Out

MODELING RISK MANAGEMENT IN THE PHARMACEUTICAL
INDUSTRY GLOBAL SUPPLY CHAIN LOGISTICS USING
ANALYTIC HIERARCHY PROCESS MODEL
A Dissertation
Submitted to the Graduate Faculty
of the
North Dakota State University
of Agriculture and Applied Science
By
Chris Iheanyi Enyinda
In Partial Fulfillment of the Requirements

for the Degree of
DOCTOR OF PHILOSOPHY
Major Department:
Transportation and Logistics
December 2008
Fargo, North Dakota

UMI Number: 3384580
Copyright 2009 by
Enyinda, Chris Iheanyi
INFORMATION TO USERS
The quality of this reproduction is dependent upon the quality of the copy
submitted. Broken or indistinct print, colored or poor quality illustrations
and photographs, print bleed-through, substandard margins, and improper
alignment can adversely affect reproduction.
In the unlikely event that the author did not send a complete manuscript
and there are missing pages, these will be noted. Also, if unauthorized
copyright material had to be removed, a note will indicate the deletion.
UMI
UMI Microform 3384580
Copyright 2009 by ProQuest LLC
All rights reserved. This microform edition is protected against
unauthorized copying under Title 17, United States Code.
ProQuest LLC
789 East Eisenhower Parkway
P.O. Box 1346
Ann Arbor, Ml 48106-1346
North Dakota State University
Graduate School
Title
MODELING RISK MANAGEMENT IN THE PHARMACEUTICAL
INDUSTRY GLOBAL SUPPLY CHAIN LOGISTICS USING
ANALYTIC HIERARCHY PROCESS MODEL
By
CHRIS IHEANYI ENYINDA
The Supervisory Committee certifies that this disquisition complies with North Dakota
State University's regulations and meets the accepted standards for the degree of
DOCTOR OF PHILOSOPHY
SUPERVISORY COMMITTEE:
3
Chair
XS^w ^hzc<*^<
A
fr^-
Approved by Department Chair:
Date Signature
ABSTRACT
Enyinda, Chris Iheanyi, Ph.D., Department of Transportation and Logistics, College of

Graduate and Interdisciplinary Studies, North Dakota State University, December 2008.
Modeling Risk Management in the Pharmaceutical Industry Global Supply Chain Logistics
Using Analytic Hierarchy Process Model. Major Professor: Dr. Won Koo.
Achieving sustainable differentiated advantage in today's ultra-competitive
environment demands supply chain C-level executives to have a clear understanding of
appropriate approaches to managing key risks. Thus, organization should have a
methodology for identifying and evaluating the risks it faces and a process for generating
intervention plans to mitigate the risks to an acceptable level. For the pharmaceutical
industry, pharmaceuticals are crucial input into healthcare treatment, so it is imperative that
risks attached to the sourcing, manufacturing, and distribution of drugs to the ultimate end-
users are identified and proactively managed. Hence in the most regulated pharmaceutical
industry, superior GSCL risk mitigation and management are required for survival.
Pharmaceutical firms that do not mitigate and manage their supply chain risks will risk
failure. But pharmaceutical firms that understand the devastating effects of potential supply
chain disruptions and take proactive steps to plan for contingencies will emerge stronger
and more competitive when surprised.
In this context, the intent of this research is to apply a multi-criteria analysis by a
four-level AHP methodology, to choose optimal mitigation strategies to manage
pharmaceutical global supply chain logistics (GSCL) risks. Level 1 represents the ultimate
goal the decision maker intends to achieve in implementing risk management; Level 2
encompasses criteria (risk categories); Level 3 is composed of sub-criteria (sub-risk
factors); and Level 4 represents the alternative (risk mitigation strategies) reported in the
pharmaceutical industry hierarchy structure. The intent of this model is to rank the
iii
disruption risk in the pharmaceutical GSCL. The model included key risk factors in the
pharmaceutical industry. Hierarchical models can be used to decompose a complex value
like risk into its constituent components. The second level of the hierarchical model
consists of the objectives or criteria that make up this complex value. Thus, the value to be
modeled is the disruption risk in the pharmaceutical GSCL. Because risk can be defined as
the probability of occurrence multiplied by the severity or impact of the event, the criteria
that make up the risk are the criteria that can influence both the probability and the severity
or impacts.
The results based on modeling risk management in the pharmaceutical industry
GSCL using AHP approach indicate that regulation/legislation risk (0.291) is the most
important risk factor, followed by operational risk (0.228) and reputational risk (0.200). For
alternative policy options, risk reduction (0.193) is the most important risk mitigation
strategy, followed by risk transfer (0.150), risk avoidance (0.131), and risk acceptance
(0.127).
This study has demonstrated the applicability of AHP in modeling risk management
in the pharmaceutical industry GSCL. Thus, the major contribution of this research to the
literature is modeling of risk management strategies in the pharmaceutical industry GSCL
using AHP model. Results of this study will help to guide supply chain C-level executives
and/or enterprise risk management executives in the selection of appropriate measures to
control pharmaceutical GSCL risk. Also, supply chain executives will be able to observe
the effect of several major decision objectives in achieving minimization of risk in the
pharmaceutical GSCL.
iv
ACKNOWLEDGEMENTS
There were several individuals who supported me in making this dissertation and proud
moment possible. I would like to thank my committee chairman, Dr. Won Koo for his
guidance and support throughout my doctoral program journey and in completing this
research. I benefitted from his provocative thoughts and discussions. He provided his
perceptive comments and/or constructive feedback in near real-time. My gratitude to the
committee members, Drs. Denver Tolliver, Joseph Szmerekovsky, Kendall Nygard, and
Reza Maleki for accepting to serve and for their support.
Unequivocally, I am very thankful and indebted to Dr. Denver Tolliver, Director of
Ph.D. Program and Associate Director, Upper Great Plains Transportation Institute, for the
opportunity and whose guidance, advice, and altruistic support have been invaluable during
my doctoral program and while writing this dissertation. Dr. Tolliver was very supportive
and helpful in allowing me to use every available resource to enhance my academic
endeavors. Indeed, without him this great academic journey would not have been possible.
My thanks are due to Ms. Jody Bonn, Academic Program Coordinator, for her friendliness,
advice and encouragement, support, world-class professionalism, and willingness to help.
Thanks to Dr. Brian Kalk for his niceness and support throughout my doctoral program.
Furthermore, I acknowledge the financial support from Upper Great Plains Transportation
Institute. Thanks to Mr. Gene Griffin, Director, Upper Great Plains Transportation Institute
and other Staff members for their support and making my stay in the Program a pleasant
experience.
v
Many thanks to Dr. Emeka Dunu, Chair, Department of Management and Marketing,
Alabama A&M University, for his friendship, guidance, constructive advice, and for
supporting and approving my sabbatical leave. My gratitude to special friends, including
Dr. Emeka Dunu, Peter Ifeka, Charles Briggs, Dr. Hortense Dodo, Dr. Emmanuel Obuah,
Dr. Chidiadi Kwellee, and Ms. Patricia Cox, whose kindness, encouragement, and support
during this academic journey and while completing this dissertation are most precious.
To my dearest parents late Mr. Sampson N. Enyinda and late Mrs. Roseline W.
Enyinda and grandmother, late Mrs. Lydia "Ayi" Ogbuche, thanks abundantly for who and
what I am today. Special thanks to my sister, Mrs. Wori "Nne" Oparaodu, my brother in-
law, Maxwell Oparaodu, and my cousin, Mrs. Florence "Ndidi" Kwelle for their altruistic
encouragement throughout the years. Without you, this proud moment would not have been
possible. Above all, I am indebted to my children, Jenny, Chris Jr., Victoria "Tori", Chima,
and Chinyem for their support, encouragement, and understanding while I was away on
sabbatical leave and completing this dissertation. Thanks for being wonderful children,
intelligent, and loving. I love you with all my heart.
VI
DEDICATION
This dissertation is dedicated to my children Jenny, Chris Jr., Victoria "Tori", Chima, and
Chinyem Enyinda. Above all, in memory of my beloved parents, Mr. Sampson Enyinda,
Mrs. Roseline Enyinda, and grandmother, Lydia "Ayi" Ogbuche for the crucial life
foundation, love, and nurturing you gave me. You are missed very solely each and every
day.
vn
TABLE OF CONTENTS
ABSTRACT iii
ACKNOWLEDGEMENTS v
DEDICATION vii
LIST OF TABLES xiii
LIST OF FIGURES xv
LIST OF APPENDIX TABLES xix
LIST OF APPENDIX FIGURES xx
CHAPTER 1. INTRODUCTION 1
Statement of the Problem 6
Research Objectives 7
Summary 9
CHAPTER 2. THE PHARMACEUTICAL INDUSTRY 11
Pharmaceutical Trends and Challenges 11
Mergers and Acquisition 14
Pharmaceutical Industry Global Supply Chain Outsourcing 20
Pharmaceutical Global Supply Chain Outsourcing Drivers 23
Pharmaceutical Global Supply Chain Outsourcing Activities 27
Merits and Demerits of Pharmaceutical Global Supply Chain
Outsourcing 32
Pharmaceutical Global Supply Chain Outsourcing Risk 33
Pharmaceutical Global Supply Chain Logistics 35
Nature of Pharmaceutical Industry Global Supply Chain Logistics 38
Pharmaceutical Global Supply Chain Logistics Security Threats 42
viii
Radio Frequency Identification Imperatives 43
Pharmaceutical Pedigree Requirements Legislation 45
Supply Chain of Custody 48
Sense and Respond Pharmaceutical Supply Chain 50
Pharmaceutical Supply Chain Competitive Intelligence 53
Competitive Intelligence 54
Supply Chain Blind Spots and Competitive Early Warning System 56
Supply Chain Intelligence Cycle 61
Summary 66
CHAPTER 3. LITERATURE REVIEW 71
Risk and Uncertainty Controversy 72
Global Supply Chain Logistics Risk and Uncertainty 73
Supply Chain Logistics Vulnerability 78
Sources of Supply Chain Logistics Risk and Uncertainty 82
Impact of Risk on Global Supply Chain Logistics 84
Global Supply Chain Risk Management 87
Pharmaceutical Global Supply Chain Logistics 97
Pharmaceutical Global Supply Chain Logistics Risk and

Uncertainty 98
Sources of Risk and Uncertainty in Pharmaceutical
GSCL 99
Pharmaceutical Global Supply Chain Logistics Risk Management 102
Summary 103
ix
CHAPTER 4. RESEARCH METHODOLOGY 106
Multi-Criteria Decision Making 108
Analytic Hierarchy Process 109
AHP Application to Risk Management in Pharmaceutical
GSCL Ill
Construction of the Pairwise Comparison Matrix A 116
Combining Experts' Judgments and Geometric Mean 119
Description of Major Objectives, Sub-Objectives, and
Alternative Options 120
Alternative Options/Risk Management Strategies 125
Summary 127
CHAPTER 5. DATA AND ANALYSIS PROCEDURES 128
Model Development and Problem Formulation 128
Data Source and Description 129
Derivation of Major Objectives, Sub-Objectives, and Alternative
Relative Priorities 132
Pairwise Sub-Objectives with Respect to Major Decision Objectives 133
Evaluation of Alternative Risk Management Options 134
The AHP and Expert Choice Software 136
CHAPTER 6. EMPIRICAL RESULTS 138
Major Decision Objectives 138
Synthesis Results 142
Ideal Synthesis Mode 142
Distributive Synthesis Mode 143
Sensitivity Analysis Scenario for Major Decision Objectives 144

x
Dynamic Sensitivity 145
Performance Sensitivity Analysis 151
Gradient Sensitivity Analysis 152
Weighted Head-to-Head Sensitivity Analysis 153
Two Dimensional (2D) Sensitivity Analysis 155
Sub-Objectives 156
Regulation/Legislation Risk: Regulatory Approval and
Change in Legislation 158
Operational Risk: R&D and Distribution 158
Reputation Risk: CSR and Disclosure 159
Financial Risk: Exchange Rate and Currency 160
Market Risk: Competition and Key Talent 161
Relationship Risk: Third Party Liability and M&A 162
Dynamic Sensitivity Analysis for Sub-Objectives 163
Sensitivity for Regulatory Approval and Change in Legislation
Below Regulation/Legislation Risk 163
Sensitivity for Distribution and R&D Below Operational Risk 164
Sensitivity for CSR and Disclosure Below Reputation Risk 165
Sensitivity for Exchange Rate and Currency Below Financial Risk 169
Sensitivity for Competition and Key Talent Below Market Risk 171
Sensitivity for Third Party Liability and M&A Below Relationship

Risk 173
Composite Score for Sub-Objectives of the GSCLRM 175
XI
CHAPTER 7. SUMMARY AND IMPLICATIONS 177
Summary and Comments for Future Research 177
Implications 181
REFERENCES 184
APPENDIX A. DETAILS OF SYNTHESIS 206
APPENDIX B. PHARMACEUTICAL INDUSTRY RISK SUPPLY CHAIN

LOGISTICS ANALYSIS SURVEY QUESTIONNAIRE 216
APPENDIX C. CURRICULUM VITAE 226
xn
LIST OF TABLES
Page
Top Ten Pharmaceutical Organizations Outsourcing to India 32
Merits and Demerits of Pharmaceutical Outsourcing to CROs 33
The AHP Pairwise Comparison Scale of Preference Between Two
Elements 115
Saaty's AHP Average Random Consistency or Random Index 118
Expert #1 Judgment - Pairwise Comparison Matrix of Major

Risk Objectives with Respect to the Goal 131
Expert #2 Judgment - Pairwise Comparison Matrix of Major
Risk Objectives with Respect to the Goal 131
Combined Experts' Judgments - Pairwise Comparison Matrix

of Major Risk Objectives with Respect to the Goal 132
Pairwise Comparison Matrix for Sub-Objectives with Respect to

Regulation/Legislation Risk 133

Operational Risk 133

Reputation Risk 133

Financial Risk 133

Market Risk 133

Relationship Risk 133
Pairwise Comparison Matrix for Alternatives with Respect to

Regulatory Approval Risk 134
Pairwise Comparison Matrix for Alternatives with Respect to

Change in Legislation Risk 134
xiii
16. Pairwise Comparison Matrix for Alternatives with Respect to
Distribution Risk 134

R&D Risk 135

CSRRisk 135

Disclosure Risk 135

Exchange Rate Risk 135

Currency Risk 135

Competition Risk 136

Key Talent Risk 136

Third Party Liability Risk 136
M&ARisk 136
26. Priorities of Major Objectives 140
27. Priority of Obj ectives with Respect to Alternative Options 142
28. Priority Pairwise Sub-Objectives with Respect to Major Objectives 157
29. Composite Score of Alternative Option 176
xiv
LIST OF FIGURES
ure Page
1. Pharmaceutical MNEs by U.S. Sales, 2004 12
2. Mergers and Acquisitions that Transformed Pharmaceutical

for more than 20 Years 18
3. A Traditional Supply Chain Value Stream for a Pharmaceutical Firm 28
4. Revised Supply Chain Value Stream - Vertical vs. Horizontal

Organization 30
5. Counterfeit Drug Cases in the U.S 37
6. Convoluted Pharmaceutical Global Supply Chain Logistics 40
7. Pharmaceutical Industry GSCL Security Threats 42
8. An Accountable Supply Chain - Pharmaceutical Pedigree 45
9. The Competitive Intelligence Warning System Triangle 58
10. Sources of Global Supply Chain Logistics Risk and Impact 85
11. Pharmaceutical Firms Disclosures 100
12. Pharmaceutical Firms Disclosures in Percentage 101
13. Hierarchy Structure Modeling of Pharmaceutical GSCL Risk 113
14. Pharmaceutical Hierarchy with Local and Global Priorities 139
15. Comparing Priorities of Major Objectives 140
16. Normalized Priorities 141
17. Ideal Synthesis with Respect to the Goal 143
18. Distributive Synthesis with Respect to the Goal 144
19. Dynamic Sensitivity for Nodes Below-Goal: Minimize Pharmaceutical

GSCL Risk 145
20. Dynamic Sensitivity Analysis with Component Option Selected 146
xv
21. Scenario 1 - Dynamic Sensitivity for Regulation/Legislation
Risk 147
22. Scenario 2 - Dynamic Sensitivity for Operational Risk 148
23. Scenario 3 - Dynamic Sensitivity for Reputation Risk 149
24. Scenario 4 - Dynamic Sensitivity for Financial Risk 149
25. Scenario 5 - Dynamic Sensitivity for Market Risk 150
26. Scenario 6 - Dynamic Sensitivity for Relationship Risk 150
27. Performance Sensitivity Analysis 151
28. Gradient Sensitivity Graph 153
29. Weighted Head-to-Head Sensitivity Analysis between Risk

Reduction and Risk Acceptance 154
30. Weighted Head-to-Head Sensitivity Analysis between Risk

Reduction and Risk Avoidance 155
31. Two Dimensional Sensitivity Analysis Plot 156
32. Comparing Regulatory Approval/Change in Legislation for

Regulation/Legislation Risk 158
33. Risk Management Options' Priorities for Regulatory

Approval Risk 158
34. Risk Management Options' Priorities for Change in
Legislation Risk 158
35. Comparing R&D/Distribution for Regulation/Legislation Objective 159
36. Risk Management Options' Priorities for R&D Risk 159
37. Risk Management Options' Priorities for Distribution Risk 159
38. Comparing CSR and Disclosure for Reputation Risk 160
39. Risk Management Options' Priorities for CSR Risk 160
40. Risk Management Options' Priorities for Disclosure 160
xvi
41. Comparing Exchange Rate and Currency for Financial Risk 161
42. Risk Management Options' Priorities for Exchange Rate Risk 161
43. Risk Management Options' Priorities for Currency Risk 161
44. Comparing Key Talent and Competition for Market Risk 162
45. Risk Management Options' Priorities for Key Talent Risk 162
46. Risk Management Options' Priorities for Competition Risk 162
47. Comparing M&A and Third Party Liability for Relationship Risk 163
48. Risk Management Options' Priorities for Third Party Liability Risk 163
49. Risk Management Options' Priorities for M&A Risk 163
50. Dynamic Sensitivity of Regulation/Legislation Risk with Respect to

