Shock to the System: Understanding Global Medical Supply, Shortages in COVID-19 Crisis, and How to Prepare for Future Disruptions

Since March of 2020, COVID-19 changed most aspects of life as we knew it, from our personal day-to-day activities to the systems, processes, and structures that keep the global economy interconnected and moving. This included pharmaceutical production and distribution, where anecdotal evidence suggested production problems, export bans, and trade disruption could significantly impact vital medicines access in low- and middle-income countries. This was particularly concerning because health procurement systems in many less financially well-off parts of the world are already inadequate, with shortages being common. Shortly after the pandemic began, we at the Center for Global Development set out to work with analysts from a number of other organisations to understand what impact this had on the supply of pharmaceuticals. Our aim was to test how early shortages could be identified using the increasingly large amount of data on pharmaceutical supply chains that exists, and to identify ways of strengthening global procurement. Today we release a paper outlining our results.

While we recorded disruptions to production in both China and India, they were short lived. We undertook two cross country surveys, analysed pharmacy data from four countries, and looked at export flows from India to track how COVID-19 impacted supply chains to these countries. Our work suggests that while there was a major impact, this varied greatly both by product and by country, suggesting that local factors were more important than global production or transportation issues. There was also a lot of variation between different data sources that we used. As part of this project IQVIA and Maisha Meds attempted to develop models that could flag potential supply disruptions before they reached pharmacies. Both models were constrained by poor quality of data, particularly a lack of information on what products had been in shortage historically. IQVIA’s model had a very high false positive rate and Maisha Meds’ only identified about half the drugs that went into shortage.

The vast majority of essential medicines in sub-Saharan Africa are imported. Local production could reduce the risk of export bans or supply chain problems hampering access to essential medicines. It could also lead to greater surge capacity in the system, allowing producers to better withstand supply and demand shocks. Bryden Wood researched different approaches for scaling up manufacturing capacity and found that increasing production in Africa using a hub and spoke mechanism was a feasible way of increasing African output and self-reliance.

Key lessons

The impact of COVID-19 on supply chains differed greatly in different countries, depending on local context. Any technocratic solutions to making the global supply chain more robust or protecting against future threats are thus unlikely to work unless they also take into account the political and institutional local landscape. To add to this, supply shocks—even when global—only affect patients if they translate into shortages in local markets. We will therefore need more local solutions to better manage global shocks.

Many buyers, with substantially different purchasing power, are competing for the same products. We saw evidence that suggests that for certain medicines, the volume of exports from India to sub-Saharan Africa decreased in March and April 2020 and higher volumes were instead exported to North America in that period, as profit-seeking suppliers sought to maximise returns by supplying buyers in less price sensitive markets.

Many of our analyses were constrained by data availability and quality. This was in part because we were trying to spot patterns between countries, requiring standardised data for all countries of interest. At the national level, however, many governments have access to granular data that they could use to monitor looming shortages in their own market. Better use of immediately available data, including more accurate demand planning, could in and of itself mitigate the risk of shortages.

Policy questions

1. Data availability and use

To understand and react to supply shocks, buyers need to know where product ingredients are made and how they are delivered. Yet most of this information is not transparent in pharmaceutical supply chains. Our team had access to rich proprietary data about international pharmaceutical markets from a variety of sources, and we were still unable to trace products through the global supply chain, or reliably link production to sales. While transparency might make industry, and some governments, uncomfortable, improving it will greatly aid our ability to understand the pharmaceutical system and make it more resilient.

Question: Could existing tools developed to capture supply chain data for HIV/AIDS, TB, malaria, and contraceptive supply chains be adopted/expanded for wider use for all essential medicines, or should new tools be designed from the bottom-up?

2. Increasing redundancy in production and distribution

To minimise costs and thus maximise profitability, the pharmaceutical industry often outsources production to low-cost manufacturers who minimise stock on hand as much as possible and achieve economies of scale through large batch production. While this saves money, it reduces the systems adaptability and resilience. To better withstand future shocks, we might want to build more redundancy into production and distribution systems, this will drive up the per unit cost, meaning that profits will be lower, buyers will have to pay more, or both. However, spending more money to reduce long-term risks might be a prudent investment.

Question: Is there a willingness to pay a premium for resilience, and if so, can it be sustained into the future or will it be short lived?

3. Aggregating demand or pooling procurement

Another way of achieving more balance between a global supply chain and local consumption is to aggregate purchasing at a supra-national level (for example regional or global), through pooled procurement. However, there are currently very few well-functioning inter-country pooled procurement mechanisms that buy a wide range of essential medicines procured principally by national governments. Those that do succeed tend to group relatively homogenous buyers who don't compete to produce medicines themselves, and who already share structures that facilitate financial interaction.

Question: The future architecture of procurement through global procurement pools, regional pooled procurement initiatives, and stronger national procurement depends on a number of political and macroeconomic factors. What role can bilateral and multilateral donors play in accelerating the trends?

In conclusion

Pharmaceuticals are an essential component of any health system, but often we spend too little time thinking about the systems and processes for delivering them. We hope that this paper highlights the lack of high-quality data in the pharmaceutical supply chain and the benefits to improving them, and sparks a wider conversation about how to improve procurement. Over the past few decades, information systems have transformed countless services for the better, and it’s high time that medical supply chains caught up.

This research behind this blog was carried out with a large number of external organisation partners.