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02/11/06 Dr L Breen 1
Safety in the Pharmaceutical Supply Chain
Dr Liz BreenLecturer in Operations Management
University of Bradford, School of Management
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1. What are the risks in the supply chain?2. How can risk be assessed?
Agenda
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Reminder….
Nature of the overarching research project, which this study is part of.
To investigate the prevalence and nature of risks in the pharmaceutical supply chain in the NHS.
The research bid, for approximately £250, 000, was reviewed and received a 50% vote so is due to be resubmitted end of 2006.
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What are the risks in the supply chain?
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Risk – what is it?
Supply risk is defined as the potential occurrence of an incident or failure to seize opportunities with inbound supply, the outcome of which results in a financial loss for the firm (Zsidisin et al, 2006).
“The essence of risk management lies in maximising the areas where we have some control over the outcome while minimising the areas where we have absolutely no control over the outcome and the linkage between effect and cause is hidden from us.”
Peter Bernstein - Against the Gods (Buck and Riches 1999)
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Risk Management
Sources of risk in the PSC affecting hospital pharmacy?Product discontinuity, poor performance, patient
safety/dispensing errors, technological errors (causing stock shortages in pharmacies), internet pharmacies and counterfeit drugs.
By understanding risk, we can take steps to remove unnecessary risk e.g. product discontinuity; poor performance; patient safety/dispensing errors,
…….and ensure the equal distribution of necessary risk e.g. new markets entrants; e-business.
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Risk Management - statisticsThe Department of Health estimates that one in ten patients
admitted to NHS hospitals will be unintentionally harmed. The most common incidents reported in 2005 were: patient injury (due to falls), followed by medication errors, equipment related incidents, record documentation error and communication failure (National Audit Office, November 2005).
“A human influenza pandemic represents what risk managers call a low frequency/high severity event, same as hurricanes, tsunamis and earthquakes. Agencies predict its global effects could include more than 7 million deaths, 25-50% of the world’s workforce off work, $800 billion in economic damage and major disruptions to every industry and their supply lines” (Drawas 2006:14).
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Risk Management - statistics
Medication errors alone equate to £200-400 million per year in the UK, and to this must be added the unknown cost of errors in primary care and litigation (Matthew and Bain, 2006).
Considering the subject of counterfeit drugs within the PSC, the Medicines and Healthcare Products Regulatory Agency is currently investigating 117 internet-related cases where medicines legislation has been potentially breached (BBC News, 2006).
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•Vertical integration of supply chain•Global outsourcing and markets
Intellectual property
•Exchange rate risk•Percentage of a key component or raw material procured from a single source•Industry wide capacity utilisation•Long-term versus short-term contracts
Procurement
•Inaccurate forecasts due to long lead times, seasonality, product variety, short-life cycles, small customer base•“Bullwhip effect” or information distortion due to sales promotions, incentives, lack of supply-chain visibility, and exaggerations of demand in times of product shortage
Forecast
• Information infrastructure breakdown
• System integration or extensive systems networking• E-commerce
Systems
•High capacity utilisation at supply source•Inflexibility of supply source•Poor quality or yield at supply source•Excessive handling due to border crossings or to change in transportation modes
Delays
•Natural disaster•Labour dispute•Supplier bankruptcy•War and terrorism•Dependency on a single source of supplier as well as the capacity and responsiveness of alternative suppliers
Disruptions
Drivers of RiskCategory of Risk
Chopra and Sodhi 2004. Pg 54
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Supply Risk Sources Financial instability or financial failure of a supplier ineffective management in the supplier firm problems in electronically sharing information with suppliers suppliers incorrectly interpreting our requirements natural disasters or “acts of God” affecting suppliers’ operations political instability/ war affecting suppliers’ operations long physical distances between buyer and suppliers inability to influence suppliers lack of alternative suppliers inability of supplier to meet increases in required volumes (>20%) new or unproven product/process technology being used by suppliers transportation disruptions with inbound supply channels variability in transportation times with inbound supply channels possibility of suppliers putting your firm on allocation incoming product quality problems labour/management problems at suppliers suppliers exiting market on short notice supply disruptions in the second tier currency rate fluctuations material price fluctuations “pass-through pricing” (costs transferred from suppliers increasing price).
