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Siloed Perceptions in Pharmaceutical Supply ChainRisk Management: A Brazilian Perspective

Jessica Silva, Claudia Araujo & Leonardo Marques

To cite this article: Jessica Silva, Claudia Araujo & Leonardo Marques (2020): Siloed Perceptionsin Pharmaceutical Supply Chain Risk Management: A Brazilian Perspective, Latin AmericanBusiness Review, DOI: 10.1080/10978526.2020.1731315

To link to this article: https://doi.org/10.1080/10978526.2020.1731315

Published online: 02 Mar 2020.

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Siloed Perceptions in Pharmaceutical Supply Chain RiskManagement: A Brazilian Perspective

Jessica Silva, Claudia Araujo, and Leonardo Marques

Operations Management Department, UFRJ – Federal University of Rio de Janeiro, COPPEADGraduate School of Business, Rio de Janeiro, Brazil

ABSTRACTThis article maps risk perception across the pharmaceuticalsupply chain (PSC) in Brazil. Our paper employs the methodorders-of-magnitude analytic hierarchy process to rank risks asperceived by industry, distributors, hospitals and pharmacies.We show that players have a siloed perception of risk andimpact of those risks. While upstream players emphasize cost,downstream players value service; moreover, both prioritizeoperational risks over strategic risks. We call for further studiesin Latin America: although interest in risk is growing, fewstudies address the PSC and even fewer realities outside theNorthern Hemisphere.

RESUMEN

Este art�ıculo esboza la percepci�on de riesgo en la cadena deabastecimiento farmac�eutico (PSC—sigla en ingl�es parapharmaceutical supply chain) en Brasil. Nuestro documento uti-liz�o el m�etodo cuantitativo del proceso de an�alisis jer�arquico(AHP) para clasificar o riesgo percibido por la industria, los dis-tribuidores, hospitales y farmacias. De este modo, demostra-mos que los participantes tienen una visi�on compartimentadadel riesgo y del impacto de estos riesgos. Mientras los actoresprincipales enfatizan el costo, los secundarios valorizan el ser-vicio. Lo que tienen en com�un es que ambos enfatizan m�aslos riesgos operacionales que los estrat�egicos. Destacamos lanecesidad de realizar estudios adicionales em Latinoam�ericaporque, a pesar del creciente inter�es em el riesgo, existenpocos estudios que abordan el PSC y un n�umero a�un menorlas realidades fuera del hemisferio norte.

RESUMO

O presente trabalho mapeia a percepc~ao de risco na cadeiade abastecimento farmaceutico (PSC—sigla em ingles parapharmaceutical supply chain) no Brasil. Nosso estudo empre-gou a metodologia de ordem de dimens~ao no processo dean�alise hier�arquica para classificar o risco percebido por:ind�ustria, distribuidores, hospitais e farm�acias. Demonstramosque os participantes tem uma vis~ao compartimentada dorisco, assim como do impacto do risco. Enquanto os playersprincipais enfatizam o custo, os players secund�arios valorizam

ARTICLE HISTORYReceived 4 January 2019Revised 21 June 2019Accepted 6 November 2019

KEYWORDSBrazil; pharmaceuticalsupply chain; riskperception; supply chainrisk management

CONTACT Leonardo Marques leo.marques@coppead.ufrj.br Operations Management Department, UFRJ –Federal University of Rio de Janeiro, COPPEAD, Rua Pascoal Lemme, 355 Cidade Universitaria, CEP, Rio deJaneiro, RJ 21941-918, Brazil.� 2020 Taylor & Francis Group, LLC

LATIN AMERICAN BUSINESS REVIEWhttps://doi.org/10.1080/10978526.2020.1731315

o servico. O que todos tem em comum �e dar mais enfase aosriscos operacionais do que aos estrat�egicos. Destacamos anecessidade de estudos adicionais na Am�erica Latina, porqueapesar de haver um interesse crescente sobre o risco, poucosestudos abordam a PSC e um n�umero ainda menor versasobre a realidade fora do hemisf�erio norte.

Introduction

The pharmaceutical supply chain (PSC) is highly complex and key tohealthcare. The supply of medicines accounts for 20–30% of medical spend-ing (Narayana, Pati, & Vrat, 2014) and is expected to reach US$1.5 trillionworldwide by 2021 (Associac~ao da Ind�ustria Farmaceutica de Pesquisa[Interfarma], 2017). Additionally, the PSC is holds complexity in terms ofproduct variety and complexity, reflected in special maintenance require-ments and mandatory quality standards, and involves several different play-ers, from research and development (R&D) companies and bigpharmaceutical industries to distributors, hospitals, and drugstores (Chopra& Meindl, 2017; Enyinda, Mbah, & Ogbuehi, 2010). Considering that medi-cines are essential to the patient’s treatment and life maintenance, the con-sequences of disruptions in the PSC go beyond financial losses: they pose athreat to the patient’s safety and well-being.Brazilians have access to medications mainly through the last stage of the

supply chain (pharmacies and drugstores), but also through private andpublic hospitals (Gomes, Pimentel, Lousada, & Pieroni, 2014). Brazil is adeveloping country of continental dimensions, with a population over 208million people in 2018 and one of the 10 biggest pharmaceutical marketsin the world (Interfarma, 2017). The pharmaceutical sector is heavily regu-lated across the world and Brazil is no different. Firms in Brazil are pre-dominantly dedicated to the production and packaging of final products,with the national laboratories focusing on the manufacturing of genericdrugs. Raw materials are mostly imported, and innovation activities aretypically carried out abroad (Calixto & Siqueira, 2008; Miguel & Reis,2014). The result is a large participation of national laboratories in the gen-eric segment and a high dependency on importation. Medicines distribu-tion in Brazil is mainly done by big private distributors which servedrugstores, hospitals and clinics, while pharmacy retail chains usually havetheir own distribution centers and negotiate directly with the industry(Afonso, Dreszer, Francis, & Ramos, 2015; Fischer, 2017; Gomes et al.,2014; Setem, 2015).Risk in the PSC is commonly associated with “product discontinuity,

product shortages, poor performance, patient safety/dispensing errors,

2 J. SILVA ET AL.

technological errors, internet pharmacies and counterfeit drugs” (Breen,2008, p. 195), all of which can result in harm to patient health and safety,erosion of confidence in public health, and thinner profit margins (Enyindaet al., 2010). Managing supply chain risk has a great relevance for thisindustry, the general public, and governments. Although there is a growingresearch interest, few studies address risk assessment in the PSC (Bak,2018; Ho, Zheng, Yildiz, & Talluri, 2015) and fewer are focused on devel-oping countries (Singh, Kumar, & Kumar, 2016), Oliveira, Espindola, &Marins, 2018; Newton, Green, & Fern�andez, 2010), or the Brazilian reality(Bak, 2018; Oliveira et al., 2018). The literature is dominated by USA andUK (Bak, 2018; Prakash, Soni, & Rathore, 2017) with Asian countries pro-ducing increasing numbers of articles (Prakash et al., 2017), even thoughBrazil is among the top 10 biggest pharmaceutical markets in the world(Interfarma, 2017). Hence, we focus our research on the Brazilian pharma-ceutical sector. The Brazilian PSC, as in most countries, is composed ofmultiple tiers of storage and distribution between the manufacturer and thefinal user, the patient. Supply chains with multiple tiers, when not inte-grated, may lead to silos that often focus on different outcomes (Spekman,Kamauff, & Myhr, 1998). Most surprisingly, we found no study clearlycomparing and contrasting how different players in the PSC perceive risks,and whether this sector has been able to overcome siloed perceptionsacross the tiers.In order to overcome the PSC vulnerabilities, it is paramount to identify,

prioritize, mitigate, and monitor the risks so there can exist proper config-uration and adaptability in the supply chain. The supply chain risk man-agement (SCRM) process is where partners in the supply chain collaborateto deal with risks and uncertainties, thus allowing companies to monitorhazards and operate more efficiently (Ho et al., 2015). The goal of thispaper is to compare and contrast how different players in the BrazilianPSC identify, evaluate, and rank risks. We hence pose the followingresearch question (RQ): “How do the different players identify, evaluate,and rank the risks in the Brazilian PSC?”We interviewed professionals of the pharmaceutical sector responsible

for the management of products and information in the supply chain, andthen applied the method orders-of-magnitude Analytic Hierarchy Process(OM-AHP), developed by Saaty and Shang (2011), in order to rank theperceived risks.Our paper contributes to the field of SCRM by showing that in Brazil

the different players assess risk through a silo approach, meaning that play-ers perceive risk differently from each other, and have limited understand-ing of how risks are affecting other players. This result reinforces thefindings of previous research also conducted in developing countries, such

LATIN AMERICAN BUSINESS REVIEW 3

as Iran (Yousefi & Alibabaei, 2015), Marroco (Benazzouz, Echchtabi, &Charkaoui, 2017), and Bangladesh (Moktadir et al., 2018), that revealedthat there is little perception of how risks may affect the supply chain as awhole. The study also contributes to risk analysis by decomposing theimpact dimension in the cost and service [time/quality] dimensions, allow-ing better understanding of SCRM. The remainder of this paper beginswith a literature review on SCRM; the research methodology is then pre-sented, followed by the presentation and discussion of the results. The lastsection addresses implications, limitations, and suggestions forfuture research.

