Effects of Geopolitical Strain on Global Pharmaceutical Supply Chain Design and Drug Shortages

TL;DR

This paper models the impact of geopolitical risks on global pharmaceutical supply chains, highlighting how export bans and capacity disruptions influence drug shortages and company resilience.

Contribution

It introduces a stochastic programming model that incorporates geopolitical risks into pharmaceutical supply chain design, providing insights into strategies to mitigate shortages.

Findings

High expected global shortages (17.2%) under baseline conditions.

Disparities in shortages across income levels, with low-income countries most affected.

Pricing policies and back-shoring can improve drug access, while bilateral alliances may be less effective.

Abstract

Emerging geopolitical risks have begun to threaten global supply chains, including those that produce life-saving drugs. Export bans may prevent a company from shipping products internationally, and it is unclear how these new dynamics may affect company plans and persistent, worldwide drug shortages. To address these questions, we present a global pharmaceutical supply chain design model that considers the risk of export bans that are induced by supplier capacity disruptions and corresponding price increases. The model takes the company's perspective as a decision-maker looking to locate plants and distribute drugs globally. It is a two-stage stochastic program that includes uncertainty in capacity, ability-to-export, and demand. The model is solved by integrating the Sample Average Approximation and L-shaped methods. We present conditions related to when demand will be met and a case study of a generic oncology drug. We find that preparing for geopolitical strain may increase resilience and profits as well as reduce shortages in the short term. At baseline, expected global shortages are high (17.2%) with disparities across country income levels (0.3%, 0.8%, 87.2%, and 87.6% for high, upper-middle, lower-middle, and low income countries, respectively). Pricing policies may improve drug access overall, back-shoring may slightly improve access for the country where it is implemented, and bilateral alliances may not be effective at improving access.