Regulatory Approval and Change in Legislation 164
51. Sensitivity Analysis Scenario 1 for Regulatory Approval 165
52. Sensitivity Analysis Scenario 2 for Change in Legislation 166
53. Dynamic Sensitivity of Operational Risk with Respect to
Distribution and R&D 166
54. Sensitivity Analysis Scenario 1 for Distribution 167
55. Sensitivity Analysis Scenario 2 for R&D 167
56. Dynamic Sensitivity of Reputational Risk with Respect to CSR
and Disclosure 168
57. Sensitivity Analysis Scenario 1 for CSR 168
58. Sensitivity Analysis Scenario 2 for Disclosure 169
59. Dynamic Sensitivity of Financial Risk with Respect to Exchange Rate
and Currency 170
60. Sensitivity Analysis Scenario 1 for Exchange Rate 170
61. Sensitivity Analysis Scenario 2 for Currency 171

xvii
62. Dynamic Sensitivity Analysis of Market Risk with Respect to
Competition and Key Talent 172
63. Sensitivity Analysis Scenario 1 for Competition 172
64. Sensitivity Analysis Scenario 2 for Key Talent 173
65. Dynamic Sensitivity Analysis for Relationship Risk with Respect to
Third Party Liability and M&A 174
66. Sensitivity Analysis Scenario 1 for Third Party Liability 174
67. Sensitivity Analysis Scenario 2 for M&A 175
xvin
LIST OF APPENDIX TABLES
Page
Details of Synthesis for Regulation/Legislation Risk 206
Details of Synthesis for Operational Risk 207
Details of Synthesis for Reputation Risk 208
Details of Synthesis for Financial Risk 209
Details of Synthesis for Market Risk 210
Details of Synthesis for Relationship Risk 211
Details of Synthesis by Alternative - Accept Risk 212
Details of Synthesis by Alternative - Avoid Risk 213
Details of Synthesis by Alternative - Reduce Risk 214
Details of Synthesis by Alternative - Transfer Risk 215
Saaty Scale - Pairwise Comparison Values or Scale of

Preference Between Two Elements 218
xix
LIST OF APPENDIX FIGURES
Figure Page
1. Hierarchy Structure Modeling of Pharmaceutical GSCL Risk 217
xx
CHAPTER 1. INTRODUCTION
The emergence of a combination of forces influencing the global economy, such as
globalization, stock market pressures, a new war economy (terrorism), U.S. global supply
chain trade security protocols, constant changing global competitive landscape, declining
cross-border trade barriers, reductions in transportation and information and
communication technology costs, and progress in embedded technology (radio frequency
identification technology), has transformed how multinational enterprises (MNEs) organize
and coordinate their production into global supply chain logistics (GSCL). As a result,
more than ever MNEs are outsourcing their non-core activities (non-competencies) to
third-party logistics providers, locating parts of their supply chains abroad, and
collaborating and partnering with other economic actors through global strategic alliances
and joint ventures.
GSCL is a worldwide network of many firms and relationships involved in the
activities of adding value to products through the transformation of raw materials to
products and /or services (OECD, 2002, Johnson and Pyke, 2000, Lummus, 1999, Cooper
et al., 1997, Lambert, et al, 1997, Coyle, et al., 1996, Swaminathan, et al., 1996, Lee &
Billington, 1995, Stevens, 1989) to meet and exceed the value expectations of the ultimate
end-users. Its counterpart, global supply chain logistics management (GSCLM), entails "a
set of approaches to efficiently integrate suppliers, manufacturers, distributors, warehouses
and retail stores so that merchandise is produced and distributed in the right quantities, to
the right locations, at the right time in order to minimize system wide costs while satisfying
[the end-user's value expectations or] service level requirements" (SimchiLevi, et al.,
2003). The ultimate goal of GSCLM entails cost containment, increased customer value
1
and satisfaction, sustaining competitive advantage (Mentzer et al., 2001), enhance the
operational efficiency, profitability of a firm and its supply chain members (Min and Zhou,
2002), integrating business functions and processes to build a cohesive and high-
performing business model (CSCMP, 2005).
Arguably, GSCLM has been acknowledged as a great differentiator to the success
of a variety of firms competing in the new era of fast changing and turbulent business
environments. It has become one of the most discussed disciplines in the popular press
because of such variables as globalization of production and market, competitive pressure,
information and communication technology, consumer behavior, mass customization and
complex supply chain networks that have become increasingly uncontrollable, vulnerable
and susceptible to disruptions (Enyinda, Tolliver, and Szmerekovsky, 2007). Thus,
dominating over rivals in today's global marketplace requires agile and focused supply
chain networks that can sense and respond in real-time to a changing global business
environment and adapt to prolonged disruptions (Enyinda and Szmerekovsy, 2007). GSCL
is not only the linchpin to gaining and sustaining strategic competitive advantage, but also
the key to survival. However, with the increasingly complex business environment that is
the hallmark of globalization and lean strategy, GSCL has been confronted with a slew of
risks ranging from exogenous (environmental) sources, such as terrorist strikes or
vulnerability to political instability in developing countries, to endogenous (organizational)
sources resulting from the pressure to enhance productivity and shareholders value.
For the pharmaceutical industry GSCL, it is the process through which medical
commodities are delivered at the right quality, at the right place, at the right time, and at the
right price to meet and exceed patients' value expectations. While globalization, global
2
outsourcing and sourcing, lean manufacturing, supply chain quality management,
downsizing and rightsizing, and global just-in-time supply chain management initiatives
have enabled organizations to contain costs, focus on strategic core competencies, and
ameliorate operational efficiencies, the same initiatives more than ever before, have
rendered the modern GSCL more vulnerable and/or less resilient to sudden disruptions.
Indeed, organizations are becoming increasingly more susceptible to both high-impact and
low-impact disruptive events (Sheffi and Rice, 2005). They "are vulnerable not only to
attacks on their assets, but also to attacks on their suppliers, customers, transportation
providers, communication lines, and other elements in their eco-system" Sheffi (2001). As
a result, disruptions to GSCL have taken a center stage in private and public discourse.
GSCL risks represent risks that are related to inbound and outbound logistics in
organizations' material, information, and financial flows. Supply chain risk pertains to any
threat of interruption to the functioning of the supply chain (Christopher, 2003).
GSCL risk and uncertainty can have profound implications for global
manufacturing firms. Significant GSCL disruptions can tailspin an organization's revenue,
erode market share, bloat costs and budget, threaten production and distribution, tarnish
credibility with investors and other stakeholders, and skyrocket the cost of capital (Bosman,
2006). For example, Hendricks and Singhal's (2005) study of 800 firms that announced a
supply chain disruption between 1989 and 2000 reported that during a three-year period,
disrupted firms experienced a 33 to 40 percent decline in stock returns relative to
comparable industry counterparts, regardless of industry, disruption cause or duration of
time period. Similarly, share price volatility in the year after the disruption was reported to
be approximately 14 percent higher relative to the volatility in the year before the
3
disruption. Further, in the year leading up to firms broadcasting a supply chain disruption,
they experienced a seven percent reduction in sales growth, an 11 percent increase in costs,
and a 14 percent increase in inventories. Consequently, those firms incurred significant
declines in operating income, return on sales and return on assets.
To eschew the negative implications of disruptions prevalent in the present global
economy organizations must reassess and/or redesign their GSCL in order to survive and

remain competitive. And surviving and remaining competitive in such an environment
mandates global manufacturing firms to create a set of robust strategies and resilient supply
chains that can respond to any scenario that can unfold (Simchi-Levi et al, 2002,
Christopher 2003). Simchi-Levi et al (2002) and Christopher (2003) proposed hedging,
flexibility, collaboration and outsourcing, supply base reduction, agility, and "what i f
analysis as the systematic and strategic approaches organizations can use to build robust
and resilient supply chains that can deal with the new economic uncertainties and still
remain competitive. Further, becoming a market leader in today's dynamic global business
landscape demands adaptable supply chain networks that are not only able to respond to
compliance with corporate governance reforms, such as the Sarbanes-Oxley Act in the US
but also to risks of counterfeiting, currency fluctuation, exchange rates, political instability,
inflation, and terrorism. Although a large number of other industries have been living up to
this expectation, the pharmaceutical industry is yet to adopt strategies to mitigate and
manage GSCL risks and uncertainties.
Today's pharmaceutical business environment has been characterized by turbulence
and uncertainty. Essentially, the pharmaceutical industry GSCL networks seem to be more
vulnerable to disruption than was the case in the past. For example, pharmaceutical
4
counterfeiting is a critical issue confronting the pharmaceutical industry GSCL worldwide.
For more than two decades, counterfeit drugs were thought to be a problem only in
developing nations and so received little or no attention to curb the nefarious activities that
have continued to harm and/or kill people in both developed and developing countries.
However, in recent years, the lucrative counterfeit drugs have infiltrated the U.S.
pharmaceutical supply chain through Internet pharmacies and a growing number of
unscrupulous secondary distributors (LePree, 2006). Counterfeit pharmaceuticals are those
that have been compromised or tampered with such that they are not what they are
supposed to be.
According to the World Health Organization (WHO), a counterfeit medicine is one
that is "deliberately and fraudulently mislabeled with respect to identity and/or source.
Counterfeiting can apply to both branded and generic products and counterfeit medicines
may include products with the correct ingredients but fake packaging, with the wrong
ingredients, without active ingredients or with insufficient active ingredients." There is no
nation that is exempt from the threat of counterfeit pharmaceuticals. Although counterfeit
or otherwise substandard drugs are prevalent in both developing and developed countries,
the U.S. has not witnessed a similar proliferation due to Food and Drug Administration's
(FDA) tight regulatory protocols in existence. However, in the past few years, the number
of counterfeit drugs flowing into the U.S.'s legitimate supply chain has been growing
steadily. This spate in counterfeit drugs in the U.S. has led to serious concern among
supply chain stakeholders - pharmaceutical manufacturers, wholesale distributors, end-
users/patients, state regulatory agencies, and the FDA. They are concerned because
5
counterfeit drugs can precipitate disease resistance and can kill unsuspecting consumers en
mass.
The remainder of the chapter is organized as follows. Section 1 presents the
statement of the research problem. Section 2 describes the research objectives. Finally,
section 3 presents the chapter summary.
Statement of the Problem
Pharmaceutical GSCL denotes the process through which medical products are
delivered at the right quality, at the right place at the right time, and at the right price to
meet and exceed customers' or patients' value expectations. However, the pharmaceutical
GSCL more than ever has become vulnerable to disruption risks because of such ambitious
initiatives as global outsourcing, lean supply chain, supply chain quality management, and
supply base rationalization. Also, to gain superior advantage over rivals Murphy (2006)
indicates that firms have been pressured to place more of their value chains in low cost
destinations thereby making suppliers more responsible for a growing share of the extended
value chain, diminishing visibility to and direct control over supply risks, and eliminating
much of the margin for error because of leaning inventory out of the supply chain.
Arguably, today's pharmaceutical C-level executives are under constant stream of
pressures to meet regulatory compliance, accommodate customers' growing demand for
superior value that is becoming more than ever difficult to reign in, and manage the
prevalence of supply chain risks and uncertainties. According to KPMG's (2005) study, the
pharmaceutical industry is 50 percent riskier than the overall S&P 500; the risks that the
pharmaceutical industry is facing is more than ever changing; although the pharmaceutical
6
firms have a risk framework in place, they have not kept pace with the changing business
environment; risk management is not enterprise wide; and thus, there is a serious need for
the pharmaceutical industry to implement supply chain risk management.
The arrays of risks and uncertainties confronting the pharmaceutical GSCL include
counterfeiting, regulatory approval, foreign exchange rates, legal liability, changes in
competitive environment, political instability, supplier failure, natural disaster, strategic
risk, intellectual property infringement, among many others. As a result, an appropriate
mitigation and management of most these risks are imperative for the pharmaceutical
industry GSCL superior performance. To achieve hyper-efficient GSCL and reign in
superior performance the pharmaceutical industry must safeguard against disruption risks
associated with exogenous and endogenous environments. Because GSCL can and do get
interrupted due to inherent risk and uncertainty of doing business, "... an ever-increasing
number of professionals and managers in industry, government, [regulatory agencies,
Sarbanes-Oxley Act], and academia are devoting a large portion of their time and resources
to the task of improving their understanding and approach to risk-based decision making"
(Haimes, 1998). Thus, implementing SCRJVI in the global pharmaceutical firms could mean
a huge difference between prosperity and failure in the offing.
Research Objectives
As more pharmaceutical firms' C-level executives become interested and involved
in outsourcing, co-manufacturing, and other forms of relationships, a guide is imperative to
help these executives in their quest for SCRM. Effective identification of portfolio of risks
to which pharmaceutical GSCL is vulnerable can be mitigated and managed "by
7
considering all real, perceived, or imaginary risks from their multiple decompositions,
visions, and perspectives" (Haimes, 1998). This research leverages the analytic hierarchy
process (AHP) developed by Saaty (1990, 1994) as a valuable approach to model risk
management in the pharmaceutical industry GSCL. Because risk cannot be managed except
it is well assessed and that best assessment must be attained via some form of modeling
process that has become an imperative step in the management of risk (Haimes, 1998). The
AHP method identifies the crucial criteria utilizing valuable information gleaned from the
risk assessment and employs them in the pharmaceutical SCRM.
The goal of this research is to develop an extension of an existing multi-criteria
decision making model such as AHP. The extension involves modeling risk management in
the pharmaceutical industry GSCL using AHP model. The specific objectives are to
1. identify and analyze pharmaceutical GSCL risk sources;
2. generate risk priorities and evaluate them in terms of the most important
GSCL risks to manage and selecting appropriate alternative policy options
to minimize risk;
3. assess the effects of risks on the pharmaceutical GSCL ; and
4. evaluate the performance of the AHP model with respect to consistencies
associated with experts' judgments
Results of this research are relevant to understanding of the pharmaceutical
industry's risk profile. Modeling risk management in the pharmaceutical GSCL will
provide valuable and insightful information to C-level executives for necessary risk
mitigation strategies. Implementing GSCRM is imperative because of its link to superior
performance, profitability, and shareholder value.
8
The next chapter presents detailed background on the global pharmaceutical
industry. Chapter 3 presents an extensive review of relevant literature on non-
pharmaceutical industry GSCL and the pharmaceutical industry GSCL. For non-
pharmaceutical industry supply chains, it focuses on global supply chains; risks and
uncertainty in supply chains; sources of supply chain risks; supply chain vulnerability;
supply chain security and resiliency; impact of supply chain risks; and supply chain risks
management. For pharmaceutical industry supply chains, it focuses on risks; sources of
risks; vulnerability, security, and resilience; impact of risks; risks management; and a
chapter summary.
Summary
This chapter discussed the importance of GSCL and its counterpart, GSCLM in
today's ultra competitive global marketplace. GSCLM has become one of the most
discussed disciplines in the popular press because of factors such as globalization of
production and market, competitive pressure, information and communication technology,
consumer behavior, mass customization and complex supply chain networks that have
become increasingly uncontrollable, vulnerable and susceptible to disruptions. GSCL is not
only the linchpin to gaining and sustaining strategic competitive advantage, but also the
key to flourish and prosper. However, because of increasingly complex business
environment that represents the hallmark of globalization and lean strategy, GSCL has
been faced with growing risks ranging from exogenous sources to endogenous. Although
globalization, global outsourcing and sourcing, lean manufacturing, supply chain quality
management, and global just-in-time supply chain management initiatives helped firms to
9
reduce costs, focus on strategic core competencies, and improve operational efficiencies
significantly, the same ambitious initiatives have exposed GSCL to risks.
In recent years, the pharmaceutical industry has been faced media and public
scrutiny following increase in cases of counterfeits that underscore the challenge of
managing pharmaceutical GSCL and other associated risks. Layers of risks facing the
pharmaceutical GSCL includes, regulatory approval, foreign exchange rates, legal liability,
changes in competitive environment, political instability, supplier failure, natural disaster,
strategic risk, intellectual property infringement, among many others. As a result, an
appropriate mitigation and management of most these risks are imperative for the
pharmaceutical industry GSCL superior performance.
The goal of this study entails developing an extension of an existing multi-criteria
decision making model called AHP to model risk management in the pharmaceutical
GSCL. Some of the specific objectives include identifying and analyzing the
pharmaceutical GSCL portfolio of risks; determining both the local and global risk
priorities and evaluating them in terms of the most important risks to manage; and
selecting the most important alternative policy options to minimize risk. Given the
prevalence of both existing and emerging risks, this study is imperative to understanding
the pharmaceutical industry's risk profile.
10
CHAPTER 2. THE PHARMACEUTICAL INDUSTRY
Pharmaceutical Trends and Challenges
The pharmaceutical industry represents a large global industry that encompasses
processes, operations, and firms engaged in drug discovery, development, and manufacture
(Shah, 2004). The main actors in the pharmaceutical industry include 1) the large, research
and development-based multinationals with a global presence in branded products, both
ethical/prescription and over-the-counter (OTC) as well as manufacturing facilities in
many locations worldwide, 2) the large generic producers, who produce out-of-patient
ethical products and OTC products, 3) local manufacturing firms who operate in their home
country, producing both generic and branded products under license or contract, 4) contract
manufacturers, who do not have their own product portfolio, but manufacture either key
intermediaries, active ingredients or even final products by providing outsourcing services
to other organizations, and 5) drug discovery and biotechnology organizations, often
relatively new start-ups with no significant manufacturing capacity (Shah, 2004). It is one
of the most challenging industries because of the long life time required in discovering and
developing new molecules and drug forms, the regulatory process of clinical testing,
multiple stage production, and distribution issues within the GSCL. The top 10
pharmaceutical firms based on U.S. dollar sales in 2004 are reported in Figure 1.
Besides being the most regulated industry, its challenges and issues are many. For
example, it has been reported that 1) cost of bringing a drug to market from concept stage
is approximately $800 million (according to PhRMA) and can take between 10-15 years, 2)
Tufts Center for Study of Drug Development asserted that this number is in the upward of
about $900 million, whereas Bain & Co. puts the amount at $1.7 billion, 3) out of 5,000
11
drugs tested, only approximately 5 make it to the clinical trial stage, and the approval rate
by FDA is one at best, 4) only three out often marketed drugs generate revenues, 5) R&D
costs are among the highest in the industry (http://www.iproceed.com/blog/2004/07/
pharma-biotech-rd-growth-opportunities.html
Figure 1. Pharmaceutical MNEs by U.S. Sales, 2004.
$40.00
$30.00
$20.00
$10.00
$0.00
c$ # r-" ""' ""' ^

