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Why Pharma Cannot React Its Way Out of the Next Crisis · Speaking of Supply Chain

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  Speaker 1: You can't just grow your company without growing your supply chain.
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  Speaker 2: And I also think that the scope of supply chain
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  Speaker 2: is in the future, not only what you used to
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  Speaker 2: understand about supply chain. I think supply chain also should
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  Speaker 2: be in the lead of strategy because supply chain understands
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  Speaker 2: the connectivity of the whole network, from commercials through finance
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  Speaker 2: to operations.
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  Speaker 1: Hello and welcome to Speaking of Supply Chain, where MEBOC
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  Speaker 1: experts from around the world unpack the real stories, strategies,
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  Speaker 1: insights and innovations shaping the future of supply chain. I'm
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  Speaker 1: your host, Ellen Wood. Risk us to be something companies
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  Speaker 1: responded to after the disruption happened. Today, especially in pharmaceutical
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  Speaker 1: supply chains, risk has become a permanent design condition. Tariffs shift,
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  Speaker 1: overnight conflicts, disrupt critical corridors, and pricing pressure continues to intensify,
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  Speaker 1: all while patients still depend on uninterrupted access to medicines.
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  Speaker 1: In this episode, we're exploring what it really means to
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  Speaker 1: move from reactive firefighting to proactive resilience. And joining me
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  Speaker 1: is Stefan Gotthardt, who moderated a powerful discussion at this
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  Speaker 1: year's European Logi Pharma Conference just last month in Vienna
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  Speaker 1: on how pharmaceutical leaders can anticipate geopolitical shocks, strength and
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  Speaker 1: supply networks, and protect global access in an increasingly fragmented world.
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  Speaker 2: Welcome Stefan, Thanks Allen, thanks for having me.
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  Speaker 1: Great to have you so in your discussion last month
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  Speaker 1: at the conference, what was the general consensus, what has
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  Speaker 1: geopolitical risk become or why has geopolitical risk become such
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  Speaker 1: a defining issue for these pharmaceutical supply chains.
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  Speaker 2: I think there have been various responses to this, but
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  Speaker 2: I think what they all had in common is that
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  Speaker 2: over the past decades, pharmacutical industry really followed a globalization approach.
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  Speaker 2: Networks are global, sourcing is global, and you can easily
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  Speaker 2: imagine that if there is an interruption, may it be
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  Speaker 2: a vessel that is stuck in the sewers channel, or
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  Speaker 2: whether it's you know, bigger issues around the world that
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  Speaker 2: immediately impacts a globally set up supply chain.
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  Speaker 1: So it's because of the way we've designed them for
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  Speaker 1: the past twenty thirty years that causes these difficulties when
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  Speaker 1: there is that type of large scale.
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  Speaker 2: Disruption, exactly because it takes long to set up new
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  Speaker 2: processes new sourcing locations and specifically, and we're going to
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  Speaker 2: talk about this in more detail, I guess. But when
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  Speaker 2: you think about APIs and starting materials, it's not only
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  Speaker 2: that they are being sourced from India or China or
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  Speaker 2: other plases in Asia. It is also that they cannot
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  Speaker 2: be sourced from Europe any longer because for commodity products,
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  Speaker 2: the manufacturing capacities and capabilities have been moved away to
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  Speaker 2: other regions in the world. So this cannot instantly turn
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  Speaker 2: back to what we had like thirty forty years ago.
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  Speaker 1: Yeah, it's not as easy to make those changes when
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  Speaker 1: such a large component of the pharmaceutical production is so
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  Speaker 1: far away. Exactly exactly, So during the panel, you emphasize
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  Speaker 1: the shift from reacting to anticipating. What does that kind
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  Speaker 1: of proactive resilience actually look like in practice?
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  Speaker 2: So in my mind, in my mind, and that was
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  Speaker 2: also part of my introduction to the panel, we are
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  Speaker 2: always good at reacting to a given problem. So I
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  Speaker 2: mentioned the vessel that got stuck in the sewers channel,
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  Speaker 2: So we looked at what do we do when, you know,
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  Speaker 2: in case the next vessel gets stuck in the next
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  Speaker 2: sewers travel and then was COVID. So the learning after
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  Speaker 2: COVID was how do we prepare for the next pandemic.
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  Speaker 2: Then we had this problem with tariffs, so we think
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  Speaker 2: about what can we do to avoid the impact of terriffs.
