In business, you can’t always avoid trouble of one sort or another, but you can learn to bounce back quickly. It’s what we mean by “resilience”—the ability of an organization to recover from difficulty, adapt to change and persevere in the face of unexpected disruption.1 Our particular focus here is on how Life Sciences companies can avoid or mitigate product availability disruption due to natural disasters such as hurricanes and earthquakes; and human-caused disasters such as compliance violations and product safety and quality issues. Accenture Strategy research shows that these kinds of disruptors can have a significant impact on product flow and stock price if a company is under-prepared.2
Natural disasters often disrupt global drug supply chains, and such disasters are becoming increasingly common, often with devastating human and business impact. Pharmaceutical supply chains are particularly vulnerable. In the United States, for example, 80 percent of active pharmaceutical ingredients are made outside the country.3 Market data suggests that supply chain disruptions caused by natural disasters can result in a 1 to 3 percent drop in share price.4
Predictable and preventable disasters—compliance violations, skills shortages, etc.—have wreaked similar havoc on product availability and can severely diminish consumer trust, which can have damaging impacts on future revenue. In fact, Accenture Strategy research on the impact of stakeholder trust shows that a life sciences company with $2B in revenue experiencing a trust-damaging incident has the potential to lose $170 million in future revenue growth.5 From a compliance perspective, share prices of pharmaceutical and medical device companies fall 15 percent on average after a major compliance violation.6
Create a resilient supply chain to guard against predictable and non-predictable disruptions
To guard against the negative impacts of supply chain disruption, organizations should develop a framework to prepare, through surveillance and flexibility; respond, with quick communications and visibility; and recover, with a focus on rebuilding trust.
Prepare: Being prepared goes well beyond standard continuity planning and is driven by digital tools and analytics. Leading organizations will have 100 percent digital surveillance across their entire supply chain, enabling them to run new patterns of product delivery when one node or established pattern is disrupted. Companies should also have identified all technology systems that are critical to product availability and have a playbook to use if a disruption occurs.
Supply chain transparency is also important for a resilient supply chain. Whether it’s dealing with a flood or recalling millions of products, having a clear view into where product is across the world at any time is critical. Finally, a cross-functional response team should be set up well before any issues occur. Team members should include representatives from manufacturing, supply chain, commercial and legal to ensure that the right messages and actions are available at a moment’s notice.
Respond: Communication in the first few days after an event is key. Your pre-assembled response team should gather as soon as a natural or man-made disaster becomes likely. Physicians, patients and the Street want to know as early as possible if there will be issues with product availability. In the event of a recall due to compliance or safety issues, quick and honest communications become even more important and help to mitigate against inevitable backlash.
The response team should also build a recovery plan and share it with leadership within three to five days of the incident. In the event of a system outage, contingency plans and technology workarounds should be put into place immediately to ensure product availability is maintained. While timelines vary, the recovery time objective (RTO), or the time it takes from declaration of a disaster to recovery of essential functionality, should be no more than a few weeks.
Recover: Resilient recovery looks different when dealing with natural disasters and unforeseen disruptions to product availability. In the event of a major natural disaster, the manufacturer should ensure its people are safe, first and foremost. After assessing damages, the recovery plan should be put into place as soon as possible. The manufacturing and supply chain organizations must also reassess and update their safety stock levels and forecasting models based on the outcomes of the current disaster. Safety or quality issues damage trust, and the manufacturer must regain that trust quickly with its customers and patients to recover.
Recovery may also involve legal repercussions, which need to be estimated in concert with the CFO and finance organization after taking insurance coverage into consideration. Any technology systems impacted by the disruption should be analyzed for vulnerabilities, and workarounds used during the outage should be assessed and updated as needed.
Life Sciences companies have an obligation to their patients to plan for events that might delay or disrupt product availability. While preparations can’t stop every disaster, natural or otherwise, they can help mitigate the impact and allow operations to continue to keep the life-saving medicines and devices in the hands of those who need them most.
1 Accenture Strategy, “Resilience: The key to growth in Life Sciences,” March 2018
2 Accenture Strategy analysis
3 Allie Nawrat,“ Are pharma supply chains ready for the next major disruption?,”Pharmaceutical Technology, December 2018
4 Accenture Strategy analysis
5 Our Competitive Agility Index found that Life Sciences companies that experienced a material loss of trust due to, for example, data breaches or environmental incidents, saw their Competitive Agility Index score drop by 2 points. For a $2B Life Sciences company this 2-point drop translates into a decline in revenue growth of 8.5 percent (or approximately $170 million) and a negative impact on EBITDA growth of 13.4 percent.
6Accenture Strategy analysis