Top consultancies report on COVID-19 supply chains
The top global consultancies had a lot to say about supply chains during COVID-19. As I was reading over a McKinsey’s assessment recently, titled ‘How COVID-19 is reshaping supply chains’, I discovered some interesting comment.
Their surveys of senior supply chain executives had revealed that there was an initial strong will to correct issues of product availability and supply chain complexity identified during COVID-19. The article reported, however, that short term measures, such as increasing inventories, had been favored over longer-term corrective strategies, such as regionalization or changes to complex, multi-tiered supply chains. This was neatly described in the article under the heading “It’s quicker to build inventories than factories.”
Indeed, it is, and the implication is that quick fixes were, and still are, being favored over genuine attempts to re-engineer global supply chains.
Life sciences companies reported few effects—really?
As well as the McKinsey article, I found another large consultancy account, this time authored by EY, titled How COVID-19 impacted supply chains and what comes next.
Chapter 1 was headed: The pandemic had substantial negative effects on supply chains—Certain sectors fared worse than others, but some life sciences companies reported few effects.
My ears pricked up when I read the news that life sciences companies reported few effects. How could that be when the life sciences and pharmaceutical sectors are the world’s most globalized in terms of supply chain architecture? Not only that, but the degree of outsourcing is off the scale, to the point where big pharma companies are now wholly reliant on contractors to get new drugs to market. I wrote about this for TrialSite News in May last year
, with an article titled Investors Will Take Their Money Elsewhere if Big Pharma Continues to Outsource Its Key Assets.
In that article, I made the point:
As demand has dropped, Moderna’s supplier of the drug substance, Lonza, is going to see a big hit on its projected profits. Their investors will not be happy as orders are cancelled and profits drop – see the account of the demand drop here:
Same applies to Catalent Pharma Solutions, the company that carries out the downstream fill/finish activities.
If it happens with Pfizer too, it is going to be a big argument between them all, don’t you think? Then, there are the lower tier suppliers of things like glass vials, rubber stoppers, aluminum seals, cell lines, sera, reagents, etc. – all going to take a hit on their projections for investor returns.
If you do not believe me that this is going to happen, maybe listen to Jay Wright Forrester on the systems dynamics of supply chains, and the beer game he devised describing the bull whip effect that takes place when inventory is in short supply, and/or over-supply.
In simple terms, the bullwhip effect is where demand is amplified down through the tiers of the supply chain (4 tiers in the beer case). A retailer is on the top tier, with the manufacturer of the product at the bottom. If the retailer runs out of inventory (stock), additional replenishment orders are placed, and order quantities are increased. The supplier to the retailer engages in similar behavior, as does the distributor feeding the supplier. Don’t ask why, it’s a human thing, proven by many years of people taking part in the game.
This is certain to have happened with the SARS-CoV-2 injections, where the spike in demand was unprecedented, to say the least.
In consequence, the bottom-tier suppliers end up with a huge spike in demand, with no hope of responding. Back orders pile up while capacity is built to deal with the extra demand, such as 24/7 working, crashed supply lead-times and other panic measures. When eventually replenishment inventory gets through to the retailer, customers have gone elsewhere, or alternative supply arrangements have been made.
This is where the bullwhip comes in, as the retailer cancels the exceptionally large orders that were not now required, and the lower tier companies are left with excess and obsolete inventory…and so it goes.
Considering tiers in the pharmaceutical supply chain
It follows that the more tiers there are in the entire supply chain, the more extreme the problem will be. Let’s explore how it is with pharmaceutical supply chains.
The equivalent to the retailer in the beer game will be hospital and community pharmacies. The wholesaler is the tier below, delivering its products across the country. In the US, wholesale and distribution networks are dominated by three major players (c.90% of the market):
Figure 1 shows how the product manufacturer (product license holder – PLH) sells to the wholesaler. The wholesaler takes title to the product once the PLH has been paid. Surprising to some, maybe, the PLH has no further part to play, albeit it is responsible for pharmacovigilance. I do not know of any way that a PLH could gain access to adverse event data, serious or otherwise, that occur in the healthcare system, given there is no linkage between the two parties.
Figure 1: Pharma company sells to Wholesalers
At this stage, there are three tiers in the supply chain—one less than in the beer game. However, when we consider the manufacturing supply chain, there are another five.
Figure 2 below shows the flow of materials for a biologic product (includes advanced therapies such as gene therapy). The three blocks on the left-hand side, raw materials, starting materials, and upstream processing, are tiers in the supply chain. Proocessing of starting materials (cell lines) and upstream processing, must be carried out under current Good Manufacturing Practice (cGMP) regulations.
Traditionally, downstream processing, often termed fill/finish, produces the finished product as a unit dose, labeled and packaged in a carton, ready for shipment into the wholesaler network.
Figure 2: Manufacturing Supply Chain for a Biologic Product
In this instance, the remaining tier is Finished Product. That leaves us with four manufacturing tiers:
Tier 1: Finished Product
Tier 2: Upstream Processing
Tier 3: Starting Materials.
Tier 4: Raw Materials
In total, there are seven tiers in the biologics supply chain.
So, can you imagine how all the companies that make up the SARS-CoV-2 supply chains are being swung from pillar to post?
Unless you are working inside those supply chains, which I am not, it’s impossible to prove this is going on. However, one indicator, based on the Fill/Finish CDMO mentioned above, Catalent Pharma Solutions, is findings during an FDA Inspection.
An article published in Fierce Pharma, titled Moderna’s new booster launch tripped up by production issues at Catalent plant, highlights lack of proper quality control and other concerning factors. We get a flavor from this excerpt:
On Tuesday night, the FDA released (PDF) a Form 483 notice it had sent to Catalent, citing 12 observations from a lengthy August inspection of its Bloomington, Indiana, site. The massive facility is among the largest in the portfolio of contract manufacturing powerhouse Catalent.
Most of the observations had to do with quality control, record keeping and the failure to establish and follow procedures. The FDA noted a failure to address unexplained discrepancies in a batch of drug product.
The company also used equipment for purposes beyond its design. And the FDA pinged Catalent for failing to address customer complaints, which included 179 reports of particulate matter in drug vials.
The FDA inspection report, Form 483, was also included in the article. The inspection was carried out by an FDA National Expert and three Inspectors, all identified by name. Surely, they would be able to confirm their findings if called on to do so?
What should readers conclude?
From the above, I would like readers to conclude that there is more than a prima facie case for politicians, and other persons of power, to acquaint themselves with the physical realities of supply chains for products intended for administration to the human body. Can readers really accept the EY finding above, that life science companies claim they were barely impacted by COVID-19?
What you have heard here is a tale of ‘advanced’ supply chain complexity, disconnection and now, it seems, denial of the facts.
We have been led to believe that the SARS-CoV-2 injections were created with the aid of virtual reality, machine learning, and other digital breakthroughs.
Maybe, as a counterbalance, there should be a call for the FDA inspection team, comprising Sandra Boyd, Muna Algharibeh, Logan Williams, and Eboni Funderburk, to offer their opinion on what they reported on September 1, 2022?
That would be dynamite, would it not? Read more on COVID19 Supply Chains here: