Leveraging Digital Twins and Analytics to Optimize Global Pharma Supply Chains

In a video interview with Pharma Commerce, Brad Stewart, BDO’s national life sciences co-leader, describes how a proposed 200% tariff on pharmaceutical imports could have significant short- and long-term impacts on US drug manufacturing and distribution, with immediate concerns focused on the stability of the generic drug market. According to Stewart, generic drugs make up the majority of medications used in the United States, but they are highly vulnerable to shortages because many become sole-source products after their initial launch. Within a few years of going generic, multiple manufacturers often consolidate into a single supplier due to limited demand and low margins. This leaves the supply chain fragile, as any disruption—such as shortages of active pharmaceutical ingredients (APIs), manufacturing conflicts, or facility issues—can quickly lead to supply gaps. The pandemic underscored these vulnerabilities.

In the short term, Stewart warns that a 200% tariff would exacerbate these challenges by increasing the costs of imported generics, which are critical for maintaining affordable drug access. This could limit availability and raise costs for patients, providers, and insurers, leading to potential shortages and higher out-of-pocket expenses.

Longer term, tariffs of this magnitude would likely drive a rise in overall drug prices in the United States. Companies would have little choice but to pass on increased costs to consumers, insurers, and healthcare systems. While patients might not feel the impact immediately due to insurers absorbing costs, premiums, and healthcare charges would eventually rise.

Stewart emphasizes that reshoring pharmaceutical manufacturing is not a quick fix. Building new manufacturing facilities or scaling domestic production requires a long lead time—typically three to five years—and involves complex regulatory and logistical challenges. As a result, while tariffs may encourage companies to explore onshoring, significant capacity expansion is unlikely to occur in the near term.

Stewart also comments on the internal constraints that nearly a quarter of life sciences CFOs are reporting as their biggest manufacturing obstacle; how artificial intelligence can help support pharma leaders in managing their supply chains; and much more.

A transcript of his conversation with PC can be found below.

PC: What role can digital supply chain tools and analytics play in helping manufacturers respond to pricing and sourcing volatility caused by sudden policy shifts?

Stewart: I'm glad you asked that. It's interesting—at BDO, we do a lot of work in modeling supply chains, and that clearly is the future. We have seen companies go to having digital twins, where they operate facilities virtually, and look how to optimize the processes and those sorts of things. You can apply that same logic to a supply chain. There is the procurement and supply chain process of purchasing materials, looking for cost effectiveness, looking for redundancy in suppliers, certainty in supply, managing inventory the way you want to—I think they’re traditional things that people think about from a supply chain and procurement perspective, but I think there's another level above that, that more sophisticated companies think about, and that is, how do I make the most valuable use of my supply chain?

If I'm going to move part of my production to another country, what impacts does that have on the cost it is for me to manufacture a product, the workforce that's available to do it, where I'm paying taxes, where I'm paying value added taxes (VATs), or income taxes, where I'm paying tariffs. That's what I think people are starting to really think about now. I think one thing we have to realize is that most drug production is global. There are some drugs large enough to have multiple sites making it around the world, but more typically, you're finding one or two sites around the world that are making drug for the entire world, and so it's got to go to multiple countries from wherever it's being produced.

Even if I onshored production to the United States, I might then have to export it to to Europe or to Asia or to somewhere else, and end up costing a lot more money. That's where I think these digital tools can be very valuable. You can look at that and say, what happens if I move production to this country? I can look at what I think it's going to cost me from a capital perspective, from a time perspective, my labor costs. but then I can also start to look at, well, what's it going to cost me to ship all the raw materials I need from Asia, or wherever they're coming from, to manufacture this product, and what kind of tariffs or import duties am I going to pay for that? And then I'm going to have to ship finished product to a third country. and to Europe or somewhere else—what are my tariffs going to be, or VAT or anything else that I'm paying.

I think that's where digital tools can be helpful, is you can look at all of these on a global scale, and I think start to make much more long-term decisions. At that point, companies have to try and make the best financial decisions they can, and to best support their supply chains to be able to produce and provide these drugs to people.