Why Pharma Cannot React Its Way Out of the Next Crisis

You can't just grow your company without growing your supply chain. And I also think that the scope of supply chain is in the future, not only what you used to understand about supply chain. I think supply chain also should be in the lead of strategy because supply chain understands the connectivity of the whole network, from commercials through finance to operations. Hello and welcome to Speaking of Supply Chain, where MEBOC experts from around the world unpack the real stories, strategies, insights and innovations shaping the future of supply chain.

I'm your host, Ellen Wood. Risk us to be something companies responded to after the disruption happened. Today, especially in pharmaceutical supply chains, risk has become a permanent design condition. Tariffs shift, overnight conflicts, disrupt critical corridors, and pricing pressure continues to intensify, all while patients still depend on uninterrupted access to medicines.

In this episode, we're exploring what it really means to move from reactive firefighting to proactive resilience. And joining me is Stefan Gotthardt, who moderated a powerful discussion at this year's European Logi Pharma Conference just last month in Vienna on how pharmaceutical leaders can anticipate geopolitical shocks, strength and supply networks, and protect global access in an increasingly fragmented world. Welcome Stefan, Thanks Allen, thanks for having me. Great to have you so in your discussion last month at the conference, what was the general consensus, what has geopolitical risk become or why has geopolitical risk become such a defining issue for these pharmaceutical supply chains.

I think there have been various responses to this, but I think what they all had in common is that over the past decades, pharmacutical industry really followed a globalization approach. Networks are global, sourcing is global, and you can easily imagine that if there is an interruption, may it be a vessel that is stuck in the sewers channel, or whether it's you know, bigger issues around the world that immediately impacts a globally set up supply chain. So it's because of the way we've designed them for the past twenty thirty years that causes these difficulties when there is that type of large scale.

Disruption, exactly because it takes long to set up new processes new sourcing locations and specifically, and we're going to talk about this in more detail, I guess. But when you think about APIs and starting materials, it's not only that they are being sourced from India or China or other plases in Asia. It is also that they cannot be sourced from Europe any longer because for commodity products, the manufacturing capacities and capabilities have been moved away to other regions in the world.

So this cannot instantly turn back to what we had like thirty forty years ago. Yeah, it's not as easy to make those changes when such a large component of the pharmaceutical production is so far away. Exactly exactly, So during the panel, you emphasize the shift from reacting to anticipating. What does that kind of proactive resilience actually look like in practice?

So in my mind, in my mind, and that was also part of my introduction to the panel, we are always good at reacting to a given problem. So I mentioned the vessel that got stuck in the sewers channel, So we looked at what do we do when, you know, in case the next vessel gets stuck in the next sewers travel and then was COVID. So the learning after COVID was how do we prepare for the next pandemic. Then we had this problem with tariffs, so we think about what can we do to avoid the impact of terriffs.

It is a singular, if you will, a singular consideration of activities that address specific issues versus making our supply network is such more resilient. And I've been to conferences end of last year where companies have presented their approach to mitigating those kinds of risks in a different in a different way. And to simplify what what I've what I've heard there was they said, what we sell in the US, we produce in the US, what we sell in Europe, we produce in Europe. What we sell in China, you produce in China.

Now, it said before, it's not so easy for the farmer's industry to instantly do that. But a strategy never gets implemented instantly. A strategy needs to be worked out and then needs to get implemented over time. But we don't have that strategy.

That makes sense. One of the other issues you mentioned briefly was was the tariffs and the trade restrictions, And I imagine that that impacts when these companies make these strategic decisions to produce where their end customers are. So but those can change as quickly as overnight. To your point, we can't change the strategy overnight.

We can't change the supply network overnight. What are companies doing differently today in order to reduce that exposure before there is a disruption? Short term activities has certain have to do with with finding manufacturing partners. If we don't have a manufacturing site in the US, which is the case for some of the farmer companies, or they have manufacturing sites but they don't produce the products for the for the specific specific markets, they look for contract manufacturing partners.

Is these kind of things, but that is that's expensive and it's still it still kind of requires product transfers and respective respective activities. I think the pure promise of investing somewhere in terms of building manufacturing capabilities and in the likes is maybe a good signal, but it needs to be followed by action and by execution. So again it's not a short short term remediation, but you have to start in order to get there. Okay, now that makes sense to start thinking about those potential problems down the road.

And you mentioned that the contract may manufacturing is an expensive option, and one of the recurring themes was at the conference was balancing that resiliency with the affordability. How do the leaders justify investing in that kind of redundancy and flexibility when when the pricing pressures are already so intense. I'm really glad that you asked the question, Otherwise I would have asked myself to me, because I think that starts the discussion at the wrong at the wrong end farmer industry.

Farmer industry takes the price pressure as a given, and I think that's a fundamental mistake because I think that providing appropriate medicine to patients that need medicine is an overall, you know, an overall objective for the society, and the society includes the farmer industry, the doctors, the pharmacies, the payers, and the health authorities. And I think the last two are the ones that are trying. They're trying to understand their role, the changing role in the future, and they are learning about the impact that cost and price pressure does have on providing medicine to patients.

And you know, there's this this running gag or anecdote about this. You know, a pack of chewing gum that is twice more expensive than than a pack of iBook iboproven tablets. I mean, that's that's, that's true. I happen to speak to an owner, a managing director and owner of a contract manufacturer two days ago, and he said, I am declining supplying generic products, specific generic products to customers in Europe because I cannot make any money out of it.

