Supply Chain Risk Management
In the global pharmaceutical industry, supply chain disruptions can occur at any point in the end-to-end supply chain. Similar to other industries, life sciences supply chain companies that transact in physical goods must contend with the risk that the supply of those goods could become unavailable.
Supply chain risk management aims to keep risks within a known or determined window. Obviously, every organization would like to reduce supply chain risks to zero, but this may not be possible, let alone affordable. Being able to evaluate, manage, and prioritize risks within a supply chain is an increasingly critical component of managing a pharma supply chain.
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Risk is the chance of negative outcomes for an organization, so what is classified as risk will be different for different organizations and enterprises. Some things that may be positive for one supplier are risks for another, depending on where an organization sits in a supply chain. For example, a pharmaceutical producer may consider it an opportunity to have demand for their products drive up prices. On the other hand, for a hospital system, the possibility that there will be an increase in drug prices, and thus costs, is a risk.
In order to effectively mitigate supply chain risk, an organization should determine what levels of risk can be tolerated for any given supply. It is impossible to completely eliminate risk, as there are always eventualities that can disrupt a supply chain. Natural disasters, political upheaval, the emergence of new technologies all contribute to a constantly changing risk landscape. Furthermore, strategies to mitigate risk require overhead to implement, which is why being able to quantify the cost of risk is crucial for any enterprise.
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Traditional methods of management
The simplest method to reduce risk and to increase supply chain resiliency is through redundancy. Having more than one supplier for any given supply is a good practice for supply chain risk management. The alternative, using a single supplier for a fungible resource, increases supply chain risk significantly. An organization using a single supplier for a supply is exposed to all of their supplier's upstream risks, as well as the risk that the single supplier will raise prices.
Building redundancy into a supply chain can mitigate the risks that arise from using a single supplier. When implemented effectively, a multienterprise work management application can drastically improve supplier relationship management and prevent costly supply chain disruptions by proactively managing issues that may arise.
In traditional supply chains, stockpiling product was seen as providing a cushion against eventualities, allowing an organization to simply draw upon warehoused stock when needed. However, this requires significant investments in warehouse capacity and logistics, creating an unenviable tradeoff between reducing risk and keeping overhead down. With increasingly specialized medicines in circulation, stockpiling is increasingly prohibitive.
Tracking and monitoring supplies in a supply chain with digital technology has provided an unprecedented level of supply chain visibility. This means that organizations can see the status of supply shipments in real time, giving supply chain risk management teams more lead time when there are disruptions—and in some cases, allow teams to identify potential problems before they arise.
The trove of data generated by supply chain digital transformation allows organizations to make highly informed decisions in order to mitigate risk. The information about the disposition of products across the end-to-end supply chain can reveal patterns and trends that would otherwise go unnoticed. Recognizing the conditions that have led to previous disruptions can give an organization insights into emerging risks and help prevent chronic supply chain disruptions.
FAQs: Is it possible to eliminate risk in a supply chain?
Is it possible to eliminate risk in a supply chain?
Even with the simplest supply chains there is the chance that something will go wrong. It is impossible to completely eliminate risk, as the law of large numbers means that remote possibilities can occur in any part of a supply chain network.
Is supply chain risk management about reducing risk as much as possible?
Supply chain risk management seeks to keep risk within what is deemed to be a tolerable window. For example, if a company determines that they are able to sustain a one in twenty chance that a given supply is unavailable, a supply chain risk management team will work to keep that specific risk consistently below one in twenty.
How are hospital supply chains uniquely vulnerable to risk?
Hospital supply chains have to contend with unique difficulties. In a healthcare supply chain, there are patented pharmaceutical treatments that may only come from one supplier. If the patented medicine is the only available treatment for a given medical condition, then the hospital must rely on a single supplier for a resource, reducing supply chain resiliency.
How can supply chain data analytics help to reduce risk?
Using data analytics can reveal trends and patterns in a supply chain that may be missed during normal operations. When there is a supply chain disruption, an enterprise may be focused on restoring operations rather than figuring out what kinds of conditions led to the issue in the first place. Even when there is time to look into what kinds of steps could be taken to mitigate the chances of another disruption, there is no guarantee that the answers will be obvious. By analyzing large datasets, supply chain data analytics can find the small problems that snowball into large issues.
Why can't organizations just keep a lot of cash on hand to manage risk?
Some disruptions are so large that no amount of cash can change things. For single-supplier resources, there may be only one factory producing the resource. Building an additional factory takes time that can't always be fixed by throwing unlimited resources at the issue.