How Supplier Pressure Unleashed the Opioid Crisis
While the pandemic era has seen global supply chains strained and medicines running short even in the developed world, it was not the case with prescription opioids, namely oxycodone and hydrocodone in the early 2000s. In fact, the opposite was true, argues a study published in the Journal of Supply Chain Management: supply chains became so efficient that they produced a glut of opioids that helped spark the opioid crisis in the US that has since spread to other parts of the world.
This supply glut is partly due to the influence of supplier pool pressure on pharmacy participation in oversupply, according to research conducted by Ednilson Bernardes, professor at the West Virginia University John Chambers College of Business and Economics.
Simply put, pressure exerted by manufacturers and suppliers of opioids, particularly national corporations, influenced how pharmacies bought and distributed those prescriptions.
“We argued that when the pool of suppliers has cohesive expectations for how buyers should behave and sufficient power to dominate the supply relationship, then buyers are under pressure to act in line with those expectations,” Prof Bernardes said.
Prof Bernardes and co-author, Paul Skilton of Washington State University, analysed transactions involving oxycodone and hydrocodone between 2006 and 2012. They chose those two drugs, Prof Bernardes said, because they’re the most commonly abused, legally prescribed products and central to the American opioid epidemic.
The researchers tested a model using a dataset combining geographic, market and public health data. The model revealed that more than 90% of supply originated with three generics manufacturers that aggressively competed for shelf space in distributors and pharmacies.
Bernardes explained how several factors led to opioid oversupply, which occurs when ordinary production and distribution processes deliver products in excess of the safe needs of a market.
“First, even though pharmacists, suppliers and manufacturers knew the products were toxic, physicians were prescribing the products,” Bernardes said. “Second, although the DEA (US Drug Enforcement Agency) expected the companies selling opioids to report unusually large purchases, it put no controls to ensure that they did. Third, even if they had, individual transactions were typically small but made up very large totals.
“Under these conditions, the whole supply chain could produce far more of these products than were good for patients or society. While it is a system-level phenomenon, we theorize that it emerges from individual behaviours and that the actions of suppliers and competitors influence those behaviours in addition to demand from patients.”
In addition, Bernardes said market characteristics, such as demand, regulation and market population size, influenced pharmacy participation.
“Supplier pools can impose their expectations only if they have greater bargaining power than buyers or if buyers critically depend on them,” Bernardes said. “Pharmacies are critically dependent on the opioid supplier pool, which is regulated at the federal and state level, because opioids are an important contributor to supplier and pharmacy profitability.”
Bernardes and his colleague believe this study blazes a trail for further supply chain research as it develops a novel notion of oversupply, distinct from the traditional idea of excess inventory, and normal misconduct that explain how pressures within supply chains shape misconduct beyond the opioid context.
The research is also unique, Bernardes said, because previous studies focused primarily on firm-level consequences of behavior such as supplier sustainability risk and corrupt opportunism. The focus on firm-level outcomes leaves a gap in understanding systemic factors that normalize misconduct in supply chains.
“The phenomenon exposes supply chain behaviour that is widespread and persistent despite its negative consequences for society,” Bernardes said. “Examples include products that harm consumers and business models that degrade the environment, exploit labour or perpetuate social injustice.”
Source: West Virginia University
