J. Serv. Sci. & Management, 2008, 1: 193-199
Published Online August 2008 in SciRes (www.SRPublishing.org/journal/jssm)
A Preliminary Examination of Risk in the Pharmaceutical
Supply Chain (PSC) in the National Health Service (NHS)
(UK)
Liz Breen
Bradford University School of Management, Emm Lane, Bradford, West Yorkshire, BD9 4JL
ABSTRACT
The effective management of pharmaceuticals in the National Health Service (NHS) is critical to patient welfare thus
any risks attached to this must be identified and controlled. At a very basic level, risks in the pharmaceutical supply
chain are associated with product discontinuity, product shortages, poor performance, patient safety/dispensing errors,
and technological errors (causing stock shortages in pharmacies) to name but a few, all of which incur risk through
disruption to the system. Current indications suggest that the pharmaceutical industry and NHS practitioners alike
have their concerns as to the use of generic supply chain strategies in association with what is perceived to be a spe-
cialist product (pharmaceuticals).
The aim of the study undertaken was to gain a more realistic understanding of the nature and prevalence of risk in
the Pharmaceutical Supply Chain (PSC) to be used as a basis for a more rigorous research project incorporating in-
vestigation in the UK, Europe and USA. Data was collected via a workshop forum held in November 2005. The outputs
of the workshop indicated that there were thirty-five prevalent risks. The risks were rated using risk assessment catego-
ries such as impact, occurrence and controllability. The findings indicated that the risks identified are similar to those
prevalent in industrial supply chains, regardless of the idiosyncrasies of pharmaceuticals. However, the group consen-
sus was that caution must be applied in how such risks are addressed, as there are aspects of the product that highlight
its uniqueness e.g. criticality.
Keywords: pharmaceutical supply chain, risk management
1. Introduction
According to Khan et al “Risk is an ever-present aspect
of organisational life” [16] and “ there is a need to de-
vise robust and well-grounded models of supply chain
risk management, which incorporate risk management
tools and techniques from other disciplines of research
[16]”. Whilst this may be the case, there has been no re-
search to date, which has investigated risks within the
total PSC as pertinent to NHS pharmacy. It is vital to do
so because pharmaceuticals are a core input into health-
care treatment and are critical products. The authors
above would support this sentiment arguing that risk
management has only recently been seen as an issue that
urgently needs to be addressed in supply chain manage-
ment.
Academic researchers and practitioners believe that
“pharmaceuticals are different; they cannot be treated
like other commodities” [24]. The reasons for this senti-
ment were the high cost and long duration for research
and development and the repercussions of the product not
being available, hence again its criticality. Other unsup-
ported perception-based factors that appear to make this
supply chain distinctive include; the level of regulation in
the product production, storage, distribution, consump-
tion and the complexity of the fabric of this supply chain
[17]. Research conducted by Blackhurst et al [3] devel-
oped a risk framework based on that formulated by Cho-
pra and Sodhi [4], but it had to be customised further to
incorporate industry idiosyncrasies. This may also be an
option for the PSC in the NHS (UK).
It would appear, purely from the research findings, that
there is concern as to the growing number of risks within
the PSC, and the lack of co-ordinated effort in assessing
and managing them. This is worrying as the purpose of
the PSC is to source pharmaceuticals and materials that
can be moved through the supply chain to provide treat-
ment to the end-user. Risks have been identified by this
research, which would negatively affect the performance
of the total supply chain (from raw material sourcing
through to dispensation of medication).
This paper aims to highlight this issue, identifying the
nature and prevalence of risk, as determined by supply
chain users. The paper will conclude by stating that there
needs to be a more co-ordinated approach to and

194 Liz Breen
grounded empirical research conducted into risk man-
agement in the total supply chain within NHS hospital
pharmacy, as opposed to the current pockets of expertise
evident (e.g. Alldred, 2006; Armitage et al, 2007; Khan
et al, 2007; Wills and Stephens, 2007;) [1, 2, 16, 29].
2. Literature Review
The subject of risk is not a new one, but appears to have
had a revival or resurgence in supply chain literature [16,
27]. Khan et al [16] in their research present an overview
of writers investigating varying aspects of risk and supply
chain management. Other authors choose to focus on the
concept of risk in application [10, 6, 14], sources of risk
[27], risk assessment [3, 32, 11], risk mitigation [5, 9],
risk modelling [9], flexibility [28], risk management [18,
23, 4], and associated economic repercussions [20, 15].