<& o^ X^ A0> <3> A'' Ow <S>
U.S Sales ($billion) % Growth over Previous year
Source: IMS Health (2005). IMS National Sales Perspective.
During the hail days the pharmaceutical industry was acknowledged for being very
successful in innovation, R&D, and international marketing. However, today, it is facing a
variety of crucial challenges from increasingly competitive global marketplace to
expiration of patents and lack of blockbuster drugs to empty drug pipeline chain. Global
pharmaceutical firms are facing serious challenges over R&D productivity and growth
decline, and the diminished level of new drug approvals in spite of costly investment in
R&D. For this reason and others, these firms are searching for better strategy to stimulate
productivity and growth via the adoption of collaborative logistics, licensing agreements,
and outsourcing partnerships (Datamonitor, 2006). Although R&D investment has been
increasing, the number of drug approvals has been falling over the past decade and
12
increasing drug development costs are leading to lower returns for companies. Further,
pharmaceutical firms and others in the industry are under growing pressure from
consumers, the government, the FDA, groups among others to reduce price for their drugs.
As a result of these changing challenges, there is no doubt that the industry has transitioned
into an era of much lower returns (IBM Global Business Services, 2004). In the same vein,
the FDA is under the gun to ensure that the pharmaceutical industry is in compliance with
set rules and regulations. Indeed, it is being required to update its knowledge of existing
rules and regulations that are often complex and confusing. Worst, it has been besieged
with critical issues such as drug pricing, sales and marketing practice, conducting clinical
trials, growing counterfeiting and diversion and other risks. For the pharmaceutical
industry to shape or adapt to a variety of challenges and changes in today's global business
environment, it must redefine and redesign itself. For example, "the globalization of the
business, the diversity and complexity of new drugs, the increasing tightness of capital, and
the diminishing protection provided by patents are some of the factors driving these
changes. All stages of the business value chain are affected: from the development of new
drugs to the management of the manufacturing and marketing networks" (Papageorgiou et
al., 2001).
Historically, the pharmaceutical industry has done well by discovering, developing,
manufacturing, advertising, and marketing of their drugs. Obviously, however, the same
industry that has done well in the past is being confronted with various challenging changes
including regulatory protocols, risk of counterfeits and other risks, supply chain risk
management implementation, radio frequency identification (RFID) technology to improve
supply chain visibility, R & D technologies, and ever demanding stakeholders (e.g.,
13
shareholders, consumers, government, FDA). For example, the US pharmaceutical industry
which accounts for 49 percent of the global market is under stress due to competitive
pressure, increasing use of generics, difficulty in replenishing their pipeline chains, and
erosion of revenues as many blockbusters patents are expiring (IBM Business Consulting
Services, 2005). Also, Lurquin (1996) puts it that "traditionally the pharmaceuticals
industry was used to stability, reliable profit and a dominant attitude to customers. Overall
it was not prepared for this change. The reaction of the leaders was, however, very prompt
and centered on three axes: 1) mergers and acquisitions; 2) return to core business; and 2)
developing core capabilities." In response to these changes and to survive, pharmaceutical
firms are realigning themselves by acquiring and/or merging with other firms (as shown in
Figure 1); global outsourcing; extending drug shelf life; developing strategic partnerships
and alliances; investing in the biotechnology ventures; and focused R & D , manufacturing,
distribution, and advertising and marketing.
Mergers and Acquisition
When pharmaceutical firms are confronted with intense cost pressures and eroding
productivity, they often respond by restructuring the R&D organization, investing in
technology tools and platforms, and entering into mergers and acquisitions (M&A). M&A
denote a fundamental organizational transformation (Capron, 1999) imperative for
enhancing technical capabilities and innovativeness. Acquisitions are conduit for trading
Ahuja and Katila (2001) assert that organizations tend to depend on acquisitions to procure
technological know-how necessary for enhancing technical capabilities and innovativeness.
M&A represents "the aspect of corporate strategy, corporate finance and
14
management dealing with the buying, selling and combining of different companies that
can aid, finance, or help a growing company in a given industry grow rapidly without
having to create another business entity" (http://en.wikipedia.org/wiki/Merger).
Today, indeed, there is a global trend towards consolidation and going forward, as
pressures on the pharmaceutical industry increase, this trend will continue. The lack of
research and development (R&D) productivity, expiring patents, generic competition and
high profile product recalls are driving the mergers and acquisition (M&A) activity in the
global pharmaceutical and biotech sector. The motive for acquiring a firm or firms is build
shareholder value is much better than the sum of the two firms. However, firms often rely
on M&A during turbulent times and when they cannot adapt and strive alone to build
greater cost-efficient firms and gain greater market share. Acquisition entails when a firm
takes over another firm and establishes itself as the new owner. Indeed, firms acquire other
firms to reach new markets, grow revenues, and enhanced earnings. Firms desire to gain
such benefits as personnel reductions, economies of scale, acquiring new technology, and
improved market reach and industry visibility by merging.
By merging, firms can improve their marketing and distribution, thus providing
new sales opportunities. Also, it can ameliorate a firm's stature in the investment
community in terms of having an easier time to generate needed capital. Incentives for
M&As by pharmaceutical organizations include 1) building critical mass in terms of
marketing, manufacturing and research infrastructure, 2) establishing front end presence, 3)
diversification into new areas, 4) improving product, technology and intellectual property
portfolio, and 5) increasing market share. Further, reasons for M&A include access to
management or technical talent, enhanced reputation in marketplace or with stakeholders,
15
reduction of operating expenses or costs, access to new product lines, growth in market
share (complement/extend current business), quick access to new markets or entry into new
industry, reduction in number of competitors, access to new technology, and manufacturing
capacity or suppliers. Mergers and Acquisitions - key drivers: 1) technology cycles - quick
response to emerging technology needs and divestiture of non-core technology, 2) market
Characteristics - quick access to markets or market segments, compliment or extend access
to markets/segments, added breadth in marketplace or greater market share, and address
need to consolidate market share, 3) intellectual capital - quick access to management or
technical talent, preserve critical mass of core competencies, and successful retention of the
key management/technical talent acquired, 4) capacity management - allows excess
capacity to be eliminated or consolidated into the "best of the best", allows capacity of
acquiring firm to be rapidly increased, and to preserves critical mass.
In the recent years, driven by the forces of increasing cost of R&D and declining
margin, the pharmaceutical industry witnessed a slew of M&As reported in Figure 2.
According to Nilleseni et al, "the argument often put forward for M&A is the desire and
necessity to realize economies of scale and scope that enhance shareholder value by
exploiting underlying efficiency savings when two complementary entities are combined."
With declining returns associated with drug development pipelines and generic drug
market shares decline, there has been an increasing level of M&A activity in the
pharmaceutical sector. As a result, big pharmaceutical firms can have access to novel drugs
without draining costs of R&D (Pharmaceutical Business Review Online, 2007).
However, in an increasingly challenging global business landscape, organizations
are increasingly turning to a variety of strategies in order to enhance sales and bottom line.
16
Of these, inorganic growth has been used to provide growth through M&A. Thus, allowing
the pharmaceutical firms to expand their geographical presence, while improving the
strength and breadth of their pipelines. The key pharmaceutical M&A deals of 2006
include Bayer's acquisition of Schering AG for $21.6 billion; Merck KGaA's surprise
acquisition of Swiss biotech company Serono for $13.3 billion; and Teva's completion of
its $7.4 billion acquisition of Ivax in January 2006 (Pharmaceutical Business Review
Online, 2007). Pharmaceutical firms are encountering growing competition from generics,
increasingly tough pricing and reimbursement, a clamp down on healthcare spending, and
the need to treat patients longer due to the aging population. A combination of these factors
is threatening both current and future revenues thus motivating pharmaceutical firms to
adopt a variety of corporate strategies to respond to the changing market dynamics.
Arguably, because firms are facing tough time, they are adopting a range of
strategies to reduce costs, maximize efficiency, and explore new opportunities to sustain
historic growth rates. These strategies include M&A and licensing to gain access to new
drug candidates and increased presence in the global markets. However, pharmaceutical
firms are gaining smaller FDA approval for their drugs. One of the factors accounting for
the decreasing number of novel drugs approved each year by FDA is the increasing
pressure that the pharmaceutical industry is facing over drug safety. Also, the FDA
Amendments Act of 2007 has given the FDA more powers to impose additional safety
studies both prior to and post-approval. The implication of this legislation is that it will
increase R&D costs, reduce market penetration, and extend the time required for FDA
approval. And failure to secure FDA/regulatory approval can prevent launching of a drug
in lucrative global market.
17
Figure 2. Mergers and Acquisitions that Transformed Pharmaceuticals
for more than 20 Years.
Syntex
Genentech
Boehringer Mannheim
Hoffman-La Roche Roche
Chugal
Ciba Novartis
Sandoz
Hoechst Hoechst Marion Rousel

Marion Merrell
Aventis
Rhone-Poulenc
Rorer
Rhone-Poulenic Rorer
Sanofi-
Fisons Aventis
Sanofi
Synthelabo
American Cyanamid
American Home Product
Wyeth
Wyeth-Ayerst
Astra
Zeneca AstraZeneca
Glaxo Glaxo Welcome

Wellcome GlaxoSmithKline
Smithkline Beckman Smithkline Beecham

Beecham
Pharmacia
Pharmacia & Upjohn Pharmaci
Upjohn Co. a Corp
Pfizer
Monsanto
Warner Lambert
Pfizer
18
Figure 2. Continued.
Abbot Abbott
Knoll Pharmaceuticals
Johnson & Johnson

Alza Corporation Johnson & Johnson
Ortho-McNeil
Centocor
Bristol-Myers Bristol-Myers Squibb

