In a world where supply chains for medical products are often long and complex – spanning the world so medical device manufacturers and pharmaceutical companies can find cost-efficient production capacity – it should be no surprise that Covid-19 caused major disruptions. But does it take a global health crisis to prove that these supply chains are fragile? The simple and straightforward answer is “no”.

The pandemic thrust supply chains into the public consciousness, with everyday goods in short supply and supermarket shelves empty. But over the last few decades, supply chain disruptions have repeatedly dogged the US healthcare system. They have cost healthcare providers millions of dollars, threatened clinical research, and heavily impacted patient safety.

As the effects of the pandemics ease, the fragility of medical products supply chains continues to lurk just beneath the surface. It doesn’t help that the world is dealing with macroeconomic headwinds, rising inflation and a hot war in Ukraine with no end in sight. Indeed, some analysts suggest that we now live in a VUCA world, where ‘volatility, uncertainty, complexity and ambiguity’ reign, and in which constant, unpredictable change is the norm.

In that environment, we need a framework of appropriate measures to underpin a cost-effective medical product supply chain resiliency strategy. That is what the Committee on Security of America’s Medical Product Supply Chain, which was convened by The National Academies of Sciences, Engineering, and Medicine (NASEM), set out to create in 2022.

“The supply chain has been resilient in instances where products are profitable, but where less is at stake it has been more brittle,” notes George Ball, associate professor at the Kelley School of Business, Indiana University, and a member of the committee behind the NASEM report.

“Medical devices have fared better than pharmaceuticals, as margins are obscenely high compared to pharma products, so there is an economic incentive to have continuity and back up in the supply chain,” he adds. “When I was in medical device manufacturing, business continuity was a major focus because we were making high-profit products. Smaller margins mean less incentive to have that continuity in place.”

Defining and delivering resilience

NASEM defines resilience in simple terms. It is the ability of medical product supply chains to match supply with demand under both normal and emergency conditions, so that patients and providers can count on access to medical products when they need them. The report, entitled ‘Building Resilience into the Nation’s Medical Product Supply Chains’, sought to examine the root causes of medical product shortages and identify ways to ensure that supply chains are less brittle. Ultimately, its goal was to map a path through volatility, uncertainty, complexity, and ambiguity and change the game by introducing better visibility, planning and risk assessment.

“The most important piece in the report is to help make the supply chain more transparent in terms of where everything is made,” believes Ball. “A common theme is that not knowing where things are made means it is difficult to know how fragile the supply chain is. Resilience is more of a problem with drugs than devices, as generics can be made in very low-cost markets.” As an example, India and China are the biggest producers of generic pharmaceuticals. “That is less the case with medical devices, as they are more complex and require highly skilled labour,” Ball adds. “Devices have inherently more robust supply chains spread across the world.”

The focus of Ball’s work is on product recall causes and effects, as well as the recall decision-making process, FDA regulatory policy, and supply chain quality in the pharmaceutical, medical device and automotive sectors. This gives him uniquely detailed insight into the challenges the industry faces, and he firmly believes that the report’s seven key recommendations start with the most important steps.

The first two recommendations are to enhance awareness of medical product supply chain risks and remedies, with the FDA making sourcing, quality, volume and capacity information publicly available for all medical products approved or cleared for sale in the US; to establish a public database to share this information; and to promote analyses of this data by interested parties that could lead to novel approaches to address the other priorities identified in the report – mitigation, preparedness and response.

Mitigation strategies focus on reducing the risk and magnitude of disruptive events that cause supply shortages by making health systems deliberately incorporate quality and reliability – in addition to price – when making contracting, purchasing and inventory decisions. The recommendations on preparedness aim to prevent or reduce shortages from disruptive events that do occur. The committee suggests that the Office of the Assistant Secretary for Preparedness and Response (ASPR) modernise and optimise inventory stockpiling management, and that the ASPR and the FDA complement the stockpiling of medical products with capacity buffering policies to enhance cost efficiency and improve protection in major emergencies.

“Medical devices have fared better than pharmaceuticals, as margins are obscenely high compared to pharma products, so there is an economic incentive to have continuity and back up in the supply chain.”

In the response part of the committee’s resilience strategy to protect against supply shortages that do impact end users, there is a recommendation to negotiate an international treaty with other major medical product exporters to make more effective use of limited global supplies by ruling out export bans on key medical products and components. Furthermore, it suggests that the ASPR and the Centres for Disease Control and Prevention (CDC) establish a domestic working group to examine ways to improve the final delivery stage of the supply chain.

The recommendations make perfect sense, but their implementation hinges on the first step – improving transparency – and that is where Ball sadly expects some pushback. Better visibility through the supply chain, he says, may not be to the industry’s liking.

“Consumers and group purchasing organisations will drive the market to be more resilient if they have more information about where and who makes a product,” Ball explains. “They could take a more informed view on risk than they can now, as they currently have very little view on risk at all. Consumers trust a medical product to do what it says it will do, and they have no way of knowing if it is a risky product. That is not true of any other product, like a phone or a car.”

For the report, Ball and his colleagues interacted with both pharma companies and medical device manufacturers, and on average he says the medical device companies had no concerns about new laws requiring disclosure of where things are made. “Pharma companies were very different in their approach,” he explains. “Generally, they want cost and location to remain secret. In my opinion, the FDA is making a big push to cut the cost of drugs and it is not in their interest to do what we are recommending, as people might look more at quality, which could push up the cost of healthcare.”

“[The] FDA is making a big push to cut the cost of drugs and it is not in their interest to do what we are recommending, as people might look more at quality, which could push up the cost of healthcare.”

Globalisation is a ghost story

When supply chains break down, there is frequently a knee-jerk response that blames globalisation, suggesting that long supply chains with many production stages and complex transportation links are more prone to failure than short domestic supply chains. So why do supply chains span the globe? In short, cost or capability advantages of overseas locations can result in lower prices, higher quality, more variety and more innovation.

Onshoring – moving all production stages to domestic sites – would see costs rise dramatically, and the affordability of medical products could become a serious problem. Indeed, NASEM’s report points out that many shortfalls have been experienced in normal, non-crisis times, highlighting chronic shortages of generic injectable drugs in the last decade.

While onshoring might improve resilience, it would be at the expense of lower prices, better quality, more variety and innovation. “It is a hard balance to get right,” says Ball. “When I was in the industry, we would make sure we were approved to manufacture in a closer location, but make the majority in a lowcost location. Distance is a factor in risk, anecdotally, and it is tax incentives that push supply chains to be more global,” he adds. “A White House task force now exists to push domestic manufacturing, but it needs the tax policy to back that up or it is just words. Profitability is key, so domestic manufacturing must be financially appealing.”

Rather than rushing to onshore, Ball and the authors of the NASEM report support bringing more visibility into the global supply chain, whether pharma companies like it or not. “Recommendation 1 is the most important, though it may be the least likely to be adopted,” Ball explains. “If that is done, then many of the other problems might be addressed and the market will drive resilience. Transparency would solve a lot of problems, in my opinion. It is not straightforward, and it needs public policy change, but there is a lot of lobbying in Congress by pharma companies, so there will be pushback.” It is hard to create consensus, but transparency is surely better than crisis measures.