And it's not that he wants to get rich by producing ibuoproven, but at least covering some you know, kind of costs is important. So what I'm time to get at the public pressure needs to increase a bit further to make authorities and payers understand that producing pharmaceutical product regionally or even locally has a price tag and it's not only the farmer industry that can cover for those costs. It's in It must be, it must be a joint, a joint effort. They are generic companies in this world, big big ones who are leaving exiting specific markets with specific parts of their portfolio because it's not profitable, and authorities are allowing this to happen.

So that creates the problem of shortages, and here come again, here come authorities, back to the into the game, because public pressure on product shortage is going to increase, specifically if it's like critical medicine, oncology products, et cetera, et cetera, et cetera. And at some point I'm absolutely convinced it will it will click and there's going to be made a connection between supply of product and appropriate price of product. And that's interesting that you mentioned that this effects not only that the pharmaceutical industry, but also all the practitioners, the doctors, the nurses, the patients, pharmacists, because at the end of the day, we are all human and we are all going to need medicine at some point.

Even those owners and the pharmaceutical companies themselves are made up of people who are going to need medicine at some point. So that's an interesting perspective. But I agree that there does need to be some sort of pressure. Political pressure is most likely from governments and authorities in order to ensure that the medical patients that are necessary for their populations are available.

But then when we start talking about countries and politics and government, then we inevitably encounter conflict and conflict driven disruptions have become more common, more unpredictable. What capabilities separate the companies that are able to adapt quickly from those that struggle to adapt? So, I think pharmaceutical industry for the longest time was famous for stabilities, stable processes, lack of ambiguity or these all these kind of things. There are the industries that have and had to be always more flexible also from a mindset, a mindset perspective, and I think that is something that the pharmacutical industry is going to get at when you look at how positions, specifically positions like the global head of supply chain roles in pharmacy companies are being are being filled.

In the past, it used to be people experts who have worked in the pharmacually industry. Today, what you find very often is that it's those individuals are coming from other industries, fast moving consumer goods, et cetera, et cetera. I have recently spoken to a global head of supply chain who came from automotive. So so I mean it tells me that supply chain is a discipline that requires experience and capabilities.

I get that I've done it myself for quite some time, but it's sometimes super helpful if there is outside in knowledge from other industries that have been had to be more agiled, more flexible. I use the ambiguity these kinds of things. This will will also have will also have the pharmaceutical industry going forward interesting. And I would agree that when it comes to supply chain and logistics, there are special specialty knowledge that is available to those individuals that might not be necessarily pharmaceutical knowledge or you know, consumer goods knowledge, or even fashion or retail knowledge, but that is applicable to all supply chains and those are I mean, we've seen it in the past ten years, fifteen twenty years that the rise of the importance of supply chain specific knowledge is becoming that differentiator for a lot of these companies.

You can't just grow your company without growing your supply chain. And I also think that the scope of supply chain is in the future not only what we used to understand about supply chain. It. I think supply chain also should be in the lead of strategy because supply chain understands the connectivity of the whole network from commercial through finance to operations and so from a strategy perspective, supply chain has a very transparent overview of know what the different functions do, what the different functions need, and also should own the strategic.

Element absolutely, even as recently as ten years ago, and I use that because that's how long I've been with me. Back and in the supply chain industry, a lot of supply chains were still seen as an expense of doing business, and I think more and more companies have come to understand that it really can be a differentiator for their business and a revenue driver if they get it right. Yeah, I fully agree with you. So, looking towards our next planning horizon for those strategies, let's say the year twenty thirty, which is not that far off, what do you believe will become the non negotiable capabilities in these resilient supply chains.

If you understand the importance of risk resilience, then we'll see deglobalized suply networks. We'll have to see deglobalized supply networks. We'll have to see dual sourcing, We'll have to see appropriate price levels, We'll have to see a more open and transparent conversation exchange between farmer industry and authorities and more flexibility there when it comes to how we manage shortages, how we are able to bring products from one market to another market, which is more relevant for Europe than for the US, but it's very relevant in Europe we have countries specific products.

I would like to believe that in the course of the next few years we'll get a more transparent, more open, and more honest conversation about capabilities and limitations and a joint approach how to be able to. Solve those wonderful So, if there were a single mindset shift that you hoped the audience walks away with after the panel that you just gave at Logi Forma or for our listeners today, what would that be. What would that mind shift, mindset shift be that you hope they walk away with.

Globalization in the pharmaceutical industry has reached its end, and we need to start thinking how to deglobalize, how to regionalize, to be more independent and risk resilient when it comes to patients supply, because that is our main purpose, that is why we are It's not for optimizing kapex or overall equipment efficiency or these kind of things. We are here to produce product into supply products to patients, and that is what we have to continue to do, and we have to find new ways of doing it.

That's a beautiful way of putting it, to go back to what it is that we're doing in the first place and why. When it comes to the pharmaceutical industry, of course there is profit to be made, but it is about making medicine for people who need it. That's the bottom line. Exactly what stood out from this conversation is that resilience is no longer just an operational concern.

It's becoming a strategic differentiator. The organizations that will lead in the next decade are the ones designing supply chains that can anticipate disruption, adapt quickly, and continue protecting patient access no matter how uncertain the environment becomes. Stefan, thank you so much for joining us and sharing the insights coming out of Logi Pharma twenty twenty six and is always thank you for listening to Speaking of Supply Chain. You've been listening to Speaking of Supply Chain a meboch podcast.

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