. For example, pills for a single daily dosage of continuous medications are packed in boxes of 30 so that patients receive a monthly stock with each purchase. One of the significant variations that became most important during the past few years has been the demand for self-injectable medication that must be kept frozen or refrigerated throughout the distribution cycle and should only be brought to room temperature at the time of administration. There had to be a large investment in cold storage and transport assets to accommodate the surge in demand for this kind of medication, which was mainly driven by the weight-loss phenomenon. The distribution supply chain for medicines is vulnerable to the same disruptions as most other product groups. These come primarily from physical breaks in transportation channels or geopolitical events like trade wars or military conflicts. The COVID-19 pandemic was a tremendous disruptor of both raw material and finished goods distribution channels. There was a strong instinct for people to avoid traveling between countries or even between cities in the same region. Trucks and trains stood fully loaded without drivers to man them or people to unload them at the arrival point. In the medical field, this came on top of a tremendous need for additional supplies of drugs, vaccines, and ancillary hospital materials – a “perfect storm” that needed unprecedented logistical adaptations.

How does IsraelPharm ensure it has the range and volume of medications its customers need?

For us here at IsraelPharm, this is the crucial question. We are committed to protecting our customers as much as possible from the bumps and breaks that may be happening in the supply chain before the drugs reach our shelves so that they can get the medicines they need. We have developed a network of resources worldwide that we can rely on as secondary sources to back up our primary suppliers. In this process, we apply exactly the same standards as we do when sourcing from the main distributors. The main principles are:
  • Everything we sell meets the very strict controls that apply to pharmaceuticals in Israel.
  • All of our drugs must be listed in the Israeli National Drugs Registry.
  • We only dispense drugs under the supervision of a registered pharmacist.
  • We require proper prescriptions from licensed physicians.
  • We will only dispense in the brand, quantities, and strengths the physician has authorized.
  • Swapping between brands (or brands and generic equivalents) will only be done with the patient’s permission, subject to the prescribing doctor’s stipulations, and when we can guarantee complete bioequivalence between the prescribed and supplied drugs.

Can breaks in the supply chain have an impact on medication costs?

Yes. Unfortunately, supply chain disruptions will almost always increase final costs. This is true not just for pharmaceuticals but also in every industry where end-customers are separated from the point of origin by physical and logistical steps. It may not follow automatically that a breakdown in the supply chain will immediately push prices up, unlike the scenario we have become accustomed to in commodities, where a simple event like an oil spill in Alaska can push oil prices up on the spot market within minutes. The supply chain in manufactured goods is much more complex and slower to react. But in the end, any increase in basic costs, like breakdowns in supply channels, will push manufacturing costs up, and companies will need to retrieve their profit margins by raising prices.
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