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Supply Chain Resilience

Since the beginning of the pandemic, supply chains have become snarled, bottlenecked and derailed. While the story of 2021 is supply chain disruption, life sciences companies are turning the page to focus on supply chain resilience in 2022.

While all life sciences companies are experiencing the ripple effects of supply chain threats, the 2022 BDO Life Sciences CFO Outlook Survey shows that companies with operations outside of the U.S. (hereafter referred to as “global companies”) are seeing outsized impact. That doesn’t mean U.S.-only companies should be left out of the conversation. They’re feeling the supply chain crunch as well, although the challenges they face are different.

Here's How Life Sciences Companies are Experiencing Supply Chain Disruption and What They're Planning To Do About It

Supply Chain Disruption Splits the Industry

When asked about their greatest supply chain challenges, U.S.-only companies and global companies offered very different perspectives on their expectations for the year ahead.






Companies with global operations tend to be large and more mature, with supply chains that are more expansive and prone to disruption. U.S.-only companies, on the other hand, are likely smaller and less mature than their global counterparts. As a result, they probably have access to fewer resources and opportunities to fine-tune their supply chain technology and risk prediction capabilities.

Taking a closer look at technology, we see global companies are more likely to have already made investments — in particular, investments to advance their data analytics and business intelligence capabilities, which enables them to make more accurate demand predictions.

This technology disparity could explain the difference in attitudes toward fraud. For life sciences companies, fraud in the supply chain is a serious, or even deadly, issue — some bad actors sell fake drugs and vaccines, which can have fatal consequences. When it comes to addressing fraud, global companies are more likely to have already made the tech investments necessary to protect their supply chains compared to U.S.-only companies. In particular, blockchain can be used to verify a drug’s authenticity.

Regardless of whether you’re a large company with global operations or a small entity based entirely in the U.S., you’ve felt the supply chain strain over the past year. The bad news is that supply chain disruption isn’t going anywhere anytime soon. The good news? You have options to make yourself more resilient to external threats. Right now, companies should take action to build redundancy in their supply chains. No more relying on one supplier to fulfill your needs. Instead, expand your network and explore flexible contracts with other suppliers so that you have multiple contacts to leverage when you run into supply chain snags. PATTI SEYMOUR Managing Director, BDO’s BioProcess Technology Group

SPOTLIGHT: Betting on blockchain

For life sciences, two major benefits of blockchain stand out: the ability to confirm provenance, and tracking and tracing.

If there is a tainted batch of a market drug or a security flaw in a medical device such as an insulin pump, blockchain allows the company to discern where exactly the product came from so they can identify other products that could also be impacted. Then, they can trace the products  to determine where they ended up — which stores, hospitals, patients or other entities received the flawed product. With blockchain, it becomes easy to quickly recall product batches and keep the end user safe.

Blockchain makes supply chains more secure and plays an instrumental role in preventing fraud, as it makes it almost impossible to alter data or swap a product out for a counterfeit without alerting everyone involved in the supply chain. It’s no surprise that life sciences companies, for whom fraud in the supply chain can have devastating impact, are betting on blockchain.

40% of drug developers are already investing in blockchain.*

40% of medtech and medical device companies are already investing in blockchain.

^{*Note: Drug developers are defined as drug manufacturers & suppliers, biopharmaceutical, pharmaceutical and biotech companies.}

Over the next few years, as hackers continue to target medical devices and fraudsters try to tamper with pharma supply chains, the value of blockchain will only increase — and so, too, will the investments.

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Global Trends Don’t Stay Global

One might expect global trends to predominantly impact global companies, but the reality is that these trends are a significant concern for U.S.-only companies as well.

Our data indicates that global trends ripple through to the U.S. Geopolitical tensions, for example, can lead to tariffs, which tend to increase costs for domestic companies. In addition, international regulations often influence U.S. federal and state regulations.

Some trends, on the other hand, are markedly more impactful for global companies. Transfer pricing and customs valuation, for example, are particularly difficult for companies with global operations that are constantly importing and exporting items across national lines, and failure to accurately establish a transaction value can lead to expensive civil penalties. In addition, COVID-19 outbreaks present a particularly thorny problem for global companies, especially if they operate in countries with lower vaccination rates.

When your supply chain includes international trade — and most life sciences supply chains do — it’s easy to overlook compliance requirements and end up overpaying on customs duties. Customs compliance is a highly technical specialization, and it’s important that any company whose supply chain crosses national lines employ a team of customs and tax specialists to ensure they won’t suffer overpaid duties or civil penalties. Additionally, customs compliance should be an integral part of every organization’s tax optimization strategy. ELENI LAGOS Partner and National Tax Leader, BDO Life Sciences

Global Companies Are Proactive on Supply Chains

Global companies are more proactive when facing down supply chain management challenges in 2022.

Part of the reason global companies are so proactive is that their need is greater — with more complex supply chains and greater exposure to international trends, building a resilient supply chain should be a priority for all global companies.

That doesn’t mean U.S.-only companies are unaware that they should rethink their approach to supply chain management. Unlike global companies, they may lack the resources, maturity and funding necessary to proactively address supply chain problems.

For the 29% of U.S.-only companies that are planning to move operations offshore, however, they may want to begin scrutinizing their supply chain management approach now. It’s especially important that they take the time to upgrade their supply chain technology before moving abroad — otherwise, they could be vulnerable to fraud and will be starting their global operations at a serious disadvantage.

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Methodology

The 2022 BDO Life Sciences CFO Outlook Survey polled 100 life sciences industry CFOs with revenues ranging from $100 million to $3 billion in October 2021. The survey was conducted by Rabin Research Company, an independent marketing research firm, using Op4G’s panel of executives.