Literature review

Supply chain risk management

A common expression of risk is the function (multiplication) of the prob-ability of occurrence of said risk and its impact severity (Dong & Cooper,2016; Manuj & Mentzer, 2008). Supply chain-related risks are events thatcause disturbance or disruption to the material, information, or financialflow within the supply chain and interrupt operations (Ghadge, Dani, &Kalawsky, 2012; Pfohl, K€ohler, & Thomas, 2010; Tummala & Schoenherr,2011). One can define risk either by discussing its causes or its effects; thatis, risk can be understood as an endangerment resulting from a wrongdecision (Pfohl et al., 2010). The term ‘risk’ is not necessarily negative andcan be seen as an opportunity. Aven (2016, p. 4) elaborates on the defin-ition of risk:

The possibility of an unfortunate occurrence; the potential for realization ofunwanted, negative consequences of an event; exposure to a proposition (e.g.,occurrence of a loss) of which one is uncertain; uncertainty about and severity of theconsequences of an activity with respect to something that humans value.

Building on the above definitions, we understand supply chain risk asany event that negatively affects the efficient flow of materials, information,or financial resources across the SC, from the suppliers to the end consumer.There has been a growing interest in SCRM for the past years, which

can be seen reflected on the increasing number of published studies on thesubject (e.g., Bak, 2018; Fahimnia, Tang, Davarzani, & Sarkis, 2015; Hoet al., 2015; Moktadir et al., 2018; Rao & Goldsby, 2009). Although defini-tions of SCRM vary, they have some key elements in common. First,SCRM is seen as a strategic activity (Narasimham & Talluri, 2009). Severalauthors point out how SCRM can affect the organization’s performanceand reduce the vulnerability of the SC as a whole (Chen, 2018; Ho et al.,2015; Kilubi & Rogers, 2018; Miemczyk & Luzzini, 2019; Rao & Goldsby,2009; Revilla & Saenz, 2017). Another important factor is that SCRM

4 J. SILVA ET AL.

supports the decision-making process by providing a structured way toanalyze and select the best strategies to mitigate risks and their impacts onthe SC (Bak, 2018; Ho et al., 2015; Manuj & Mentzer, 2008; Narasimham& Talluri, 2009; Sharma & Bhat, 2014). This study follows the definition byHo et al. (2015, p. 6):

An inter-organisational collaborative endeavour utilising quantitative and qualitativerisk management methodologies to identify, evaluate, mitigate and monitorunexpected macro and micro level events or conditions, which might adverselyimpact any part of a supply chain.

SCRM entails generic steps and can be considered as a set of strategiesand approaches planned in an integrated manner in order to achieve thetargeted goals (Bak, 2018; Prakash et al., 2017). For this paper, based onHo et al. (2015) and Hallikas, Karvonen, Pulkkinen, Virolainen, andTuominen (2004), the SCRM process includes: risk identification, riskassessment, risk mitigation and contingency and, finally, risk monitoring.However, we will focus on the first two phases.Risk identification, the first step, is when a firm must conduct a compre-

hensive and structured search where the focus is on collecting informationon risks in order to determine potential and relevant risk sources, alongwith their potential damage to the company, their partners, and the share-holders (Tummala & Schoenherr, 2011).The second phase, labeled risk assessment, is the step when the analysis

of the identified risks occurs, both in terms of magnitude of their conse-quences and impact, as well as their likelihood (Ho et al., 2015). The out-come of the risk assessment activities is a classification of all identifiedrisks and risk prioritization (Sharma & Bhat, 2014). There are several intan-gible aspects (e.g., trust and reputation) that are hard to convert into mon-etary values when conducting this analysis (Hallikas et al., 2004). Besides,depending on the context and industry, the variables of the analysis mayrange from a commercial nature (e.g., focus on consequences of stockouts)to life-threatening ones (e.g., floods probabilities) (Dong & Cooper, 2016).The methods applied can be quantitative, semi-quantitative, or qualitative.Frequently used methods include checklists, HAZOP, scenario analysis, riskmatrix, AHP, simulations, etc. (Sharma & Bhat, 2014).

Risk types

Multidiscipline databases were accessed in April 2019 (EBSCO, Emerald,and Web of Science) and papers that addressed risks in the supply chainwere selected; the criterion adopted to select them was that the researchshould explicitly identify and categorize risks for a supply chain. No filterregarding the method of identification was applied; that is, studies that

LATIN AMERICAN BUSINESS REVIEW 5

used literature reviews, interviews, or case studies, among others, were allselected to compose the list of risks. From this first filter, a list of the risksthat were most commonly identified in the literature was developed, result-ing in list of 40 risks.We encountered several different approaches to risk categorization

involving different degrees of generalization; and some presented differentterminologies but similar definitions and vice-versa (Rangel, Oliveira, &Leite, 2015). In this article, the 43 risks were organized based on the 14dimensions proposed by Rangel et al. (2015). These authors developed amap of the supply chain risk classifications based on a literature reviewand, using cluster analysis, proposed 14 dimensions for supply chain riskclassification: strategic, inertia, informational, capacity, demand, supply,financial, relational, operational, disruption, customer, legal, environmental,and culture. The strategic risks are the events that affect the business strat-egy, e.g., strategic planning process. The inertia category comprises risksrelated to the ability of the company to remain competitive, such as newtechnologies development. Capacity risks are the events related to capacitymanagement, both over- or underutilization. Demand risks occur due toforecasting issues, seasonality, information distortion, among others. Thesupply category covers the risks of the supplier not being able to deliver theagreed quantity or quality. The financial risks are related to cash flow prob-lems and changes in the financial market. Relational risks relate to visibility,level of trust, and interaction among supply chain partners. The operationalrisks are the ones related to the focal company’s production performance.Disruptions are the events that stop the material flow in the productionprocess, e.g., labor strikes. The customer category focuses on events thatcan change the customer’s choice, such as product obsolescence. The legalrisks are the level of exposure to litigations and legal restrictions of thecompany. The environmental category comprises the risks outside thechain, e.g., natural, governmental, and economic. Informational risks arerelated to information system failure due to a poor data feed system. Thelast category, culture, refers to the risks that arise from differences in busi-ness cultures among partners and the cultural differences in the countriesin which a company operates. Dimensions, risks that compose each dimen-sion, and their authors are presented in Table 1.

Risk assessment

Not all risks affect the supply chain the same way: some are more criticalthan others and should receive more attention (Manuj & Mentzer, 2008).According to Aven (2016), the way the risk is understood and describedinfluences the way it should be assessed, and, in the supply chain field, the

6 J. SILVA ET AL.

Table 1. Risks emerging from the literature review.Capacity: caused by the effective capacity of overlapping or underutilization of production.Authors: Chopra and Sodhi (2004); Tang and Tomlin (2008).Demand: changes in the customers’ choice; forecasting issues; seasonality; uncertainties in volume and mix

desired by the costumer; and mismatch between projections and actual demand.Authors: Hallikas et al. (2004); Chopra and Sodhi (2004); Manuj and Mentzer (2008); Tang and Tomlin (2008);

Rao and Goldsby (2009); Tummala and Schoenherr (2011); Ouabouch and Amri (2013).Environmental: risks outside the chain, e.g., natural, governmental, social, and economic; external and

uncontrollable events and natural disasters, e.g., terrorism, war, earthquakes, floods, and manmadedisasters, macroeconomic uncertainties, and cargo theft.

Authors: Chopra and Sodhi (2004); Manuj and Mentzer (2008); Breen (2008); Tang and Tomlin (2008); Rao andGoldsby (2009); Tummala and Schoenherr (2011); Arruda (2011); Ho et al. (2015); Jaberidoost et al. (2015);Dong and Cooper (2016).

Financial: uncertainties in investments and cost structures; cash flow problems; changes in the financialmarket, payment and investment risks, e.g., exchange rates; interest rates; price volatility; unanticipatedincreases in purchasing costs; uncertainties in investments and cost structures; commodity prices; taxpayable change.

