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What the Pharmaceutical Industry Can Teach Us about Supply Chain Security Best Practices

May 24, 2013
Industry supply chains beyond pharmaceuticals will continue to face challenges with cargo theft, government regulations and import/export security as market demands evolve. 

Over the last few decades, increasing globalization and supply chain complexity have posed risks to pharmaceutical safety, ultimately impacting businesses and, most importantly, patients. Today, materials are procured from multiple countries, manufactured somewhere else, potentially packaged in yet another country and distributed and sold globally.

To successfully protect against these risks, proactive supply chain security must deliver actionable intelligence to mitigate those risks. Once implemented, this decision-based approach, utilizing information delivered in real time, allows for efficient business practices that not only protect a brand but also the many partners and people connected to that brand.

The lessons learned in both identifying risks and improving pharmaceutical supply chain security can be applied as best practices for a variety of industries.

This article explores the trends and risks currently impacting the pharmaceutical supply chain, as well as the innovative technologies available to secure it, which can be leveraged across other industries that have similar supply chain risks.

Key Trends Driving the Need for Supply Chain Security

According to the UPS 2012 “Pain in the Chain Survey,” 83% of healthcare companies surveyed rank tapping into new global markets as a top strategy for the next three to five years.

Today, up to 40% of the drugs Americans take are manufactured outside the U.S., as well as up to 80% of the active pharmaceutical ingredients in those drugs.

Furthermore, in 2011 the FDA projected that nearly 24 million shipments of FDA-regulated articles arrived at ports. This is compared to just six million a decade ago.

This rapid expansion of the global market opens companies up to an exponential increase in the number of vulnerability points, coupled with decreased visibility to them, due to insufficient supply chain information. Globalization also leads to a complex system of foreign, federal and state product safety oversight with an incomplete set of enforcement tools. This misalignment of resources leaves U.S. drug distribution vulnerable to a host of problems.

At any stage in this long, multi-faceted journey from raw source materials to finished products to consumers, products can be contaminated from four primary risks:

Intentional adulteration, due to contamination in the manufacturing, storage, or distribution process, or from ingredient substitution for economic gain, is more prevalent with global supply chains. Adulteration can result from a number of sources including foreign and domestic terrorist organizations or activists, economically motivated persons or groups, or even disgruntled employees.

Cargo theft is up due to the sluggish economy and security measures that rely too heavily on expecting people to consistently follow prescribed procedures. In the U.S. alone, cargo theft produces an annual loss of $35 billion and in 2011; the average loss per incident in pharmaceuticals due to cargo theft was $585,000.

Counterfeiting, which is fraudulently mislabeling a product in identity or source, is another significant risk to supply chain security, as well as diversion of products from the intended authorized market to another.

Risks Have Serious Consequences

In pharmaceuticals, the most serious consequences of these four primary risks are those that impact patient safety. Adverse patient reactions can range from minor to as severe as death. Other consequences include drug recalls, and – because drugs are tracked by lot and not units – stolen drugs can compromise volumes that are multiples of the actual drugs stolen. In general, businesses can also incur daunting costs, such as revenue loss, recall costs, legal costs for damage to health or life and regulatory fines.

Ultimately, complications in any supply chain impact a brand’s reputation and require time and investment to rebuild trust among customers, partners and patients. So while the opportunity to tap into the global market can generate greater revenue and efficiency, it’s important to be mindful of these risks so that appropriate security measures can be implemented to protect a business’ supply chain.

Move from a Reactive to a Proactive Security Program

An organization can protect against these risks by implementing an end-to-end proactive pharmaceutical supply chain security program that takes advantage of key advances in technology including cloud-based services, location sensors and real-time intelligent monitoring.

For example, cloud-based services enable remote video audits to ensure compliance with operational and regulatory standards. Advanced truck security and control solutions with location sensors combined with an onboard system can detect trucks that are off route and remotely shut down a truck to prevent cargo theft.

There are also Physical Security Information Management solutions that automatically link disparate monitoring devices like video, access control and equipment sensors to minimize the risk of manual oversight and allows for real-time alerting. This type of technology correlates relevant information and incidents from multiple systems and can apply corporate policy to enforce consistent actions across the enterprise.

Value Proposition of Proactive Supply Chain Security

In addition to protecting people and assets, a proactive supply chain security program provides the following benefits:

  • Product traceability
  • Early detection of derailed shipments
  • Compliance with corporate and regulatory group standards

Beyond these tactical rewards, proactive supply chain security programs can help a business retain its customers and partners and better protect its reputation. And in the case of pharmaceuticals, it can save lives.

What’s Next?

Industry supply chains beyond pharmaceuticals will continue to face challenges with cargo theft, government regulations and import/export security as market demands evolve. To stay ahead of these threats, businesses must stay in tune with emerging technology, consumer and market trends, collaborating with partners and peers and engaging in industry-wide associations to share best practices, lessons learned and new ideas about the future of supply chain security.

Above all, organizations must utilize this developing technology to arm their businesses against increasingly sophisticated criminals.

Jay Hauhn is chief technology officer for Tyco Integrated Security, a commercial security systems integrator.

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