Supply risk is defined as the potential occurrence of an
incident or failure to seize opportunities with inbound
supply, the outcome of which results in a financial loss
for the firm [32]. The argument has also been put forward
that operational risk is a product of governance and regu-
lations [25]. This is particularly relevant to the supply
chain under discussion as the PSC fabric is complex (See
Figure 1) and is regulated and monitored by parties such
as the Department of Health (DOH), National Institute for
Health and Clinical Effectiveness (NICE), Medicine and
Healthcare Products Regulatory Agency (MHRA), Medi-
cines Controls Agency and the NHS Purchasing and Sup-
ply Agency (NHS PASA) to name but a few.
Figure 1. Map of the pharmaceutical supply chain as identified by the risk management workshop (2005)
Wholesaler
Full line or short line. Many local.
Parallel trade with other wholesal-
ers
Finished Product
(Many Suppliers)
Includes Specials (from
Hospitals)
UK Product
Product for
o
th
e
r EE
C
Distributor /
Logistics
Operator
EEC Whole-
sale
r
Im
p
orte
r
Outsourced
Packaging and
Labelling
Distributor / Logistics Operator (very few in-
house)
Either Pre-wholesaler (UDG etc) or
Logistics operator (Exel) although bounda-
ries are blurring. Could be in Europe
Product for rest
o
f
wo
rl
d
Distributor /
Logistics
Operator
I
m
p
orte
r
Community Pharmacy
Parallel Trade with other
Community Pharmacies
GP Community
Clinic
Hospital Store
Reconstituted Products for
Wards or De
p
artments.
Short Line Store for
Multiples
Hospital Dispensary
Parallel Trade with other
dis
p
ensaries
Patient
Hospital Ward /
Dept
HomeCare
Supplier

A Preliminary Examination of Risk in the Pharmaceutical Supply 195
Chain (PSC) in the National Health Service (NHS)
Cousins et al [6] purport that supply chain risk comes
in two forms: technological risk and strategic risk. Both
types focus on an over-reliance and hence increased po-
tential risk from product, process and technology and
suppliers. At a very basic level, risks in the PSC are asso-
ciated with product discontinuity, product shortages [17],
poor performance, patient safety/dispensing errors, tech-
nological errors (causing stock shortages in pharmacies),
internet pharmacies and counterfeit drugs; all of which
cause delays in the system and cause anguish to the final
users, the patients. All of these fall into the categories
proposed by Cousins et al [6]. Costs associated with mis-
management of risks are also the focus of many authors
e.g. Papadakis, 2006 and Hendricks and Singhal, 2003.
Within the PSC, medication errors alone equate to £200-
400 million per year in the UK, and to this must be added
the unknown cost of errors in primary care and litigation
[19].
Tang and Tomlin [28] assert that due to the spread and
complexity of supply chains they are usually slow to re-
spond to environmental changes and thus are less robust
when faced with business disruptions. Like such busi-
nesses, there is evidence to suggest that the convoluted
nature of the PSC in the NHS (UK) is similar to pharma-
ceutical supply chains in other countries, and similar is-
sues exist such as counterfeit medications, product short-
ages etc. [30]. Research has indicated that in Europe
medicines can travel through as many as 20-30 pairs of
hands before it finally reaches the patient [7]. The supply
chain has now become more fragmented with effectively
25 pharmaceutical markets in Europe, which has led to a
decrease in transparency in the supply chain [8].
The structure of the PSC is such that an examination
focusing on risk needs to encompass the complete supply
chain and composite network of buyers and suppliers. In
which case the total supply chain needs to be the subject
of assessment as opposed to individual entities or parties
e.g. risks attached to a supplier or purely to patients.
Adopting a broad and encompassing view on this issue
and not focusing on individual entities is critical in exam-
ining this area [16].
3. Methodology
The aim of this research study was to gain a more realistic
understanding of the nature and prevalence of risk in the
PSC. In order to do this a workshop was held in Novem-
ber 2005 focussing on risk identification within the PSC.
This was attended by twenty key PSC stakeholders in-
cluding pharmaceutical suppliers and wholesalers, NHS
professionals and government bodies.
