The event opened with Converge Managing Director Todd Applebaum identifying common challenges that our clients are now planning for:
- Shortages of key supplies and components, leading to difficulty in planning and procurement of materials. This is most notable for virus vaccine manufacturing components such as bags, filters, glass vials, and stoppers.
- Reduced air cargo negatively impacting the ability of many carriers to move fright. This is driven by the combination of lingering pandemic restrictions to manpower at ports of entry and increasing logistics volumes as the U.S. and global economy returns to more normal growth, and hence has a longer-term impact.
- Limited cold-chain capacity due to demand from the initial COVID-19 vaccine push and continued growth in specialty and regenerative treatments.
- The Brexit transition, which will now make shipments from the UK to the European continent dutiable. With the number of UK-based CROs, testing facilities, and distribution centers, companies will have to plan for these duties.
- More active use of trade policy as levers for political and foreign affairs agendas. This makes costs (tariffs & duties) and potential penalties extremely dependent upon volatile global political dynamics.
Carsten Nielson, Global Supply Chain Director at Dicerna Pharmaceuticals, presented his experience using tools available to optimize duties and tariffs.
- Temporary Import Bonds (TIB) can be a convenient mechanism for R&D Stage companies. TIBs reduce costs by providing an option to import materials duty-free, provided the material will not be used for sale. For early-stage companies who consume their materials in research and development activities, TIBs can be very effective.
- However, TIB administration can become burdensome as you scale up. TIBs come with strict compliance practices such as detailed material tracking, documentation and reconciliation. Plus, the penalties for non-compliance are severe. It could result in not only double duties, but also jeopardize your Customs & Border Protection standing.
- Foreign Trade Zones (FTZ) enable growing commercial stage companies to postpone duties. FTZs allow importers to pay duties based on actual material consumption rather than upon import. This has the potential to reduce the overall expense and spread the cash outflow over time.
- Develop a strategy early for taking advantage of the appropriate mechanisms as your company grows.
Carsten then asked the SCWG practitioners how they were dealing with pandemic-related shortages of material supply. Some reported working closely with their internal finance and executive teams to invest in mitigation steps. They were also collaborating with external suppliers to strengthen planning. Additionally, it was suggested that more aggressive forward-stocking of packaged inventory outside of the US to other geographies could help to minimize the risk of clinical or commercial material shortage.
The group also discussed ways to manage constraints on air capacity. Several people described the benefits of increasing inventory holding positions to avoid delays in reordering. Others recommended switching from transportation providers that used commercial carriers to those that owned their own planes. Although the move proved to be more expensive, the advantages were more reliable scheduling and delivery, fewer delays, and complete visibility of international shipments.
SCWG members were also interested in the impact of Brexit. There was agreement that some or all distribution and commercial packaging operations should move from the UK to continental Europe. However, companies continuing to manufacture in the UK still need to test to EU requirements if the product will be sold in the EU.
For more Supply Chain insights, events, and networking, join Converge’s Supply Chain Working Group and keep the conversation going.