Reshoring and Nearshoring Strategies in Pharma

n Brief:

Resilient supply chains in the pharmaceutical industry are crucial, ensuring vital medicines reach people during crises like natural disasters or pandemics.
Reshoring brings production back home, improving quality control, speed of response, and boosting local economies through job creation.
Nearshoring moves production closer to the end market, reducing costs while still enhancing quality control and speed.
Understanding the differences between reshoring and nearshoring helps companies make informed decisions about manufacturing strategies.
Factors driving reshoring and nearshoring include quality control, regulatory compliance, technological advancements, and economic incentives.
Embracing reshoring and nearshoring post-COVID-19 offers benefits like cost efficiency, inventory optimisation, supply chain resilience, and government support.

While we will be exploring these strategies from the Pharmaceutical Industry point of view, the taxonomies and key considerations are fully applicable across all Supply Chains.

Introduction of Reshoring and Nearshoring Strategies in Pharma

Resilient supply chains in the pharmaceutical industry are crucial. Imagine a supply chain as a chain of connections that brings medicines from manufacturers to patients. Now, resilience means the ability to bounce back quickly from challenges or disruptions.

In the pharmaceutical world, a resilient supply chain ensures that vital medicines reach people even during tough times like natural disasters, pandemics, or disruptions in transportation. Without resilience, there’s a risk of medicine shortages, which can harm people’s health.

Think of it like this: If one link in the chain weakens, say a factory shuts down or a shipment gets delayed, a resilient supply chain can quickly find alternative routes or suppliers to keep the medicines flowing smoothly.

Ultimately, resilient supply chains in the pharmaceutical industry are lifelines, ensuring that people can access the medicines they need, when they need them, no matter what hurdles come their way.

Concepts of reshoring and nearshoring.

Reshoring and Nearshoring: What Do They Mean in the Supply Chain?

In the world of supply chain management, two terms you might hear are “reshoring” and “nearshoring.” They both refer to the movement of production or services closer to the end market, but they’re a bit different from each other.

Reshoring: Bringing It Back Home

Imagine a company that used to make its products overseas, maybe in a faraway country like China. Reshoring is when that company decides to bring its production back to its home country. So, instead of making things abroad and shipping them back, they’re now made locally.

Why Reshore?

There are a few reasons why a company might choose to reshore. One big reason is quality control. When production is closer to home, it’s easier to keep an eye on things and make sure everything meets the high standards.

Another reason is speed. If something goes wrong or if there’s a sudden increase in demand, it’s quicker to respond when production is nearby. Plus, it can be good for the local economy, creating jobs and boosting businesses at home.

Nearshoring: Getting Closer

Now, let’s talk about nearshoring. Nearshoring is similar to reshoring, but instead of bringing production all the way back home, it’s about moving it closer. So, instead of making things on the other side of the world, a company might move production to a nearby country.

Why Nearshore?

Nearshoring also has its benefits. It can still improve quality control and speed things up, but it might also save costs compared to producing at home. Plus, it can help build stronger relationships with neighbouring countries and reduce some of the risks associated with long-distance supply chains.

So, whether it’s reshoring or nearshoring, the aim is to bring production closer to where it’s needed. It’s all about finding the right balance between quality, speed, cost, and building stronger connections within the supply chain.

Remember, reshoring means bringing production back home, while nearshoring means moving it closer, but not all the way back.

By understanding these concepts, companies can make smarter decisions about where and how they produce things, ultimately benefiting both businesses and consumers alike.

Reshoring vs. Nearshoring: Understanding the Strategies

Key differences between the two strategies.

Location of Production:

– Reshoring: Production is brought back to the company’s home country.

– Nearshoring: Production is moved to a nearby country, often within the same region.

Distance from Market:

– Reshoring: Production is as close to the end market as possible, typically within the same country.

– Nearshoring: While closer than offshore production, nearshoring still involves some distance from the end market, usually in a neighbouring country.

Cost Considerations:

– Reshoring: Costs may be higher due to higher wages and production expenses in the home country.

– Nearshoring: Costs may be lower compared to reshoring, as wages and expenses in nearby countries might be more competitive, though probably still higher than in offshoring.