(Zsidisin et al, 2006)
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Drivers in the Pharmaceutical industry are…….
Product time to market Regulations Divesting excess capacity Research efficiency Tailored localized pharmaceutical solutions Development of ‘designer drugs’ Rapid response vaccines SC optimization Virtual enterprises
An estimate of £200–400m is required to launch a new drug, and an average of 8–12 years elapses from patent filing to first sale (see, e.g. Grabowski, 1997).
Shah, 2003
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Risk Management Workshop November 2005
Attended by twenty pharmaceutical stakeholders including:
NHS Purchasing and Supply AgencyPharmaceutical Manufacturers and DistributorsPharmaceutical WholesalersPharmaceutical ConsultantsSpecialist Pharmacy PractitionersThe Association of British Pharmaceutical IndustryThe British Association of European Pharmaceutical
DistributorsEuropean Association of Euro-Pharmaceutical
Companies.
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Risk Management Workshop November 2005
The workshop had the following outputs:1.A map of the current pharmaceutical supply
network as agreed by all stakeholders in attendance
2. Identification of examples of risk and where they exist on the supply chain map
3.Prioritisation of risk as determined by attendees.
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Current top issues in the PSC as identified by the workshop.
Poor performance Product unavailability Patient safety Buyer-supplier relationships Contract negotiation Vendor management Inventory management Wholesalers v short-line stores Unlicensed medications Parallel imports Counterfeit drugs.
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How can risk be assessed?
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Measuring risk - Criteria
Can include: Impact, Severity, Frequency, ProbabilityLikelihood, Recipient, Control factor.
May be purely qualitative analysis, e.g. identify a risk, determine it’s severity/probability and formulate a mitigation strategy.
May be based on mathematical modelling and simulation e.g. Monte Carlo simulation.
Risk impact Action required Intolerable Must eliminate or transfer risk Undesirable Attempt to avoid or transfer risk Acceptable Retain and manage risk Negligible Can be ignored
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Hallikas et al, 2004 undertaking a risk assessment focused on the probability and consequence of the risk event. Table 1. Impact assessment scale Rank Subjective estimate Description 1 No impact Insignificant in terms of whole company 2 Minor impact Single small losses 3 Medium impact Causes short-term difficulties 4 Serious impact Causes long-term difficulties 5 Catastrophic impact Discontinue business Table 2. Probability assessment scale Rank Subjective estimate Description 1 Very unlikely Very rare event 2 Improbable There is indirect evidence of event 3 Moderate There is direct evidence of event 4 Probable There is strong direct evidence of event 5 Very probable Event occurs frequently.
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Research conducted as part of award
Questionnaire constructed based on risk assessment and management literature
Incorporated 15 questions focusing on nature of risk assessment and management, drivers, tools used, method of analysis, rating criteria, and corporate responsibility.
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ResultsThe number of surveys circulated – 212 (see
next slide for breakdown)Follow-up e-mails to the pharmaceutical
industry – 12Response from these – 5Limitations to methodology – timing, database
source accuracy, access to ‘most responsible person’, choice of data collection tool.
Sweetener – coffee.
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Category Number circulated Logistics 18 Pharmaceuticals 84 Rail transport 28 Postal 21 Air transport 18 Sea transport 7 Nuclear engineering contractors 16 Equipment manufacturers 20 Total 212
Questionnaires circulated
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Usable responses by sector.Standard Industry Classifications – 1992.
0 AGRICULTURE, HUNTING AND FORESTRY 0 FISHING 0 MINING AND QUARRYING 7 MANUFACTURING 0 ELECTRICITY, GAS AND WATER SUPPLY 0 CONSTRUCTION 3 WHOLESALE AND RETAIL TRADE; REPAIR OF MOTOR
VEHICLES, MOTORCYCLES AND PERSONAL AND HOUSEHOLD GOODS
0 HOTELS AND RESTAURANTS 7 TRANSPORT, STORAGE AND COMMUNICATION 0 FINANCIAL INTERMEDIATION 0 REAL ESTATE, RENTING AND BUSINESS ACTIVITIES 0 PUBLIC ADMINISTRATION AND DEFENCE; COMPULSORY
SOCIAL SECURITY 0 EDUCATION 4 HEALTH AND SOCIAL WORK 0 OTHER COMMUNITY, SOCIAL & PERSONAL SERVICE
ACTIVITIES 0 PRIVATE HOUSEHOLDS WITH EMPLOYED PERSONS 0 EXTRA - TERRITORIAL ORGANISATIONS AND BODIES
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Results3 of the 19 companies could not provide a
definition of risk as used within their companyThe general response focused on the
negative impact of risk in safety terms and on business performance.