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  Speaker 2: It is a singular, if you will, a singular consideration
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  Speaker 2: of activities that address specific issues versus making our supply
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  Speaker 2: network is such more resilient. And I've been to conferences
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  Speaker 2: end of last year where companies have presented their approach
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  Speaker 2: to mitigating those kinds of risks in a different in
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  Speaker 2: a different way. And to simplify what what I've what
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  Speaker 2: I've heard there was they said, what we sell in
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  Speaker 2: the US, we produce in the US, what we sell
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  Speaker 2: in Europe, we produce in Europe. What we sell in China,
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  Speaker 2: you produce in China. Now, it said before, it's not
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  Speaker 2: so easy for the farmer's industry to instantly do that.
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  Speaker 2: But a strategy never gets implemented instantly. A strategy needs
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  Speaker 2: to be worked out and then needs to get implemented
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  Speaker 2: over time. But we don't have that strategy.
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  Speaker 1: That makes sense. One of the other issues you mentioned
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  Speaker 1: briefly was was the tariffs and the trade restrictions, And
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  Speaker 1: I imagine that that impacts when these companies make these
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  Speaker 1: strategic decisions to produce where their end customers are. So
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  Speaker 1: but those can change as quickly as overnight. To your point,
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  Speaker 1: we can't change the strategy overnight. We can't change the
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  Speaker 1: supply network overnight. What are companies doing differently today in
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  Speaker 1: order to reduce that exposure before there is a disruption?
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  Speaker 2: Short term activities has certain have to do with with
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  Speaker 2: finding manufacturing partners. If we don't have a manufacturing site
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  Speaker 2: in the US, which is the case for some of
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  Speaker 2: the farmer companies, or they have manufacturing sites but they
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  Speaker 2: don't produce the products for the for the specific specific markets,
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  Speaker 2: they look for contract manufacturing partners. Is these kind of things,
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  Speaker 2: but that is that's expensive and it's still it still
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  Speaker 2: kind of requires product transfers and respective respective activities. I
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  Speaker 2: think the pure promise of investing somewhere in terms of
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  Speaker 2: building manufacturing capabilities and in the likes is maybe a
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  Speaker 2: good signal, but it needs to be followed by action
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  Speaker 2: and by execution. So again it's not a short short
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  Speaker 2: term remediation, but you have to start in order to
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  Speaker 2: get there.
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  Speaker 1: Okay, now that makes sense to start thinking about those
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  Speaker 1: potential problems down the road. And you mentioned that the
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  Speaker 1: contract may manufacturing is an expensive option, and one of
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  Speaker 1: the recurring themes was at the conference was balancing that
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  Speaker 1: resiliency with the affordability. How do the leaders justify investing
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  Speaker 1: in that kind of redundancy and flexibility when when the
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  Speaker 1: pricing pressures are already so intense.
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  Speaker 2: I'm really glad that you asked the question, Otherwise I
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  Speaker 2: would have asked myself to me, because I think that
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  Speaker 2: starts the discussion at the wrong at the wrong end
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  Speaker 2: farmer industry. Farmer industry takes the price pressure as a given,
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  Speaker 2: and I think that's a fundamental mistake because I think
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  Speaker 2: that providing appropriate medicine to patients that need medicine is
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  Speaker 2: an overall, you know, an overall objective for the society,
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  Speaker 2: and the society includes the farmer industry, the doctors, the pharmacies,
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  Speaker 2: the payers, and the health authorities. And I think the
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  Speaker 2: last two are the ones that are trying. They're trying
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  Speaker 2: to understand their role, the changing role in the future,
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  Speaker 2: and they are learning about the impact that cost and
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  Speaker 2: price pressure does have on providing medicine to patients. And
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  Speaker 2: you know, there's this this running gag or anecdote about this.
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  Speaker 2: You know, a pack of chewing gum that is twice
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  Speaker 2: more expensive than than a pack of iBook iboproven tablets.
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  Speaker 2: I mean, that's that's, that's true. I happen to speak
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  Speaker 2: to an owner, a managing director and owner of a
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  Speaker 2: contract manufacturer two days ago, and he said, I am
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  Speaker 2: declining supplying generic products, specific generic products to customers in
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  Speaker 2: Europe because I cannot make any money out of it.