The attendees were split into two distinct groups which
contained a mix of pharmaceutical manufacturers and
wholesalers and NHS personnel. The two groups were
facilitated by NHS pharmacy procurement specialists.
The groups were asked to deliver key objectives; these
being to identify risks in the PSC, to rate their criticality
and to produce an agreed map of the structure of the PSC.
Both groups worked individually and were brought back
together for interim group sessions (IGS) to deliver their
outputs. A consensual set of data was then compiled by
the researcher in the presence of the total group, based on
their views and comments. At each IGS discussion was
generated in order to validate or explain outputs.
After a comprehensive list of risks had been identified
the individual groups reconvened to apply a criticality
rating. The criteria used to develop such ratings were
standard of those currently used within the PSC i.e. im-
pact, control and occurrence. Again, during the IGS there
was some discussion and movement on the ratings, and a
comprehensive list was compiled. As this study was a
preliminary investigation into this area, further extrapola-
tion and development of the risk ratings was not con-
ducted. Further examination using tools such as model-
ling or Analytic Hierarchy Process (AHP) could be ap-
plied using the ratings identified to assist in more struc-
tured decision making [12]; however as this was a pre-
liminary investigation they were not employed at this
stage in the study.
Further discussion took place concerning the structure
of the PSC. Due to time constraints the final map was
completed after the workshop by an NHS pharmacy pro-
curement specialist, but circulated to the workshop group
for further comments and amendments. However, no
amendments were requested. It was felt that a workshop
was the most appropriate approach to adopt in collating
the necessary data as there was a lack of published data
on this subject, and the data produced would be accurate
and timely. As a cross-section of companies were in-
volved (17 companies/organisations represented) then a
tentative assumption could be made that the findings
would be more representative of opinion on this subject
within this field than not.
4. Results
The outputs of the workshop indicated that there were 35
prevalent risks (See Table I for summary); with varying
levels of criticality and that the structure of the PSC map
was product-dependent, so taking a specific product into
consideration the map profile could be substantially dif-
ferent. It was agreed that the top 10 risks identified were
representative of the state of play in the PSC. The top
rated risks included fragmentation of the supply chain
(multiple channels leading to poor communication); lack
of visibility concerning placement and availability of
stock, inappropriate forecasting conducted by the cus-
tomer and a general inability of capacity to meet demand.
An outlying risk that was debated on the day was that of
counterfeit medication. One member of the group was

196 Liz Breen
Table 1. Risks identified and associated ratings
Risk Rating Risk Rating
Fragmentation of SC – no single source, multi-
ple channels, no communication, unilateral
decisions
10 Too much information 6.5
Lack of visibility of stock 9 Short term SC planning 6.5
Unexpected increase in demand 8.5 Operational in/efficiencies e.g. systems operating prop-
erly 6
Demand versus Capacity 8.5 Non standard practice – customised policies per hospital.
Lack of common codes etc 6
Information flow or lack of information 8.5 Counterfeiting 6
Lack of forecasting – customer side 8.5 Increase in demand due to NICE approval, patient in-
volvement, press 6
Availability of raw material – true and com-
mercially induced. Regulatory issues – manu-
facturing licensing/change of standards/drug
recalls
8 Rationalisation of range 5.5
Demand/economics – not able to respond to
demand 8 Cash flow/cash management – threat associated with
small companies and hospitals 5.5
Inadequate buffer stock – JIT/lean 8 Storage/cold chain 5.5
Contracting treated as a commodity – big con-
tracts equals big risk. Drive competitors out of
market
8 Reimbursement policies not consistent 5.5
Transportation – unavailability of fuel, conges-
tion, weather, illness 7.5 Response of industry to shortages – communication 5.5
Manufacturer defence tactics 7.5 Loss of expertise – unsophisticated purchasing/practice? 5
Diversion of manufacturing capacity 7.5 Risk of litigation – influence on market 5
External influences – disaster recovery 7.5 Lack of knowledge regarding manufacturing process or
source of supply 4.5
Stock holding – more concentrated 7 Procurement
Hubs – introduce more complexity 4.5
Exploitation 6.5 Theft 4.5
Dispensing/picking error – medica-
tion/packaging, prescription management 6.5 Prioritisation – conflict between patients/profits 4
Decrease in capacity linked to profit 6.5
adamant that the risk attached to this activity was greater
than the rest of the group perceived it to be. This risk was
placed as 23 out of 35.
