Impact of COVID-19 on Global Pharmaceuticals Logistics
Question
Task: Prepare a report illustrating the impact of COVID-19 on global pharmaceuticals logistics and supply chain and support your argument with relevant sources.
Answer
Introduction
Globalization has enabled many companies to obtain an absolute advantage through which the countries import deficient products from other countries and export abundant resources to international borders (Tavakoli & Zarghami, 2016, p. 212).This helped many underdeveloped economies to walk on the path of development by enhancing domestic industries by procuring raw materials from other nations. It can be said that the supply chain has become an interconnected channel amongst the nations and has helped in prospering both the international and national regions (Razminiene &Tvaronaviciene, 2017, chap 2). However, this interconnection has madecompanies and industries dependent on the international partner due to whom operational fronts can be hampered in case of pandemics or international disputes amongst the nations. The report will aim in explaining the disruptions in the global pharmaceuticals logisticsand supply chain due to COVID- 19.
Literature Review
About Covid-19
In this view, the COVID-19 pandemic has raised global restrictions due to which several economies and individual business units are incurring huge losses. The coronavirus spreads through the air from one human to another and impacts the body functions. The early symptoms are raising body temperature, cold and cough, tasteless buds, and others. Since this virus had spread accidentally during biological research in China, vaccines and medications could not be made (COVID and Team, 2020, p 2). The supply pharmaceutical drugs, PPE kits, and masks are limited while global demands have risen. Various countries have reported several symptoms and effective therapies and medications; it is surprising to acknowledge that the efficacy of available drugs in treating virus impacted patients is different in various regions of the world. Thus, the demand for the various drugs is also varied amongst the nation. The virus has impacted almost all the nations killing millions as scientists are still working on developing vaccines and appropriate medications. This created a huge supply gap of available drugs as international export and import has been shut.
Global Pharmaceutical Industry
The health care sector has been one of the fast-developing industries due to advancements in technologies and improvement in public health domains in several developing and developed nations. It can be said that the interconnection of countries has improved the health care domains globally. The pharmaceutical industry is one of the major components of the health care sector. It is estimated that by the year 2050, the population of the elderly will double by 1.5 billion thus increasing the need for improved medicines and equipment. The pharmaceutical industry is estimated to be worth USD 1.57 trillion by the year 2023 (Balfour, 2020). The industry growth will be dependent on several factors like market drivers, upcoming trends, and other challenges. It is expected that North America will be in leading positions for the global market share of 45.33% by the year 2023 (Cavallo & Forman, 2020, p 2). However, The Asian Pacific Pharmaceuticals market will retain the second position with a market share of 24.0 by the year 2023. While countries like Latin America, & the Middle East and Africa contribute approximately 7.53 % and 2.96% in the global pharmaceutical market.
Figure 1:Revenue of Pharmaceutical Industries
(Source: Mikulic, 2019)
There are many companies like Glaxo Smith Kline that are headquartered in the UK while the major operations are in the US market. Pharmaceutical exporter like India has currently restricted the export of major 26 active pharmaceutical ingredients. The pharmaceutical ingredients form 20% of the generics supply globally (Ameex Technologies. 2020). Short- term scarcities impacting medical and other products have been announced by the US
Food and Drug Administration
According to GlobeNewswire (2020) Epidemic, Outbreaks have huge risks on the global supply chain that has demonstrated long- term disruptions and high certainty. The author depicts that pharmaceuticals companies are lean and depict globalized structures thus 94% of the 1000 companies listed By Fortune have reported disruptions in global pharmaceuticals logisticschannels. 51,000 companies in the world distributed in the pharmaceuticalindustry have more than one direct supplier. Rouamba et al (2020) reported that more than 5 million companies established in the Wuhan region (China) from where the virus was originated.
Increased Cost
Hill et al (2020, p.61) reported that the majority of the supply chain facilities like a warehouse, factories, distribution channels are located in the quarantine areas of many countries. Thus, lack of an efficient global pharmaceuticals logisticssystem has increased the cost of supplying to areas where the pandemics have been adversely impacted like Italy for Glaxo Smith Kline. It was observed that India and China are one of the prominent exporters of Pharmaceutical products. GlaxoSmithKline has experienced growth during this period butalso incurred additional costs due to change in DC, paying more to the casual staff, increased cost of sanitizing the warehouses and distribution centers. Rouamba et al (2020) opined that COVID- 19 has been a boon for the pharmaceutical companies as the demand for the drugs has been enhanced.
According to the reports ofGlobeNewswire (2020), minimum production costs were estimated to form active ingredients of pharmaceuticals. The least cost of production was estimated at US$.93 for remdesivir, $1.45 each day, $0.08 each day for hydroxychloroquine, $ 0.28 each for ritonavir, and others. Thus, it was noticed that recent prices of regular drugs are much higher than the production costs in the US than in other regions. This has happened as the pharmaceutical ingredients are generally imported from other countries, but due to restrictions in the imports and exports, GlaxoSmithKline is working on limited raw material as the procurement and global pharmaceuticals logisticscosts have enhanced. Since Glaxo Smith Kline operates in different regions, it has managed to use its existing supply chain for moving its products from warehouses to Hospitals.