Squibb Bristol-Myers Squibb
Dupot
Amgen
Immunex Amgen
Source: IBM Global Business Services. Pharma 2010: The Value-Creating Supply Chain.
The level of M&A activity in the pharmaceutical market is continuing to rise, with
the number of deals made in 2007 increasing over the previous year. With Eisai completing
its acquisition of MGI Pharma in January 2008 for $3.9 billion, the M&A trend is forecast
to continue throughout 2008. The primary factor driving the increase in M&A and the
continued growth in the number of licensing deals can be attributed to decrease in the
output from the internal R&D process, price control, reimbursement and regulatory
pressures, patent expiry of countless blockbuster and other high-value products. As a result,
from 2007 to 2012, the top 50 pharmaceutical companies (based on 2007 sales) are facing
patent expiries on $115 billion worth of drugs (Pharmaceutical Business Review Online,
2008).
Building critical mass to fund research and development is one of the most
significant issues in the pharmaceutical industry. However, the critical question is whether
19
pharmaceutical mergers and acquisitions really strengthen the drug pipeline. To surmount
the dwindling R&D productivity that has characterized the pharmaceutical sector in recent
years, firms are under pressure to reassess their R&D strategies. As a result, the
pharmaceutical firms are using acquisitions and use licensing as well as improved
prioritized spending and better decision making to improve value and profit margins. For
the pharmaceutical firms to adapt and thrive, they are employing a variety of inorganic
growth strategies to ameliorate declining returns. By way of acquisitions, the
pharmaceutical firms are expanding their technological know-how, geographical presence
and boosting the strength of their product pipelines.
Pharmaceutical Industry Global Supply Chain Outsourcing
A wide range of reasons or drivers for global outsourcing have been discussed in
the literature, including cost reductions and a strategic shift in managing business
(Winkleman, et al., 1993), search for short-term and direct cost reductions (Kakabadse and
Kakbadse, 2000), increased access to new technology, improved quality and efficiency
(Fill and Visser, 2000), and strategic decision (Mclvor et al., 1997). Through global
outsourcing organizations are complementing their strengths with those of outsourcing
partners to create greater value for customers and stockholders; gain access to unique
technology, R&D, raw materials and intermediate inputs; reduce overall costs; and retain
higher wage jobs, product development, marketing-related activities, and capital-intensive
manufacturing in the U.S. (Fraiche, 2003). India has captured about 80 percent of the
global outsourcing market (Le Monde, 2003) because of its well-educated English speaking
workforce and salaries up to 80 percent that is lower than in developed nations (Liberation,
20
2003). Global supply chain outsourcing has been viewed as an important element of the
new global economy (Financial times, 2001) and as a strategic choice for firms seeking
access to quality services and low-cost predictability while focusing increasingly on core
business (UNCTAD, 2003). Some of the non-core set of activities outsourced can range
from product design to assembly, from R&D and development to marketing, distribution,
and post-sales service (Grossman and Helpman, 2002). Hirschhorn and Gilmore (1992)
reported that outsourcing low-value-added activities can help a firm to focus on activities
key to competitive advantage. Also, it provides firms with the opportunity to focus on their
most value adding activities, thus optimizing the potential effectiveness of those activities
(Kotabe and Murray, 1990; Dess et al., 1995). Bettis et al. (1992) suggested that investment
in facilities, equipment, manpower, and costs decline as outsourcing expands.
However, global outsourcing in the long run can diminish the control of the activity
in question (Gilley et al, 2004), reduce innovation (Kotable, 1992) and attract competition
from the outsourcing partners (Bettis et al, 1992). Organizations outsource activities that
are not strategic and perform in-house core activities that are strategic in nature (Lonsdale
and Cox, 1997, Prahalad & Hamel, 1990). Baron and Kreps (1999) suggested that activities
that are of low strategic value, low risk and social interdependence tend to be outsourced
for the purposes of cost reduction and flexibility. Gilley et al (2004) indicate that
organizations can enhance their performance by focusing on activities that can improve
quality of service or innovation, and outsource all other activities that other organizations
perform better and more efficiently. Milgrom and Roberts (1991) and Gilley et al (2004)
using transaction Cost economics and resource-based argument assume that activities that
are no organization-specific and/or essential to organization's core activities or
21
competencies are candidates to be outsourced. Thus, the growing trend in global
outsourcing has been noted to be common in chip design, engineering, financial analysis,
R&D, and pharmaceuticals (Austin et al., 2003).
For the pharmaceutical industry, after many years of sustained record of growth and
profitability, the pharmaceutical industry found itself well positioned as one of the few
recession proof industries given its performance via numerous business economical cycles.
However, during the past years, there has been challenging time for the pharmaceutical
firms. As a result, to remain viable they are looking toward new business model to improve
their pharmaceutical supply chains and contain costs. And the new business model to
accomplish that is global supply chain outsourcing. For example, estimate has it that the
U.S. market for outsourced pharmaceutical manufacturing is expanding at the rate of 10 to
12% annually.
The Pharmaceutical firms will continue to drive much of this growth as they
outsource large number of products and services http://www.kaloramainformation.com/
Pharmaceutical-Outsourcing-Opportunities-) to emerging economies in Asia. For example,
the pharmaceutical industry is increasingly outsourcing its R&D to Asia in desperation to
tame the rising cost. Indeed, global supply chain outsourcing represents one of the
acknowledged organizational and industry structure shifts of the 21 st century for the
pharmaceutical industry. The pharmaceutical and biotechnology industry is outsourcing at
almost every phase of the supply chain value stream. Developing strategic global supply
chain outsourcing relationships with contract manufacturing partners can afford the
pharmaceutical industry the opportunity to focus on core competencies, have access to
specialized expertise, and enhance cost-saving benefits that can contribute to customer and
22
shareholder values. Because of the cost of drug development, regulatory, pricing, and
changing competitive environment, the pharmaceutical firms are turning to global
outsourcing strategy to secure and improve profit margin.
Pharmaceutical Global Supply Chain Outsourcing Drivers
The pharmaceutical industry has seen its R&D productivity decline significantly
(Dimasi et al., 2003, Grabowski and Vernon, 2000) and the traditional generation of new
chemically based small molecules dwindling (Backman and Segrestin). Driven by the need
to ameliorate R&D productivity and efficiency and to have access to untapped markets,
global pharmaceutical firms have increasingly outsourced operations to contract research
organizations (CROs) in India and China. The nature of outsourcing areas include
information technology (IT) and IT support, human resource, R&D, procurement and
logistics. Arguably, pharmaceutical firms are turning to supply chain outsourcing as a way
to improve product pipeline and gain strategic competitive advantage. Pharmaceutical
global outsourcing has become a viable and a lucrative business strategy that is enabling
firms to transfer non-core activities to external partners in order to restructure their
distribution networks, leverage resources, spread risks, focus on issues imperative to
survival, competitive advantage, and future growth (Sink and Langley, 1997, Wang and
Regan, 2003). Thus, R&D costs, regulatory pressure, patent expiry, declining blockbuster
pipeline chain, among others have caused pharmaceutical manufacturers to focus on their
core competencies by outsourcing supply chain non-core activities to contract
manufacturing organizations (CMOs) and/or CROs. Firms' increasing focus on core
competencies and the need to reduce cost are motivating them to turn to global outsourcing.
23
This trend towards global outsourcing relationships has been strong in various types
of firms and in different parts of the supply chain (Fill and Visser, 2000). It has been
recognized as one of the eight most prominent factors playing a key role in the offing for
superior supply chain performance (Carter and Narasimhan, 1996). And superior supply
chain is one that enables a firm to optimize the value of internal activities and in turn
creating collaborative partnerships that can lead to high value external activities (Lakhal et
al., 2001). Christopher (1999) noted that it is only those firms that can leverage the
collective strengths and competencies of network partners will be able to achieve a faster
responsiveness to changing global marketplace requirements. Although outsourcing started
by transferring non-core activities traditionally executed in-house to CMOs, there seem to
be a growing interest towards outsourcing of fixed assets and/or the whole manufacturing
process (Markeset and Kumar, 2004). For example, Calaf (1995) contends that increasing
number of firms are opting to outsource many of their manufacturing activities to other
firms have manufacturing knowledge base. Although outsourcing to contract organizations
can have both positive and negative impacts on key aspects of pharmaceutical
manufacturing supply chain, "one positive effect is that the manufacturer's supply chain
agility is increased" (Mason, et al, 2002). Lindholm and Suomala (2004) assert that the
goal of outsourcing is to attain optimal performance within a firm and a supply chain. In
today's hypercompetitive global marketplace no one firm can go it alone and become
successful in search of market opportunities in near real-time and cost-effective fashion
because of lack of key talents and knowledge experience bases (Conklin, 1994).
Key pharmaceutical global outsourcing drivers include constraints facing sales
growth, desire for cost containment, rising R & D costs, increased focus on core
24
competencies, rise in the range of services and functions available for outsourcing, cost
pressures, growth of smaller biotechnology firms, pressure to reduce time to market, and
transparency of costs offered by outsourcing companies. According to
PricewaterhouseCoopers LLP (2006), pharmaceutical global supply chain outsourcing
trends and drivers include time to market, cost advantage, risk management, and strategic
focus. Therefore, to adapt and thrive, pharmaceutical firms are under pressure to outsource
array of their supply chain activities to partners in low cost destinations because of the
skyrocketing drug discovery development times, mandated testing regulatory compliance,
convoluted and complex review processes, unrelenting increase in R&D costs and
changing competitive environment. The premier factors driving growth of pharmaceutical
global outsourcing trend include competitive global marketplace, enhancing greater
productivity flexibility, attaining a global manufacturing presence, expanding capacity,
enhancing product quality achieved through costs reduction and better focus on core
competencies, curtailing investments in capital assets, and improved asset utilization.
Although a number of pharmaceutical firms involved in global outsourcing are
growing, some are delaying to outsource due to inherent risks associating with the process.
However, industry's commentators suggest that pharmaceutical firms are willing to
outsource discovery, chemistry, and biological screening activities if they offer quality,
speed, and cheaper services, and can keep proprietary data confidential. The growth of
pharmaceutical global supply chain outsourcing to contract manufacturing and R&D firms
in low cost emerging economies is primarily to gain efficiencies in cost associated with the
screening of compounds and the preclinical testing of compounds, capacity building, real-
time responsiveness to market, and gain a specific knowledge not resident in-house. Also,
25
because the pharmaceutical firms have entered an era of appreciatively lower margins, they
are focusing their attention to marketing drugs or products and outsourcing drug discovery
process and manufacturing to contract manufacturing and R&D firms in low cost emerging
economies such as India and China in order to free up precious in-house resources.
The pharmaceutical firms are flocking to these firms because of the process and
production know-how they can bring to bear. This growth in global outsourcing to these
firms is estimated to catapult their global revenues to approximately $168bn by 2009
(http://www.in-pharmatechnologist.com/news/ng.asp?id=58484-outsourcing-to-show).
Further, global outsourcing is expanding because the pharmaceutical firms are realizing
"...that the cost of setting up and maintaining facilities - with a workforce of highly-skilled
operators with more than just the knowledge to run them but also the expertise necessary to
continually update and improve them - does not always provide a good return on
investment" (http://www.in-pharmatechnologist.com/news/ng.asp?id=58484-outsourcinR-
to-show). The increasingly global nature of the pharmaceutical/biotech industry endorses
outsourcing, as most companies tend to exploit the market by gaining competitive
advantage. Pharmaceutical firms have recognized that possessing the entire skill range
required within an industry is not feasible. As flexibility has become critically vital within
the industry, firms are realizing that concentrating on core competencies is an efficient and
effective way to create optimum value. Indeed the expansion in the pharmaceutical contract
service industry in recent years has contributed to a significant boost in the number of
services and functions available for outsourcing to contract manufacturing and R&D firms.
In the recent years, the pharmaceutical firms have aggressively been reassessing their
26
financial position and worst engaged in mergers and acquisition because of the mounting
cost pressures and the need to survive.
The critical factors driving the pharmaceutical industry to seek global outsourcing
are the search for efficiencies in the drug development cycle, extending a company's
capacity, consolidation of the pharmaceutical industry, access to specific therapeutics
expertise and globalization of the market within USA, Europe and Asia (Srivastava, 2002),
and exploit new individualized drugs. According to Srivastava, "as outsourcing in the
industry matures, pharmaceutical manufacturers should select their outsourcing partners
strategically and consider their partnerships to gain competitive advantage". The growth in
the number of alliances and outsourcing are increasing. The use of contract manufacturing
is expected to increase in the future, as companies rationalize their manufacturing facilities,
many of which currently operate below capacity. It is expected that pharmaceutical
manufacturing firms may shift towards direct distribution as the role of large pharmacies
for both payers and manufacturers becomes more established.
Pharmaceutical Global Supply Chain Outsourcing Activities
With the globalization of the pharmaceutical markets, firms are outsourcing a range
of drug development functionalities to emerging markets particularly in Asia. These
include numerous stages of drug development, as well as manufacturing active
pharmaceutical ingredients, and intermediate and final stage drugs. These strategies
alleviate the pressures of rising costs of drug development, competition for participants and
clinical trial investigators, brand revenue erosion due to generics and cost-containment
issues driving down prices (Pharmaceutical Business Review Online, 2007).
27
To remain viable, pharmaceutical firms must continuously innovate and develop
new blockbuster drugs through global supply outsourcing. Although innovation and
development of new products are necessary, they are no longer sufficient to achieve
superior performance and grow revenue. For vertically integrated pharmaceutical firms,
different activities historically used to be executed within the firms. Today, however, to
achieve greater costs savings and enhance profit margins, the pharmaceutical firms have
been outsourcing some of the activities shown in Figure 3.
Figure 3. A Traditional Supply Chain Value Stream for a Pharmaceutical Firm.
Managing Developing Managing Manufacturing

R&D Product Supply Chain Product
Performing Managed Performing Marketing

Healthcare Services & Sales
Source: IBM Business Consulting Services: The Global Pharmaceutical Industry
As a result, from 1999-2004, the pharmaceutical industry catapulted the volume of R&D
outsourced due to high costs of clinical trials (mhtml:file:\The Global Pharmaceutical
Industry.mht). Bain and Company (2003) study reported that the cost associated with drug
discovery, developing, and lunching has skyrocketed to $1.7 billion. As a result,
pharmaceutical industry can incur high-risk if the high cost associated with R&D does not
produce the expected high-reward. This is often the case with drug pipeline chain that has
28
inordinate high attrition rate. For example, the pharmaceutical Research and Manufacturers
of America reported that out of 250 drugs that are tested, only five will make it to clinical
trials, only one will receive the approval to be produced and marketed to the public health
community.
In Figure 4, it shows the revised supply chain value stream of the vertical versus
horizontal organization. The vertical integrated organizations consist of mainly the Big
Pharmaceutical firms (e.g. Johnson & Johnson, Pfizer, Bayer, GlaxosmithKline, Norvastis,
Sanofi-Aventis). The Big pharma is often used to describe pharmaceutical firms with
revenue in excess of $3 billion, and/or R&D expenditure in excess of $500 million. Wang
and Regan (2003) assert that "...outsourcing has increasingly become an effective way to
reduce costs and spread risks for traditional, vertically integrated firms." For the
horizontally integrated firms, they are small biotechnology firms and universities, CROs,
CMOs, and sales organizations. The pharmaceutical firms utilizing these organizations not
only save costs but also acquire innovative ideas, technologies, and ingredients that can be
used to develop more innovative products. The way contracting/outsourcing works is that
the pharmaceutical firms will transfer research and discovery/R&D to smaller
biotechnology organizations or universities at home or low cost foreign locations such as
India and China. Increasing costs of R&D, cum low productivity and decline bottom lines,
have compelled major pharmaceutical firms worldwide to outsource part of their research
and manufacturing activities to low-cost countries to save costs and time in the process.
The global pharmaceutical outsourcing market was worth USD57.2 billion in 2007 but
expected to grow to USD76 billion by 2010.
29
Figure 4. Revised Supply Chain Value Stream -Vertical vs. Horizontal
Organization.
Discovery Product Manufacturing Marketing

(Research) Development
(Design)
Biological Pre-clinical &

identification, clinical trials, Supply
Validation, Submission for chain/distribution
Screening, regulatory & Sales to end-
Optimization approval users
The big Pharmaceutical firms (e.g., Johnson & Johnson, Pfizer, Bayer,
GlaxosmithKline, Norvastis, Sanofi-Aventis)
Vertical Integrated Organizations
ir
Small Biotech, Research Manufacturing Sales

Universities Organizations Organizations Organizations
Horizontal Contracting/Outsourcing Partners
Source (Adopted and Modified): IBM Business Consulting Services: The

Global Pharmaceutical Industry.
Besides, global market for Contract Research and Manufacturing Services
(CRAMS) in 2007 was estimated to be USD55.48 billion. Out of the total global CRAMS
market, contract research was USD16.58 billion, and contract manufacturing was
30
USD38.89 billion accounting for the major share of the total global pharmaceutical
outsourcing market http://www.researchandmarkets.com/reports/c86978). Indeed, the
market for outsourcing more than ever continues to grow unabatedly (Economist, 2002).
Lambert et al (1999) note that about 60 percent of Fortune 500 companies reported having
at least one contract with a 3PL provider. Also, with more than 80 US FDA- approved
manufacturing facilities in India, it represents one of the most preferred low destinations
for outsourcing manufacturing services by pharmaceutical industry. Table 1 shows global
outsourcing of R&D, IT and manufacturing to India by top ten Pharmaceutical
organizations, including Pfizer, GlaxoSmithKline, Bristol-Myers Squibb, Aventis, Eli Lilly,
Merck, Wyeth, Novartis, and AstraZeneca. Roche firms started in late 1990s and early
2000, while business process outsourcing began in 2005 (Zinnov LLC, 2006).
Given the growth in pharmaceutical global supply chain outsourcing, the number of
pharmaceuticals discovered and developed through outsourcing partners has been
estimated to out number the number of pharmaceuticals discovered and developed in-house
in the long run. Already, Pfizer has invested more than $13 million in R&D, while
AstraZeneca has invested more than $10 million and plans to spend $40 million by 2010 in
India (Zinnov LLC, 2006). A survey conducted by Datamonitor asserted that most
pharmaceutical firms acknowledge that outsourcing represents the most effective approach
to reduce R&D costs. Because technologies such as high-throughput screening are
becoming a progressively essential part of the drug discovery and development processes,
firms more than ever are looking toward outsourcing partners who can leverage their
superior technology and launch quality products in the market in real-time. And the areas
that can be outsourced by pharmaceutical firms include 1) research in biotech industry, 2)
31
development in contract research organizations, 3) manufacturing in contract
manufacturing organizations, and 4) distribution in co-marketing & contract sales
organizations.
Table 1. Top Ten Pharmaceutical Organizations Outsourcing to India.

Late 1990s Early 2000 Late 2000
GlaxoSmithKline Pfizer, Novartis, Eli Lilly, Merck, Bristol-Myers-

Contract manufacturing Wyeth Squibb
Clinical trials & site Contract manufacturing Contract manufacturing
management
Clinical data
management
GlaxoSmithKline, Pfizer & GlaxoSmithKline
AstraZeneca, & Wyeth IT services
IT services
Pfizer, GlaxoSmithKline, & Novartis & Wyeth
Eli Lilly Discovery
Discovery
Aventis, Pfizer, Novartis & Merck

AstraZeneca, & Eli Lilly Clinical trials & site
Clinical trials & site management
management
Wyeth Pfizer and GlaxoSmithKline
Clinical data Content development
management
Source: Zinnov LLC, 2006.
Merits and Demerits of Pharmaceutical Global Supply Chain Outsourcing
Merits and demerits associated with pharmaceutical global supply chain
outsourcing to CROs (Piachaud, 2002) are reported in Table 2. Further, Datamonitor (2006)
suggested that the advantages linked to pharmaceutical global supply chain outsourcing are
1) opportunity to drive productivity and efficiencies across a variety of business functions,
2) boosting long-term R&D productivity, 3) financial benefits, 4) shortening drug
discovery stage, 5) access to additional drug discovery expertise and technologies, 6)
32
flexibility, and 7) focusing free-up resources for core competencies, while the
disadvantages include 1) level of returns on compounds generated through outsourcing
agreements tend to be lower than in-house, 2) reduced opportunity to develop internal
expertise, 3) loss of control and issue of confidentiality of proprietary information.
Table 2. Merits and Demerits of Pharmaceutical Outsourcing to CROs.