Authors: Hallikas et al. (2004); Chopra and Sodhi (2004); Enyinda (2018); Arruda (2011); Tang and NurmayaMusa (2011); Ouabouch and Amri (2013); Jaberidoost et al. (2015); Dong and Cooper (2016).

Inertia: related to manufacturing capacity and flexibility; flexibility – market changes and new trends thatdemand some sort of investments in order to follow the novelty and remain inside the network; ability ofthe company of remaining competitive, such as new technologies development; new productdevelopment; process development; technology upgrade; new technologies; R&D capabilities; time tomarket; organizational capabilities, technological and innovative capabilities, learning and exploitationcapabilities

Authors: Hallikas et al. (2004); Enyinda (2018); Tummala and Schoenherr (2011); Arruda (2011); Jaberidoostet al. (2015); Dong and Cooper (2016); Singh et al. (2016); Kilubi and Rogers (2018).

Operational: related to the focal company’s production performance; poor quality; events that causefluctuations in effective capacity and quality; process failure; equipment failure; events that jeopardize thefocal company’s internal ability to produce goods and services; inventory control accuracy; obsolescencerisk and cots of holding inventory; shortages of spare parts; problems with collectables and supplyshortages; unanticipated resource requirements; labor quality; worker skills; availability and quality of rawmaterials; storage contamination risks.

Authors: Chopra and Sodhi (2004); Reis and Perini (2008); Manuj and Mentzer (2008); Enyinda (2018); Tangand Tomlin (2008); Breen (2008); Rao and Goldsby (2009); Tummala and Schoenherr (2011); Asamoah,Abor, and Opare (2011); Arruda (2011); Ouabouch and Amri (2013); Jaberidoost et al. (2015); Brettler(2015); Dong and Cooper (2016); Huq et al. (2016); Singh et al. (2016); Privett and Gonsalvez (2014).

Strategic: Any event that affects business strategy, such as lack of strategic planning; short term SC planning;related to how the managers face risk and how they proceed on making decisions; emerges when theprocess of risk management itself is poorly constructed and becomes a source of risk; outsourcing.

Authors: Breen (2008); Rao and Goldsby (2009); Mokrini, Dafaoui, et al. (2016); Mokrini, Kafa, Dafaoui, ElMhamed and Berrado (2016).

Supply: Uncertainties in delivery of products within the network, from supplier to buyer, in terms of qualityand time; problems in cargo handling, port capacity, and congestion and custom clearance; lack ofresponse of suppliers; cost and level of commitment of the suppliers; supplier performance; transportationscheduling, late deliveries and choice of transport mode; supplier quality and delivery failure; outsourcinglogistics; product damage in transit; fluctuation in imports arrival.

Authors: Hallikas et al. (2004); Chopra and Sodhi (2004); Tang and Tomlin (2008); Breen (2008); Enyinda(2018); Tummala and Schoenherr (2011); Tang and Nurmaya Musa (2011); Ouabouch and Amri (2013); Hoet al. (2015); Jaberidoost et al. (2015); Huq et al. (2016); Dong and Cooper (2016); Mardan, Amalnick,Rabbani, and Jolai (2017); Forghani, Sadjadi, and Moghadam (2018).

Disruption: Events that can cause supplier failure that interrupt the production and material flow – e.g.,strikes.

Authors: Manuj and Mentzer (2008); Breen (2008); Arruda (2011); Jaberidoost et al. (2015); Dong and Cooper(2016); Huq et al. (2016).

Relational: visibility, level of trust, and interaction among supply chain partners; occurs due to interactionsbetween companies within the supply chain, e.g., mistrust, lack of responsiveness, and distortedinformation; good-will; related to the level of visibility and control in the supply chain, which can result intrust issues among partners and low confidence within the supply chain; low supplier integration;intellectual property – protecting internal knowledge and potential counterfeit; occur when there areprocesses being outsourced to manufacturers that are also used by competitors; network and partnershipcapabilities.

Authors: Chopra and Sodhi (2004); Breen (2008); Reis and Perini (2008); Tang and Tomlin (2008); Arruda(2011); Jaberidoost et al. (2015); Yousefi and Alibabaei (2015); Almeida, Marins, Salgado, Santos, and Silva

(continued)

LATIN AMERICAN BUSINESS REVIEW 7

concept of risk needs further development. In general, risk assessmentrefers to the analysis of the identified risks, both in terms of the magnitudeof their consequences as well as their likelihood (Aven, 2016; Ho et al.,2015). While risk consequences are related to the extent to which anadverse event affects resources (Tummala & Schoenherr, 2011), includingfinancial losses, reputation damage, interruption of service level, cost over-runs, poor process performance, or safety issues (Tummala & Schoenherr,2011), the likelihood of a risk, on the other hand, is related to the uncer-tainties and frequency of occurrence (Aven, 2016; Tummala &Schoenherr, 2011).Risk assessment helps to establish priorities, serving as a starting point

for selecting the appropriate risk mitigation techniques according to thesituation of the company and its network (Falkner & Hiebl, 2015; Gardner& Colwill, 2018; Hallikas et al., 2004). An important aspect of the riskassessment is that, as the number of risks being evaluated increases, thepotential to have less-consistent judgments increases concomitantly,because it becomes difficult to simultaneously compare variations in bothprobability and impact on a large number of variables (Dong &Cooper, 2016).To address this challenge, a great number of risk assessment methods

have emerged in the past years (Ho et al., 2015). One line of researcherschose to focus their analysis on a single type of risk, such as demand-vola-tility risks, inventory-management problems, operations risks, product-quality risks, and financial risks (e.g., exchange rate risks) (Ho et al., 2015).Out of this group, most of these studies are focused on supply-related risks(e.g., supplier selection, poor quality, supplier failure, uncertain capacity,geographical dispersion of suppliers) (Fahimnia et al., 2015; Ho et al., 2015;Prakash et al., 2017). Another group of researchers focused on evaluating

(2015); Dong and Cooper (2016); Huq et al., 2016; Mardan et al. (2017); Forghani et al. (2018); Colicchia,Creazza, No�e, & Strozzi, 2019); Kilubi and Rogers (2018).

Legal: level of exposure to litigations and legal restrictions of the company; related to government’s policies,legislation and regulations; compliance to regulations; broken contract; contract and agreements; risk oflitigation.

Authors: Manuj and Mentzer (2008); Breen (2008); Tang and Tomlin (2008); Tummala and Schoenherr (2011);Arruda (2011); Asamoah et al. (2011); Kamath et al. (2012); Jaberidoost et al. (2015); Dong and Cooper(2016); Enyinda (2018).

Cultural: risks that arise from differences in business cultures among partners and the cultural differences inthe countries a company operate; foreign production.

Authors: Tang and Tomlin (2008); Huq et al. (2016); Kurniawan, Zailani, Iranmanesh, and Rajagopal (2017);Majid and Bapuji (2018).

Informational: results of information system failure due to poor data feed system; potential failures on theinformation technology infrastructure; distortions in information; distorted information; informationaccuracy and security; viruses.

Authors: Chopra and Sodhi (2004); Tang and Nurmaya Musa (2011); Tummala and Schoenherr (2011);Ouabouch and Amri (2013); Colicchia et al. (2019).

Source: Based on Rangel et al. (2015).

8 J. SILVA ET AL.

generic supply chain risks, presenting a broader view and creating a com-prehensive risk index (Ho et al., 2015).The methods used can be quantitative, semi-quantitative, or qualitative.

Some of the frequently used methods are checklists, HAZOP, scenario ana-lysis, risk matrix, AHP, simulations, among others (Sharma & Bhat, 2014).

SCRM in the pharmaceutical sector

Manufacturing companies, especially those in the automotive sector, arestill the preferred field of SCRM studies (Ho et al., 2015; Prakash et al.,2017), while many sectors, such as banking and healthcare, are underrepre-sented (Ho et al., 2015). SCRM in the PSC is still little-explored (Ho et al.,2015; Prakash et al., 2017). We conducted a literature review in April 2019,including accessing multidiscipline databases (BVS, EBSCO, Emerald,ProQuest, Science Direct, and Web of Science), which resulted in our find-ing few papers defining supply chain risk in the PSC (Table 2).Different methodologies were used to analyze PSC risk, both qualitative

and quantitative. Some focus on risk identification, and others focus onrisk assessment and mitigation. Furthermore, while the most papersfocused on the traditional flow, two studies looked at reverse flow, mainlyrelated to recalls (Kumar, Dieveney, & Dieveney, 2009; Narayana, Elias, &Pati, 2014).Regarding method, one of the selected studies used a literature review to

analyze the risks (Iyengar, Hedman, Forte, & Hill, 2016); two used simula-tion (Shah, 2004; Zamora, Adarme, & Arango, 2013); one used an Ishikawa

Table 2. Map of the literature on SCRM in the pharmaceutical industry.Author (Year) Type of Study Methodology Location

Breen (2008) Mixed Focus Group / Survey UKShah (2004) Quantitative Simulation –Kumar et al. (2009) Qualitative Cause and Effect,

Diagram/Situation,Analysis/FMEA

–

Enyinda et al. (2010) Quantitative AHP GhanaArruda (2011) Quantitative Survey BrazilKamath et al. (2012) Quantitative AHP IndiaZamora et al. (2013) Quantitative Simulation ColombiaOuabouch and Amri (2013) Quantitative Survey MoroccoNarayana, Elias, et al. (2014) Qualitative Casual Loop Development USAElleuch et al. (2014) Mixed AHP TunisiaJaberidoost et al. (2015) Mixed Interviews / AHP IranHuq et al. (2016) Mixed Focus Group / Survey GlobalIyengar et al. (2016) Qualitative Literature Review GlobalMokrini, Dafaoui, et al. (2016) Quantitative MCDA – ELECTRE TRI FranceMokrini, Kafa, Dafaoui, El Mhamedi, and

Berrado (2016)Quantitative Fuzzi AHP, PROMETHEE France

Md et al. (2018) Mixed Delphi method and AHP BangladeshEnyinda (2018) Quantitative AHP Global

LATIN AMERICAN BUSINESS REVIEW 9

diagram (Kumar et al., 2009); three made use of surveys (Arruda, 2011;Huq, Pawar, & Rogers, 2016; Ouabouch & Amri, 2013); one appliedElimination and Choice Translating algorithm (ELECTRE – TRI) (Mokrini,Dafaoui, Berrado, & El Mhamedi, 2016); one used a casual loop model(Narayana, Elias, et al., 2014); one conducted a workshop with PSC stake-holders (Breen, 2008); and seven applied AHP (Elleuch, Hachicha, &Chabchoub, 2014; Enyinda, 2018; Enyinda et al., 2010; Jaberidoost et al.,2015; Kamath, Kamatha, Azaruddin, Subrahmanyam, & Shabharaya, 2012;Mokrini, Dafaoui, et al., 2016; Moktadir et al., 2018).Moktadir et al. (2018) applied the Delphi method and AHP to select the

relevant risks associated to PSC in Bangladesh. They interviewed 10 expertsfrom the pharmaceutical industry to select the relevant risks associated toPSCs. Mokrini, Dafaoui, et al. (2016) applied AHP to evaluate the out-sourcing of risks in the pharmaceutical supply chain. Jaberidoost et al.(2015) applied AHP and Simple Additive Weighting (SAW) to rank the 86risks identified in the Iranian PSC through a literature review and inter-views with PSC professionals. They assessed risks by interviewing 15experts, adopting as criteria the probability of the risk, the hazard of therisk, and the importance of the supply chain function. Elleuch et al. (2014)applied AHP, interviewing six experts in order to evaluate risks manage-ment scenarios in Tunisia. Kamath et al. (2012) used AHP methodology inthe Indian PSC, aiming to identify which risks were the most important tomanage (inventory risk, regulatory risk, financial risk, and counterfeit risk)and what were the best mitigation strategies to address them (risk reduc-tion, risk acceptance, risk avoidance, and risk transferring), according tothe perspectives of manufacturers, intermediaries, and dispensing pharma-cists. Enyinda et al. (2010) also applied AHP in a PSC, followed by a sensi-tivity analysis to identify risks in Ghana. The questionnaires werecompleted by two experts who work for the major Ghanaian pharmaceut-ical companies. In another study, Enyinda (2018) applied AHP and sensi-tivity analysis in PSC to investigate risk management in pharmaceuticalglobal supply chain outsourcing, identifying risk sources, priorities, andalternative policy options. The sample was composed of fourPSC managers.Some of the studies adopted a global perspective (Enyinda, 2018; Huq

et al., 2016; Iyengar et al., 2016), while others focused on local contexts(Arruda, 2011; Breen, 2008; Enyinda et al., 2010; Jaberidoost et al., 2015;Kamath et al., 2012; Moktadir et al., 2018; Narayana, Elias, et al., 2014;Ouabouch & Amri, 2013; Zamora et al., 2013). From this review, it is pos-sible to observe that some studies were conducted in developing countries(Arruda, 2011; Elleuch et al., 2014; Enyinda et al., 2010; Jaberidoost et al.,2015; Kamath et al., 2012; Moktadir et al., 2018; Ouabouch & Amri, 2013;

10 J. SILVA ET AL.

Zamora et al., 2013), indicating an increasing interest in understanding thethreats to the flow of medicines in poorer regions. Only one study wasconducted in Brazil (Arruda, 2011); the objective was to assess the prob-ability of 51 risks in the perception of SC professionals from 22 pharma-ceutical companies that were classified based on their revenues. In thissense, many studies that focused on the assessment phase consider the per-spective of only one player in the network when analyzing the risks for thesupply chain. Many studies consider only the industry’s perspective (usuallythe biggest player) and assume their perspective to point out the greatestthreats to the supply chain. Therefore, it is not surprising to see a lack ofdiscussion regarding whether different participants of the PSC share similarperceptions or think in silos, in a sector that requires the participation ofdifferent stakeholders, such as pharmaceutical manufacturers, wholesalers,distributors, retailers, customers, among others (Singh et al., 2016).Overcoming indifference to different perceptions across the supply chain iscrucial to achieve co-operation and partnering to maximize the overalleffectiveness of the supply chain (Spekman et al., 1998).Unlike previous studies, we map the perceptions from different players

in order to understand the extent to which PSC risks are perceived differ-ently across industry, distributors, retailers, and buyers. Also, differentfrom the articles mentioned, in this research we investigate the risk conse-quences considering two dimensions: service, which refers to the qualityand availability of the products; and cost, which refers to the monetaryimpact of the risk to the supply chain.

Research methodology

This research was designed in two stages: (1) Exploratory stage—interviewswith Brazilian experts and risk selection; (2) Assessment stage—assessmentof the risks selected in the previous stage, applying OM-AHP.

Exploratory stage—interviews with experts and risk selection

In this first stage, we interviewed three experienced professionals of thePSC in Brazil in order to evaluate the SC risks that emerged from the lit-erature review in terms of the Brazilian context and to make a pre-selectionof risks that could be applied to the Brazilian reality. The goal was also toidentify potential risks that did not appear in the literature review and tovalidate the standardization of the vocabulary. We selected the three expertsbased on their having worked for many years in different managerial posi-tions in the PSC during their careers. One expert had three years of experi-ence and had worked with production, logistics, and importation; the

LATIN AMERICAN BUSINESS REVIEW 11

other, had 23 years of experience and had worked with marketing, produc-tion, and sales; the third expert had six years of experience in the sectorand had worked with operations, research, and planning.The interviews consisted of open-ended questions lasting from 45–60

minutes; interviewees were asked to point out the risks they perceived in theBrazilian PSC and to discuss those identified in the literature. We adopted alower degree of aggregation of the risks present in the literature review, result-ing in a list of 40 risks to be evaluated by the interviewees. Also, a new risk –price regulations—emerged from the interviews and was added due to its statusvis-�a-vis the Brazilian reality in which drug prices are strongly monitored byThe Brazilian Health Regulatory Agency (ANVISA) and The Drug MarketRegulation Chamber (CMED). In total, 41 risks composed the final list.Tummala and Schoenherr (2011) propose each risk should be assessed

considering two dimensions—consequences and probability. Other authorsclaim that risk is a combination of probability and impact (Aven, 2016;Dong & Cooper, 2016; Manuj & Mentzer, 2008). Probability refers to thelikelihood of a potential risk to happen and impact refers to the ensuingloss in case of the event occurrence (Dong & Cooper, 2016; Tummala &Schoenherr, 2011). Therefore, these are the two criteria used to assess riskin this research.Adapting this methodology, all professionals analyzed the list of 41 risks

in terms of the probability of occurrence, and the consequences in relationto service and cost. Considering that the concept and understanding of riskin the supply chain needs further development (Aven, 2016), we listened tothe experts to understand impact in the Brazilian PSC context. It turnedout that these two kinds of impacts emerged from the interviews as veryrelevant in the case of the Brazilian PSC: service is essential, since medi-cines should be available at the correct time, in the correct quantity, and inperfect conditions to preserve the patient’s treatment, safety, and health;and costs—the monetary impact—is especially relevant in this sectorbecause of product expiration dates, possible contractual penalties, and sec-tor competitiveness. The service index refers to the level of impact the eventhas on the chain considering the availability of the products and the qualitydimension, that is, the level of defective products that reach the final user.The cost index refers to the monetary impact of the risk to the sup-ply chain.Each risk was classified in “High,” “Medium,” or “Low,” according to the

professionals’ expertise, resulting in a final score for each risk, calculated asfollows (Table 3):

Risk Total Index ¼ IndexProbab: � Indextime=quality � IndexCost

12 J. SILVA ET AL.

Considering that as the number of risks being evaluated increases, thepotential to have less consistent judgments increases (Dong & Cooper,2016), the ten most significant risks were selected to compose the modelused in the next stage of the research (Table 4).