Yamin (2020, p. 1) opined that the pandemic has not only burdened the organizations but also impacted the government budgets as the huge of several drugs are being imported from other regions. Yamin (2020, p. 1) argued that many countries have lost their economies of scale for production and manufacturing due to transport restrictions that impacted the domestic supply and global pharmaceuticals logisticsof drug distribution.
Mikulic (2019) supported this argument by demonstrating approximately that only 13% of the brand selling generic medicines was located out of India while 24% of the drugs and 31 % of medical ingredients could be imported from India. For instance, the prices of paracetamol in the Indian continent has increased to 250- 300 per kg in INR while the vitamins and penicillin prices have also increased by 40- 50% in India.
What causes disruptions in Global Pharmaceuticals Logistics?
Many authors and economists are predicting lack in supply and proper distributions systems will increase the cost of generic and essential drugs in the US and other nations. The brand name drugs are protected with efficient supply chains as they have high-profit margins to the manufactures. This view is true for Glaxo Smith Kline as it procures materials from its Indian factories and supplies to its other plants in the world. The restriction of supply has reduced the economies of scale. However, since the company operates in different regions, it is capable of meeting the domestic market as it specializes in special drugs, the demand for which is moderate in the pandemic.
Also, the generic drugs are less profitable while the supply and global pharmaceuticals logisticsare lean. Express Pharma (2020) advocated that the API plants of the generic and essential products are located majorly in the Indian and Chinese markets. In each API plant, little inventories are stored as they are regularly supplied to the markets. API is produced in single plants due to the disruptions in global pharmaceuticals logistics and supplycan cause shortage as the average drug shortage can last for 14 months while in adverse conditions the shortcomings can last for 3 years. Since the maximum API plants are located in India and China, a series of lockdowns have resulted in the shutting down of many factories (Express Pharma. 2020).
Impact on Quality
According to Newton et al, (2020, p. 755), the quality and supply of the products for vital products are highly disrupted as these drugs are repurposed for COVID-19. The quality assurance of tests and vaccines is not being prepared which has increased the risks of substandard and false products. In this view, companies like Glaxo Smith Kline can suffer from a fake of its brand. Oldekop et al, (2020) opined that immediate intervention is required to eliminate the supply and distribution of high priced- low-quality products for the safety of the world population.Newton et al (2020, p. 755) opined that the errors in the supply chains and productions have driven the growth of substandard products as in this situationfalsified agents find opportunities in crises due to the departing of buyers from the regular global pharmaceuticals logisticsand supply chain. The substantiated claims about the drug efficacyof drugs in treatments of COVID-19 have resulted in huge shortages of chloroquine and hydroxychloroquine. The panic in the population has resulted in the procurements of available products for treating COVID- 19 patients.
Lesson Learned
Warehouse to DC
The process of manufacturing and dispatch occurs at the factories of Glaxo SmithKline. As GlaxoSmithKline is a UK based company majority of its plants are based in the region, however, the company has adopted strategies of mergers and acquisitions for strengthening its base in the other countries. Thus, the company procures raw material from countries India, China, Africa, and supplies the same to its partners. It has been noticed that generic medicines are made by the in the region of its establishment while some of the speciated drugs are manufactured in other regions and distributed according to requirements. In the year 1999, the company is estimated to invest approximately$90 million to Zebulon Plant which also became the first manufacturing and packaging site. In the Asian regions, the API plants and pharmaceutical drug factories are generally located in towns, districts, and suburban areas. These drugs are transported through various routes to the main DC and distributed domestically while also exported to the other regions in the world. Due to the series of lockdowns, transport restrictions have reduced the capacities of the plants and factories. Hence, the inefficient flow of medicines from the warehouse to DC has occurred impacting people at large (Wu et al, 2020, p. 2). The highest export countries of generic medications have restricted the supply of pharmaceutical products for maintaining domestic demands.
Fore casting and Inventory
The drugs market in the US major constitutes chain pharmacy stores, high mom- pop stores, and high-end deliveries. Thus, the markets are diverse with varied needs and requirements. Generally, the Glaxo Smith Kline finds it difficult in managing small niches packages. In current situations of pandemics, the countries have imposed lockdowns and industrial operations for protecting the general public. In this view global supply chains of Glaxo Smith Kline have been disrupted as the company has collaborated with the Federal Government in the US for manufacturing and developing vaccines for Corona Virus (COVID-19). As mentioned above, medications and vaccines for treating COVID-19 have still not been developed, hence the forecasting and inventories of the organizations have disrupted.Mehrotra (2020) opined thatSeveral countries like the UK and India banned the
export of drugs for maintaining the domestic stocks.