Perceived Outsourcing Advantages Perceived Outsourcing Disadvantages
Obtain greater flexibility Dependence on the supplier
Buy in specialized knowledge and skills Lack of shared vision and objectives
Facilitate the rapid exploitation of Loss of control over suppliers
technology
Gain a window on a new technologies Loss of critical skills
Freedom to concentrate on core functions Problems of evaluating supplier
performance
Spread risks Need for a new management mind set
Reduce costs Problems of monitoring supplier
performance
Increase time to market Class of culture
Source: Piachaud, B. S. (2002). Outsourcing in the Pharmaceutical Manufacturing Process:
an Examination of the CRO Experience." Technovation, 22(2), pp. 81-90.
Pharmaceutical Global Supply Chain Outsourcing Risk
An increasing numbers of pharmaceutical firms are realizing the potential economic
advantages of outsourcing their supply chain non-core activities to external partners.
Besides the advantages of outsourcing at the strategic, financial, organizational, and
operational levels, there are a number of outsourcing risks which can greatly affect the
quality of the relationships (Salma et al. 2007). Although many benefits associated with
pharmaceutical outsourcing have been acknowledge, the same initiative has risks that must
be mitigated and managed. Wang and Regan (2003) and Eyefortransport (2005) reported
that outsourcing risks include potential inefficient management; latent information
asymmetry; loss of logistics innovative capacity; hidden costs; dependence on the third
33
party logistics (3PL) providers; loss of control over the 3PL providers; problems of
evaluating and monitoring 3PL provider performance; and incompatibility of participating
firms' cultures. Also, pharmaceutical outsourcing problems and risks include transaction
costs; increased monitoring costs; loss of direct control over product launch; loss of
internal competency and capacity; possible loss of key intellectual property; potential after-
market competition; increased legal compliance and reputation costs.
Global outsourcing by its very nature deprives the outsourcing firm the opportunity
of control (control risk). This implies that activities historically executed within a firm's
factory floor and would have been visible to the firm are now resident in the factory floor
of extended supply chain actors managed via contractual agreements and documented
business processes. Thus, as firms race to incorporate global sourcing [and outsourcing]
strategies, integrate contract manufacturing relationships, and deal with the increasing
number of events that can cause supply chain disruption, managing risk in the supply
network is an increasingly critical capacity" (Hillman and Keltz, 2007). Nonetheless, a
great number of challenges exist for the successful implementation of outsourcing within
the pharmaceutical industry. The industry is characterized by inherently high risk; only one
in 5,000 compounds actually becomes a product, commercial drugs cost $300 million to
develop, and less than 50% of new products return the development cost. Tight
governmental regulations compound this risk. Unlike other industries, there have been no
transformational developments to drive outsourcingeven marginal performers can
succeed (Srivastava, 2002).
As pharmaceuticals outsourcing continue to grow, risk associated with it is as well
growing. Some of these risks include error that can lead to FDA disapproval, long lead
34
time, satisfying regulatory compliance, meeting the demands of Sarbanes-Oxley Act,
maintaining proprietary confidentiality.As the pharmaceutical industry supply-chain
strategies evolve, managing the associated risks in global outsourcing has assumed greater
dimension. Because discovery and development of new pharmaceuticals involve more risks
and expensive, leading pharmaceutical MNEs are entering into risk-sharing outsourcing
partnerships in order to minimize operation risks by sharing management and financial
responsibilities. Through appropriate risk management, outsourcing can help firms to
expand their R&D pipelines and provide a greater opportunity for a drug to ultimately
reach launch phase (PricewaterhouseCoopers LLP, 2006).
Pharmaceutical Global Supply Chain Logistics
Today's pharmaceutical supply chain must under undergo aggressive
transformation in order to safeguard patient safety, drug integrity, value chain security, and
product revenue streams. The cases of counterfeit pharmaceuticals reported in the global
pharmaceutical supply chain are on the rise and represents serious threat to patients' health
and safety. As a result, pharmaceutical and biotechnology firms, wholesale distributors,
pharmacies and other drug retail outlets have been challenged in terms of reduction in
decline in revenue and profitability. The pharmaceutical industry is vitally important to the
social, economic and political stability of both developed and developing nations. Indeed,
there is no other industry that is more dependent on public confidence and today is more
vulnerable to disruptive risks. Because of the nature of the disruptive risks the industry is
faced with nowadays it is under intense pressure to safeguard supply chain security and
integrity. Pharmaceutical firms must not only ambitiously seek new opportunities to gain
35
competitive advantage but also aggressively mitigate and manage supply chain risks.
Although supply chain risk management implementation in other industries has been
remarkable, the same is not true in the pharmaceutical industry to ensure that its global
supply chain is resilient to disruptive risks.
Global supply chains outsourcing enables pharmaceutical firms to take advantage of
global relative advantages, as well as increase product variety. However, there are many
risks inherent in outsourcing relationships. Pharmaceutical outsourcing has been growing
as a business process for more than a decade. Although the micro-procedures for
identifying and evaluating outsourcing partners, negotiating and executing appropriate
contracts and executing day-to-day operations have reached a stable level, macro-processes
of clarifying objectives and expectations of outsourcing relationships, understanding
principles of managing such relationships, monitoring partners' performance and
monitoring risks and vulnerability are yet to attain a stable level.
The pharmaceutical industry supply chain security, vulnerabilities, risk and
uncertainties have become critical issues of interest in the public arena in the recent years.
GSCL is critically important for the pharmaceutical industry. Pharmaceutical firms that
pursue efficient and responsive GSCL will achieve strategic competitive position, create
shareholder value, and meet Wall Street value expectations. However, the growing
prevalence of counterfeit pharmaceuticals looms as a major security threat to world's
legitimate pharmaceutical healthcare supply chain. For example, cases of growing
counterfeit pharmaceuticals have been reported by the FDA to be threatening the already
ailing and debilitated U.S. healthcare supply chain. The costs through the actions of
counterfeiters and diverters include more sick patients, loss of life, erosion of public health
36
confidence, loss of brand image, reduced profit and reduced shareholder value. These costs
are compounded by the costs of product recalls and the growing threat of counterfeiting
and diversion. Compromised or untrustworthy drug supply chains can create uncertainty,
decrease investment and research and development. Indeed, increased pharmaceutical
supply chain risk and security threats perceptions can hamper investors' confidence thereby
discouraging them from investing their capital in new drug research and development.
Although the claim is that the U.S. drug supply chain is among the safest and secure in the
world, counterfeit drug cases in the U.S. (see figure 5) are increasing steadily due to
growing threats from technological savvy drug counterfeiters. Counterfeiters sell
counterfeit pharmaceuticals to unsuspecting patients at high risk, by exposing them to
unknown contaminants and thus denying them medicines known to be safe and effective at
treating their medical ailments (Lutter, 2006).
Figure 5. Counterfeit Drug Cases in the U.S.
70 -
60
50 -
40
30 -
20
10
*--^ ^*~~^
0 -I , , r
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Year
Source: Combating Counterfeit Drugs, a Report of the FDA, 2004.
37
Nature of the Pharmaceutical Global Supply Chain Logistics
Increasingly, the global marketplace presents more daunting challenges to the
pharmaceutical industry. Whereas the supply chain network in the past was mainly
performed in a limited geographical area, the various elements of pharmaceutical
production are now increasingly being outsourced to low cost destinations. This means that
raw materials may be sourced in one country, active ingredients produced in another
country, the actual drugs manufactured in a third country, and packaging drugs for
distribution purposes in a fourth country. These multiple logistics processes expose the
entire extended industry supply chain to threats of counterfeit pharmaceuticals. The
complexity of pharmaceutical GSCL network processes demands that firms efficiently
control and employ any relevant information to counteract the menace of fake
pharmaceuticals.
Normally, drug manufacturers deliver pharmaceuticals to wholesale distributors,
who in turn deliver them to pharmacy retail outlets and/or hospitals. However, in today's
global pharmaceutical commerce, this is not the case. Essentially, the primary wholesale
distributors may sell drugs to secondary wholesale distributors or to re-packagers, and the
secondary wholesale distributors can sell to both re-packagers and pharmacy outlets. These
multiple transactions can go back and forth before reaching the dispensing point. Also,
these multiple transactions often render the supply chain vulnerable to disruption risk from
counterfeit and fake drugs. In addition, counterfeit medicines can easily enter the legitimate
medicine supply chain if the seller intentionally hides the medicines' original source from
unsuspecting consumers by not providing a pedigree or even worse, providing consumers
with counterfeit pedigree (Rudolf and Bernstein, 2004).
38
The point in the supply chain that is most vulnerable to counterfeit and fake drugs
infiltrating the distribution system is through the secondary wholesale distributors
(European Generic Medicines Association, 2006, Spies and Dusen, 2003). Both the
manufacturers and primary wholesale distributors have the responsibility for guarding their
supply chain against the entry of counterfeit drugs. Counterfeit drugs can also be prevented
from being introduced into legitimate pharmaceutical supply chains by certifying
stakeholders. According to the Europena Generic Medicines Association (2006), "an
important contribution to the fight against counterfeiting is to secure the supply chain by
introducing safer business processes through a variety of measures ranging from business
certification and market surveillance to electronic pedigrees."
Traditionally, pharmaceutical GSCL is populated with both legal and illegal
secondary wholesalers or "gray market" wholesalers who source for medicines at low-
priced destinations worldwide. The acquired low-priced medicines are often resold to
primary wholesalers for a premium profit. These secondary wholesalers often buy
counterfeit and fake medicines from well organized criminals (Patton, 2006) and
technologically savvy international counterfeiters in Asia (e.g., India and China). Both
legitimate and illegitimate pharmaceuticals regularly pass through numerous stakeholders
within and between supply chains before reaching the pharmacy retail outlets. As a result,
this action can create a supply chain that is complex, convoluted, and vulnerable. Thus, the
more medicines change hands, the greater opportunity for counterfeit drugs to be injected
into the legitimate supply chain (Patton, 2006). Although the pharmaceutical industry is
one of the most regulated industries, rules and prices vary cross national borders, thus
creating a network of legitimate, quasi-legitimate and illegitimate drug GSCL trade. A
39
prescription drug normally travels from manufacturer to several distributors as well as re-
packagers before reaching a pharmacy or retail outlet.
A good number of these secondary wholesalers are legitimate businesses that can
help improve the efficiency of the supply chain performance. Arguably, however, these
small secondary wholesalers tend to impose additional layers that diminish visibility and
thereby creating opportunities for counterfeits to infiltrate SCL network (Patton, 2006).
Figure 6 shows the convoluted nature of GSCL.
Figure 6. Convoluted Pharmaceutical Global Supply Chain Logistics.
Supplier
Source: Enyinda and Szmerekovsky (2007).
40
The Primary distribution channel represents the normal process for distribution of
product from the manufacturer to the provider or end user. The secondary distribution
channel is the movement of products purchased from an authorized distributor, or source
other than the manufacturer, to another intermediary. These products are then sold to the
healthcare provider or the end user. The secondary distribution channel represents one
method for the infiltration of counterfeit or otherwise adulterated drugs into the legitimate
pharmaceutical supply chain.
To reverse this trend and to enhance the security and integrity of the supply chain,
major US-based pharmaceutical firms recently announced they would no longer sell their
medical commodities to US wholesalers who also buy the manufacturers' commodities
from other sources than the drug manufacturers (HIGPA, 2004). Within the secondary
distribution channel, drugs often change hands many times before reaching the provider or
the end user. Achieving a safe and secure pharmaceutical industry GSCL is an imperative
and daunting task for manufacturers, governments, and international health agencies.
Because of this concern, pharmaceutical firms are under intense pressure to close the gaps
in their supply chains, particularly in the distribution network that extends from
manufacturer to customer. Thus, the need to build security and integrity into the
pharmaceutical supply chain has never been greater because of technologically savvy and
well-organized criminals or international health terrorists.
41
Pharmaceutical Global Supply Chain Logistics Security Threats
Pharmaceutical supply chain threats are shown in Figure 7.
Figure 7. Pharmaceutical Industry GSCL Security Threats.
1. Normal Drug Flow
O o o>
2. Disruption (Interruption)
3. Diversion dnterceDtion)
4. Modification
5. Fabrication (Counterfeiting)
Source: Enyinda and Szmerekovsky (2007).
Panel 1 represents the normal drug flow starting from raw material source to drug
manufacturing and to drug final destination. Panel 2 is disruption or interruption to the
availability of legitimate drugs. Panel 3 represents diversion or interception of legitimate
drugs. For drug modification in panel 4, it is any action that compromises drug security and
integrity. Finally, fabrication in panel 5 represents any action that compromises the drug
authenticity. The pharmaceutical GSCL security goals are to ensure the confidentiality
42
associated with a pedigree record of drugs, authentication, availability, and integrity.
Therefore, supply chain network measures are needed to protect supply chain flows
(product, information, and funds) during their transmission.
However, a critical variable missing from the preceding set of strategies is the RFID
technology imperative which has been touted as the preferred tool to counteract
counterfeits in the legitimate GSCL. Leveraging RFID technology will not only mitigate
counterfeit pharmaceuticals, it will also reduce GSCL security threats. This action in turn
will significantly drive business value in terms of reduction in theft and shrinkage,
enhanced information visibility, improved efficiency and effectiveness, enhanced quality
customer service, improved inventory management, reduced cycle time and shipping time,
and overall cost reduction (Peleg-Gillai et al 2006). To mitigate and manage the
pharmaceutical GSCL security threats reported in Figure 7, information visibility is vitally
important. It is only when information visibility is deployed can the pharmaceutical
industry be successful in minimizing counterfeit pharmaceuticals prevalence in GSCL.
Radio Frequency Identification Imperatives
Radio frequency identification (RFID) technology can give a firm real-time
visibility into supplier capacity so that supply chain managers will be aware of shortages in
time to take corrective action and keep production on schedule. Improving visibility to
demand and supply information can enable the SCL actors to position the right amount of
inventory at the right location within the SCL, at the right time to meet the ultimate end-
user's demand. Leveraging RFID can help to avert the traditional Bull whip (or Whiplash
Effect) phenomenon that is a common problem when upstream supply chain actors do not
have information visibility regarding downstream supply chain actors/customers actual
43
demand level. The Bullwhip Effect is an observed phenomenon in forecast-driven supply
chains (Lee et al, 1997) which can result in inventory risk. Because of the mindset that
forecast errors are bound to happen, organizations often hold an inventory buffer. Driving
up the SCL from the end-consumer to the raw materials supplier, each SCL actor observes
a greater variation in demand and, hence, greater need to carry safety stock.
Indeed, in periods of increasing demand, downstream actors will increase their
orders. And in periods of declining demand, orders will decrease or stop in order to reduce
inventory levels. As a result, variations are amplified as one move upstream in the SCL or
further from the downstream customer. The appropriate countermeasure to reduce this
variation risk is RFID technology which can provide information visibility to demand and
supply. Certainly, "better visibility to supply enables the supply chain to overcome some
disruptive events without impacting customers. The more open supply chain participants
are about providing early warnings about supply chain disruptions, the more likely the
supply chain can either avoid them altogether or at least reduce their duration" (Murphy,
2006). Industry leaders have recognized that GSCL disruption have become a great threat
to remaining competitive in the global marketplace. As a result, their mitigation and
management have become an important agenda in the boardroom. This agenda can be
achieved if firms can successfully implement RFID in their GSCL operations. With RFID
in place, supply chain managers can afford to transmit crucial data back to corporate
headquarters to extract useful information many times in a given day. This information can
enable managers to gain near-perfect visibility of customer demand, enhance inventory
positioning, lower costs throughout the SCL, and accelerate time to market.
44
Pharmaceutical Pedigree Requirements Legislation
The purpose of the pharmaceutical pedigree paper legislation is to safeguard drug
supply chain integrity and security. Accountable pharmaceutical supply chain depends on
paper or RFID-enabled pedigree that tracks, traces, and recall medical commodities if
necessary. Pharmaceutical pedigree is an information authentication mechanism that tracks
and traces all the transactions involving a product (as shown in Figure 8), starting 1) from
the active ingredients suppliers, 2) to the drug manufacturers, 3) to the
wholesalers/distributors, 4) to the end-users such as the pharmacy retail outlets, hospitals,
clinics, and doctors' offices), and 5) to the ultimate end-users, patients.
Figure 8. An Accountable Supply Chain - Pharmaceutical Pedigree.
Pharmaceutical Wholesaler/ End-user