Supply Chain Complexity:

– Reshoring: Simplifies the supply chain by bringing production closer to home, reducing logistics and coordination challenges.

– Nearshoring: While simpler than offshore production, nearshoring still involves managing international supply chains, albeit on a smaller scale.

Impact on Local Economy:

– Reshoring: Can have a significant positive impact on the local economy by creating jobs and supporting local businesses.

– Nearshoring: Still contributes to the economy of the nearshore country but may not have as direct an impact on the home country’s economy.

Risk Management:

– Reshoring: Reduces risks associated with long-distance supply chains, such as transportation delays, geopolitical instability, and quality control issues.

– Nearshoring: Mitigates some risks compared to offshore production but may still face challenges related to political or economic instability in the nearshore country.

Relationship Building:

– Reshoring: Strengthens relationships with local suppliers, partners, and customers, fostering a sense of community and collaboration.

– Nearshoring: Builds relationships with suppliers and partners in nearby countries, enhancing regional cooperation and trade ties.

While both reshoring and nearshoring involve bringing production closer to the end market, they differ in terms of the location of production, cost considerations, supply chain complexity, impact on the local economy, risk management, and relationship building. Understanding these differences is crucial for companies to make informed decisions about their manufacturing strategies.

Factors Driving Reshoring and Nearshoring Strategies in Pharma

Quality Control and Regulatory Compliance

Ensuring the quality and safety of pharmaceutical products is paramount. Reshoring or nearshoring allows companies to have better oversight of production processes, ensuring compliance with stringent regulatory standards. This proximity also facilitates quicker response to any quality issues that may arise.

Intellectual Property Protection

Pharmaceutical companies invest heavily in research and development to create new drugs and treatments. Reshoring or nearshoring can help protect intellectual property by reducing the risk of counterfeiting or intellectual property theft, which may be more prevalent where control is necessarily more hands-off.

Flexibility and Agility

The pharmaceutical industry often requires quick responses to changing market demands and regulatory requirements. Reshoring or nearshoring enables companies to be more flexible and agile in adapting to these changes, as production is closer to home and can be easily adjusted to meet evolving needs.

Supply Chain Resilience

Recent global events, such as the COVID-19 pandemic, highlighted the vulnerabilities of long, complex supply chains. Reshoring or nearshoring pharmaceutical production can enhance supply chain resilience by reducing dependencies on distant suppliers and mitigating risks associated with disruptions in global logistics.

Technological Advancements

Advancements in technology, such as automation and robotics, are making reshoring or nearshoring more feasible and cost-effective. These technologies improve efficiency and productivity in manufacturing processes, making it more attractive for pharmaceutical companies to bring production closer to home.

Environmental Sustainability

Reducing carbon emissions and environmental impact is becoming increasingly important for companies across industries. Reshoring or nearshoring pharmaceutical production can lead to lower carbon footprints by reducing the need for long-distance transportation and promoting more sustainable manufacturing practices.

Economic Incentives

Some governments offer incentives or subsidies to encourage reshoring or nearshoring of manufacturing activities. These incentives may include tax breaks, grants, or other financial support, making it more financially viable for pharmaceutical companies to bring production back home or to nearby locations.

Public Perception and Brand Image

In an era of heightened awareness about ethical sourcing and corporate social responsibility, reshoring or nearshoring pharmaceutical production can enhance a company’s public perception and brand image. Being able to label products as “Made in [Home Country]” or “Manufactured Locally” can resonate positively with consumers.

Supply Chain Disruptions:

During the COVID-19 pandemic, pharmaceutical supply chains faced disruptions due to lockdowns and increased demand. For instance, India’s API production disruptions affected global supply chains, highlighting risks of distant suppliers.

Quality Control Issues:

Offshore manufacturing often poses challenges in maintaining consistent quality control. In 2018, contaminated medications from China underscored risks, prompting reassessment.

Intellectual Property Theft:

Manufacturing in countries with weak IP protections poses risks. A 2019 case in the US highlighted vulnerabilities to theft in offshore locations.

Regulatory Compliance Challenges:

Varying regulations across countries create compliance issues for pharmaceutical companies. For example, in 2020, the EMA suspended an Indian site due to non-compliance.