The findings indicated that the risks identified are simi-
lar to those prevalent in industrial supply chains crossing
various categories e.g. financial, legal and operational,
regardless of the idiosyncrasies of pharmaceuticals. How-
ever, the group consensus was that caution must be ap-
plied in how such risks are addressed, as there are aspects
of the product that highlight its uniqueness e.g. criticality.
Similar analysis was conducted by Blackhurst et al [3]
into the automotive industry, the focus however being on
supplier risk assessment and monitoring. An outcome of
this study was the acknowledgement that a standard risk
framework did not fit that company in that industry and
therefore a standard tool had to be customised for the
purpose of the research.
5. Discussion
The ratings produced were based on the following criteria;
control, occurrence and impact. The risks identified fall
into typical risk categories such as legal, operational, fi-
nancial and strategic, all of which need to be addressed to
achieve effective risk management [26]. A high rating
indicated a greater potential for a more detrimental impact
(financial or other) on the PSC thus needing more struc-
tured recovery mechanisms.
The findings can be discussed in three distinct sections:
Supply chain structure - The highest ranked rating was
due to the fragmentation of the supply chain (10/10). The
group felt that there was a lack of uniformity in decision-
making within the PSC which led to such problems, and
affected the efficacy of the complete supply chain. This
being the case, this was a risk that needed to be addressed
urgently as it affected all parties and could result in finan-
cial loss. This view further supports the concerns within
the industry of the increasing involvement of suppliers,

A Preliminary Examination of Risk in the Pharmaceutical Supply 197
Chain (PSC) in the National Health Service (NHS)
manufacturers, parallel importers, generics, and whole-
salers to name a few.
As there are numerous players and communications
within the PSC, the supply chain would benefit from hav-
ing a coordinating body that is responsible for setting
targets and meeting deadlines, and implementing strategy.
This body needs to recognise the interconnectivity be-
tween members of this network and aim to support and
nurture this, whilst ensuring that risk is not passed from
one party to another [13]. Attention must also be paid to
instigating mitigation strategies that positively impact on
the total supply chain (all entities) and not exacerbate risk
as a repercussion of the initial activity. In the case of the
PSC, mitigating a risk attached to a product line should
not increase the risk associated with another product line,
or the relationship between the buyer and supplier.
Controllability – On looking at the risks presented it is
clear that a certain number of risks proposed are opera-
tional and functional and are therefore within the control
of the industry e.g. visibility of stock, communication
channels, capacity management issues and information
flow. This being the case, there is a need for more effec-
tive management of these risks. The industry is less capa-
ble of controlling other risks e.g. counterfeiting. This was
rated as a 6/10, which is still high risk but was not con-
sidered high priority due to the low frequency in its oc-
currence. This is such a present threat that a new group
(European Alliance for Access to Safe Medicines) was
launched late 2007 “to campaign for the exclusion of
counterfeit medicines from the supply chain” (Pharma
Anti-Counterfeiting, 1:2008). Governmental influences
are also less controllable e.g. the conflict between patients
and profits, NICE, and the introduction of Procurement
Hubs (Collaborative Procurement Organisations) whilst
others are totally uncontrollable e.g. unavailability of fuel
and natural disasters and illness. In reviewing the risks
produced, it can be assumed that some of the risks can
effectively be addressed through better co-ordination and
management of the PSC and some through effective miti-
gation strategies as and when they arise.
Strategy – The findings of this research indicate that
there are clearly identifiable risks in the NHS PSC (UK)
as determined by industry practitioners. The practitioners
were also in agreement that although there is an emphasis
on risk from the various agencies, companies and the
NHS itself, there is no co-ordinated strategy which gov-
erns risk across all the supply chain parties. Anecdotal
evidence would suggest that even though practitioners
know that there is risk attached to core activities within
the PSC e.g. procurement contracting, there is no actual
risk assessment conducted on suppliers to ascertain the
level of risk in a proposed contractual relationship (a key
risk being the potential to disrupt supply). Decision-
making appears to reside with experienced members of
staff; pharmaceutical experience not risk management.
According to Blackhurst et al [3], like issues, e.g. sup-
plier disruptions, led to their investigation into supplier
risk assessment and monitoring and development of a risk
factor framework.