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  Speaker 2: And it's not that he wants to get rich by
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  Speaker 2: producing ibuoproven, but at least covering some you know, kind
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  Speaker 2: of costs is important. So what I'm time to get
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  Speaker 2: at the public pressure needs to increase a bit further
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  Speaker 2: to make authorities and payers understand that producing pharmaceutical product
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  Speaker 2: regionally or even locally has a price tag and it's
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  Speaker 2: not only the farmer industry that can cover for those costs.
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  Speaker 2: It's in It must be, it must be a joint,
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  Speaker 2: a joint effort. They are generic companies in this world,
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  Speaker 2: big big ones who are leaving exiting specific markets with
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  Speaker 2: specific parts of their portfolio because it's not profitable, and
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  Speaker 2: authorities are allowing this to happen. So that creates the
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  Speaker 2: problem of shortages, and here come again, here come authorities,
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  Speaker 2: back to the into the game, because public pressure on
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  Speaker 2: product shortage is going to increase, specifically if it's like
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  Speaker 2: critical medicine, oncology products, et cetera, et cetera, et cetera.
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  Speaker 2: And at some point I'm absolutely convinced it will it
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  Speaker 2: will click and there's going to be made a connection
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  Speaker 2: between supply of product and appropriate price of product.
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  Speaker 1: And that's interesting that you mentioned that this effects not
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  Speaker 1: only that the pharmaceutical industry, but also all the practitioners,
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  Speaker 1: the doctors, the nurses, the patients, pharmacists, because at the
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  Speaker 1: end of the day, we are all human and we
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  Speaker 1: are all going to need medicine at some point. Even
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  Speaker 1: those owners and the pharmaceutical companies themselves are made up
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  Speaker 1: of people who are going to need medicine at some point.
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  Speaker 1: So that's an interesting perspective. But I agree that there
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  Speaker 1: does need to be some sort of pressure. Political pressure
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  Speaker 1: is most likely from governments and authorities in order to
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  Speaker 1: ensure that the medical patients that are necessary for their
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  Speaker 1: populations are available. But then when we start talking about
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  Speaker 1: countries and politics and government, then we inevitably encounter conflict
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  Speaker 1: and conflict driven disruptions have become more common, more unpredictable.
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  Speaker 1: What capabilities separate the companies that are able to adapt
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  Speaker 1: quickly from those that struggle to adapt?
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  Speaker 2: So, I think pharmaceutical industry for the longest time was
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  Speaker 2: famous for stabilities, stable processes, lack of ambiguity or these
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  Speaker 2: all these kind of things. There are the industries that
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  Speaker 2: have and had to be always more flexible also from
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  Speaker 2: a mindset, a mindset perspective, and I think that is
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  Speaker 2: something that the pharmacutical industry is going to get at
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  Speaker 2: when you look at how positions, specifically positions like the
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  Speaker 2: global head of supply chain roles in pharmacy companies are
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  Speaker 2: being are being filled. In the past, it used to
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  Speaker 2: be people experts who have worked in the pharmacually industry. Today,
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  Speaker 2: what you find very often is that it's those individuals
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  Speaker 2: are coming from other industries, fast moving consumer goods, et cetera,
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  Speaker 2: et cetera. I have recently spoken to a global head
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  Speaker 2: of supply chain who came from automotive. So so I
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  Speaker 2: mean it tells me that supply chain is a discipline
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  Speaker 2: that requires experience and capabilities. I get that I've done
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  Speaker 2: it myself for quite some time, but it's sometimes super
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  Speaker 2: helpful if there is outside in knowledge from other industries
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  Speaker 2: that have been had to be more agiled, more flexible.
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  Speaker 2: I use the ambiguity these kinds of things. This will
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  Speaker 2: will also have will also have the pharmaceutical industry going
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  Speaker 2: forward interesting.
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  Speaker 1: And I would agree that when it comes to supply
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  Speaker 1: chain and logistics, there are special specialty knowledge that is
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  Speaker 1: available to those individuals that might not be necessarily pharmaceutical
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  Speaker 1: knowledge or you know, consumer goods knowledge, or even fashion
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  Speaker 1: or retail knowledge, but that is applicable to all supply
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  Speaker 1: chains and those are I mean, we've seen it in
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  Speaker 1: the past ten years, fifteen twenty years that the rise
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  Speaker 1: of the importance of supply chain specific knowledge is becoming
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  Speaker 1: that differentiator for a lot of these companies. You can't
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  Speaker 1: just grow your company without growing your supply chain.