Geopolitical Tensions:

Trade tensions, like those between the US and China, raise concerns about reliability of offshore manufacturing. Some firms explore reshoring or nearshoring to mitigate risks.

Environmental Risks:

Natural disasters, such as those in Puerto Rico, disrupt pharmaceutical production. Diversifying manufacturing locations and considering climate resilience are essential.

Benefits of Reshoring and Nearshoring Strategies in Pharma

Bringing manufacturing closer to home offers several benefits for companies in terms of quality control, risk mitigation, regulatory compliance, and supply chain transparency, ultimately enhancing competitiveness and sustainability.

Quality Control:

– Closer Oversight: Proximity allows for better oversight and control over production processes, leading to higher quality products.

– Tighter Standards: More frequent inspections and adherence to stringent quality control measures ensure products meet or exceed quality standards.

Risk Mitigation:

– Reduced Complexity: Shortening supply chains minimises risks associated with long-distance transportation and international trade.

– Resilience: Localised production enhances supply chain resilience, reducing vulnerability to disruptions caused by geopolitical tensions, natural disasters, or global crises.

Regulatory Compliance:

– Adherence to Standards: Manufacturing closer to home ensures compliance with local regulations and standards, reducing the risk of non-compliance and regulatory penalties.

– Easier Monitoring: Proximity facilitates easier monitoring and enforcement of regulatory requirements, enhancing compliance and avoiding legal issues.

Supply Chain Transparency:

– Enhanced Visibility: Closer proximity provides greater visibility into every stage of the supply chain, promoting transparency and accountability.

– Traceability: Localised production enables better traceability of materials and components, ensuring ethical sourcing and responsible manufacturing practices.

Technology’s Role in Facilitating Reshoring and Nearshoring Strategies in Pharma

Automation:

– Enhanced Efficiency: Automation technologies such as robotics and machine learning enable companies to automate repetitive tasks and streamline production processes, reducing the need for manual labour and making reshoring or nearshoring more cost-effective.

Digital Supply Chain Management:

– Improved Visibility: Digital supply chain management platforms provide real-time visibility into inventory levels, production schedules, and transportation routes, facilitating better coordination and decision-making for companies operating closer to home.

Advanced Manufacturing Technologies:

– Customisation: Additive manufacturing (3D printing) and other advanced manufacturing technologies enable companies to produce customised products on-demand, allowing for more flexible and responsive production near the end market.

Data Analytics:

– Informed Decision-Making: Data analytics tools help companies analyse large volumes of data related to customer preferences, market trends, and supply chain performance, enabling informed decision-making and strategic planning for reshoring or nearshoring initiatives.

Blockchain Technology:

– Supply Chain Transparency: Blockchain technology enhances transparency and traceability in supply chains, providing immutable records of transactions and product provenance, which can instil trust and confidence in locally sourced or produced goods.

Internet of Things (IoT):

– Real-Time Monitoring: IoT devices enable real-time monitoring of production equipment, inventory levels, and transportation fleets, allowing companies to optimise operations and respond quickly to changes in demand or supply chain conditions.

Collaboration Platforms:

– Remote Collaboration: Collaboration platforms and cloud-based tools facilitate communication and collaboration between geographically dispersed teams, suppliers, and partners, enabling seamless coordination and management of reshored or nearshored production activities.

Artificial Intelligence (AI):

– Example: Retailers utilise AI-powered recommendation systems to personalise product recommendations based on customer preferences and behaviour. For example, online shopping platforms like Amazon use AI algorithms to suggest relevant products to customers, leading to increased sales and customer satisfaction.

– Impact: AI enhances customer engagement, boosts sales, and improves decision-making by analysing vast amounts of data and identifying patterns and trends that human analysts may overlook.

Case Study of Reshoring and Nearshoring Strategies in Pharma: Novartis Strategic Localisation Initiative

Novartis, an innovator in the pharmaceutical industry, has taken significant strides in reshoring its production facilities for vital medications. Recognizing the importance of robust supply chains, Novartis embarked on a journey to bring its manufacturing closer to its consumer base.