Assessment stage—assessment of risks selected in the previous stage,applying OM-AHP

The methodThe evaluation of risks in the SC is an example of a multi-criteria decisionmaking (MCDM) problem in which multiple evaluation criteria are avail-able for the decision maker to choose (Enyinda et al., 2010). Several techni-ques exist in the literature; one of them is AHP, a technique which helpsin complex decision making involving multiple scenarios and criteria andincorporating decision-makers preferences (Enyinda et al., 2010;Jaberidoost et al., 2015). AHP is usually considered superior to other deci-sion making tools due to its wide acceptance and applicability, lowerdependence on pairwise comparisons, and simplicity of use. Anotheradvantage is that the input for the AHP can be a subjective assessment,such as a review, interview, or preference (Moktadir et al., 2018).Typically, a decision situation is presented; then, several alternatives are

assessed relative to each other with respect to multiple criteria that, in turn,are assessed relative to each other with respect to an overall goal (Kull &Talluri, 2008). This process creates a hierarchy of assessments and portraysthe relationships between the overall goal, criteria, sub-criteria, and alterna-tives (Enyinda, 2018). When using this method, one must maintain consist-ency, where consistency means that in the case of a basic set of data, allother data can be logically deduced from this set. For example, if ActivityA is four times more important than Activity C and two times moreimportant than Activity B, one can conclude that Activity B is two timesmore important than Activity C (Saaty, 1991). Many comparisons often

Table 3. Analysis criteria.Probability Impact (Time / Quality) Cost Index

High Yearly occurrences, i.e.,multiple occurrences withina range of time of 1 year.

High impact on the strategyand/or operations. It is abig concern to stakeholders.

Cost and monetary lost to thesupply chain is high – over40% of revenues.

3

Medium Occurrences within astablished range of time(1–2 years)

Impact on operations andservice levels is moderatewith little difficultyto recover.

Cost and monetary lost to thesupply chain is moderate �10 to 40% of revenues.

2

Low Probability of occurrencesuperior to 2 years

Little to no impact onoperations and/or servicelevel. Quickly recoverableand smallstakeholders concern

Cost and monetary lost to thesupply chain is small – upto 10% of revenues.

1

LATIN AMERICAN BUSINESS REVIEW 13

create inconsistencies (Kull & Talluri, 2008), but there is a limit to the levelof inconsistency a judgement can have to still be considered reliable (Dong& Cooper, 2016; Kull & Talluri, 2008; Saaty, 1991).Saaty and Shang (2011) point out that it is difficult to avoid increasing

the overall inconsistency of the judgments when one compares more thanseven elements at once. In order to overcome this limitation, these authorsproposed a new AHP approach by introducing a “pivot” element andorganizing the several elements being evaluated in clusters that are con-nected by this pivot. They called this method orders-of-magnitude AHP(OM-AHP). The method adopts the same assumptions as the originalAHP, the difference is that there is an adjustment of the priority weights ineach cluster according to the pivot element. Elements within a cluster willbe evaluated and compared using a 1–9 scale and calculating the eigen-vector to find the local priorities, as in the traditional AHP; however, themeasure of the pivot element of one cluster is used in a second cluster,linking the two. The measures of the elements of the second cluster will bethen adjusted according to the first cluster pivot’s measure, so both clusterscan be compared and the scale can be extended as far as needed (Saaty &

Table 4. Selected risks.Risk Description

Quality Events in which some aspect of the manufactured medicines that flow withinthe chain is compromised and it reaches the end of the chain, or events inwhich some players in the supply chain struggle to attend the demandedquality standards jeopardizing the flows’ efficiency.

Examples, API concentration problems, recalls, lot suspensionGovernment’s Policy Potential changes in the current government policy that can impact the

performance of the sectorExamples: line of credit suspenion, mandatory insurance coverage, taxes

Exchange Rates Potential strong depreciation of the Brazilian Real against other currencies.Examples: US dollar

Intellectual Property Events that threaten the level of security, confidentiality and protectionoffered to operations in Brazil regarding intellectual capital

Examples: patent breaking, patent recognition process, counterfeitInventory Management Potential negative events resulted of poor management of the inventory

levels along the chain.Examples: expired products, misplaced products, stockouts and surplus

simultaneouslyRegulation Potential creation of new regulations or changes in the existing ones that can

impact the performance of the supply chain.Examples: mandatory safety tests, mandatory drug tracking

Operations/Process Failure Losses that occur due to problems in operations or due to non-standardizedor well-designed processes

Examples: machine break down, re-workR&D Capabilities Events that impact negatively the process of new drugs manufacturing,

distribution and marketing process.Examples: lack of specialized work force, insufficient production capacity,

technological obsolescencePrice Regulation Problems related to the drugs precification policy adopted in Brazil

Examples: changes in price mechanismTheft The diversion of medicines from the legal distribution channels due

to robberyExamples: cargo theft, pharmacies robbery

14 J. SILVA ET AL.

Shang, 2011). According to Dong and Cooper (2016), by using clusters andpivot elements, the number of comparisons needed to analyze the elementsis less than with the traditional AHP, while still ensuring enough redun-dancy to provide high confidence levels. They also point out that OM-AHPhas a particular application in risk management where there are large varia-tions in the probability and thus severity of risk.Due to its advantages when assessing risks, this research employs the

OM-AHP to assess risk in the Brazilian Pharmaceutical Supply Chain.The goal is to identify the risks that are most critical to the performance ofthe Brazilian PSC, so managers can later turn to the monitoring and miti-gation phases (Dong & Cooper, 2016). Risks were assessed using the sameevaluation criteria applied in the first stage of this research, that is, prob-ability and impact in terms of service and cost. The problem to be solvedwas decomposed in a hierarchy, where the highest level had the goal of theresearch, the evaluation criteria were on the lower levels, and the 10 identi-fied risks, obtained in the previous stage, were at the lowest level(Figure 1).As prescribed by Saaty and Shang (2011), the 10 identified risks were

divided into two clusters, according to their score on the first stage of thisresearch (cluster “low” and cluster “medium/high”). As can be seen inTable 5, each cluster had five elements.A questionnaire was developed—risks were compared pairwise using a 9-

point scale that converts human preferences into alternatives (Kull &Talluri, 2008). The value attributed to element i compared to j is organizedin a matrix ixj, where i¼ j, aij ¼ 1/aji and aij ¼ 1 when i¼ j. The priorityvector (the eigenvector correspondent to the maximum eigenvalue) of eachmatrix represents the relative weight of a given activity or factor ofthe matrix.According to the risk definition adopted for this study, probability and

impact have the same importance when assessing risk. Nevertheless, thetwo dimensions that compose impact, service and cost, have different rela-tive weights depending on what the PSC professionals perceive as

Most important risks in the Brazilian PSC

tsoCytilauQ/emiTytilibaborP

R1 R2 R3 R4 R5 ... R10

Figure 1. AHP Model applied in this research.

LATIN AMERICAN BUSINESS REVIEW 15

more critical. The final score of each risk was obtained according toEquation 2.

Ri ¼ Pi � ðw �Ci þ g �KiÞ (2)

Ri: Global Priority of Riski; Pi: Local priority of Riski in relation to criter-ion Probability; Ci: Local priority of Riski in relation to criterion Time/Quality; Ki: Local priority of Riski in relation to criterion Cost; w: Priorityof criterion Time/Quality in relation to Impact; g: Priority of criterion Costin relation to Impact

Data collection and analysisAccording to the traditional AHP method, in order to assign meaningfulnumbers when comparing activities, the evaluator must have a thoroughunderstanding of both activities and how relevant they are to the criterionbeing considered (Saaty & Khouja, 1976). Informants must be experiencedpeople who know how the evaluated activities interact and understand theirimpact on the objectives. Therefore, for the data collection, it was establishedthat the interviewed experts had to have at least five years of experience inthe PSC; it was also decided that they had to occupy managerial positionsand directly and frequently interact with other players in the supply chain. Itwas also sought to select professionals from the different stages of the supplychain (i.e., representatives from the industry, distributors, retail, and institu-tional buyers), from the leading companies in their segment in Brazil.In total, ten professionals of the PSC in Brazil were contacted to partici-

pate in the research; of these, six agreed to participate. Despite the limitednumber of interviews, AHP is a subjective methodology in which it is notnecessary to involve large samples. Also, for this method, a high number ofinputs may result in very high degrees of inconsistency, rendering itimpractical for use in large surveys (Wong & Li, 2008).

