Mitigating Risk in the Supply Chain - Pharmaceutical Technology

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Mitigating Risk in the Supply Chain
The author describes the importance of risk management and offers strategies for risk-management preparedness in supply chains.


Pharmaceutical Technology
Volume 34, pp. s22-s28

There is much validity to the idea that the faster cash flows through a supply chain, the less cash is needed to sustain the financial viability of that supply chain. More and more, leading companies are thinking that way. Large corporations such as Syngenta (Basel), Bank of Scotland (Edinburgh), and GlaxoSmithKline (London) are adopting supply-chain financing programs and putting into place technology enablers that allow suppliers to decide when they want to be paid, and of course, at what discount.

Better balance of low cost versus low risk. Global supply chains have been under development across many industries for the past several decades. Low-cost country sourcing has been on a steady rise for the past 15 years, with corporations leveraging low-cost labor pools for the procurement of goods and services. Most large corporations today have well-defined programs in India and China. As these markets have matured, companies are now sourcing from new low-cost sources located in Eastern Europe and other Asian countries. In general, outsourcing can be risky as evidenced by the issues that Boeing went through with the production of its Dreamliner airplane production, which included major delays, postponed revenue, and lost orders. Massive problems with component deliveries in 2007 led to a two-year delay in aircraft launch and some $2 billion in charges to fix supplier problems (1).

Outsourcing, combined with low-cost country sourcing, is even riskier. The US Food and Drug Administration's recall of heparin in 2008 due to contamination of lots produced in China is another example. In this heparin recall, the drug was oversulfated as Chinese heparin manufacturers were unethically cutting the medication with chondroitin sulfate to cut down on manufacturing costs. This incident had devastating impacts on those who had chosen to use this Chinese supplier. FDA reported that there were hundreds of serious adverse reactions and scores of deaths among patients that had taken the heparin (2).

The hard lessons learned from this incident have made it important for companies to reevaluate their low-cost country sourcing strategies. They are evaluating risk versus cost and rebalancing their supply strategies to less riskier profiles.

Comprehensive strategic-procurement initiatives. One can make a strong case that many supply-chain disruptions and corporate reputation/brand image disasters are preventable, even in the case of natural disasters or other seemingly unpredictable force majeure-type events. A corporation's procurement organization has the ability to significantly reduce the risk associated with these occurrences by conducting collaborative strategic-sourcing initiatives that ensure their companies are protected from myriad potential risks. Strategic sourcing is a pragmatic and structured procurement process. This process is conducted over several steps and includes: rigorous internal and external analysis; development of multiple strategic options weighted for risk and cost; strategy selection made collaboratively with business stakeholders; well-orchestrated negotiation; and detailed implementation planning, supplier selection, and ongoing supplier management, including continuous-improvement activities.


Implementing a risk-mitigation action plan
Best-practice organizations also use technology to develop solutions to enable the creation, storage, and management of hundreds, if not thousands of risk-management action plans associated with all critical purchased goods and services (see sidebar, "Implementing a risk-mitigation action plan").


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