Implementation:

Strategic Collaborations: Novartis established critical partnerships with domestic suppliers, healthcare institutions, and government bodies across the United States, facilitating a collaborative effort towards self-sufficiency in drug manufacturing.

Infrastructure Investment: Significant capital was channelled into expanding and modernising U.S. manufacturing units. This overhaul not only enhanced production capacities but also integrated sustainable practices, aligning with global environmental goals.

Regulatory Navigation: A proactive approach towards regulatory compliance saw Novartis working in tandem with agencies like the FDA. This ensured that the transition adhered to stringent quality and safety standards, minimising delays in drug availability.

Technological Advancements: Embracing Industry 4.0, Novartis infused its operations with state-of-the-art technologies such as AI-driven predictive analytics, IoT in monitoring equipment, and blockchain for traceability. This leap in tech adoption has set a new benchmark in manufacturing efficacy and supply chain transparency.

Human Capital Enhancement: Recognizing the value of skilled labour, Novartis invested heavily in training programs focusing on digital literacy, advanced manufacturing processes, and leadership development. Empowering its workforce has not only improved operational efficiency but also fostered innovation at the workplace.

Outcomes and Lessons:

Supply Chain Agility: Novartis’s initiative has markedly reduced lead times and dependency on international suppliers, illustrating the criticality of geographical diversification in manufacturing for ensuring uninterrupted supply.

Compliance and Quality Assurance: The initiative underscored the necessity of close regulatory collaboration, which has become a cornerstone in maintaining product integrity and consumer trust.

Operational Excellence: Leveraging modern technologies has streamlined Novartis’s production lines, proving that digital transformation is a key driver in reducing costs and enhancing product quality.

Socio-Economic Contributions: Beyond bolstering supply chain resilience, the initiative has rejuvenated local economies through job creation and has sparked technological upskilling among the workforce.

Collaborative Ecosystem: The success of Novartis’s reshoring efforts highlights the power of partnership among industry players, government, and academia in addressing complex supply chain challenges.

Novartis’s comprehensive approach not only exemplifies a successful reshoring model but also offers valuable insights into building future-ready, resilient, and socially responsible supply chains in the pharmaceutical sector.

Navigating Supply Chain Challenges Post-COVID-19

Amidst COVID-19 disruptions, a shift towards reshoring and nearshoring has gained momentum. Here’s why:

Cost Efficiency: Producing closer to the end market reduces raw material, labour, and operational costs while minimising waste, through higher quality standards and more efficient processes
Inventory Optimisation: Reshoring and nearshoring enable tighter inventory control, reducing warehousing and transportation expenses.
Supply Chain Resilience: The pandemic exposed vulnerabilities in global supply chains, prompting a reevaluation. Reshoring and nearshoring mitigate risks associated with distant suppliers and complex chains.
Government Incentives: Governments are incentivising reshoring and nearshoring to boost domestic economies, enhance security, and create local jobs.

These strategies are increasingly attractive, especially in industries like pharmaceuticals, where precision and reliability are critical. Embracing reshoring and nearshoring can lead to more resilient and sustainable supply chains for the future.

Conclusions of Reshoring and Nearshoring Strategies in Pharma

Reshoring and nearshoring are crucial strategies for enhancing the resilience of pharmaceutical supply chains, particularly highlighted by the vulnerabilities exposed during the COVID-19 pandemic. These approaches improve supply chain resilience, ensure regulatory compliance, and enhance quality control, safeguarding public health by maintaining continuity of essential medicine supply.

Looking ahead, the pharmaceutical industry will continue evolving its supply chain strategies by embracing technological advancements, fostering strategic partnerships, and investing in sustainability initiatives. Digitalisation, automation, and data analytics will play pivotal roles in enhancing efficiency, transparency, and agility.

Collaboration among industry stakeholders, governments, and regulatory agencies will be essential in shaping the future of pharmaceutical suppl y chains, fostering resilience, sustainability, and patient-centricity. Embracing reshoring and nearshoring strategies, along with innovation and collaboration, will be instrumental in ensuring access to safe and reliable medicines for all.

To ensure your company’s supply chain remains efficient and visionary, consider booking a consultation today.