Table 5. Ten selected risks organized in clusters.Criterion Cluster 1 Cluster 2

Probability Intellectual Property Exchange RateOperations / Process Failure Government’s PolicyPrices InventoryRegulation QualityTheft R&D

Impact (Time/Quality) Exchange Rate Government’s PolicyIntellectual Property Operations / Process FailureInventory QualityPrices R&DTheft Regulation

Cost Intellectual Property Exchange RateRegulation Government’s PolicyInventory Operations / Process FailurePrices QualityTheft R&D

16 J. SILVA ET AL.

Before the interviews, a pilot study was conducted with one professionalin order to identify points of improvement and reorganize the question-naire. The validated questionnaire was then administered in the interviewswith the six professionals who had agreed to participate. Each interviewlasted between 40 and 60minutes. In the interviewed expert group therewere industry, distributor, retail, and institutional buyer representatives, asset out in Table 6.The many pairwise comparisons often create inconsistencies (Kull &

Talluri, 2008) and to assess such inconsistencies, the consistency index(C.I.) and the consistency ratio (C.R.) were used (Enyinda, 2018). The C.I.for each matrix order n is determined by the maximum eigenvalue (kmax)as follows (Saaty, 1991). The C.R., in turn, is obtained by the ratio betweenthe C.I. and the random index (R.I.), proposed by Saaty (1991), based onsimulations he conducted for matrixes of different orders, as presented inTable 7.

C: I: ¼ kmax�nð Þn�1ð Þ

In order to have an acceptable set of judgments, the C.R. should bebelow 0.10 (Dong & Cooper, 2016; Kull & Talluri, 2008; Saaty, 1991). Theresults of the interviews were assessed using the C.R. and, based on this fil-ter, two questionnaires had to be returned and re-evaluated. Only one ofthe returned questionnaires obtained the C.R. inferior to 0.10 after re-evaluation. For this study, due to agenda constrains, the experts had to beinterviewed separately; therefore, following Saaty (1991), the geometricmeans was adopted to combine the scales of judgments. In order to calcu-late the eigenvectors and eigenvalues, the software adopted was RStudio, afree open-source environment for R language, which uses the LAPACKpackage, developed by University of Tennessee, University of California,University of Colorado Denver, and NAG Ltd, to solve eigen-value problems.

Table 6. Expert group profile.Average Years of Experience� Worked in other stages of the PSC?

Industry 14 YesDistributor 6 YesRetail 12 YesInstitutional Buyer 8 No�The years do not consider the time they worked in other stages of the PSC

Table 7. Random index.1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

0 0 0.58 0.9 1.12 1.24 1.32 1.41 1.45 1.49 1.51 1.48 1.56 1.57 1.59

LATIN AMERICAN BUSINESS REVIEW 17

Results and discussion

The priorities are presented from a PSC point of view and analyzed indi-vidually by player. Considering the PSC perspective, the risks global prior-ities are, in this order: inventory management; operations/process failure;quality; R&D; theft; government’s policy; exchange rates; price regulation;intellectual property; regulation. However, when comparing players’ per-spectives, some interesting results are apparent. The first is related to thelack of a holistic view of the PSC. The players tend to prioritize risks thataffect their specific tier, therefore perceptions are siloed, as identified inprevious studies conducted in developing countries (Benazzouz et al., 2017;Moktadir et al., 2018; Reis & Perini, 2008; Yousefi & Alibabaei, 2015).Figure 2 presents detailed assessment of risks and the impact/frequencygraphs for each player in the Brazilian PSC.Inventory Management is among the top 4 risks for all players, aligned

with previous studies conducted in developing countries, such as Iran(Jaberidoost et al., 2015), India (Kamath et al., 2012), and Colombia(Zamora et al., 2013), and also with the literature review conducted bySingh et al. (2016). Poor inventory management can result in delayed treat-ments and higher costs due to the necessity of acquiring substitute andmore expensive drugs (Zamora et al., 2013). In Brazil, according to theInstitute of Logistics and Supply Chain (Institute of Logistics and SupplyChain (ILOS), 2017), inventory represents 39% and 43% of logistics costsfor Industry and Distributors, respectively, representing the greatest logisticscost. This scenario is reflected on the risk rank, since both players presentsimilar relative weights of priority to this risk (position 3 and 4, respect-ively), but Industry considers this risk the most frequent among those ana-lyzed. For the Institutional Buyer, this is the most concerning risk,considering the complexity and criticality of medicines for hospitals, as pre-viously identified by Singh et al. (2016). As pointed out earlier, for the hos-pital sphere, problems in inventory translate into delayed procedures,longer hospital stays, threats to patient safety, and higher costs when alter-native options, usually more expensive, are taken in order to overcomeinventory issues (e.g., emergency purchasing). For the Retail Pharmacies,because the consumer has a variety of interchangeable medicines at theirdisposal (e.g., generic and other brands), not having one product of a par-ticular brand in stock was not considered critical because they can offeralternatives to the client.Operations/Process Failure is another big issue for the Brazilian PSC

because it compromises the flow of products and delays operations. Thisresult is in line with previous studies conducted in Europe and in develop-ing countries (Huq et al., 2016; Singh et al., 2016), and also in Brazil(Arruda, 2011). However, the analysis of each player individually reveals

18 J. SILVA ET AL.

that Retailers and Institutional Buyers are more concerned with this riskthan the other two players analyzed. From the Retailers’ perspective, thisrisk has the highest impact and frequency and is related to the fact thatmost pharmacies in Brazil are computerized and use some sort of informa-tion system. As such, they need solid IT systems and well-defined processesto operate properly to avoid financial losses. On the other hand,Institutional Buyers are concerned about internal process failures, that is,the hospital pharmacy processes designed to ensure the safe and effectiveuse of medicines.

INDUSTRY DISTRIBUTOR

Risk Priority Rank Risk Priority Rank R&D 0.5032 1 Theft 0.492 1

Quality 0.3202 2 Inventory Management 0.183 2

Inventory Management 0.1101 3 Price Regulation 0.110 3

Operation / Process Failure 0.0397 4 Intellectual Property 0.086 4

Exchange Rates 0.0113 5 Operation / Process Failure 0.071 5

Theft 0.0070 6 Regulation 0.022 6

Government's Policy 0.0067 7 Quality 0.021 7

Price Regulation 0.0008 8 Government's Policy 0.009 8

Intellectual Property 0.0005 9 R&D 0.005 9

Regulation 0.0005 10 Exchange Rates 0.002 10

INSTITUTIONAL BUYER RETAIL – PHARMACY Risk Priority Rank Risk Priority Rank

Inventory Management 0.3773 1 Operation / Process Failure 0.4368 1

Operation / Process Failure 0.2080 2 R&D 0.2853 2

Quality 0.1586 3 Theft 0.1089 3

Exchange Rates 0.1534 4 Inventory Management 0.0806 4

Government's Policy 0.0561 5 Quality 0.0608 5

Price Regulation 0.0177 6 Government's Policy 0.0095 6

Theft 0.0156 7 Regulation 0.0076 7

R&D 0.0105 8 Price Regulation 0.0053 8

Intellectual Property 0.0015 9 Intellectual Property 0.0036 9

Regulation 0.0014 10 Exchange Rates 0.0017 10

Figure 2. Perception of risks and priorities per player in the Brazilian PSC.

