Over the last few years, businesses have learned difficult lessons about the effects of supply chain weaknesses and the importance of solving them. The COVID-19 pandemic is just one example of a shortage cause that life science companies face. In fact, there are many issues that can lead to product shortages.
Currently, there is a shortage of life saving medical devices, including semiconductor chips used in equipment such as MRI machines, blood sugar monitors and pacemakers.1 Shortages can happen, but they can cause issues for the users and companies that produce the products.
What Leads to Product Shortages?
Most life science companies gauge production based on historical trends. An unexpected surge in demand can challenge their ability to respond. For example, a pandemic or a rising demand for materials can result in a bigger need for medical supplies. Other factors that lead to shortages include the following and should be carefully considered; especially when using a “just in time” warehousing management approach:
- Rising demand for materials: There are many job fields competing for the same materials. For example, smartphone manufacturers are competing for the same tech-based resources as healthcare organizations, which leads to paying top dollar for lifesaving devices.
- Transportation delays: Many of the materials used in U.S. medication is outsourced from other countries. Relying on other countries can be a risk, as there can be delays that might have downstream effects.
- Labor shortages: Qualified drivers have been hard to come by, leading to a delay in shipment of materials. For example, to transport oxygen canisters, drivers need a hazmat endorsement license. While there isn’t a limited availability of oxygen, the labor shortage leads to its absence.2
Regardless of how a shortage starts, patients become worried when they can’t get products that their health is depending on and these shortages can result in sickness or injuries. This is a liability risk that many life science companies face. In fact, there’s been a recent increase in patients claiming the manufacturer was negligent because they weren’t adequately prepared to mitigate shortage possibilities.
How Can Life Science Businesses Reduce Liabilities Due to Product Shortages?
Addressing the issues that lead to product shortages is no easy task. We’ve put together seven tips that can help your life science clients prepare for and respond to product shortages.
1. Be Aware of Reporting and Notification Requirements
The Federal Drug Administration (FDA) requires manufacturers to give notice of shortages and discontinuations of drugs that are life-supporting, life-sustaining, or intended for use in the prevention or treatment of a debilitating disease or condition. The Coronavirus Aid, Relief and Economic Security (CARES) Act, which passed in March 2020, expands this requirement to include drugs, active pharmaceutical ingredients and medical devices that are deemed critical during a public health emergency.
The FDA requires notice of a shortage six months in advance, or as soon as practicable. Drug makers must also report annually on the quantity of products they make for commercial distribution.
Companies failing to meet these requirements receive a noncompliance letter from the FDA. The letter is also posted on the FDA’s website.
2. Use Manufacturing Quality Data in Supplier Purchase Decisions
Suppliers are an important part of a business' success. But they can also pose a risk if they don’t do their part to uphold standards of quality and customer service. That’s why thoroughly examining a supplier before starting a relationship is important. Companies that do their due diligence with suppliers are more prepared for a stronger defense against claimants alleging damages.
Companies can use the FDA databases to get different information, such as:
- Observational inspections
- Regulatory infractions
- Other red flag issues that may show under performance
Companies should invest in their own audits for a more in-depth look into the supplier’s operation. The audit can look at a supplier’s:
- Policies and procedures
- Certifications
- Contingency plans
- Performance metrics, such as response times and product quality
3. Take Stock of the Supply Chain
Ongoing supply chain management is essential to help life science companies stay responsive. This means continuously monitoring each moving part of the supply chain. Companies should look at the sourcing of raw material through customer delivery. It involves making improvements and refinements when necessary.
Life sciences companies can use two methods to assess their supply chains:
Value stream mapping involves creating a detailed visualization of the entire lifecycle of a product or service. This visualization reveals where value is created and where it isn’t so that businesses can see where they need to take steps to fix bottlenecks and cut wasteful steps.
Active market forecasting helps companies plan their inventory in advance. It's a method that provides an accurate assessment of future demand and predicts the peaks and valleys in a product’s demand cycle based on historical data.
4. Review Suppliers
Value stream maps let companies know the flow of work through their entire supply chain. But can their suppliers consistently meet their production and delivery standards?
Reviewing suppliers can help companies avoid potential issues with production. When businesses review suppliers, they should look at their:
- Value stream map to verify performance
- Contingency plan to make sure they can meet product demand if an issue comes up
Based on their findings, companies should:
- Negotiate solutions to improve product and delivery quality.
- End any unofficial supply channels that might put the quality of the product at risk.
- Double-check transit security if they manufacture pharmaceutical products. This is a prime time for drugs to be diverted or replaced with an adulterated or counterfeit product.
5. Have a Documented Protocol for Expanded Access Program and Right to Try
The Expanded Access and Right-to-Try programs can be a significant benefit to patients. They give extremely ill patients access to experimental drugs outside of a clinical trial.
They can also present certain risks to life science companies, such as:
- Delays in a wide distribution if they have to provide drugs to individual patients.
- Difficulty anticipating demand. If demand exceeds supply, a company may have to deny access to patients who expected to get the drug.
These risks could lead to discrimination lawsuits and public backlash.
To avoid this, companies should develop and document policies for participating in both programs. They should also make sure to follow this plan consistently. Doing so can offer some protection if any issues arise.
6. Identify and Manage Risk
Mitigating the risk of a product shortage can be complex, but a risk engineering consultant can help. These specialists identify gaps before an incident even occurs and they work with businesses to develop unique risk management plans.
A risk management plan should focus on:
- Business contingency planning and design
- High frequency exposures, such as control items for sterile operations
- Risk transfer contracts, which are recommended for all supplier relationships
7. Get the Right Insurance Coverages
Companies can do everything correctly and still experience a product shortage. Businesses may think they're protected with traditional product liability insurance. But that's not typically the case because it only helps cover claims of bodily injury resulting from use of or exposure to an insured product – product liability insurance typically doesn’t help with injury resulting from the absence or unavailability of the product.
That’s why product shortage liability insurance is essential. It's a specialized coverage that helps cover bodily injury claims due to a shortage.
Companies also face the risk of a lawsuit when it comes to the "Right to Try" program. Our “Right to Try” coverage helps protect companies if someone files a lawsuit about their decision to provide, or not provide, access to an experimental drug.
1, 2 GE Healthcare, “Healthcare Supply Chain Issues: What Materials Managers Need to Know”
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