Understanding factors shaping the industry, metrics that matter, and emerging trends to enable discovery to delivery of life-saving drugs.
Understanding factors shaping the industry, metrics that matter, and emerging trends to enable discovery to delivery of life-saving drugs.
In the wake of the COVID-19 pandemic, the world witnessed the power of an efficient pharmaceutical supply chain. With over 13 billion vaccine doses administered globally by early 2023, countless lives were saved, and the trajectory of the pandemic was altered. Yet, this unprecedented success story also exposed critical vulnerabilities in the industry's complex network.
As we transition from crisis management to long-term resilience, a pressing question emerges: In an era of increasing global disruptions and skyrocketing demand for life-saving treatments, how can pharmaceutical companies fortify their supply chains to ensure uninterrupted delivery of critical medications?
According to a recent survey, nearly 75% of pharmaceutical companies identified supply chain disruptions as a major threat to patient safety. The stakes couldn't be higher in an industry where lives depend on timely and precise deliveries. The pharmaceutical supply chain in the US is not just about moving products—it’s about ensuring that life-saving treatments reach patients without delay, all while navigating a complex web of regulations, innovation, and global market pressures.
This intricate network must maintain product integrity and compliance from drug discovery to patient delivery while driving technological advancements. Every step shapes not only patient outcomes but also the broader healthcare landscape, making it one of the most critical supply chains in the world.
Expert insights: The future of pharmaceutical supply chains
The COVID-19 pandemic has highlighted critical weaknesses in pharmaceutical supply chains, pushing companies like Pfizer, Roche, and AbbVie to rethink how they operate. The focus now is on building systems that are more resilient and flexible to handle disruptions—whether they come from health crises, climate events, geopolitical tensions, or evolving patient needs.
Resilience and adaptability: The pandemic underscored the need for supply chains that can withstand various disruptions. This includes not only pandemics but also climate-related events, geopolitical tensions, and evolving patient needs. For example, Pfizer’s supply chain services the health of an estimated 1.2 billion people living in 45 lower-income countries worldwide, emphasizing the critical role of resilience in delivering essential medications to underserved regions.
Shift from just-in-time to just-in-case: There is a noticeable shift from just-in-time inventory management to just-in-case strategies. This involves maintaining higher inventory levels and diversifying suppliers to mitigate risks. Roche has been implementing these strategies, managing one of the largest and most complex pharmaceutical pipelines in the industry, handling typically 600 active clinical trials at any given time, to better prepare for future disruptions.
Technological integration: Advanced technologies such as AI-driven forecasting, real-time monitoring tools, and digital twins are being increasingly adopted to enhance supply chain visibility and efficiency. AbbVie is leveraging these technologies to improve its supply chain operations. It notes, “Our suppliers are an extension of our business. To ensure that suppliers share and maintain our standards for product quality, availability and security, and ESG stewardship, we have a comprehensive supplier management programme.”
Collaboration and partnerships: Strengthening public-private partnerships and fostering collaboration across the supply chain are crucial for improving resilience and ensuring a coordinated response to future crises. Johnson & Johnson has been actively engaging in such partnerships to bolster its supply chain resilience.
Focus on health equity: Addressing health disparities and ensuring equitable access to medications are becoming central to supply chain strategies. Novartis is committed to working with supply chain vendors “who operate in a manner consistent with our values and ethical principles”, managing this through its Third-Party Risk Management framework, which it says “fosters sustainability across our supply chain.”
These trends are shaping the future of pharmaceutical supply chains, aiming to create systems that are not only efficient but also robust enough to handle a wide range of disruptions.
Key factors shaping the pharmaceutical landscape
1. Stringent regulatory environment
The pharmaceutical industry operates under a stringent regulatory environment, with compliance costs forming a significant portion of drug development expenses. For instance, the average cost to develop a new drug was estimated at $2.6 billion in 2014, with a substantial share attributed to regulatory compliance. This cost burden emphasizes the need for supply chain efficiency to control expenses. Furthermore, in 2022, the FDA conducted 2,321 human drug inspections globally, underscoring the necessity of robust quality management systems throughout the supply chain, from raw material sourcing to product distribution.
2. High-stakes R&D
Pharmaceutical R&D is marked by long development cycles and high failure rates. As of 2022, the average timeline from clinical testing to drug approval spans 8 years, with additional time required for discovery and preclinical testing. This lengthy process demands highly flexible supply chains capable of adapting to changing needs during development and scaling rapidly upon approval. Moreover, with only 7.9% of drug candidates receiving approval in phase I trials, supply chains must be designed to pivot quickly and manage multiple drug candidates simultaneously.
3. Patent-driven market dynamics
Pharmaceutical companies face a limited exclusivity period once a drug enters the market, with an effective patent life typically ranging from 12 to 14 years. This pressures supply chains to maximize efficiency during the exclusivity window, balancing speed-to-market with quality and compliance. Additionally, once patents expire, there is often a rapid shift in demand, with generics capturing a significant market share. In 2022, generics accounted for 91% of prescriptions filled in the U.S., highlighting the need for agile supply chains to handle the decline in demand for off-patent drugs and ramp up production of generics.
4. Complex manufacturing processes
Pharmaceutical manufacturing often requires sterile environments, and the global cleanroom technology market was valued at $6.4 billion in 2022, with projected growth through 2030. These specialized facilities impact supply chain decisions, typically limiting production to specific locations and increasing the need for strategic facility planning. Additionally, precise temperature and humidity controls are crucial, particularly in cold chain logistics, where the market is expected to reach $28.6 billion by 2027. This reliance on specialized logistics solutions adds complexity and cost to the supply chain while ensuring product integrity.
5. Global supply networks
Pharmaceutical supply chains are highly globalized, with approximately 78% of active pharmaceutical ingredient (API) manufacturing facilities for FDA-approved drugs located outside the U.S. in 2022. This geographic dispersion introduces supply chain risks and complexity, making robust supplier management and risk mitigation strategies essential. The challenges are further compounded by the need to maintain cold chains, especially with the rise of biologics and vaccines. In 2022, the global pharmaceutical cold chain logistics market was valued at $17.2 billion, underscoring the critical need for advanced tracking and monitoring technologies to maintain product quality and minimize losses.
6. High-value, low-volume products
Pharmaceutical products are often expensive to produce, with the average cost of goods sold (COGS) around 30% of revenue as of January 2023. This high cost stresses the importance of efficient inventory management and demand forecasting to reduce waste and optimize return on investment. Furthermore, the industry faces a significant threat from counterfeit products. In 2022, the FDA reported an increase in counterfeit prescription drugs containing dangerous substances like fentanyl and methamphetamine. This risk necessitates the implementation of advanced track-and-trace technologies and secure supply chain practices to ensure product authenticity and safeguard patient safety.
Business Impact Metrics
Given the unique characteristics of the pharmaceutical industry, it's crucial to monitor specific supply chain metrics that directly impact business performance. As a supply chain professional in this sector, you should pay close attention to the following key performance indicators (KPIs):
| Why it matters | How to measure | Industry benchmark | Improvement strategies | |
| Time-to-market | In the pharmaceutical industry, every day of delay costs millions. Getting drugs to market faster means more revenue and faster access for patients. | Track how long it takes from the final regulatory approval to when the first batch of a drug is available for sale. | The average is 3-6 months, with the best companies achieving 2-3 months. | Speed up activities by doing things at the same time (parallel processing), work closely with manufacturers, and use advanced planning tools. |
| Quality compliance rate | Poor-quality products can lead to recalls, hurt a company’s reputation, and cause financial losses. | (Number of batches accepted / Total number of batches produced) x 100 | The pharmaceutical industry typically maintains a quality compliance rate of 98-99.5%. | Implement robust quality management systems, invest in employee training, and utilize process analytical technology (PAT) for real-time quality control. |
| Inventory turnover | Managing stock levels while avoiding expired products helps reduce waste and ensures products are always available. | Cost of Goods Sold / Average Inventory Value | The median inventory turnover for pharmaceutical companies is 3-4 times per year, with best-in-class performers achieving 5-6 turns. | Use just-in-time inventory, forecast demand with data analytics, and optimize production schedules. |
| Cold chain integrity | Certain medicines, like vaccines, need to stay cold during shipment. If not, they lose effectiveness, resulting in financial loss. | Percentage of shipments that stay within the required temperature range. | Leading pharmaceutical companies aim for a 99.5-99.9% success rate in temperature-controlled shipments. | Invest in IoT-enabled temperature monitoring devices, use qualified thermal packaging, and implement robust contingency plans for temperature excursions. |
| Supplier reliability | Given the complex global supply networks, reliable suppliers are crucial for maintaining consistent production. | (On-time, in-full deliveries / Total deliveries) x 100 | The standard is 90-95%, but the best companies reach 97-98%. | Implement supplier scorecards, develop strategic partnerships with key suppliers, and consider dual sourcing for critical materials. |
| Forecast accuracy | Good forecasting ensures you have enough products to meet demand without overstocking. | (1 - |Actual Demand - Forecasted Demand| / Actual Demand) x 100 | The average forecast accuracy ranges from 60-70% at the SKU level, with best-in-class performers achieving 80% or higher. | Utilize advanced analytics and machine learning for demand forecasting, collaborate closely with sales and marketing teams, and implement a sales and operations planning (S&OP) process. |
| Counterfeit prevention rate | Counterfeits (fake medicines) not only pose serious health risks to patients but also damage brand integrity and revenue. | (Number of confirmed authentic products / Total number of products authenticated) x 100 | The goal is to prevent 99% or more counterfeit cases in developed markets. | Use serialization (unique IDs for each product), anti-counterfeiting packaging, and comply with laws like the U.S. Drug Supply Chain Security Act (DSCSA). |
The pharmaceutical supply chain, with its unique challenges, demands a specialized management approach. By focusing on the key metrics, we've discussed—from time-to-market to counterfeit prevention—you can gain a comprehensive view of your supply chain's performance.
Remember:
- Use industry benchmarks as guideposts, not rigid standards.
- Consider metrics holistically, improving one shouldn't come at the expense of others.
- Align your supply chain strategy with your company's goals and industry demands.
- Prioritize quality and compliance while seeking efficiency.
- Leverage technology for better visibility and control.
By embracing these principles and maintaining a focus on key performance indicators, you'll be well-equipped to navigate the complexities of the pharmaceutical supply chain, driving value for your organization and improving patient outcomes.
But understanding the current landscape is just the beginning. In Part 2 of this blog, we'll explore the cutting-edge trends reshaping pharmaceutical supply chains. Stay tuned to learn how you can position your supply chain at the forefront of some of the exciting developments coming your way.