LATIN AMERICAN BUSINESS REVIEW 19

Quality is another risk that is perceived as potentially harmful to theBrazilian PSC. This result is consistent with (1) the research of Arruda(2011), who concluded that, for more than 54% of the companies investi-gated in Brazil, product counterfeiting is considered as very likely; and (2)the findings of Newton et al. (2010), who analyzed the impact of poor-quality medicines in Africa, parts of Asia, and parts of Latin America, andconcluded that in these regions more than 30% of the medicines offeredfor sale may be counterfeit (i.e., deliberately adulterated drugs, fake packag-ing, or lack of active ingredients) or substandard (i.e., genuine productsthat do not meet quality specifications). Also, this result is in line with pre-vious studies that highlighted quality issues in developing countries (Singhet al., 2016) and in Europe (Huq et al., 2016). However, the present studyadds to the literature by identifying how each player assesses this risk inthe Brazilian PSC.For the Industry, quality ranked as the second most important risk;

moreover, during the interviews, it was mentioned not only as posing arisk to patients’ health, but also as harming the image of the industry andconsequently leading to expensive lawsuits and market share erosion. Thisresult is consistent with the findings of Arruda (2011), who interviewed 22pharmaceuticals companies in Brazil. Another reason why quality is a ser-ious issue for Institutional Buyers relates to the impact it has on the serv-ices they provide; thus quality ranks third in terms of priority for thisplayer. In contrast, quality risk is not considered so important toDistributors and Retailers. For the Distributors, quality in the PSC is morerelated to weak purchasing practices and poor infrastructure and is per-ceived as the seventh priority by the Distributors interviewed. For Retailers,the main problem poor quality poses is related to product maintenance,such as damaged packaging and short-dated products from suppliers.Suppliers claim that adulterated products seldom reach the pharmacies, asthe distributor is usually responsible for solving the issue before the prod-uct reaches the shelves. By analyzing each players’ perspective of he qualityas risk, we have identified that the main concern for the interviewees iswith the maintenance of the medicines’ characteristics through the supplychain but little was mentioned about the issue of counterfeit drugs enteringthe SC. Such results differ from previous studies where counterfeit is widelydiscussed and appears as one of the most important risks for the PSC(Enyinda et al., 2010; Huq et al., 2016, among others; Kamath et al., 2012).R&D risks are considered by the Industry as the most concerning and as

having the greatest impact, since R&D, from the Industry standpoint, isfundamental to the entire chain. Industry invests significant amounts ofmoney in the release and promotion of a new drug in order to ensure ahealthy pipeline, as identified by Singh et al. (2016). The Retailers also

20 J. SILVA ET AL.

showed high concern with this risk—ranking as the number two priority,with a high frequency and impact. The concern of Industry, however, isnot only related to the drug development processes, but also with the peo-ple involved. In their perspective, there are potentially serious problemswith the quality and efficiency of the human capital involved in the PSCprocess in Brazil, including pharmacists, doctors, and other healthcare pro-fessionals. This shortage of skilled professionals was also pointed out asone of the main hurdles in the development of the Brazilian PSC byAfonso et al. (2015) and converges to the top ten global health SC issues,as proposed by Privett and Gonsalvez (2014). However, a shortage ofskilled professionals was not identified as a major threat for the EuropeanPSC in the study conducted by Huq et al. (2016). In turn, for Distributorsand the Institutional Buyers, R&D does not post a major risk to the PSCand ranks ninth and eighth place, respectively, for these players. For bothDistributors and Institutional Buyers, R&D is a particular concern of theindustry that does not impact the other players of the PSC as much.The interviewees also rated Theft as among the top risks for the PSC,

albeit with different priorities for the players in the PSC. In another studyconducted in Brazil (Arruda, 2011), PI executives rated cargo theft as hav-ing a high risk. Cargo robberies during road transportation is a seriousproblem in Brazil and has been growing since 2011, generating a loss ofUS$423 million in 2016 and US$453 million in 2017 (FIRJAN, 2017;Transported Asset Protection Association [TAPA], 2018). Cargo robbery isone channel through which drugs enter the black market and later re-enterthe PSC through secondary or illegal distribution channels. Once suchchannel is the clandestine markets (camelos), where medicines are soldwithout a prescription or the monitoring of regulatory agencies. Producttheft occurs in all stages of the supply chain, including inside facilities (e.g.,factories, warehouses, hospitals, and drug stores) and during transportation.However, theft is most likely in the distribution phase, hitting the distribu-tors hardest. In this study, Distributors pointed to Theft as the main threatto the PSC performance, perceiving it as the most frequent and a threat tothe final consumer. Retailers also ranked Theft as a high priority (position3), although they were most concerned with robbery inside their facilities.Indeed, violence in pharmaceutical retailers has been increasing, and nowrepresents one of the segments with the highest demand for insurance serv-ices (Instituto de Ciencia, Tecnologia e Qualidade [ICTQ], 2018). ForIndustry, this risk is still considered as controlled and the use of insuranceand other security measures can keep the problem at acceptable levels.However, interviewees pointed out that cargo theft incidents have beenincreasing in recent years and looking forward, insurance rates mightbecome prohibitive. Under such a scenario, this risk could become more

LATIN AMERICAN BUSINESS REVIEW 21

relevant to Institutional Buyers, who are also subject to theft inside theirunits, albeit on a much smaller scale. For Institutional Buyers, theft eventsin the distribution phase are not a critical problem because they canacquire medicines from multiple suppliers; therefore, flow is not inter-rupted. For Distributors and Institutional Buyers, the risk theft ranked insixth and seventh, respectively.Government’s Policy is not a high priority for any of the players investi-

gated. For all of them, the main issue is irregular Government support forthe development of a solid national industry. The lack of long-term policiesand interruptions of existing programs is one of the biggest hurdles to thegrowth of the pharmaceutical sector in Brazil, according to Calixto andSiqueira (2008).Concerning Exchange Rates, Brazil imports most of its active pharma-

ceutical ingredients (APIs), as well as some finished medicines used in thehealth system, and this causes major deficits on the trade balance of thesector (Calixto & Siqueira, 2008). Currency devaluation can, therefore, cre-ate hurdles in the importation process, increase costs, and ultimatelythreaten the efficient supply of specific medicines. Consequently, theInstitutional Buyer and the Industry ranked this risk in fourth and fifthplace, respectively, while Distributor and Retail ranked Exchange Rate last.Both argue that exchange rates are primarily a concern for the industryand do not perceive it as a risk for the PSC, ranking Exchange Rate tenthamong the analyzed risks. This result is consistent with the findings ofArruda (2011), who identified that this is not a major risk in terms of thesector as a whole. However, the present study contributes to the literatureby revealing the different perspectives among the players of the PSC.Because in Brazil prices are regulated by ANVISA and CMED, as previ-

ous mentioned, there negotiations among the PSC players may be fraught(Gomes et al., 2014). In this context, Price Regulation is a high risk (pos-ition 3) from the standpoint of Distributors, who suffer pressure from bothIndustry and Retailers and must (re)negotiate prices and margins. ForIndustry and Retailers, prices are directly related to margins and the finan-cial viability of drugs commercialization and distribution. In terms ofchance of occurrence, all the players agreed that, given the model of pricingand annual readjustments provided by law, price increases are expected,allowing for advance planning. Price regulation and its impact on opera-tions was also emphasized by the professionals in the Indian PSC, wholisted it as a source of market flooding, where innovative but unnecessarydrugs are encouraged to be produced so as not to be subject to price con-trols (Narayana, Elias, et al., 2014).Intellectual Property risks—related to patents and intellectual property

rights—were considered relevant in previous research conducted in Europe,

22 J. SILVA ET AL.

China, and India (Huq et al., 2016), while in Brazil this risk was considered“unlikely” for 54% of the PI researched by Arruda (2011). Similarly, in thepresent study, Intellectual Property risk was not a major concern for thePSC professionals. This can be explained by the fact that, although theIndustry player invests large amounts of money to develop new drugs andregister new patents, in the case of the Brazilian market, most multinationallaboratories operate in the generic sector and little research is performedlocally. For the Distributor, this risk is important in relation to profits, andranked fourth in terms of priority and as having the greatest impact, des-pite being considered the least frequent. According to Distributors, compul-sory licenses and patent expiration have a significant impact on theirmargins, reducing their revenues and interest in marketing certain drugs.Although in terms of the population’s access to medication this is a positivesituation, for Distributors, it is financially negative. On the other hand, forboth Retailers and Institutional Buyers, patent infringement or patentsexpiration are perceived as positive events: for the Institutional Buyer, itmeans an increase in the offer of a previously patented drug, which meansthey have more supply options in the market; for the Retailer, although thebranded products have higher margins, generic drugs are the ones thathave greater sales volume and guarantee higher revenues. Both players rec-ognize that this is an issue for the Industry in terms of return on invest-ment, but in their view, the benefits overcome the potential negativeseffects for the SC.Regarding Regulation all players pointed out that changes are usually

gradual and that they have enough time to adjust to them; therefore, thechances of real negative impacts on the PSC are considered low, a viewconsistent with Fischer (2017) regarding the Brazilian market. Arruda(2011) also found that regulation was the highest risk that Brazilian compa-nies face at the time of that study.However, differently from the present study, the research conducted by

Kamath et al. (2012) in India showed that the risk related to regulations isconsidered the most significant to the PSC. India is similar to Brazil interms of regulation, where both countries possess a central regulatoryagency, embrace universal health coverage, and explore the exceptionsallowed in the international treaties related to medicine production. Also,the research conducted by Enyinda (2018) indicated that SC executivesfrom the US attach great importance to regulation/legislation. For them,non-compliance with regulatory guidelines has severe consequences and isthe greatest risk facing organizations.In brief, there is evidence of a siloed mentality where one player often

considers a major concern of other members of the supply chain as“someone else’s problem” (Spekman et al., 1998). To confirm this