Manufacturer Distributor
i i i k
"
A CItive Ultimate
Ing re dient End-User
SuPI)lier
The FDA and the U.S. pharmaceutical industry's mission critical must be to prevent
both local and foreign counterfeiters from compromising global drug supply chains. That
means not only safeguarding drug SCL at home, but also globally in collaboration with the
international health community. Safeguarding the global pharmaceutical supply chain from
disruptive risks such as fake drugs requires multilayered mitigation measures. The
45
multilayered mitigation measures against counterfeiting widely recommended include the
traditional measures (e.g., holograms, overt and covert techniques, harsh criminal penalties
and steep fines), supply chain pedigree, and RFID technology-enabled tracking and tracing.
Indeed, the introduction of counterfeit drugs into the legitimate GSCL poses a great
challenge for the global pharmaceutical industry. The pharmaceutical industry can employ
a variety of embedded technologies such as RFID to track packaged pharmaceuticals. As
counterfeiting is on the rise, increasing number of countries are mandating the
implementation of RFID and meeting pedigree compliance. For example, in the U.S.,
several states are requiring pedigree compliance for both the pharmaceutical manufacturers
and wholesalers as one of the measures to safeguard drug supply chains integrity and
security. However, to prevent the proliferation of differing state pedigree requirements, the
FDA is assuming the leadership role in establishing clear federal guidelines and
implementation of pedigree requirements under the Prescription Drug Marketing Act.
A pedigree enables a reasonably controlled pharmaceutical supply chain. An
effective pharmaceutical pedigree can track product movement from regulated firm to
regulated firm until it reaches the ultimate end-user, the patient. A pharmaceutical pedigree
paper must be maintained through the entire SCL back to the manufacturer. For example,
Florida enacted a pharmaceutical pedigree papers law that went into effect in 2006. Also,
about eleven states are adopting the Florida statute as template for their proposed pedigree
legislation. The required pedigree information includes 1) drug/product identification, 2)
lot number, 3) quantity and distribution, and 4) pharmacy licensure for each change of
possession.
46
Further, pedigree requirements can help in reducing the prevalence of counterfeit
drugs in the pharmaceutical SCL. RFID can reduce drug counterfeits; improve tracking of
the distribution of legitimate drugs and at the same help to interdict substandard and
adulterated drugs before they reach unsuspecting consumers/patients. Other attendant
implications of RFID include enhanced safety and supply chain security; improved
traceability of products, particularly if there is a drug recall; product authentication; and
improved patient safety (American Chamber of Commerce to EU, March 2006). The FDA
believes that counterfeiting is not widespread within the system of manufacturing and
distribution of pharmaceuticals legally in the United States because the extensive system of
federal and state regulatory oversight and steps to prevent counterfeiting undertaken by
drug manufacturers, distributors, and pharmacies. However, the agency has recently seen
an increase in counterfeiting activities as well as increased sophistication in the methods
used to introduce finished dosage into the otherwise legitimate U.S. drug distribution
system. FDA counterfeit drug investigations have increased to over 20 per year since 2000,
after averaging only 5 per year through the late 1990's. Increasingly, the reported cases of
counterfeits involve well-organized criminal groups who seek to introduce finished drug
products that may closely resemble legitimate drugs yet may contain only inactive
ingredients, incorrect ingredients, improper dosages, sub-potent and/or super-potent
ingredients. To ensure supply chain integrity and security of the pharmaceutical GSCL,
attention must be paid to RFID technology, business practices, legislation, regulation,
public awareness and education, creation of an alert network, and international cooperation
(FDA, 2004).
47
Counterfeits drugs can be mitigated from entering the legitimate supply chain by
ensuring that manufacturers are in compliance with Good Manufacturing Practice (GMP)
at the manufacturing point and by improving surveillance and vigilance by other authorized
stakeholders. The FDA's counterfeit drug initiative has called for multilayered measures to
deal with counterfeit drugs: securing the product/packaging, securing the movement of
drugs throughout the supply chain, securing all business transactions, ensuring appropriate
regulatory oversight and enforcement, increasing penalties, and increasing vigilance and
awareness through RFID. A pedigree-enabled RFID can enhance pharmaceutical supply
chain integrity and security by insisting on transparency and accountability from the
stakeholders who handle legitimate drugs throughout the supply chain network.
Supply Chain of Custody
Supply Chain of custody provides visibility into the movement of a product as it
migrates through the value chain network. As the product moves through the value chain
stream, a record of its location and ownership can be captured. Supply chain of custody
allows companies to answer questions such as where is the product now, where was it on a
specific date, and who had access to the product and at what points in time? This is
important information in addressing complex supply chain issues such as product
tampering, counterfeiting, diversion, and shrinkage. Product pedigree provides visibility
into the composition of a product through all stages of manufacturing. As a finished
product is packaged, information on its materials and components can be recorded,
including the sources of those materials and components, and the pedigree of the product.
As the product migrates through the supply chain, the manufacturer, trading partners and
48
regulators such as the FDA can have access to the pedigree information. This information
can be valuable in addressing issues such as defective or tainted ingredients, product recalls
and product authentication. The ability to track pedigree allows legitimate supply chain
stakeholders to determine not only which lots of the drug contained the tainted component
but which specific units. Indeed, visibility into chain custody can help firms to identify the
owners of the products subject to a recall. Thus, allowing only the contaminated drugs to
be recalled as opposed to all the drugs.
A drug supply chain that is not secure will create patient safety issues on top of
significant costs to manufacturers and wholesalers working to address criminal activities.
Therefore, it is in the best interest of the pharmaceutical industry to look for viable
solutions to their supply chain issues now, rather than face continued media criticism for
the profits reported by successful companies, contrasted with the growing concerns over
the safety and integrity of drugs. Supply chain visibility-enabled RFID that tracks the
location and movement history of pallets, cases and item-level products is an important
first step on the path to a more secure drug supply. By leveraging RFID technology, the
pharmaceutical industry can gain supply chain knowledge regarding lead times, inventory
levels, warehouse space, shipping costs and sourcing options.
Indeed, chain of custody can facilitate the verification of each item, case, pallet, and
object uniqueness and possession of each serial number. And each change of custody will
require a transaction between the current owner and the existing master database.
Counterfeit pharmaceuticals can be identified immediately since each serial number can
exist only in one location at a time.
49
Sense and Respond Pharmaceutical Supply Chain
Charles Darwin once said "it is not the strongest of the species that survives, or the
most intelligent, but the one most responsive to change." The pharmaceutical supply chain
can create and preserve value through its ability to sense and respond (S&R) to changes in
environmental conditions and threats in order to meet customers' value expectations. This
can be achieved by delivering product in the right quality and integrity at the right time to
the right point of use at the least cost. Arguably, S&R supply chain will become a matter of
adapt or perish. Adaptability invokes the ability of organizations to sense early (anticipate)
and quickly respond to sudden changes in environmental conditions (Haeckel, 1999,
Heinrich and Betts, 2004, Lee, 2004). Lee (2004) emphasized that in order for
organizations to handle abrupt changes in environmental conditions they must build 'the
triple A- supply chain' encompassing 1) agility - the ability to handle sudden changes or
external disruption smoothly through such means as promotion of information flow among
stakeholders, developing collaborative relationships with suppliers, having dependable
stakeholders, develop contingency plans and crisis management team, etc, 2) adaptability-
the ability to adjust supply chain's design to meet structural shifts in markets and modify
supply network to strategies, products, and technologies through monitoring world
economies to identify new supply bases, developing new suppliers and logistics
infrastructure, evaluating needs of customers and ultimate end users, etc, and 3) alignment
- the ability to develop incentives to enhance performance through exchanging information
and knowledge freely with stakeholders without delays, lay down roles, tasks,
responsibilities for suppliers and customers, among others.
50
In today's global business environment that is driven by panoply of risks and
uncertainties, pharmaceutical firms "that quickly embrace this new operating model will be
the winners well into the twenty-first century [and] ... ultimately [will] become more
nimble, focused, and competitive. The inability to [sense and] respond rapidly to changing
market conditions will undermine their economic viability" (Heinrich and Betts, 2004). For
the pharmaceutical firms, it is the ability to sense and respond swiftly to changing business
environment will be required for firms to survive in the twenty-first century global
economy and gain competitive advantage. Thus, "adapting quickly to today's constantly
changing business environment is an absolute must. Creating an adaptive supply network
will promote tighter linkages between companies and their suppliers, allowing greater
flexibility and responsiveness in serving the needs of the ultimate boss - the consumer"
(Jake Barr, Associate Director, Global Logistics, Procter & Gamble).
The pharmaceutical firms can leverage S&R supply chain to defend against many
portfolio of threats. Every adaptive system survives by making sense out of its exogenous
and endogenous environments and responding with appropriate preemptive actions.
Pharmaceutical firms can manage portfolio of threats by proactively sensing what is taking
place in its exogenous and endogenous environments. Adaptive supply chain networks are
communities of customer-centric organizations that must first sense what is going on in
those environments, share knowledge, rapidly manage threats and seize new business
opportunities and responding to them by judiciously adjusting to changing environmental
conditions (Haeckel, 1999)
Arguably, S&R pharmaceutical supply chain can provide near perfect real-world
awareness of information regarding threats and opportunities. And the real-world
51
awareness is the firm's capability to sense information in real-time from its environment,
including stakeholders and other relevant sources through embedded technology, agent-
based distributed decision making, dashboards, event management, intelligent analytics and
business processing integration and automation (IBM Business Consulting Services, 2005)
to respond preemptively to unusual variations. With RFID technology, the pharmaceutical
industry can identify threats and opportunities in its operating environments by 1)
monitoring and sensing threats, 2) detecting and interpreting early warning signs, 3)
analyzing data for actionable intelligence/information, 4) making decisions based on the
actionable intelligence, and 5) responding and executing the actionable information to
manage the threats.
Because both the retail and pharmaceutical firms lacked the S&R supply chain
capabilities, they received more than $2 billion in product returns annually due to excess
inventory or obsolete commodities (Philips Semiconductors et al., 2004). Saddled with
about 1,300 recalls in 2001 due to one form of britches or another, the industry must look
for better means of having visibility into its global pharmaceutical supply chain from
manufacturing floor to medicine cabinet through S&R -enabled RFID. The ability to sense
threats and respond proactively in real-time is imperative (Ferrari, 2006). And the key
enabler to S&R supply chain model is RFID technology that has been touted as the "holy
grail". Because of the significant promise that RFID has, FDA has recommended that it be
adopted by the pharmaceutical industry to safeguard drug supply chain integrity and
comply with the electronic pedigree requirement. In essence, FDA is requiring a sweeping
adoption of RFID technology as a form of electronic track and trace. Because the
pharmaceutical firms can no longer meet today's challenges with their current business
52
models, there is a need to look toward developing S&R supply chain capabilities. The
advantages of S&R supply chain capabilities include 1) less vulnerable - no single node
failure, no unit supply isolation, 2) less massive - less redundancy, and more efficient, 3)
more robust - more supply sources, options, and transport, and 4) more effective - faster
adaptation and smoother flow (Proceedings.ndia.org/4af6/Blaker.pdf).
Pharmaceutical Supply Chain Competitive Intelligence
The desire for organizations such as the pharmaceutical firms to attain sustainable
competitive advantage is moving supply chain issues up the corporate agenda. In current
day operating environment, cost competitive advantages associated with outsourcing,
alternative supplier base, lean supply chain, just-in-time supply chain, transferable
technology, and acquisitions and mergers are rarely sustainable because they are easily
replicated by competitors. As a result, the means to gaining sustainable competitive
advantage may lie in supply chain competitive intelligence. By leveraging supply chain
competitive intelligence pharmaceutical firms can build and maintain sustainable
competitive edge. Because pharmaceutical supply chain C-level executives are more than
ever facing turbulent operating environment, a guide is needed to aid them in their quest for
agile and sense-and-respond supply chain.
Indeed, supply chain competitive intelligence is no longer an option, it is a growing
imperative for those organizations desiring to flourish and prosper. As a result,
pharmaceutical industry C-level executives must mandate the adoption of supply chain
competitive intelligence from their top supply chain leaders to stay ahead of competitors as
well as having appropriate framework to manage risk. This means they must understand
53
panoply of critical challenges that may hinder their abilities to gain sustainable competitive
advantage. Those pharmaceutical firms that lack the ability to properly manage their supply
chain activities will run the risk of disrupting their materials and information flows which
in turn can wreak havoc on near real-time responsiveness, loss of consumers' confidence,
poor financial performance, and decrease in shareholders' value.
Competitive Intelligence
The field of CI has its root in military intelligence as documented in The Art of War
by Sun Tzu (Griffith, 1971). In the 1990s, CI became an integral part of the "learning"
organization (Prescott, 1999) for a significant number of organizations (Kahaner, 1996;
Fuld, 1995; Goshal and Westney, 1991) because of the continuous change in global
competitive landscape, quality management initiatives, and the view that actionable
intelligence can be the key to achieving sustainable competitive advantage (Prescott and
Gibbons, 1993). Prescott (1999) described CI as an organizational process designed to
develop actionable intelligence pertaining to competitive dynamics (e.g., moves and
countermoves of competitors, suppliers, customers, alliance partners, and potential
competitors), non-market factors (e.g., government regulation, tariffs, culture of a country),
and to serve such important roles as early alert of opportunities and threats (risks), decision
making support, competitor monitoring and assessment, and strategic planning support.
Also, CI focuses on the various aspects of an organization's environment, including
political, social, economic, technological, competitive, and ecological (Prescott, 1999).
McGonagle Vella (2002) emphasized that the two important aspects of CI are mainly the
utilization of legally and ethically sources to extract data on environmental conditions,
54
competition, competitors, trends and scenarios; and the transformation of data into
actionable information that can support real-time organizational decisions.
Moorman (1995) noted that organizational information process encompasses
information acquisition, information transmission, conceptual utilization, and instrumental
utilization. The goal of CI is to provide data that can respond to questions about
opportunities and threats. Burwell (2004) described the advantages of using CI to include
the transformation of a firm weaknesses into opportunities, predicting competitors' next
strategic moves, gaining knowledge of environmental changes before it is too late to
respond, mitigating and managing potential threats/risks proactively, achieving sustainable
advantage, and dominating rivals in the marketplace. Two key factors that can influence
the competitive advantage of any firm are endogenous and exogenous environments.
Although majority of the business intelligence capability are built around the endogenous
environment, in order to gain sustainable competitive advantage, organizations are
expected to understand both the endogenous and exogenous environment (Oguz, 2002).
According to (Oguz, 2002), if understanding endogenous and exogenous environments is
the prerequisite to achieving strategic advantage, then the business intelligence capabilities
must capture both the endogenous and exogenous data. Doner (2005) note that business
intelligence capabilities are vital to enhancing forecast accuracy, operational productivity
and customer demand management.
Because the current day operating environment has become very turbulent and thus
risky, supply chain executives must rely on the external environment to access critical data
to achieve actionable intelligence. However, Dugal and Prescott (1998) contend that access
to information can only lead to an advantage if an organization is able to compile, interpret
55
and disseminate that information to the decision makers on real-time fashion. Essentially,
the collected data is compiled to develop information which is analyzed to generate
knowledge. And when that knowledge is communicated to decision makers it becomes
intelligence necessary for action and results (Society of Competitive Intelligence
Professionals, www.scip.org; Vibert, 2000). Porter (1998) asserted that "gathering data is a
waste of time unless they are used in formulating [corporate] strategy." Prescott (1999)
emphasized that "a value-adding competitive intelligence process is a series of systematic
organizational activities that are driven by specific [actionable] intelligence needs within
the firm with the objective of achieving [sustainable] competitive advantage. Thus, supply
chain executives who base their decisions on actionable intelligence will gain positional or
differential advantage over rivals who do not use CI process as a core capability. It can
help an organization identify managerial blind-spots (Gilad, 1994; Zahra and Chaples,
1993; Zajac and Bazerman, 1991).
Supply Chain Blind Spots and Competitive Early Warning System
Gilad (1994) describes business blind spots as unchallenged postulations, corporate
myths, and corporate taboos that can cause competitive disadvantage. Unchallenged
assumptions are those associated with the social, political, economic, competitive, suppliers,
consumers' expectations, etc. Corporate myths represent the assumptions of how an
organization feels about itself such as the feeling of invisibility which can be harmful to its
competitiveness. Corporate taboos can entail a situation where a firm assumes it
understands its operational environment, supply chain partners in particular. Supply chain
blind spot represent unconscious behaviors and negative actions that can be driven by
56
external events. To gain advantage, organizations must correct competitive blind spots that
can lead to disaster to their operational efficiency and effectiveness. Organizations
neglecting intelligence and complacent to the supply chain blind spots, do so to their
detriment. For the pharmaceutical industry, surprises can be a disruptive event when it fails
to understand what is happening within and across the supply chains.
Brown and Weiner (1985) described early warning as a radar that constantly scan
the environment and alert the new, the unexpected, the major and the minor surprises or
threats. Thus, supply chain competitive intelligence serves as early warning system or
alerts to environmental threats. The competitive early warning system as shown in Figure 9
acts like a dashboard that is constantly monitoring, analyzing, and responding proactively
to patterns and trends that can lead to potential opportunities and/or preempting potential
supply chain disruptions.
The competitive early warning system framework encompasses the identification of
potential supply chain threats and opportunities; intelligence monitoring for warnings signs;
and supply chain risk management action. The interdependent and convoluted nature of
global supply chains in the current day operational environment has become vulnerable to
disruptive risks. To carryout a successful risk management, identification of portfolio of
risks is imperative (Norrman and Lindroth, 2004; Hallikas et al., 2002; Zoya and Russell,
2003). Although risk identification exercise is difficult because of the complexity and
robustness of the global supply chain network, "unidentified risks may misguide supply
chain risk management process (i.e., risk mitigation plan development), leading to
inadequate or no appropriate strategies to control these risks and it could lead to major lost"
57
(Karningsih et al, 2007). Risk management entails identification of sources of risk types,
risk analysis, risk evaluation and risk mitigation.
Figure 9. The Competitive Intelligence Warning System Triangle.
Feedback
Management Monitoring
action/response intelligence
Alerts/Early
Warning System
Adapted from Gilad, B. 2004. Early Warning - Using Competitive Intelligence to