Disruptions within the supply chain are a major source
of risk. The findings from the risk management workshop
indicated that supply disruptions could be seen in the
form of availability of raw materials, transportation, dis-
aster recovery, lack of knowledge regarding the source of
supply, rationalisation of product range and theft. Any of
these could restrict or stop the flow of products through
the supply chain, increasing the risk to the patient.
6. Conclusions
The aim of this research study was to gain a more realistic
understanding of the nature and prevalence of risk in the
PSC as a preliminary research exercise. The approach
adopted was qualitative and exploratory in nature. The
aim was realised through the collation of data from a risk
management workshop. Risk analysis in the PSC in the
NHS (UK) is of key importance and has a valuable input
into both practice and policy; therefore research into bet-
ter understanding and management of this is justified. It
affects not only the practitioners and policy makers, but
also the public, as current and future users of this service.
Further investigation conducted within this area could
yield the following benefits; a grounded empirical re-
search study, greater visibility of pharmaceutical supply
chain activities and players, identification and rating of
risks, more structured planning ability to strengthen prac-
tice and systems, informed contingency/recovery plan-
ning, more effective management of the impact of high
severity events on recipients, e.g. unknown disasters, and
reduce the impact of low severity events such as a break-
down in buyer-supplier relationships.
However, whilst some of the industry seems to be very
active in pursuing this subject, others do not seem to join
in their enthusiasm. The twenty contributors to the risk
management workshop were representative of a cross-
section of this supply chain, thus their views are represen-
tative of general feeling and concern regarding the level
of risk attached to key issues. The views produced were
consensual, the key issues and ratings discussed and
agreed by the whole group. This is evidence that despite
the complexity of the PSC there is a willingness to come
together as a joint body to discuss topical matters. This
activity was co-ordinated by a neutral party (University of
Bradford School of Management) who were impartial in
the proceedings.
From the research findings recommendations can be
made to develop policy and practice within this area.
These include adopting a structured approach to under-
standing the nature of risk in the total pharmaceutical
supply chain in order to effectively manage it. This would
involve detailed analysis of the various party and agency

198 Liz Breen
activities concerning risk management, mitigation activity
and successes. At present the researcher could find little
evidence of this being done. Consultations should be per-
formed on a continuous basis with PSC participants, rep-
resentative of the total supply chain. Adequate training
packages also need to be developed and disseminated to
decision-makers within the PSC concerning the presence
of risk and its mitigation strategies. This would involve
strategists, policy makers, procurement bodies/staff and
key pharmaceutical personnel e.g. pharmacy specialists.
Finally, decision-making should be assisted by risk man-
agement specialists.
There is evidence within NHS literature and practice
that risk assessments and risk management practice is
conducted as a matter of expected and good practice. This
analysis did not attempt to examine risk assessment and
management in healthcare from a clinical perspective, but
cannot ignore the fact that risk management practice ap-
pears to be well developed in this area, possibly because
risk is perceived to be greater the closer to the patient, or
because there is high level visibility and public account-
ability at the coal face so to speak.
According to Khan et al [16], risks cannot be under-
stood simply at an individual buyer and supplier level.
The authors believe that an examination of supply chain
risk must incorporate empirical research into how risk is
managed. Within the PSC in the NHS, there is no evi-
dence however that there is a ongoing research into iden-
tifying and managing risk across the total pharmaceutical
supply chain in the NHS, which is astonishing consider-
ing the impact of supply disruptions. There is a gap in
current research in this area which needs to be addressed,
as identified in part by this preliminary study. Further
research aims to redress this. When we think of the most
basic risk in the supply chain, i.e. supply disruption, we
are reminded of the fact that if pharmaceutical products
or associated equipment are delayed in reaching hospitals
or pharmacies, patients could die. This is not being melo-
dramatic, this is stating a fact.
7. Future Research
In order to build on the findings presented a future re-
search agenda has been identified. The aim of this project
will be to develop a typology of risk in the PSC as ap-
plied to NHS hospital pharmacy and provide appropriate
and realistic mitigation strategies to manage risk more
effectively. The research will encompass data collection
from within the UK, USA and Europe. The outputs of
which will indicate areas of success or centres of excel-
lence in practice and outcome e.g. in product sourcing,
supplier management etc., which should be developed
further and shared nationally and internationally.
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