LATIN AMERICAN BUSINESS REVIEW 23

perspective we calculated the weights given by each player in the PSC, aswell as the combination of all perspectives through the geometric mean ofresults (Figure 3).Figure 3 shows that, at the PSC aggregation, the cost dimension and the

service [time/quality] dimension have similar weights. However, when eachplayer’s perception is analyzed separately, it is possible to see that theindustry and the distributors attribute greater importance to cost, whileretail and institutional buyers assign greater relative importance to service.These results provides further evidence of the siloed perception we refer tothroughout this article.The Industry player is facing reduced R&D productivity, shortening of

patent lives, several available substitute products (e.g., generics), and pres-sure from healthcare providers to control prices (Hunt, Manson, &Morgan, 2011; Shah, 2004), thus increasing theirs concerns as to cost base.In turn, Distributors have a similar perspective to the Industry, as they alsomake large investments in fixed assets, have the smallest margins in the SC,and are pressured both by the industry and by retailer – both of whomwield bargaining power (Fischer, 2017). This scenario of reduced marginsand high fixed costs supports the relatively high concern this player haswith costs over service. On the other hand, the Institutional Buyer—hospi-tals and health insurance companies—is mainly concerned with service –which is related to the immediate impact of drug shortages in patient care,as observed by Reis and Perini (2008). The interviewees pointed out thatalthough costs are a concern, problems with quality can have immediateand severe non-monetary impacts, which may subsequently translate intofinancial ones. Similarly, Retailers also attribute more importance to serviceover cost. Indeed, service level and customer retention are a major concern,considering the high level of competition in the sector in Brazil, a pointalso made by Gomes et al. (2014) and Afonso et al. (2015).

Figure 3. Perception of impact per player in the Brazilian PSC.

24 J. SILVA ET AL.

Conclusion

Theoretical implications

Our study contributes to SCRM in a number of ways. First, we show thatparticipants of the Brazilian PSC have a siloed perception of risks and prior-ities, in other words, a self-centered conception of risk and hence limitedvision of what truly jeopardizes the performance of the whole PSC. Reis andPerini (2008) highlighted the importance of integration. However, thus far,no article had mapped the varying risk perceptions in the PSC in Brazil.Arruda (2011) analyzed risk solely from the industry perspective. LatinAmerica has received little attention from researchers in this topic (Zamoraet al., 2013). The present study contributes to deepen the knowledge on thesubject in Brazil and in Latin America. In short, this study incorporated ofthe voices of the various PSC players, providing a more comprehensive viewon what is understood as risk and highlighting the silo mentality in the PSC.Second, this study identified the ten main risks in the Brazilian PSC: three

operational (inventory management, operations/process failure and quality);two environmental (cargo theft and government policy); one inertial (R&D);one financial (exchange rates); one relational (intellectual property); and onelegal (regulation). A new risk—price regulation—emerged from the inter-views. As such, this research unveiled a new type of risk, complementing theextant literature and the classification proposed by Rangel et al. (2015) inso-far as this risk can be added to the environmental dimension. Also, ourresults demonstrate a higher concern with operational risks over other types.Additionally, we found a lack of concern with the risk posed by counter-

feit drugs. Contrary to the intense scrutiny with this type of risk in the lit-erature as a whole (Enyinda et al., 2010; Huq et al., 2016; Narayana, Elias,et al., 2014), in our study, counterfeiting was not considered a threat andalthough acknowledged, the interviewees considered the threat as low inthe Brazilian context.As SCRM is a relatively new field when compared to SCM, there is still

a lack of industry-oriented research, with most papers focusing on theorybuilding over theory verification (Prakash et al., 2017). In terms of itsempirical focus, SCRM has been dominated by USA, UK, and Germany,and by growing numbers of Asian countries (Prakash et al., 2017). There isa dearth of studies focused in Brazil and in Latin America, as revealed byOliveira et al. (2018), who conducted a systematic literature review ofSCRM in five databases and identified that Brazil ranks ninth (out of 20countries) in terms of the number of articles published in SCRM and is theonly Latin American country on the list. In another systematic literaturereview, conducted by Bak (2018), there was no article produced in Brazilor indeed in Latin America.

LATIN AMERICAN BUSINESS REVIEW 25

Another contribution of our study to the field is to decompose theimpact dimension when discussing risk analysis in the cost and servicedimensions, thus improving our understanding of the motivations of thedifferent players when managing risk.Finally, our study also contributes to the literature by applying AHP to

investigate the subject. Although AHP has already been applied in severalstudies conducted in Africa and Europe (Enyinda, 2018, among others;Kamath et al., 2012; Mokrini, Dafaoui, et al., 2016; Moktadir et al., 2018), ithas, to the best of our knowledge, never been applied in Brazil or inLatin America.

Managerial implications

From a managerial perspective, we provide orientation to managers aboutwhich are the most important risks in the Brazilian PSC. The results showthat operational problems, such as inventory management and quality man-agement, are still an important issue; hence those should be starting pointsfor improving the system.By ranking the risks, we can discern the main issues in each stage of the

supply chain and act on them, allocating the resources in a more structuredand logical way. Once the risks are identified, further studies can be devel-oped so mitigation strategies can be put in place.This study calls the attention of managers in Latin America to two key

issues in the PSC. First, to acknowledge that research grounded on empir-ical evidence from Northern countries may misdirect managerial decision-making or simply lack empathy with the Latin American context.Developing countries face operational and regulatory challenges, while risksassociated to strategy are more associated to Northern countries.Second, our findings in Brazil may resonate in other Latin American

contexts, where lack of integration is still prevalent and specific economic,cultural, and political issues shape managerial decision-making and percep-tion of risks in the PSC. This siloed perception is antagonistic with theoverall performance of the PSC. In particular, we highlight the mismatchbetween upstream players who favor cost over service against downstreamplayers who emphasize service over cost. This mismatch may hinder collab-orative efforts. PSC actors should first engage in a search for strategicalignment in order to allow collaboration to prosper.

Limitations

Three limitations should be discussed. The first is related to the chosenmethod of analysis, the OM-AHP. This method was proposed as an evolu-tion of the traditional AHP, and although it overcomes some of the

26 J. SILVA ET AL.

limitations of the original approach (e.g., the ability to evaluate greaternumbers of elements in the same hierarchy with fewer comparisons andwithout losing consistency), it shares some of its limitations. Both methodsrely on the expert’s knowledge and experience, a simplification that makesadoption of the method easier and more intuitive, especially when there islittle or unreliable data on the assessed risks. However, neither methodtakes into account the uncertainty connected with the perception of thedecision makers who generate the inputs to the analysis (Radivojevi�c &Gajovi�c, 2014). This aspect of the method makes the results sensitive to thereality and past experiences of the interviewed professionals.A second limitation is related to the generalization of the results. OM-AHP

tends to underperform with a large number of respondents, due to an increasein the risk of arbitrary answers being delivered and hence increasing overallinconsistency (Wong & Li, 2008). As a result, generalizations of the findingsshould be carefully considered.One final important constraint for this study is related to group deci-

sion-making. When more than one person is involved in decision making,aggregating individual judgements into a single representative judgement(Saaty, 2008) can pose a challenge. For this study, due to scheduling andtime constrains, the experts had to be interviewed separately. Therefore,following Saaty (1991) recommendation for such a scenario, in which indi-viduals cannot discuss among themselves to reach consensus, the geometricmeans is adopted to combine the scales of judgements. Ideally, the expertsshould be able to discuss among themselves to reach consensus whenassessing the risks.

Future research

Future studies could apply the SCRM process in the public PSC inBrazil. The Brazilian public health system is a significant part of thenational healthcare system and presents its own particularities. As such,analyzing the risks for this system can provide several insights to miti-gate supply chain disruption. Another suggestion is to expand the profileof the players involved in the risk assessment phase. This study involvedrepresentatives from the industry, distributors, retailers, and institutionalbuyer; however, for a broader view of the supply chain, it would beinteresting to include the perspective of regulatory agencies, cooperatives,and independent pharmacies (i.e., drug stores that are not part of alarge retail chain).Future studies could also look at risk management in the reverse flow of

drugs in the supply chain, i.e., recalls. Considering the concern of inter-national institutions with counterfeit or altered drugs entering the market,

LATIN AMERICAN BUSINESS REVIEW 27

as well as environmental concerns with disposal, the risks to the upstreamflow of medicines must also be assessed so that plans to reduce recall costsor avoid the diversion of drugs could be developed.

ORCID

Leonardo Marques http://orcid.org/0000-0001-8960-8191

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