Pharmaceutical Supply Chain Reliability and Effects on Drug Shortages

TL;DR

This paper introduces the first model to assess pharmaceutical supply chain reliability, highlighting how configuration, disruption risk, and recovery speed influence drug shortages and suggesting strategies for improvement.

Contribution

It develops a novel model for pharmaceutical supply chain reliability, incorporating key factors like configuration, disruption risk, and recovery, with data-driven analysis and policy implications.

Findings

Lean supply chains have a 10% expected shortage rate.

Doubling recovery speed or halving disruption rate reduces shortages to 5%.

Adding a backup supplier lowers shortages to 4%.

Abstract

Drug shortages occur frequently and are often caused by supply chain disruptions. For improvements to occur, it is necessary to be able to estimate the vulnerability of pharmaceutical supply chains. In this work, we present the first model of pharmaceutical supply chain reliability. We consider three key approaches that companies may use to improve reliability: configuration, risk of disruptions, and speed of recovery. Key metrics include expected drug shortages, average time-to-shortage, and average time-to-recovery. We parametrize the model using data from major drug shortage databases and a case example of a generic injectable oncology drug. With a lean supply chain configuration, we observe that expected shortages at status quo conditions are 10%. By either doubling the speed of recovery or halving the disruption rate, expected shortages could drop to 5%. The most influential single change would be to add a back-up supplier to a lean configuration, leading to expected shortages of 4%. We also consider profitability and present the breakeven prices for different configurations. The results from our analyses could lead to immediate policy impact, providing evidence of the benefits of redundancy and improving facility quality.