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  Speaker 2: And I also think that the scope of supply chain
• 13:53
  Speaker 2: is in the future not only what we used to
• 13:58
  Speaker 2: understand about supply chain. It. I think supply chain also
• 14:04
  Speaker 2: should be in the lead of strategy because supply chain
• 14:08
  Speaker 2: understands the connectivity of the whole network from commercial through
• 14:12
  Speaker 2: finance to operations and so from a strategy perspective, supply
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  Speaker 2: chain has a very transparent overview of know what the
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  Speaker 2: different functions do, what the different functions need, and also
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  Speaker 2: should own the strategic.
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  Speaker 1: Element absolutely, even as recently as ten years ago, and
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  Speaker 1: I use that because that's how long I've been with me.
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  Speaker 1: Back and in the supply chain industry, a lot of
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  Speaker 1: supply chains were still seen as an expense of doing business,
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  Speaker 1: and I think more and more companies have come to
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  Speaker 1: understand that it really can be a differentiator for their
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  Speaker 1: business and a revenue driver if they get it right.
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  Speaker 2: Yeah, I fully agree with you.
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  Speaker 1: So, looking towards our next planning horizon for those strategies,
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  Speaker 1: let's say the year twenty thirty, which is not that
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  Speaker 1: far off, what do you believe will become the non
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  Speaker 1: negotiable capabilities in these resilient supply chains.
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  Speaker 2: If you understand the importance of risk resilience, then we'll
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  Speaker 2: see deglobalized suply networks. We'll have to see deglobalized supply networks.
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  Speaker 2: We'll have to see dual sourcing, We'll have to see
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  Speaker 2: appropriate price levels, We'll have to see a more open
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  Speaker 2: and transparent conversation exchange between farmer industry and authorities and
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  Speaker 2: more flexibility there when it comes to how we manage shortages,
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  Speaker 2: how we are able to bring products from one market
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  Speaker 2: to another market, which is more relevant for Europe than
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  Speaker 2: for the US, but it's very relevant in Europe we
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  Speaker 2: have countries specific products. I would like to believe that
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  Speaker 2: in the course of the next few years we'll get
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  Speaker 2: a more transparent, more open, and more honest conversation about
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  Speaker 2: capabilities and limitations and a joint approach how to be
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  Speaker 2: able to.
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  Speaker 1: Solve those wonderful So, if there were a single mindset
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  Speaker 1: shift that you hoped the audience walks away with after
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  Speaker 1: the panel that you just gave at Logi Forma or
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  Speaker 1: for our listeners today, what would that be. What would
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  Speaker 1: that mind shift, mindset shift be that you hope they
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  Speaker 1: walk away with.
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  Speaker 2: Globalization in the pharmaceutical industry has reached its end, and
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  Speaker 2: we need to start thinking how to deglobalize, how to regionalize,
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  Speaker 2: to be more independent and risk resilient when it comes
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  Speaker 2: to patients supply, because that is our main purpose, that
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  Speaker 2: is why we are It's not for optimizing kapex or
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  Speaker 2: overall equipment efficiency or these kind of things. We are
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  Speaker 2: here to produce product into supply products to patients, and
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  Speaker 2: that is what we have to continue to do, and
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  Speaker 2: we have to find new ways of doing it.
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  Speaker 1: That's a beautiful way of putting it, to go back
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  Speaker 1: to what it is that we're doing in the first
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  Speaker 1: place and why. When it comes to the pharmaceutical industry,
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  Speaker 1: of course there is profit to be made, but it
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  Speaker 1: is about making medicine for people who need it. That's
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  Speaker 1: the bottom line. Exactly what stood out from this conversation
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  Speaker 1: is that resilience is no longer just an operational concern.
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  Speaker 1: It's becoming a strategic differentiator. The organizations that will lead
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  Speaker 1: in the next decade are the ones designing supply chains
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  Speaker 1: that can anticipate disruption, adapt quickly, and continue protecting patient
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  Speaker 1: access no matter how uncertain the environment becomes. Stefan, thank
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  Speaker 1: you so much for joining us and sharing the insights
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  Speaker 1: coming out of Logi Pharma twenty twenty six and is
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  Speaker 1: always thank you for listening to Speaking of Supply Chain.
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  Speaker 3: the latest in supply chain information. Thanks for listening, until
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  Speaker 3: next time.