Anticipate Market Shifts, Control Risk, and Create Powerful Strategies. Amacom,
New York.
Risk identification. To effectively mitigate and manage risks a firm must identify
portfolio of risks. Some streams of research on identification of portfolio of risks include
(Wu et al., 2006; Kiser and Cantrell, 2006; Christopher and Peck, 2004; Cavinator, 2004;
Chopra and Sodhi, 2004; Gaonkar, 2004; Hauser, 2003; Juttner et al., 2003; Harland, et al.,
2003; Zsidisin, etal., 2000)
58
Intelligence monitoring/risk analysis and evaluation. The essence of supply
chain intelligence monitoring is to make sense of the identified threats to avert any supply
chain disruptions.
Management response/risk mitigation. In this phase actionable information must
be handed over to the appropriate decision makers to be able to respond proactively near
real-time to the warning signs emanating from the environmental intelligence monitoring.
Arguably, the current day tumultuous market conditions and competitive environment have
raised the stakes for supply chain C-level executives, and managing supply chain CI is
poised to change the battleground for gaining competitive edge. To be successful,
organization must radically change the way they sense, think, interpret and react (IBM
Business Consulting, 2003) to potential opportunities and threats.
According to Sun Tzu's Art of War, "If you know the enemy and know yourself,
you need not fear the results of a hundred battles. If you know yourself but not the enemy,
for every victory gained you will also suffer a defeat. If you know neither the enemy nor
yourself you will succumb in every battle." This statement is very relevant today for the
forward-thinking organizations who must gain actionable intelligence through real-time
knowledge to proactively respond to potential opportunities and threats in their operating
environment. Thus, supply chain c-level executives "... have to be able to see past curves
in the road to successfully maneuver around what lies ahead" (IBM Business Consulting,
2003) because those who "... have been hugely successful...are great not because they
were focused on cost or flexibility or speed, but because they have the ability to manage
transitions, changing market conditions, evolving technology, and different requirements as
a product moves through its life cycle. The companies that can adapt are the ones that will
59
be here for the long term" (Scott et al, 2003). With supply chain CI firms can afford to
respond with agility and speed to business environment opportunities and threats. Because
supply chains have become more global and complex, supply chain CI is critical to a firm's
ability to attain positional advantage. Gilad (1988) noted that the possible areas of CI
coverage include competitors, growth opportunities, markets, technological, political,
economic and social environments, demographics, suppliers and acquisition candidates.
Although CI tool has been used for supporting risk management endeavors in other
fields, there is little or no application in supply chain management. Based on review of
relevant literature, only two studies discussed risk management using competitive
intelligence. For example, Froilan used Fuld's intelligence cycle model as well as risk
diagnostic hypothesis tree to examine financial risk management in banking industry in the
Philippines. Vibert (2006) discussed leveraging online competitive intelligence to identify,
assess and map organizational risks in order to develop actionable intelligence necessary
for decision makers to achieve actionable results. Karningsih et al (2007) discussed using
knowledge based systems to assist in identifying potential risks and establish the
interrelationships between risks in a supply chain network. There have been quite a number
of other studies that have knowledge base system to identify and management risks in
projects (e.g., Niwa 1989; Ramamoorthy et al., 1993; Zoyza and Russel, 2003). Similarly,
to enhance risk identification and management in construction management, Ashley and
Perng (1987) created an intelligent risk identification system through the integration of
expert system, database management, and influence diagram representation.
To decrease costs, grow revenues, and achieve positional advantage, supply chain
CI is imperative. Essentially, supply chain CI is vital to reducing overall supply chain costs,
60
inventory carrying costs, order fulfillment, and supply chain risk that can come in many
different forms and from a variety of sources.
Supply Chain Intelligence Cycle
Intelligence is the process of gathering, processing, reporting, and disseminating
finished, actionable intelligence to decision makers. The goal of intelligence is to provide
guidance that depends on appropriate and available information within a timeframe that can
support purposeful action (Willis, 2007). The intelligence production process or the so
called intelligence cycle (IC) contains all the variables needed to develop actionable supply
chain CI. Miller (2000) identified the four phases of CI, including identification of key
decision makers (e.g., supply chain risk managers, chief risk officers, enterprise risk
management officers) and their intelligence; information acquisition; analysis of
information and upgrading it to actionable intelligence; and dissemination of the actionable
intelligence to decision makers. According to Froilan, "the most important aspect of
[supply chain threats and opportunities] is to provide [supply chain] risk managers and risk
takers an effective system, that will help them understand the nature of risk, communicate
the risk, ways to monitor the cause and effects of risk and .. .create strategic plan on how to
prevent or manage risk." Because identification of threats and opportunities in modern
global supply chains are daunting challenges, there is a good chance that some of them will
be left unrecognized. The supply chain IC cycle is used to identify and manage threats and
opportunities in supply chain. Indeed, following Froilan, a combination of Fuld's
intelligence cycle and threat diagnostic hypothesis to identify, mitigate and manage supply
chain threats are used. Kahaner, 1996; Ashton and Stacey, 1995; and Flud, 1995 consider
61
CI process to consist of planning and direction, collection of data or information, process
analysis, dissemination, and securitization. Thus, IC-based supply chain encompasses
planning and direction of intelligence collection of data/information (phase 1) that results
in collection of new information (phase 2) that must be processed (phase 3), analyzed
(phase 4), disseminated (phase 5) (Willis, 2007), and decided/acted on.
The primary purpose of CI in forward looking organizations is to enable continuous
intelligence assessments concerning the strengths and weaknesses of competitors. Thus, the
application of CI within supply chain management will be organized around the core
intelligence process, the IC. The IC describes the steps used to create intelligence product.
It is an iterative process of planning and direction, collection of data, processing, analyses,
and dissemination of actionable supply chain CI. Intelligence processes exist to meet the
actionable intelligence/ information requirements of supply chain managers. Information
gaps are identified and collection assets are tasked to collect the necessary information.
While some of the information that is collected may be fed directly from sensor to shooter,
the supply chain manager's intelligence requirements can only be met by processing the
collected information to produce actionable/information intelligence assessments. The
resulting intelligence assessment can then be disseminated in a real-time and appropriate
fashion through suitable means to supply chain leaders who need it. Indeed, the speed of
transmission and ease of comprehending disseminated information on receipt are critical
factors. According to Willis (2007), "intelligence is more valuable if the [IC] operates
faster than the [competitors']. More rapid intelligence enables faster recognition of new
threats and adaptation to shifts in [competitors'] strategies. Thus, methods to improve the
62
accuracy and speed of the process provide a strategic advantage in efforts to combat..."
supply chain blind spots.
Phase 1: planning. Froilan suggests that the planning phase begins with threat
identification to delivering intelligence product to an end user for the purpose of
identifying, evaluating, monitoring, and controlling threats. Further, planning encompasses
the entire intelligence process, beginning with threat assessment phase and culminates with
the delivery of the finished intelligence products. It formulates the appropriate actions to
address specific portfolio of threats and prioritizing actions for integrated supply chain
strategy. The supply chain strategy can be in the form of mitigating and managing threats
through business or supply chain contingency planning, avoidance, transfer, compromise
and/or accepting the risk. Plans that are generated must be responsive real time to the
anticipated intelligence requirements. Planning at this phase integrates personnel, processes
and tools using multiple information sources and collaborative analysis to build shared
knowledge of the environmental factors. Information can be sourced from a wide range of
sources, including intelligence, academia, industry, the public domain and other such non-
traditional sources.
Phase 2: data collection. Effective data collection and real-time responsiveness to
intelligence requirements is vital to supply chain decision makers. The capacity of the
intelligence system to support decision makers effectively will depend on detailed initial
analysis and the comprehensive planning of intelligence collection operations. The
collection requirement specifies exactly how the intelligence agent will go about procuring
the intelligence information the supply chain manager requires. Collection requirements
management requires analytic skill to evaluate how well the end-user has expressed the
63
need; whether the collection assets are able to procure the identified information, and how
the collected information reaches the supply chain intelligence analyst.
Information from open sources are often a valuable in the public domain and global
business environment, including internet, corporate publications, advertising, newspapers,
trade associations, periodicals, academic journals, foreign and domestic, official documents
and other published materials. Arguably, in today's ultra competitive global business
landscape, acquiring information from environmental sources has become increasingly
important for supply chain C-level executives interested in seeing their organizations
flourish and prosper.
Phase 3: supply chain information processing. Supply Chain actionable
information must be easily understood to enhance real-time decision making in a rapidly
changing global business environment. Intelligence processes must meet the actionable
information requirements of the supply chain managers.
Phase 4: analyze. Analysis is the transformation of supply chain data into
actionable intelligence or supply chain decision-making information. Analysis provides the
opportunity for the supply chain manager to pursue the appropriate and most critical threats
and opportunities. The collected information or data must be analyzed to determine the
degree to which they confirm, supplement, or contradict each other, and thus establish
probabilities/frequencies and likely impacts, relationships, conclusions and/or implications.
The collected information is organized into a responsive intelligence product. The purpose
of intelligence analysis is to provide the underlying significance of selected target
information. The analysis typically involves forecasting which requires supply chain
analyst to make explicit statements about the degree of confidence held in a certain set of
64
judgments. Essentially, in intelligence analysis, the supply chain manager gathers
information from a variety of sources and then proceeds to generate tentative explanations
for threats and opportunities. Each scenario is examined for answers and compared against
the procured information for decision making.
Phase 5: disseminate supply chain intelligence. Dissemination of supply chain
actionable intelligence emphasizes its pervasiveness and imperativeness in operating
business environment. Supply chain blind spot cannot be managed without effective
dissemination of actionable intelligence regarding potential threats. For supply chain
threats and opportunities to be analyzed and decisively managed, they must be
disseminated within and across supply chain partners. The production of intelligence is
valueless unless it is disseminated in real-time time to the supply chain manager and in a
form that permits exploitation of the actionable intelligence. For actionable intelligence, it
demands expedited production and dissemination of that intelligence for action.
Nevertheless, the intelligence process never terminates with the product delivery to the
decision maker. Rather, the intelligence process dialogue continues between producer and
the decision maker. However, for the product to be of value, dissemination must involve
just-in-time feedback. It is crucial because supply chain leaders need to know what is
important in order to meet the intelligence requirements necessary to respond to potential
opportunities and threats.
Phase 6: decide/act. Supply chain threats and weaknesses must be identified before
they can be managed. Essentially, every type of threats must be identified before
attempting managing them. In this phase, there is a requirement to "monitor the
performance measures, record incidents and outcomes, and track changes in business or
65
risk landscape. The information feeds back into step [or phase] one to complete virtuous
circle. Monitoring serves as the "watchdog" that tracks the situation of supply chain threats
and the strategies deployed to manage them. In essence, portfolio of threats can be
identified and monitored in order to enhance the evaluation of mitigation plans. Further,
control is vital in this phase in order to correct deviations from mitigation planned actions.
Threats control relies on supply chain managers to have action plans, correcting for
deviations from plans, responding to threat drivers, and improving supply chain processes.
Summary
In an atmosphere of declining R&D productivity, increase pricing pressure and
changing regulatory requirements, global pharmaceutical firms are under increasing
challenges to improve profit margins. To deal with these challenges, pharmaceutical MNEs
are pursuing consolidations in the form of M&A and global outsourcing. Pharmaceutical
firms outsource their R&D functions to CROs to increase productivity, drug discovery and
development, and research capabilities. Increasingly, Asia has become the choice
destinations for drug manufacturing because of 1) cost reduction strategy, 2) more
flexibility with manufacturing and capacity, 3) lower labor costs, 4) capital does not need
to be invested in machinery or plant capacity, and 5) not a core competency (Sun, 2006).
Nevertheless, as these firms for better or worse shift their emphasis from sourcing and
producing their products internally to outsourcing to low-cost destinations risks and
uncertainty will continue to be prevalent. Although risk management is an issue of great
importance in global outsourcing due to the demands of supply chain strategies, it has
received limited attention from pharmaceutical firms engaged in outsourcing relationships.
66
Arguably, given the array of risks associated with supply chain logistics outsourcing, it is
imperative that the pharmaceutical industry embrace risk management.
Although there exist in the literature strategies for addressing numerous supply
chain vulnerabilities and risks, nowadays environment demands S&RL model that can
offer a better preemptive strike against PSC disruption risks. The pharmaceutical industry
executives are facing the hard reality that risk of disruptions in the form of counterfeit to its
legitimate drug supply chain can devastate public health, patient safety, and the bottom line.
Indeed, supply chain managers must understand that inability to plan, measure, mitigate
and manage risk elements in their supply chains can adversely impact drug quality,
customer retention/confidence, brand strength, and financial performance. Regrettably,
many pharmaceutical firms fail to recognize risk throughout all tiers of their supply chain.
Hence the pharmaceutical industry's risks are now compounded by the number of external
providers it depends on for its raw materials, ingredients, and sometime finished products
for its patients.
To survive and thrive in the twenty-first century global economy, pharmaceutical
firms must learn how to adapt to today's environment that is faced with daunting
challenges. This means that organizations such as pharmaceutical organizations "need a
new way of operating that gives them the flexibility to respond quickly to unexpected
changes. Transforming your business to succeed in this rapidly accelerating environment is
not optional. In short, it' adapt or die" (Heinrich and Berts, 2003). Therefore, to succeed,
pharmaceutical firms must look towards the adoption of sense and respond logistics model
that can help them to adapt and resilient to sudden disruptions in their supply chains.
Indeed, by becoming an adaptive enterprise, pharmaceutical stakeholders can afford to
67
leverage the network's cumulative capabilities to sense events that hamper the plans as
those events occur, and analyze them for impact; and respond to and learn from ever-
changing business landscape (Heinrich and Betts, 2003).
Because of the ever changing regulatory requirements, Sarbanes-Oxley Act, drug
pedigree laws (track and tracing) and their compliance means firms must learn to sense and
respond. And failure to do so means that firms may see their brands damaged by negative
publicity or a major product recall or de-listing, banks can view firms as too high an
investment risk, significant regulatory penalty, increase in legal costs and insurance
premiums (IBM, 2004). "Consumer-driven supply chain networks must be able to respond
quickly to the compliance demands and regulator pressures placed upon them by
consumers, retailers and governments. A common and key capability that companies need
to develop to meet various compliance requirements is traceability-the ability to identify
the location of a finished product after it has entered the distribution network, to trace
backward to identify the source of its constituent raw materials and to trace the route of raw
materials through the conversion process. Companies may also need to identify other
finished products that may have shared a raw material or conversion process" (IBM, 2004).
The key ingredient to improving security and integrity of the pharmaceutical supply
chain is strong regulatory oversight combined with due diligence stakeholders when
choosing primary and secondary distributors (HIGPA, 2004). To safeguard public health,
the FDA must continue to advocate for protocols or systems that can ensure the security
and integrity of U.S. PSC. Such protocols can include 1) establishing the integrity of the
source of medical commodities; 2) requiring that stakeholders provide a pedigree back to
the previous source, certify that it is not a diverted product, certify that actions by the
68
source will not change any original manufacturer warranties or guarantees, certify that the
product has been stored and handled consistent with product labeling requirements; and
develop a list of key pharmaceuticals that will not be purchased from sources other than the
manufacturer, or authorized distribution channel (The Health Industry Group Purchasing
Association (HIGPA), 2004).
In today's competitive environment, organizations' performance and profitability
strength are hinged upon their ability to sense and respond to consumers' changing demand
behavior, changing government regulations, and constant threat of disruptions. Arguably,
Wall Street is more than ever demanding visibility into supply chain operations because the
traditional sales forecasts and quarterly profits are providing less trustworthy insights into
an organizations' long term competitiveness than their ability to move things well.
Achieving a safe and secure drug supply must be based on transparency and accountability
by supply chain shareholders who handle the prescription drug throughout the PSC. As
counterfeit drugs continue to make their way into the U.S. PSC, the legitimate supply chain
stakeholders need to adopt electronic track and trace technology-enabled S&RL to mitigate
them. By adopting S&RL the PSC shareholders can deprive counterfeiters and diverters the
opportunity of infiltrating the nation's prescription drug supply chain with counterfeits,
substandard and/or contaminated drugs. Without any doubt, unless pharmaceutical firms
start taking action now to adopt S&RL model, their prosperity will be at stake. Hence
prosperous pharmaceutical firms will actively seek to position themselves for strong
financial performance and operational strength by anticipating or sensing and responding to
drug counterfeiting and diversion that can tarnish their brand image and lost of public
health confidence.
69
CI process entails the development of intelligence products, their dissemination on
real-time bases, and the incorporation of such intelligence into the decision making process
(Prescott, 1999). Also, CI is the process of monitoring the external or the competitive
environment for early warning of surprises or disruptive risks. Andrews (1987) asserts that
one of the main tenets of strategic planning is relationships between an organization and its
environment that can influence its performance, "...knowing the [external or] competitive
environment... will give risk managers a sense of intelligence on the risk exposure and the
probability of the realization of risk. These will give them ability to plan, and act on it -
mange risk" (Froilan, n.d.).
70
CHAPTER 3. LITERATURE REVIEW
To contain cost and gain strategic competitive advantage MNEs across various
industries pursued ambitious innovative improvement initiatives, including total quality
management, global just-in-time supply chain management, lean manufacturing, lean
supply chain logistics, efficient consumer response, quick response, global
outsourcing/sourcing, and co-manufacturing. Although these ambitious initiatives indeed
saved firms billions of dollars, they equally made the GSCL more complex, convoluted,
and vulnerable to disruptive risks. Also, these cost saving and improvement initiatives
contributed to the risk exposure and serious global supply chains interruptions of goods and
services (Murphy, 2006; Engardo, 2001; McGillivray, 2000).
These disruptive events that caused a significant disruption to the GSCL worldwide
cost MNEs billions of dollars in business losses. For example, the 1994 Kobe earthquake
that had many firms stranded without supply of critical parts (Johns, 1995); The 1997 fire
at Aisin Seiki's brake manufacturing plant, a major supplier to Toyota auto manufacturing
company was damaged by fire (Nakamoto, 1997); the erosion of the Central American
banana crop by Hurricane Mitch that struck the Caribbean in 1998; the 1999 earthquake in
Taiwan that interrupted production of personal computer components; the 2000 fire at a
Philips microchip manufacturing plant in Albuquerque that disrupted supply of a major
component used in mobile phones to Ericsson; the outbreak of Mad Cow disease (MCD) in
the UK in 2001 that led to the destruction of thousands of cattle; the 9/11/2001 terrorist
attacks in the U.S; the U.S. West Coast lockout in 2002; the 2003 SARS out break in Asia
and Canada; the 2004 Tsunami in Southeast Asia and East Africa; the 2005 Hurricane
71
Katrina in New Orleans; the bird flu in Asia; the bombings of London's transportation
logistics system; a tornado which destroyed a GM Plant in Oklahoma City; and the Middle
East conflicts. These events brought with them delays in deliveries of critical components,
worries on Wall Street, reduction in shareholder values, loss of consumer confidence,
dissatisfied consumers, erosion of market shares and international competitiveness of many
organizations, reemergence of just-in-case inventory systems, and increased operating costs.
Certainly, these widely publicized international events underscore the brittleness and
vulnerability of GSCL.
Risk and Uncertainty Controversy
The dichotomy between risk and uncertainty has been controversial in the literature.
Knight (1921) in discussing the distinction between risk (randomness with knowable
probabilities) and uncertainty (randomness with unknowable probabilities) once remarked
that "if you don't know for sure what will happen, but you know the odds, that is risk. If
