De-risking API & Intermediate Supply in a Crisis

Author: Kenneth Ball, Commercial Operations Lead, APIs & Intermediates

Nov 2021

Pharmaceutical supply chains have been consistently growing in complexity for many years. For some products, their supply chains are so complex and globalized that they start in and return to Asia after circumnavigating the globe several times. 
With more outsourcing and growing patient demands, it’s critical to ensure that manufacturers can withstand shocks to their API and Intermediate supply chain.

Here, Kenneth Ball, Commercial Operations Lead, APIs & Intermediates at Pfizer CentreOne, analyzes a few events that have disrupted supply chains and puts forward the solutions required to improve supply chain resilience. 

The cost of disruption

The cost of supply chain disruption is manyfold including reputational damage, financial loss and perhaps most importantly, compromising patient access to drugs and the delivery of care.

A survey of C-suite executives across the EU and US pharma industry, conducted by The Economist Intelligence Unit (EIU), shows that 64% of companies with revenue greater than $1 billion reported revenue losses between 6% and 20% in 2020, which represents between $2 trillion to $4 trillion in lost revenue as a result of supply chain disruptions. 38% of respondents reported that these supply chain issues had caused "significant damage to company's brand reputation" and 33% said their "operational costs increased" significantly as a direct result of supply chain disruptions1

Drug shortages make both access to needed therapies and delivery of patient care challenging and create additional costs for primary healthcare providers. The Vizient® Drug Shortages Task Force’s inaugural member survey: 2019 Drug Shortages and Labor Costs: Measuring the Hidden Costs of Drug Shortages on U.S. Hospitals reviewed over 6,000 hospitals across the US and estimated that drug shortages are collectively costing hospitals at least $359 million per year in additional spend on labor alone2

The challenges

Natural disasters, international trade tensions, energy crises, cyberattacks, and global pandemics are just a few of the shocks that have exposed and disrupted international supply chains and the industry is experiencing two of these simultaneously in 2021. 

China energy crunch 

The ‘supply chain log jam’ currently being felt mainly within consumer goods is likely to impact the supply of APIs.  China, a significant supplier of APIs, intermediates and other key inputs, has committed to a decarbonization goal and 2021 is the first year of a new five-year plan. Despite this commitment, energy demand surged in 2021, coal prices reached record highs, and the strain on the power grid is so severe that some areas are suffering from blackouts.

Provinces across the country received warnings from the Chinese government after they increased their energy use in the first half of 2021. Several measures have been introduced to lower energy consumption including shutting down whole manufacturing parks or enforcing heavily reduced schedules. This situation is anticipated to last until Spring of 2022.

The chemical industry is a traditionally large energy consumer3 and will likely feel a significant impact. This will include further failures on fulfilling contracts on top of existing supply chain shortages that will have a snowball effect on the API and Intermediates manufacturing sector4,5

Factories with high energy consumption or waste emissions will be strictly controlled after the current energy crisis abates. 

The energy crunch has coincided with steep rises in freight costs and logistics challenges in US ports where containers are waiting in bays for weeks before being unloaded due to staffing and transport vehicle shortages. The scene is even worse on the other side of the globe, with ships waiting to be loaded and goods accumulating in ports, because there is no guarantee when each ship will be unloaded at the destination.
In short, it’s a perfect storm that is threatening reliable and timely API delivery. 

COVID pandemic

The COVID-19 pandemic is illustrating gaps in distribution and some parts of the industry’s inability to be agile in the face of disruption and changing forecast and demand patterns. At its outset, governments across the world restricted exports of medicines and APIs to ensure there was sufficient volume for their own populations, delays occurred at borders, and transport capacity was reduced due to labor shortages and cuts in passenger/freight haulage.

The IDC White Paper, Supply Chain Agility in the Pharmaceutical Industry6 surveyed global pharma supply chain leaders, wholesale distributors, hospitals and pharmacies and found that on-time, in-full (OTIF) delivery of medicines to patients and from suppliers had degraded by ~50% within the first few months of the pandemic.

46% of respondents had experienced drug shortages, with 70% agreeing their supply chain is still very vulnerable due to the continuation of the pandemic. 

Improving supply chain resilience

The diversity and robustness of API supply chains are key to ensuring the timely manufacture and delivery of medicines to patients, even in the face of global-scale challenges and unforeseen circumstances.

Investing in local supply chains and partnering with companies that have capacity

  • Some economies and political systems, and even geographies within these nations (non-coastal areas in the US for example), are more stable than others and can handle adverse events more effectively. Pfizer CentreOne, located in Kalamazoo, Michigan, offers drug developers and manufacturers in the US a lower risk profile geographically and operationally due to this stability and the localization of supply. We manufacture over 1 million kg of complex compounds per year. 

Diversifying supply chains

  • Manufacturers often have multiple API suppliers, but that does not necessarily mean their supply chain is diverse or robust. If suppliers’ respective supply chains are not diverse (with raw materials and chemicals obtained from different sources) then the entire supply network is similarly ‘not diverse’. This can leave manufacturers more vulnerable to supply chain shocks. Having secondary suppliers with unique supply chains is one means of de-risking and creating more resilience in your network. 

Buy early, increase safety stocks 

  • A simple short-term solution is, where disruption is anticipated, to buy early and increase safety stock. However, this is a short-to-mid-term fix for what could be a long-term problem. The energy crunch on chemical manufacturing in China has the potential to continue for years and manufacturers need to think about how long they can afford to tie up working capital due to unstable supply chains. 

Conclusion

More careful consideration must be given to today's API supply chains with risk and reliability playing a greater role in decision-making to ensure secure supply.
Pfizer CentreOne has been reliably synthesizing and supplying commercial volumes of APIs to leading pharma companies for decades. We can safeguard your operations from potential disruption, giving you confidence that you can continue to deliver high-quality medication to patients, when and where they need it. We’re in your corner. 

To find out more about how Pfizer CentreOne can support you in securing a safer API and intermediate supply chain, contact us today.

References 

https://www.gep.com/clp/the-business-costs-of-supply-chain-disruption

https://newsroom.vizientinc.com/sites/vha.newshq.businesswire.com/files…;

https://pubs.acs.org/doi/10.1021/acs.est.7b04573 

https://www.pharmacompass.com/radio-compass-blog/china-s-energy-crunch-…;

https://www.feednavigator.com/Article/2021/10/01/Raw-material-markets-h…;

https://go.tracelink.com/rs/776-BAW-230/images/IDC%20whitepaper.pdf