Q&A: Scoring Drug Supply Chains for Resilience, Not Just Price

Nick Niemeyer, Chief Technology Officer of API Innovation Center, spoke with Pharmaceutical Commerce about the organization's National Fragility Index (NFI), a data-driven framework designed to measure structural vulnerability across the pharmaceutical supply chain.

The NFI arrives as persistent drug shortages continue to expose the limits of a supply chain long built around lowest-cost purchasing. By scoring medicines on factors including supplier redundancy, geographic concentration, and purchasing behavior, the tool is meant to give manufacturers, procurement teams, and policymakers a clearer, ongoing view of where the market is most fragile, and where diversification or domestic manufacturing investment could help prevent shortages before they occur.

PC: What is the NFI? How would it determine which medicines are most vulnerable to disruption?

Niemeyer: API Innovation Center created the NFI to become a more complete understanding of pharmaceutical supply chain risk. It helps us establish a data-driven benchmark for measuring systematic fragility across US pharmaceutical supply chains, as well as others.

We need a feedback loop. At the end of the day, it's millions and millions of data points, and it's a complex, constant evolution, sometimes devolution of the market itself.

We created this to be able to give us a baseline understanding of what's happening in something that's a global, complex market. At the end of the day, if we're not measuring it, we can't understand it. As mentioned, we don't know if we're progressing or regressing, and so the NFI gives us an understanding that's data-driven and consistent.

It uses a variety of data sources to understand the full supply chain. We are doing our best to understand everything from key starting materials to finished dosage forms, including intermediates and all the sometimes unknown pieces of the puzzle.

For instance, when we see a failure or we see events that we wouldn't have understood, we go back to the drawing board to understand how to find data sources to pull that into clarity. We take into consideration supplier redundancy, geographic and sovereign concentration, economic and financial factors, as well as alignment and purchasing behavior. There's more to all of those, of course.

These factors are all combined into a fragility score that is fully automated, based upon the data sources, and it helps us identify medicines with the greatest structural vulnerability to future supply disruptions. We can also dig into understanding why they're structurally weak, to find key constraints and single points of failure.

Drug purchasing has long defaulted to lowest price, even when that exposes patients to disruptions, how does the NFI give procurement teams a practical alternative criterion?

It's long been a lowest-price strategy. This leads to heavy market consolidation, which increases fragility. We've seen this in all sorts of markets.

The NFI gives procurement teams an additional lens through which to evaluate purchasing decisions by incorporating supply chain resilience alongside cost. There's a lot of context to dig into supply chain resilience. It's kind of dependent upon the molecule.

The NFI helps you try to understand more of that, and this gives organizations a sourcing strategy that looks beyond price into the resilience of all these different pieces.

In many cases, the most resilient approach may be to diversify across any number of supply chains, and we can define that per NDC.

One of our objectives is to work with procurement teams to provide actionable insights to drive decisions that better incorporate the true, fully loaded cost of pharmaceuticals. This includes ensuring resilience through therapeutically equivalent medicines, thus increasing available products and broadening supply chains.

The effort here is not just understanding specifically how to fix a single NDC, but understanding if that NDC is unavailable, what the next options are that will be used, and ensuring that you're pulling from each of these supply chains independently. Otherwise, when plan A is no longer available, plan B and C may not be available either. The goal is to broaden what a supply chain is for a specific need.

Could a tool like the NFI really meaningfully reduce the frequency or severity of drug shortages in the US?

We believe that over time that is absolutely possible.

The NFI is designed, as mentioned, to help organizations move from shortage reaction to mitigation and prevention. We do this by identifying the structural vulnerabilities in the supply chain that lead to these disruptions. This can help policy makers, manufacturers, healthcare systems, and investors with insights to prioritize interventions where they may have the greatest impact.

Sometimes this is identifying products where increased domestic manufacturing is available and we see strengths where other options were weak.

At times, this could potentially be a hybrid approach, as mentioned, where you start utilizing multiple NDCs and thus paying into multiple supply chains that help their robustness.

There's no analytical model that can help eliminate all shortages, but providing better visibility into systematic risk allows stakeholders to make a more informed decision, with more nuance, than just lowest price. Altering the procurement strategy and validating progression via the NFI is a fantastic use case, as mentioned.

Becoming data-driven, to decrease the probability of supply chain disruptions, will become a highly effective tool for various organizations, regardless of where you might touch the supply chain. You could be providing into it, you could be a consumer of it, or you could be a policy driver.

The NFI is meant to be an objective understanding of the market. It isn't built for a specific viewpoint. It's built just to explain the pharmaceutical market.

If price is no longer the only factor, does scoring supply chain risk create any incentive for domestic manufacturing investment, or does it take policy mandates to move that needle?

As price is better understood through data-driven practices that aggregate all these costs together, procurement teams will be better informed to broaden their purchasing decisions to include a larger view of the supply chain, including domestic manufacturing.

Policy mandates will help here as well, and should also be data-driven, via tools that are objective, such as the NFI, and monitored to ensure that the outcomes we're looking for are actually achieved and maintained.

We likely need a bit of both, which would significantly help.

The pharmaceutical supply chain is massive. There are two hundred and fifty thousand-plus active NDCs. A hundred thousand of those are commonly used.

When you take that back through the graph of the supply chain, the amount of moving pieces is immense. And so each of these becomes a unique supply chain itself, every NDC.

A decision tree this large requires data science. It requires recalculation at the frequency of decisions, which is super important. A point-in-time snapshot only gives you an understanding for that moment, and it may not be nearly as clear an understanding as a frequency of snapshots over the course of a year, and even better if you have more time.

At the end of the day, if we are unhappy with our current supply chain, we can either change our purchasing decisions or change our policy, but we have to change something for changes to occur.