Did COVID-19 Kill Just-in-Time Pharma Supply Chains?

Faced in the past with increased pressure to reduce costs, drug manufacturers embraced just-in-time (JIT) or lean manufacturing supply chain inventory systems.  This resulted in companies buying smaller quantities of raw materials from suppliers and reducing the amount of materials in inventory, leading to an increased return on investment (ROI) among other benefits.

As the COVID-19 outbreak became a pandemic and countries began closing their borders and restricting trade and exports, there are those in pharma who wish they had larger inventories of raw materials or active pharmaceutical ingredients (APIs) to sustain their manufacturing processes for a longer period of time.

The full impact of the pandemic has yet to be felt, and the intricate and proprietary nature of pharma supply chains prevents an overall industry analysis.  Considering the current reality, is the JIT model now dead or dying in the pharma industry?

Is Just-In-Time Dead?

This topic was one of several addressed at an ISPE-sponsored webinar, “COVID-19: Pharma Supply Chain Security & Robustness During Global Pandemic,” held on April 2, 2020.

Verta Life Sciences Managing Partner Nick Davies, a moderator of the session, asked the panel a simple question an audience member submitted, “Is just-in-time dead?”

Gilead Sciences Corporate Operations Senior VP Joydeep Ganguly began his remarks by discussing supply chains in the pharma industry in general.

He commented on the importance of being agile, and how the JIT philosophy around low inventory levels and pharmaceutical efficiency has resulted in some interesting concerns “when you cannot get your workforce into a facility or a site.”

“What I think we can learn from this right now is our ability to react to the next crisis that will occur will be less a function of the dominant supply chain model we have chosen, but truly will be a function of our culture of agility and our culture of innovation and our culture of driving change and accepting change and reacting appropriately.”

Ganguly also pointed out that, “supply chains that have been heavily reliant on large inventory levels, which were touted as being super inefficient in the past, are the ones that are now being touted as super resilient.”

The pandemic and its impact on pharma, he said, “has taught us that we really cannot be arrogant about having one model that drives a pervasive view on how we structure our supply chain.”

“What I think we can learn from this right now,” Ganguly continued, “is our ability to react to the next crisis that will occur will be less a function of the dominant supply chain model we have chosen, but truly will be a function of our culture of agility and our culture of innovation and our culture of driving change and accepting change and reacting appropriately.”

Regarding the JIT question, he said, “I don’t think just-in-time is dead.  I do believe we will get over this crisis and that we will go back to where some of the just-in-time principles have led to unprecedented value that we have given back not just to the shareholder but in terms of innovative therapies for patients.”

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Where Inventory is Kept Will Be Important

North Carolina State University Poole College of Business Supply Chain Resource Cooperative Executive Director Robert Handfield—who is currently writing a book on next-generation supply chains—agreed.

“I don’t believe JIT is dead.  I think this issue is not so much keeping less inventory, but where we keep the inventory and how we develop agile supply chains.  I think velocity of material flow is critical while looking at security of supply.”

Handfield pointed out that in other industries—for example in the automotive industry—suppliers tend to be local.  “There is a reason for that. It is not just for JIT.  It is also around communication and velocity of material movement.  I think we are really going to start to look at how we drive greater collaboration—and not just make a decision based on lowest price.  We need to think about the overall supply.”

He also predicted that people would start rethinking keeping larger inventories.  “And I think organizations also need to rethink their business continuity planning.”

Handfield commented that “it is difficult before a pandemic to ask what the ROI is of keeping a bunch of material in a stockpile.  That becomes very clear when you have an event like this.”

He also commented that he does not believe this is an isolated event.  “I have read where these kinds of COVID viruses could recur, and there may even be a vaccine that becomes part of the ecosystem as well in conjunction with the flu vaccine.  I think this may be a more regular event that we need to be prepared for.  And I think organizations are going to rethink this going forward.”

What is the ROI for Risk Management Processes?

Regarding organizational responses and learning, Ganguly commented, “one big takeaway for us…is the ROI for risk management processes” and the importance of performing risk planning, management, and governance processes.  He maintained that some serious risk scenarios are “now manifesting themselves in reality.  The worst time to find out your readiness and preparedness for a crisis is during a crisis.”

Vetter Pharmaceuticals Supply Chain and Customer Project Management VP Timo Usinger also addressed supply chain risk management.  He commented on how difficult it can be to get support for performing a supply chain risk management evaluation.

“If you want to have a discussion or start a project on this topic, nobody from management or from your stakeholders is clapping his hands.  In the event that something happens, like now, everybody is talking about this.  I hope that the sustainability of the supply chain or supplier risk management will be increased in the future.”

“Buffer stocks cost money…. But what does it cost if there is no stock available and you need to shut down production?  If there is no free capacity and you have these kinds of events, how do we react? Maybe we would lose more money.”

Regarding inventory costs, Usinger commented, “Buffer stocks cost money…. But what does it cost if there is no stock available and you need to shut down production?  If there is no free capacity and you have these kinds of events, how do we react? Maybe we would lose more money.”

He expressed his hope that the lessons learned from the impact of the COVID-19 pandemic on pharma supply chains would be long-lasting.  What he does not want to see, he said, is “four years later everybody asking again what the logistics cost per unit are and asking to bring them down and having the just-in-time principle in place again.”

In conclusion, Usinger commented, “just-in-time is not dead, but maybe a little bit more dead than yesterday.”

In addition to Ganguly, Handfield and Usinger, also on the panel were Lonza Pharma and Biotech Supply Chain Planning and Program Management Head Christian Morello and United Parcel Service (UPS) Healthcare Sales Managing Director Jen Trone, who weighed in on other topics during the webinar.

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