The inventories in the API plants are not stored in huge quantities thus the increased demands have resulted in the development of substandard products and medicines. (Kelleher et al, 2020) opined that demand for short- a term of antiviral medicines can be depicted however, demand for other ailments products have comparatively reduced. The reason behind it is the reluctant behaviour of the patients suffering from other diseases along with the postponing of the other non- urgent procedures. Also, the nature of the country level- lockdowns and increasing COVID cases in pharmaceutical exporting countriesare unpredictable. As many countries are unlocking and locking the regions due to the severity of COVID-19. For instance, China has locked down the country but resumes in Mid march but restricted the exports and travels as recovered patients were again detected positive. Similar case has occurred in India, as pharmaceutical productions have severely been impacted due to prolonged lockdown. The stocks and inventories of the antiviral medications and Active Pharmaceutical Ingredients have pressured the global supply chains (Mukerjee, 2020). In this view the major exports of global pharmaceuticals logisticsare imported from the Chinese companies, the restrictions of exports in this country have impacted the supply and production of medicines in the UK, US, and India. India’s production of generic medicines is dependent on 70% API imports from China, disruption of which has led to shortages in inventories and supply of drugs.
ABC Analysis
In this view, the ABC analysis encourages the managers in segregating and managing the overall inventories in major groups of A, B and C. Thus, the supplier or the manager can apply different techniques in handling segments that can increase revenue patterns (Yan et al, 2013). Therefore, A is the most essential item, B is moderate while C is the least valuable products.
Categories in A are the most essential items that can generate revenue (Mahagaonkar and Kelkar, 2017, p. 615)
A- . These are high selling items thus the inventories of which have to be given utmost importance. In the pandemic situation, all the global economies are united to export and import antiviral medications so that the global crisis can be met. Many big corporations have donated millions of drugs for threatening the patients impacted by COVID-19. Mullin, (2020) opined that it will be not wrong to say that the pharmaceutical industry has experienced growth and high revenues in the pandemics by prioritising production of genericsupplies thus halting the manufacturing of non – urgent products. For instance, Glaxo Smith Kline has collaborated with another company and cracked a billion-dollar deal with the US federal government for the production of vaccines and other medications. As mentioned, many countries like India and UK have restricted export medication for maintaining global demands.
B- Categories in B are those items that are less valuable in the revenue generation. In the COVID-19 crisis, the manufacturing and production of other ailments drugs were reduced to substantiate the demands for generic medicines. In normal times, these high-priced medicines and often contribute to the revenue generation, however, the demand for specialist medicines have drastically reduced. Tavakoli & Zarghami, (2016, p. 212) argued that the onset of the pandemic has created other issues patients with chronic disease are given fewer priorities than the COVID positive. Lack of medicines, surgical equipment, bed, and hospital facilities are reasons behind shifting priority in this crisis. The pharmaceutical companies (like Glaxo Smith Kline) that produce specialist drugs in the majority have reduced their production and increasing the manufacturing of generic supplies to meet the demand and earn revenue.
C- Products in this category are the least valuable products. In this pandemic scenario, many pharmaceutical companies produce consumer products like medicated cosmetics. In the crisis of COVID-19, the pharmaceutical companies have considered these products as less valuableas they are diversifying their resources in the production of PPE kits, Masks, sanitizers, and other essentials that will help them sustain this economic adversity. Nicola et al, (2020, p. 185) argued that industries and companies operating medicated cosmetics and consumer products are experiencing tough times due to the socio-economic impacts of COVID-19. These are non- essential products as considered by the middle and lower classes because they are saving their resources for meeting basic needs of life
The COVID-19 has helped in learning lessons of the ill- effects of globalization. Globalization not only helped organizations and economies in expanding their business but it also made many countries highly dependent on imports for raw material supplies. The pre- COVID situations never arise issues the countries never thought of importing from diversifying markets. In the past situation before COVID-19, the organizations and countries focused on the methodologies of "Just-In-Time" for procuring raw materials and restricted inventories as the shortages in API and generic medicines were never estimated by economists and industrialist in the pharmaceutical industry (Ayati, 2020, p 2). Also, long term impacts will include reindustrialization in European and US regions for the reduction of dependency on drug imports. In the long run, the investors and manufactures might diversify the sources of raw material procurements by investing in other regions rather than concentrating on only a few markets such as India and China. Newton et al, (2020, p. 756)opined that leaders in the pharma industries are increasingly focused on the network on risk management and transparent operations thus shaping the workforce for speedy recovery post-COVID-19.
Conclusion
Globalization helped the economies in expanding their operation in othercountries while also importing products on restricted trade barriers for procuring materials in which the nations had a comparative disadvantage. However, the situation of the pandemic of COVID-19 has several impacted the integrated global supply due to several restrictions imposed by the majority of the countries. Also, the countries have united in producing, manufacturing, and transporting generic medicine supplies. It can be said that increased demands for generic medicines and API with restricted transport and efficient global pharmaceuticals logisticshave resulted in huge shortages in medication supplies. COVID-19 has impacted the cost structure of the companies and the organizations while reduced the quality of products and disrupted the medication supply and global pharmaceuticals logistics. ABC analysis helped in understanding the inventory management of the pharmaceutical supplies of the country in this pandemic situation. In the long term, the companies might invest in a different market to hedge the risks from high dependence on one market only. It can be concluded that COVID-19 will help many nations to be interdependent after Post Covid-19.
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