By Shawn M. Schmitt
Communications Specialist, Enzyme
The tariff wars underway between the US and an array of other countries is straining already-stressed supply chains for pharmaceuticals, medical devices, and other medical products, says an expert on global supply chain management. But there are things manufacturers can do to alleviate supply chain pain points caused by tariffs – including identifying more than one supplier that conducts business in close proximity to where the finished products will be distributed.
“It’s a challenging time. One of the things that’s going to impact the supply chain over the course of the next four years is the impact of tariffs,” said Teresa Gorecki, VP and Practice Lead for New Jersey-based Compliance Architects. “During the COVID pandemic we experienced significant drug shortages and medical device shortages due to the inability to ship drugs and medical devices globally in a timely manner. That was a lesson all drug and device companies should have learned – that we can’t just assume we’re always going to be able to ship components and products from one country or region to another on demand.”
Gorecki, who has previously held positions for various Johnson & Johnson subsidiaries including Janssen Pharmaceuticals and Ortho Biotech, believes more drug and MedTech manufacturers are working to bring manufacturing sites into regions where they distribute products.
“That cuts down on the time to ship and the cost to ship. It eliminates the added cost associated if and when tariffs are imposed upon pharmaceuticals or medical devices,” Gorecki told Enzyme in an interview. “If your company wants to distribute in Asia, and it manufactures in Asia, then your shipping costs are lower and the impact of tariffs is minimized or eliminated.”
Or “if you source your raw materials in the US, and you manufacture in the US, then the potential for tariffs driving up your standard cost will be eliminated,” she added. “If companies adopt regional-based supply chain strategies and manufacture closely to where they want to distribute the product, things like tariffs or import holds imposed by the FDA [US Food and Drug Administration] due to lack of compliance at ex-US manufacturing sites is eliminated. In essence, your company becomes immune to that.”
Further, manufacturers are subject to the regulations that are local to the country they manufacturer in as well as the regulations where they want to distribute. This discrepancy and lack of harmonization in global regulations for drugs and MedTech adds significant cost and complexity to global supply chains.
“The major contract manufacturers have locations now in Canada, Mexico, China, India, and Europe,” Gorecki said. “And because of that, …outsourcing has continued to present itself as a good solution for a global pharmaceutical or medical device company. If a company wants to take a product global and it doesn’t have that capability itself, there are tremendous third-party organizations they can partner with in an effort to make medical devices and pharmaceuticals available in parts of the world a lot sooner than you would have if you were sourcing from a single site.”
Governments Must Step Up Financially, Be Prepared For Next Pandemic
Another hurdle facing supply chains is that many drug companies cannot afford to produce some of the most common – yet much needed – essential pharmaceuticals needed around the globe because government reimbursement for these products is extremely low and there is sometimes little to no opportunity to recover the costs of making them.
“These essential medicines – basic things that prevent diarrhea; drugs that treat parasitic infections; basic antibiotics; Albuterol for people with asthma. …These are basic essential medicines around the world,” Gorecki said. “The challenge is, there are more and more companies – including the generic [drug-making company] – that cannot produce [those essential medicines] because they cannot cover their basic cost of producing those medicines.”
She added: “Generic companies manufacture after drugs after go off-patent, and they are under huge pressure from Medicare and Medicaid in the US, and health agencies around the globe, to produce at the very lowest cost. Governments negotiate the price for medications in many healthcare systems and they cannot pay what a company may need to cover their standard cost of goods.”
Throw in another worldwide illness, and some supply chains could bend to the point of breaking, as happened during the recent COVID epidemic. And that is particularly a problem if a government isn’t planning ahead and stockpiling products they will likely need.
“If we had another pandemic, what are the things we would need? Well, logically, we might need ventilators, we might need masks, we might need gloves, we might need hand sanitizer. We might need essential medicines. Not having the capacity in all regions around the world to make those [types of things created a great deal of the problems that] we experienced with masks and ventilators during the COVD-19 pandemic,” Gorecki said.
“Governments around the world need to be prepared to stock up on those things that they will likely need,” she said. “But the problem is, acquiring a lot of inventory costs a lot of money. So, when budgets inside pharmaceutical and medical device companies are cut for things like surplus stock of ventilators and masks, it can have a catastrophic impact. The issue is compounded when government cuts the budget for safety stocks needed for a pandemic. Those two things combined placed extraordinary pressure on supply chains because now there is no safety stock across the entire supply chain to cover an emergency.
“These kinds of things are so important for manufacturers to consider as they continue to evolve their supply chain strategies,” Gorecki noted.
