Is supply disruption an inherent risk in outsourcing?

The 1980s saw the globalization of supply chains and, with it, the large-scale outsourcing of production to low- and middle-income countries with lower-cost labor. Pharmaceutical companies were caught up in this trend, with the main aim being to minimize costs. However, by relocating the production of active pharmaceutical ingredients and medicines, they exposed themselves to major risks: losing their independence, their know-how, and their ability to secure their production.

Participants:

Medicines go through different stages with various players involved:

Active Substance Manufacturers: They make the main components of the medicine, and many are in China and India.

Finished Product Manufacturers: They package the medicines. Some are in China, India, and Eastern Europe.

Operators: These are people or systems that manage the process.

Stockists: They store and distribute medicines.

Wholesalers-Distributors: They distribute medicines in bulk.

Importers, etc.: Various other participants in the process.

Because of a lot of outsourcing, pharmaceutical supply chains have become more complicated. If one part has a problem, the whole chain can be affected, disrupting supplying medicines. This is a big issue in the pharmaceutical sector, where it’s defined as the “inability to give a patient a medicine within 72 hours.”

Reasons for these disruptions can include:

Shortage of Active Ingredients: 

Sometimes, the main parts of the medicine aren’t available. This could be because of production issues or problems in transporting the ingredients.

Issues with the Medicine Itself: 

Problems like technical issues, quality concerns, delays in checking, or a decrease in the number of companies making the medicine can lead to shortages.

Distribution Practices: 

Some ways of distributing medicines can also cause shortages. For example, keeping low stocks to be more efficient, storing extra when there’s a risk of shortage, or prioritizing countries where medicine prices are higher.

The complexity of the process and these issues can make it tough to control the entire supply chain, and any small problem can cause big disruptions in getting medicines to people.

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