Only 1 respondent seen risk as an opportunity and not a negative entity e.g. hazard.
Risk was seen as been sub-divided into Corporate, Tactical and Operational, with the distinct focus on the business itself.
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Why perform risk assessments?
General consensus:To meet legislative requirementsBecause the supply chain is complexTo identify and mitigate against riskTo manage H&S in workplaceTo proactively manage risks to reduce later
impactOne respondent focused solely on the
business “ to monitor the exposure of the company and its stakeholders”.
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What prompts a risk assessment?least important (1) to most important (7).
Identification of a hazard (affecting health and safety) 6.5
Identification of an interruption to the operation 5.1 Legal obligations 6.3 Moral obligations 5.9 Ethical obligations 5.8
Health and safety consciousness with staff 5.7 Health and safety consciousness with customers 5.4 To reduce or eliminate risk to heath & safety 6 To reduce or eliminate risk to operational performance6 Part of staff responsibilities 4.6 Has to be done as dictated by parent group 3.5 Compliance with maintenance of standards/accreditation 5.2 Opportunity to reduce costs 4.4
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Risk assessment tool/framework/model used
A recognised/pre-defined model
NR (4), N (7), Y (8)
An internally developed model
NR (1), N (3), Y (15)
A consultant’s model
NR (6), N (10), Y (3)
A model applied by the parent company
NR (6), N (11), Y (2)
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Why this one?Meets company needsTrained in this oneSimple yet effectiveMandatoryBetter outputs“Covers internal and external risk…It is
simple for non-risk experts (senior managers) to understand at summary level, but provides extensive detail behind it for the risk professionals to use”.
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Use of other tools (before current)
11 of the 19 respondents stated that they had not used any other risk assessment tools previously.
6 stated that they had e.g. FMEAThe reason given for not using other tools
was that they had been superseded, were less effective and more complex and that the outcome was not always realistic.
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Qualitative v Quantitative
Risk assessments can be conducted on either a qualitative or quantitative basis.
14 of the companies questioned stated that they would use a combination of qualitative and quantitative tools.
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What are the key criteria used to formulate a risk rating?
Probability of occurrence 95% + Impact on immediate customers and staff health
68% +
Impact on operational capacity 58% + Impact on buyers and suppliers 37% + Controllability factor 47% + Financial Repercussions 42% + Feasibility of elimination 58% + Severity rating 89% + Other 21% +
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What are the output categories of the risk assessment process?
Low-medium-high risk bands 58% + 1-10 risk rankings 37% + Tolerable-intolerable risk 26% + Long-medium-short term risk 21% + No action – immediate action 26% + Probabilities 26% + Other 26% +
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Responsibility and review
The responsibility for RA resided generally with more senior management, or with dedicated personnel e.g. Quality Assurance Manager or the H&S Manager, Head of, Director of etc.
1 respondent said that no-one was clearly responsible so it fell to the MD by default whilst another stated that it was their Board of Directors.
A number of respondents felt that all employees were responsible for managing risk.
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The person responsible for managing risk was not always the individual who conducted the risk assessments (in 74% of the cases).
The review period for the risk assessment process was generally annually.
1 company stated that it was reviewed every quarter and another every 6 months.
I respondent agreed that their process was reviewed occasionally and another when a risk was identified.
5 companies felt that it was good working practice to continuously review their risk assessment practice.
Responsibility and review
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General Comments The survey response was disappointing so it’s difficult
to say if results are representative of the pharmaceutical sector or industry.
The results would indicate that companies acknowledge the importance of this issue and it’s impact on both business performance and health & safety.
The simplest models appear to be most preferable and those most commonly used are developed in-house or by consultants.
Is risk assessment/management something that is and has to be done but no-one gets that excited about?
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Thanks….
☺To Roger for presenting this for me in my absence
☺To PDIG and Pfizer for sponsoring this study
☺To the industry for the support they have shown and hopefully will continue to show in the future.
