Managing the logistics risk in life sciences
The life sciences sector is particularly dependent on timely shipping of core ingredients as well as the integrity of the substances during transit and storage, not only to ensure the effectiveness and reliability of finished drugs but also to comply with regulatory requirements and provide a reliable service to their patients and stakeholders. Avoiding losses both in the input and output supply chains is becoming more complicated and, giving this area more attention, is likely to pay off.
Transporting sensitive goods
Many of the active pharmaceutical ingredients (APIs) used in the life sciences industry are sensitive to temperature, humidity, light, shock/vibration and, in addition, both the APIs and manufactured drugs often have a limited shelf life. This, combined with the fact that regulators set strict and rigorous quality and safety standards make managing the logistics chain a core business function. The increasing standards required in this sector create a heightened risk of having to write off entire shipments due to (potentially) damaged and/or contaminated freight.
Because possible loss or damage can be very difficult to spot until it’s too late, transportation services need to meet rigorous temperature management, hygiene, and safety standards. A product recall event can be expensive and damage a business’ reputation, adding to the potentially devastating cost of lawsuits in the worst case.
For cold chain shipping, a temperature change of even a few degrees can, in some cases, trigger a total loss of the entire shipment, causing significant operational issues and delays in getting the product to market. Each party in the supply chain must be able to track the condition of compounds throughout the product cycle to ensure the quality and safety of the products until they reach the end user.
Some aspects of the industry are even more sensitive than others, such as the handling of animal- and/or human tissue /biological material. Temperature fluctuations, power outages, equipment failure and human error can have devastating effects to an asset that is hard or impossible to re-produce. In addition, the question around ‘valuation’ of such unique assets, presents another layer of complexity, and needs careful consideration before exploring cargo insurance solutions.
In modern-day supply chain management, the industry most often relies on numerous third parties to monitor, identify and report any breach of chain of custody, and subsequent product integrity issues. For transportation of controlled substances, even higher visibility and heightened security may be required.
Supply chain risk
In general, managing the logistics process in the life sciences sector tends to be more complicated than in other industries. Many drugs have a limited shelf life and overstocking can result in a great deal of waste. At the same time, waiting for APIs may delay the manufacturing and distribution processes and impact the financial performance of the business. Further, the sector carries a lot of responsibility when managing the logistics process as drug shortages can pose a risk to human life, and further hamper the life sciences industry’s progress and development as a whole.
Many APIs are manufactured and bought in bulk from large third-party chemists abroad (often in China or India) and the shipping industry’s own challenges with port congestion, geopolitical tensions, and capacity constraints can impact the reliability of such inward supply chains. Rising demand and limited supply have forced many cargo carriers to raise their rates while the frequency of delays and cancellations continues to increase.
As a result, pharmaceutical companies must develop exceptional supply and demand forecasting capabilities as well as flexibility since a manufacturer may, in some circumstances, need to rapidly ramp up production and find transport / storage capacity at short notice.
Inadequate management of suppliers can also trigger supply chain disruptions since the life sciences sector is not immune to the current labour and material shortages. Swapping suppliers or adding a new one can be complicated as the production of specialist compounds generally involves extensive infrastructure adaptations. Ramping up production to match rising demand can therefore constitute a slow process, and time is of the essence in this competitive business. Any delay in the distribution of a drug can cause severe financial trouble as a competitor’s alternative drug may quickly gain market share, and/or unique patents may run out.
From a risk perspective, the distribution of the final product is arguably most concerning as it often involves shipping large quantities of drugs at high margin value. An accident during distribution of one batch can sometimes cause a significant financial loss, since the regulator may ask for the whole load to be destroyed. Unsurprisingly, cargo insurers are particularly concerned about this final stage of the supply chain.
Recommendations
It is crucial that life sciences companies develop comprehensive, written standard operating procedures (SOPs), and continue to invest in technology that more accurately tracks and reports product integrity throughout the supply chain. The SOPs must describe how to perform specific tasks or operations in producing pharmaceutical products with organized and easily verifiable instructions for operations. The SOPs need to:
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Ensure compliance with regulations throughout the supply chain
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Detail handling requirements of the product(s), including packaging, temperature management and storage needs.
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Establish a protocol for loss mitigation following a number of possible scenarios
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(Where applicable) outline all procedures for manufacturing, testing, packaging and quality control
In line with the above, careful consideration must be given to specific written work instructions for employees and third-party partners, with detailed step-by-step guidance for how to perform a particular task within such process.
Having well-managed SOPs and investing in the right tools to check/control/report the product’s integrity throughout its life cycle is essential. These measures help demonstrating the quality of the risk to potential insurers and enhance the business’ ability to recover losses from responsible third parties. Adapting the risk management protocols on a continuous basis will further improve the reliability of the entire supply chain.
For further information, please visit the Lockton Cargo & Logistics and Life Sciences pages, or refer to our Stock Throughput Protection flyer.
Alternatively, please contact:
Maxim De Prins, Senior Vice President - Marine Cargo – Pharma, Food & Beverage
E. maxim.deprins@lockton.com
Darci Edwards, Vice President Life Sciences
E. darci.edwards@lockton.com
