Effects on Pharmaceutical Supply
The uncertainty of Brexit leaves millions in the UK and EU open to significant disruption in the pharmaceutical supply chain, creating severe shortages and impacting the availability of vital medicines. Governments answer to the possible fallout effects of Brexit on pharmaceutical supply, remains unclear, and inadequate.
A lack of trust and insufficient information sharing, along any supply chain, causes inefficiencies, unnecessary costs, and missed opportunities for members. The pharmaceutical supply chain, is no exception.
The looming hard Brexit might turn this economic issue into a life-threatening tragedy for patients in the UK and across the European Union.
In a perfect world, even after a hard Brexit, pharmaceutical supply will follow market demands, and the supply of medical goods will remain uninterrupted. Unfortunately, the likelihood of this happening is rather small.
A smooth flow of products along any supply network requires each member to trust their suppliers to both receive and deliver on time. Otherwise, members begin to stockpile medicines and medical supplies “just in case”, so products end up stuck in transit. This leads to fundamentally higher costs for all participants, and in many cases, product shortages for the customer/patient. This problem is exacerbated by preemptive calls for a drug export ban after a no-deal Brexit. The pharmaceutical industry is worth £60bn to the British economy, and exports 45m packets of medicine to Europe every month, with 37m coming the other way (1).
Significant efforts have already been made in the UK to prevent the disruption of medicine supply after a hard Brexit, by creating vast stockpiles of drugs. While this may make intuitive sense, on closer examination, it becomes clear that these efforts might turn out to be counterproductive because one key element is missing: information sharing.
Lack of trusted information about stock levels and plans within the supply chain leads to market participants having no other option but to “play it safe” and stockpile. Despite this overstocking, manufacturers feel pressured to keep producing more and more, because the drugs aren’t actually being delivered to the patients that require them, so demand at the end of the supply chain grows more urgent.
This sequence is repeated until every supply chain member, including the pharmacies, are overstocked. While this does mean that, finally, sufficient amounts of drugs are reaching the patients, this is also the point where manufacturers still producing full stream ahead, suddenly see the demand drop out from under them. Now the manufacturers are caught between a rock and hard place, because with an export ban in place, there is no market opportunity for them and they are left holding the bag or pill bottle, in this case, and they are forced to dispose of their overproduction. As a consequence, production levels slow to a trickle until manufacturers feel the demand increase. With every buyer being overstocked themselves demand will stay dead low for a long time, until it will suddenly explode. The mechanics of theses inefficiencies have been investigated for decades and are well understood. Scholars have coined the term “bullwhip effect” for it, because of the shape of the resulting demand curve.
Solutions: Establishing a Trusted Information Flow Circuit
This issue can only be solved by establishing a flow of trusted information along supply chain members, giving them the opportunity for reliable long-term planning. But this information exchange means giving up trade secrets, which is a tough pill to swallow. So measures must be taken to facilitate the sharing of information.
We propose the following:
- Incentivize the information sharing
- Allow members full control over the flow of information they make available
- Provide means for anonymous and automatic data aggregation with smart contracts
The PharmaTrace Network is being built to give companies along the pharmaceutical supply chain these capabilities and more. Although it is not yet production ready, it could be quickly deployed as a cloud-based solution to support these three measures.
In order for government to secure supply of vital pharmaceuticals to weather these scenarios, we recommend that a minimum of 10% of pharmacies in metropolitan areas, 50% in rural areas, all manufacturers of vital drugs, and industry wholesalers, be connected to the network. All sharing vital information within the common ecosystem. With a looming Brexit or other future causes of shortages, we must be prepared for supply chain disruption. It is not just a possibility but inevitable. We must work together to trace our path through.
Note: thanks to our contributors: Patrick Mccullough, Heisun Kim, Dr. Issame Outaleb