by Joe Lewis, consulting managing director, Deloitte Consulting, LLP
While most pharmaceutical companies have business continuity plans in place, those plans likely did not consider a disruption on the scale of the COVID-19 pandemic. These uncertain times have caused me to reflect on one of the first things I learned in wilderness survival training—the rule of threes. People can generally survive three minutes without air, three hours without shelter (in a harsh environment), three days without water, and three weeks without food. This survival framework progresses from the most immediate needs to longer-term requirements. Understanding how to prioritize the essential elements of life (air, shelter, water, and food) can help ensure survival in the wilderness during a crisis. In the wake of COVID-19, pharmaceutical companies will likely need to navigate a new wilderness to help ensure the survival of their supply chains (more about that later).
COVID-19 could create three demand curves
The first requirement in assessing a company’s or product line’s risk is to understand the new demand profile that is likely to emerge. Some of our pharmaceutical company clients are racing to develop vaccines that can protect against the virus. Others are fast-tracking existing antiviral therapies that have shown some promise in lessening the impact of COVID-19. At the same time, companies should work to minimize potential supply-chain disruptions so they can continue to meet demand for existing products. We are beginning to see three distinct demand curves during this crisis:
- High demand for COVID-19-related therapies: Clearly, vaccines and therapies designed to prevent or treat COVID-19—even those that are in the trial phase—will likely be in high demand. Demand might also increase for drugs that are administered in conjunction with other therapies, such as when ventilators are used.
- Short-term demand for some drugs: We could see a near-term spike in demand for therapies that treat chronic conditions. This will likely be driven by patients who want to stock up on their drugs or who want to take advantage of relaxed/expanded refill options (i.e., going from a 30-day refill regimen to a 90-day refill).1 Demand for these drugs, however, will likely return to normal levels as patients adopt less-frequent ordering patterns (i.e., every 90 days vs 30 days).
- Reduced demand for non-essential medications: Demand for non-life-saving medicines—particularly those that require in-person administration—is likely to drop. We also expect a sharp decline in demand for therapies related to cosmetic procedures and drugs administered as part of elective surgeries.
How to apply the rule of threes in pharma
As I noted above, the rule of threes survival framework progresses from the most immediate needs to longer-term requirements. Here’s how those survival rules might be adopted by pharmaceutical companies:
- Inventory (air): In this scenario, a company’s inventory is the most essential element of life. It is equivalent to air. Available inventory is what a company can provide to the market now. Companies should determine how much product they have on hand, where it is, and when it can be delivered. While pharmaceutical companies typically have months of available inventory at any point in time, rapid changes in demand could lead to generalized or market-specific stockouts. Real-time inventory views, through control-tower types of capabilities, become critical if they are not already in place. If a company has more demand than available inventory, it should prioritize who will receive the limited supply until it can be replenished. For example, companies that produce therapies now being investigated as possible COVID-19 treatments are having to determine how to allocate them. Companies that are eventually approved to develop vaccines that prevent COVID-19 might receive requests from small groups, large health systems, federal agencies, and foreign governments. For therapies already in the market, will priority be given to patients who already receive those medications? A clearly defined and easily explainable inventory-allocation methodology can help companies effectively allocate scarce supplies until production catches up to demand.
- Distribution (shelter): Companies should be able to distribute inventory when and where it is needed. The virus has already had a significant impact on distribution because fewer people are flying on commercial planes. Here’s why: Most pharmaceutical products are transported around the world in the cargo-holds of commercial airlines.2 With fewer passenger jets in the air, available cargo capacity has become limited. In-market release is another factor that can impact distribution, as most pharmaceutical companies have only a few qualified persons to complete this work. Pharma companies should develop contingency plans in case those employees become sick or have to be quarantined. Like inventory visibility, transportation and distribution control towers (even light-weight solutions) can be important for identifying and resolving challenges before patients are further impacted.
- Manufacturing and sourcing (water): After assessing inventory and distribution, companies should determine how to replenish inventory. Some companies might have to scale up to meet higher demand for some products. For example, ensuring adequate inventory might require around-the-clock production to boost capacity. Alternatively, companies might need to consider their product segmentation in light of current demands. For example, do all products, in all formulations and dosages, need to be provided, or can production and availability be optimized with a different mix? Companies should also determine how much of the workforce can be out sick before capacity is impacted. They should ask which jobs can be conducted remotely and how social distancing can be incorporated into onsite work processes. Pharmaceutical companies also should evaluate their suppliers and identify potential disruptions. These disruptions might occur due to a variety of factors ranging from a supplier’s production challenges to export restrictions put in place in certain jurisdictions. Our pharmaceutical clients typically have good visibility into their first-tier suppliers but might not know as much about their second, third, or extended suppliers. A third-tier supplier in France, for example, might have been negatively impacted by the virus, which could have an effect on the supply chain. It is important to note that what is happening in the field at the local and regional levels may not be immediately apparent to the global-center of most pharma companies without investment in supplier illumination and risk-sensing capabilities. The longer this crisis plays out, the more important it is that pharmaceutical companies have good visibility into their full upstream supplier network.
- Planning and operating (food): Pharmaceutical companies typically run monthly sales and operations planning (S&OP) or integrated business planning (IBP) processes, which reflects a relatively slower pace of business than experienced in other industries. In the current environment, historical supply-and-demand scenarios are likely irrelevant. Demand signals and supply are changing week to week (even day-to-day), and typical operations processes might need to be accelerated. In the short-run, accelerated business-planning processes will likely need to be focused on at-risk or constrained products to address rapid changes and uncertainty. Decisions should be communicated upstream and downstream more quickly than in the past.
Once all of these survival elements have been addressed, pharmaceutical companies should be equipped to weather the volatility of the current environment. The next step is scenario planning. What happens if the pandemic continues longer than expected? How will companies continue at this pace if we are still in the same situation five months from now? How can companies continue to take care of their employees—to identify and reward those at all levels who are stepping into leadership voids that this disruption has created. Pharma companies should determine what happens once the recovery phase begins. After the recovery period, companies should consider how they will thrive in a new normal that might require permanent changes to key processes. Pharmaceutical companies that are able to master wilderness survival skills should be well prepared to excel in a post-COVID-19 environment.
1. 90-day refills could soon strain drug supply chain, Specialty Pharmacy Continuum, April 8, 2020
2. Coronavirus: Why are planes still flying?, BBC News, March 30, 2020