you don't even know the odds, that is uncertainty [which]...must be taken in a sense
radically distinct from the familiar notion of Risk, from which it has never been properly
separated .... The essential fact is that "risk" means in some case a quantity susceptible of
measurement, while at other times it is something distinctly not of this character; and there
are far-reaching and crucial differences in the bearings of the phenomena depending on
which of the two is really present and operating.... It will appear that a measurable
uncertainty, or "risk" proper, as we shall use the term, is so far different from an
unmeasurable one that it is not in effect an uncertainty at all" (Knight, 1921). Water
Resources Council (1980) in its distinction between risk and uncertainty indicated that risk
72
is a situation where potential consequences can be described by means of probability
distributions, whereas uncertainty connotes a situation where one cannot describe potential
consequences neither by probability distribution nor estimated by subjective probabilities.
Lowrance (1976) described risk as a measure of the probability and severity of adverse
impacts. Haimes (1998) attributes the difficulty in understanding risk to two constructs 1)
real (potential damage and consequences, or unfavorable adverse effects) and 2) an
imagined, mathematical human construct called probability. Holton (2004) described risk
as composed of exposure and uncertainty. Adams (1995) posits that the formal treatments
of risk and uncertainty in game theory, operations research, economics and management
science require that the odds be known, assigning probabilities and magnitudes of likely
outcomes.
Global Supply Chain Logistics Risk and Uncertainty
GSCL is a network of many firms and relationships involved in the activities of
adding value to products through the transformation of raw materials to final products and
/or services (Johnson and Pyke, 2000, Lummus, 1999, Cooper et al., 1997, Beamon, 1998,
Lambert, et al, 1997, Coyle, et al., 1996, Swaminathan, et al., 1996, Lee & Billington,
1995, Lee and Billington, 1992, Stevens, 1989) to meet and exceed the value expectations
of the ultimate end-users. Its counterpart GSCLM is responsible for the efficient integration
and coordination of the relationship between suppliers, manufacturers, distributors,
warehouses and retail outlets so that products and services are delivered in the right quality
and quantities, to the right locations, and at the right time in order to minimize system wide
costs while meeting customer service level requirements (SimchiLevi, et al., 2003, Lee
73
and Billington, 1992). GSCLM's short-term focus is on enhancing operational performance,
and total inventory and cycle time reduction, while the long term focus is on meeting
and/or exceeding the end-user expectations, market share, and profits for supply chain
shareholders (Tan et al., 1998).
Arguably, GSCLM has been acknowledged as a great differentiator to the success
of a variety of firms competing in the new era of fast changing and turbulent business
environments. Indeed, it has become one of the most discussed disciplines in the popular
press because of such variables as globalization of production and market, competitive
pressure, information and communication technology, consumer behavior, mass
customization and complex supply chain networks that have become increasingly
uncontrollable, vulnerable and susceptible to disruptions (Enyinda, Tolliver, and
Szmerekovsky, 2007). It has also gained attention because it focuses on the efficiency and
effectiveness of material/product, information, and financial flows from upstream
(suppliers) to downstream (customers) or vis-a-vis (Agarwal et al., 2005). And today's
competition is based on it, not among firms (Sadler and Gough, 2005; Caputo et al., 2005;
Christopher and Towill, 2001). Although supply chain management has been touted as
source of building, sustaining, and gaining competitive edge (Hendricks and Singhal, 2003),
improved financial performance from designing effective supply chains, and shareholder
value creation (Chopra and Meindl, 2001; Quinn, 1999; Tyndall et al., 1998; Edward et al.,
1996), firms can no longer guarantee the past achievements because of today's risks and
uncertainties. Thus, winning global marketplace dominance today requires agile and
adaptable supply chain networks that must be poised to sense and respond in real-time to a
changing global business environment (Enyinda and Szmerekovsy, 2007) and on
74
addressing market and customer needs proactively (Agarwal et al., 2005). With the
increasingly complex business environment that is the hallmark of globalization and lean
strategy, GSCL has been confronted with a slew of risks ranging from external sources,
terrorist strikes or vulnerability to political instability in developing countries, to internal
sources resulting from the pressure to enhance productivity and reduce costs by eliminating
waste.
Safeguarding the GSCL, that has been acknowledged as a great differentiator to the
success of a variety of firms against the risks of disruptions is imperative in recent years
(Enyinda and Szmerekovsky, 2007). The complex nature of global supply chain networks
has become increasingly uncontrollable and vulnerable to disruptions linked to lean
initiatives such as low-cost sourcing destination, outsourcing, reduction in supplier base,
and just-in-time (Enyinda, Tolliver, and Szmerekovsky, 2007). For example, the
Outsourcing Institute's multi-industry study reported that 55% of firms outsource to
improve firm focus. About 54% of firms rely on outsourcing to reduce or control operating
costs, while 38% want to free resources for other purposes and 36% want to gain access to
world-class capabilities. Benefits such as reduced time to market and risk-sharing rank
significantly lower, at 18% and 12%, respectively. This clearly shows the reason behind the
increase in supply network risks. Achieving success in global outsourcing and minimizing
associated risks depends upon selecting the right suppliers with track records of capability,
quality, capacity, regulatory compliance, and much more. According to the Outsourcing
Institute study, the top five supplier selection criteria are: price (85%); commitment to
quality (51%); flexible contract terms (39%); reputation (34%); and scope of resources
(28%). Selection and maintenance of a competent set of suppliers is vital to a firm's
75
success in achieving low cost, high quality products (Zhang et al., Weber et al., 1991) and
competitiveness of the entire supply chain (Lee et al., 2001). Poor selection of suppliers
can lead to glitches in the flow of supplies, quality problems and regulatory compliance
problems.
Indeed, since 9/11 there has been much discussion in the popular press regarding
the spate in risks and uncertainty concerns. As a result, in today's turbulent global economy
the uncertainty and risks concerns that come with it more than ever are incorporated into an
organization's must do list and those associated with supply chains are imperative in the
competitiveness and viability of organizations (Cavinato, 2004). Indeed, in recent years,
the relevance of uncertainty and risk in supply chain has received an avalanche of attention
from academics, practitioners (Hendricks and Singhal, 2005; Kleindorfer and Van
Wassenhove, 2004; Cavinato, 2004; Kleindorfer and Saad, 2005; Towill, 2005; Peck, 2006;
Barry, 2004; Christopher, 2003; Christopher and Lee, 2004; Harland and Brenchley; 2001,
Zsidisin et al., 2004; Spekman and Davis; 2004) C-Level executives, Wall-street,
regulatory and rating agencies, and governments. From a supply chain management
perspective, probability can be viewed as the measure of how often a disruptive event that
can lead to a loss occurs (Zsidisin et al., 2004). Regrettably, in spite of the fact that
uncertainties and risks in GSCL have been receiving much attention, MNEs' C-Level
executives have not done enough and are unprepared to effectively mitigate and manage
those risks. For example, a recent global survey of business executives by the Mckinsey
Quarterly (2006) reported that 1) approximately 67% of respondents said that the risks to
their global supply chains have increased over the past five years; 2) about two out of three
executives who responded indicated that they are facing increasing risks to their ability to
76
supply their customers with goods and services cost effectively; 3) a significant number of
the executives do not spend enough time or resources on managing and mitigating risks; 4)
approximately 25% of their companies do not perform formal risk assessment and about
50% lack company-wide standards to help manage and mitigate risks; 5) few executives
expressed confidence in their firms' ability to manage variety of risks successfully and are
making limited use of some well-known tools that could help.
All types of risks exist within supply chains (Lee et al., 1997) and organizations
face them whenever they seek goods and services to meet their goals and objectives
(Zsidisin et al., 2004) and when there is a high propensity that an event can take place and
result in a significant disruption (Hallikas et al., 2002; Shapira, 1995; Yates and Stone,
1992). Therefore, to sustain differentiated competitive advantage in the new economy,
organizations must be able to manage uncertainty and risk by building flexible and smart
supply chains that can sense and respond to a changing business environment.
Cavinato (2004) examined a categorization for identifying uncertainty and risks in
SCL into five sub-chain logistics networks, including 1) the physical sub-chains risks that
are associated with transportation disruption, the destruction of products, the inability to
access inventories, manufacturing stoppage, among others, 2) financial sub-chains risks
that represent disruption of settlement process (e.g., accounts payable for purchasing and
distribution and receivables), improper investments, and lack of cost transparency supply
chain shareholders, 3) informational sub-chains risks which entail information gate-keeping,
creating and investing into information systems that are not fully capable and/or efficient
for the intended purposes and long-term business requirements, 4) rational sub-chains risks
that involve lack of cooperation, collaboration, and transparency; and 5) innovational sub-
77
chains risks are those associated with the discovery, flow, creation, and bring-to-market
processes both within and across the supply chains.
Supply Chain Logistics Vulnerability
The attacks of 9/11 exposed the cold reality of GSCL vulnerability. Since then the
global business more than ever is in constant threat of vulnerabilities and disruptions and
the GSCL is not immune. As a result, supply chain vulnerability and disruption risks have
gained increasing attention in management and marketing (Peck, 2006, Kleindorfer and
Saad, 2005, Christopher and Lee, 2004). Supply chain vulnerabilities and risks can emanate
in a variety of forms (Harland and Brenchley, 2001) and their breadth and scope have
expanded in recent years (Barry, 2004). Kleindorfer and Saad contend that the two broad
groups of disruption risk impacting GSCL design and management are 1) risks resulting
from problems of coordinating demand and supply and 2) risks resulting from disruptions
to normal activities. The disruption risks to normal activities include economic and
political terrorism, healthcare terrorism (drug counterfeiters), political strife, strikes,
pandemics, natural disasters, and changes in corporate business strategy. Also, supply
chains are vulnerable to "chaos" risk due to complexity and uncertainty, over-reactions,
unnecessary interventions, second guessing, mistrust, and distorted information within and
across the supply chain (Christopher and Lee, 2004, Childerhouse, at al, 2003, Lee at al.,
1997).
The complex nature of GSCL networks are more vulnerable and susceptible to
higher risks because of greater uncertainties in supply and demand, globalization of the
market, shorter product and technology life cycles, lean practices, supplier base reduction,
78
and the increased use of manufacturing, distribution and logistics partnerships (Christopher,
et al, 2002). Christopher and Lee (2004) suggest that one key factor in any strategy
designed to mitigate supply chain risk is enhanced end-to-end information visibility. For
example, they contend that supply chain confidence will increase in proportion to the
quality of supply chain information visibility. The quality of supply chain information and
the ability of supply chain stakeholders to share that information are imperative for
achieving end-to-end supply chain visibility. It has been recognized that firms endowed
with "information-enriched" supply chains can perform much better and gain competitive
advantage over those without access to information (Mason-Jones and Towill, 1998, 1997).
Managing the flow of information through a product supply chain in today's
changing business landscape is increasingly challenging because organizations must have
to work collaboratively with suppliers, logistics providers, distributors, and retailers to
collect and manage information about customer demand, sales orders, distribution
schedules, production planning, manufacturing, sourcing, and product design (Pande, et al.,
2006). Therefore, collaborative sharing of information and best practices among supply
chain stakeholders is key to identifying vulnerabilities and in planning and implementing
effective crisis management (Kleindorfer and Saad, 2005). Hence, supply chains that are
information starved or faced with information risk can result in poor performance (Wilding,
1998). Kleindorfer and Saad (2005) relying on four major premises gleaned from the
theory and practice of industrial risk management (Haimes, 1998), posit that to effectively
manage supply chain disruption risks the following actions must be in order. They are 1) to
specify the nature of the underlying hazard giving rise this risk, 2) to quantify the risk
through a disciplined risk assessment process; including determining the gateways by
79
which such risks may be triggered, 3) to effectively manage risk through an approach that
fits the characteristics and needs of the decision environment, and 4) to integrate
appropriate management policies and actions with on-going risk assessment and
coordination among supply chain stakeholders.
Norman and Jansson (2004) cited a number of business trends that drive risks in
supply chains include increase reliance on outsourcing of manufacturing and R&D to third-
party providers; globalization of supply chains; reduction of supplier base; more
intertwined and integrated processes between organizations; buffer/safety stock and lead
time reduction; growth in demand for on-time or just-in-time deliveries in shorter time
windows and lead times; and shorter product life cycles and compressed time-to-market.
Similarly, Svensson and Christopher et al. (2002) assert that the more firms rely on cost
containment initiatives such as outsourcing, single sourcing, and leaner manufacturing the
more they are exposed to risks. Further, the need to effectively meet the demands of a
secure supply chain in today's environment (Closs and McGarrell, 2004) and to keep the
global economy free of disruptions have caused both governments and organizations to
address managing and mitigating GSCL risks and uncertainties with great urgency. Thus,
since after the 9/11, many organizations have been under pressure to comply with supply
chain security measures promulgated by the Department of Homeland Security (DHS) to
secure the integrity of GSCL (Enyinda and Obuah, 2006; Enyinda, et al 2005; Enyinda and
Dunu, 2005).
The supply chain security protocols mandated by DHS to mitigate risks and preserve
GSCL are as follows: 1) the Customs-Trade partnership Against Terrorism (C-TPAT) to
improve GLSC security in the private sector. C-TPAT or the so called customs-to-business
80
relationship (CBR) is a voluntary and cooperative program between the government and
the international trade community in which all the entire supply chain actors, ranging from
importers, brokers and warehouse operators to overseas manufacturers and suppliers, agree
to preserve the security of their GSCL in exchange for reduced inspection of their
containers or reduced import inspection. Indeed, it requires organizations to assess and
handle vulnerabilities in their GSCL. Essentially, GSCL partners are required to develop
and implement policies that can improve and enhance security within their operations as
well as with their partners. 2) Container Security Initiative (CSI) to screen for high-risk
containers in key ports abroad. CSI is the so called pushing back the borders to the point of
origin. The intent is to position customs officers at the point of origin (foreign ports) to pre-
screen high-risk U.S.-bound ocean containers. Containers that have been pre-screened at
CSI participating ports benefit from less rigorous inspection upon arrival at U.S. ports
compared to containers from non-CSI ports. 3) The 24-hour Advanced Manifest Rule
(AMR) to submit electronically detailed manifest information 24-hour before U.S.-bound
cargoes are loaded.
The cargo information received can be analyzed by CBP in order to identify cargo
containers that may pose great risk and then determine whether containers can be cleared
for loading or not. The 24-hour AMR applies to all modes of transportation logistics for
exports to the U.S. 4) FDA Bio Terrorism Act (BTA) is a measure to protect the safety and
security of the food and drug supply chain for U.S. market. These value chain protocols are
important because of 1) the increasingly global economy depends on the free flow of
materials/products, information, and finance, 2) organizations around the world rely on
81
efficient and uninterrupted GSCL operations, and 3) increased terrorist threats can have
significant implications for homeland and global security (Closs and Mcgarrell, 2004).
Sources of Supply Chain Logistics Risk and Uncertainty
Because risks are caused by unexpected events and uncertainty, it is necessary to
identify and categorize the sources of risks in GSCL. Kleindorfer (2000) argued that to
mitigate risks in supply chain one must first identify the underlying sources of risks. By
risk mitigation, Miller (1992) means those strategic actions organizations pursue to thwart
the uncertainties identified from variety of sources. GSCL risks come from various forms
(Harland and Brechley, 2001), including environmental, organizational, or network-related
factors that cannot accurately be predicted and can impact the supply chain outcome
variables (Norman and Lindroth, 2004; Juttner et al., 2003). Also, due to the inherent
complexities of the physical and economic systems, the unfolding of most processes shows
attributes that cannot be forecast with absolute accuracy (Moschini and Hennessy, 1999).
For the supply chain context, these sources can be classified into three groups
namely (Juttner et al., 2003): 1) Environmental (external) risk sources to the supply chain.
These include market risk (e.g., exposure to adverse market price movements such as value
of securities, exchange rates, interest rates or spreads, and commodity prices); business-
volume risk (e.g., changes in demand or supply from competition, exposure to revenue
volatility); natural disaster; geopolitical action; public policies; among others. 2)
Organizational (internal) risk sources to the supply chain. These include operational risks
(e.g., exposure to loss due to inadequate internal processes and systems, labor strike or lack
82
of skilled labor, machine breakdown). 3) Network-related risk sources within the supply
chain are lack of ownership, chaos, and inertia (Christopher and Lee, 2001).
Lack of ownership risk can lead to little or no control because of ambiguous lines of
responsibility; chaos risk are due to over-reactions, unwarranted interventions, false alarm,
lack of transparency, etc., and inertia risk sources emanate from the inability of
organizations to sense and respond to changing environmental and market conditions
(Juttner et al., 2003). Van Landeghem and Vanmaele (2002) posit that sources of
uncertainty in supply chain include customs regulations, price changes, information delays,
competitor action, political environment, stochastic cost, available capacity, supplier
quality, manufacturing yield, and internal organization.
A recent McKinsey Quarterly (2006) global survey of business executives reported
that they ranked cost and the general availability of quality labor (43%), regulatory
concerns (36%), and reliability of suppliers (33%) as the top three sources of GSCL risks
on which they focused on during their most recent round of planning. Following these top
three sources were commodity shortages/price fluctuations (29%); fluctuations in foreign-
exchange rates (23%); intellectual property theft (22%); obsolescence of product inventory
or technology (21%); war, terrorism, other geopolitical concerns (15%); problems with
supply chain infrastructure (11); plant breakdowns/mechanical failures (10%); natural
disasters (10%); and other (4%). Although results of the survey are valuable and insightful,
the severity of some of these risks in one country might be different in another. For
example, Krishnan's et al. (2007) survey of 201 executives in Latin in America (out of a
global 3,172 executives) representing a mix of privately and publicly held businesses
across a range of industries in Brazil (82 respondent) and the rest of the region (119
83
respondents) reported that regulatory concerns (49%) top the ranks of supply chain risks
facing executives in Latin America and 43% for executives in Brazil. Conversely,
executives in Brazil were more concerned with fluctuations in foreign exchange rates
(48%), commodity shortages/price fluctuations (42%), supply chain infrastructure (32%),
and reliability of suppliers (31%) against 30%, 25%, 16%, and 22% for executives in Latin
America, respectively.
The various forms or sources of risks that can lead to global SCL disruption and the
attendant implications are shown in Figure 10. If GSCL is disrupted by any of the risk
factors or any combination of risk factors, this can have a domino effect on deliveries,
closing down assembly lines and affecting the organization's financial performance in
terms of decreased in revenue, poor shareholders' value, dissatisfied customers, and much
more.
Impact of Risk on Global Supply Chain Logistics
GSCL risks can negatively affect the operational performance, financial growth,
and reputation of firms. Given the long-term impact of GSCL risks on organizations'
market shares and reputation, mitigating and managing risks and uncertainties have become
unequivocally imperative. It is not only socially responsible and good business
(Kleindorfer, 2000), but also it drives business value (Peleg-Gillai et al 2006). According to
Murphy (2006), "within publicly held US companies, Sarbanes-Oxley legislation has
increased the level of executive responsibility for the accuracy of financial forecasts. Since
supply chain performance impacts the accuracy of financial forecasts, executives have
reason to acquire a deeper understanding of supply chain risks and early warning on events
that can impact financial performance."
84
Figure 10. Sources of Global Supply Chain Logistics Risk and Impact.
Availability quality
labor Inventory
Stock-Outs
\^^
Supplier Failure ^\^^
Delayed
Deliveries >
\ / ~ ^ \
Regulation
/ Poor financial
Plant
Shutdowns
y / performance
Price changes V Increased costs
GSC
^^J A Keduced
/zl Disruption L
\ advantage
//y~X\
Demand and supply Delayed
Constraints Product A. Lost of
Launch / \ goodwill
/ / / \ \
Exchange rates
/ / \
Material/Info/
Cash Flows
Geopolitical issues
Delay
Supply chain Increased

Infrastructure Cycle Time
However, in spite of these concerns and the ever growing mandate by Wall Street
and other shareholders, many firms are not only complacent and oblivious to the havoc that
operational, financial, and strategic risks associated with GSCL risks can cause to the
balance sheets, assets, and revenue but also to their reputation. For leading firms,
"optimizing ...financial performance requires on going analyzes of key risks spanning the
entire supply network that connect suppliers, manufacturers, distributors, retailers, and
customers. Also, analyzing the supply chains with the perspective of risks gives
organizations a better understanding of the potential sources of a disruption, and, most
importantly, the potential financial impact resulting from the disruption" (Lowery, 2004).
85
Mitroff and Alpaslan (2003) reported that only a mere 5% to 25% of Fortune 500
companies are girded to deal with disruptions and/or crisis.
Hendricks and Singhal (2003) using a regression analysis on a sample of 519
glitches announcements made during 1989-2000 examined the effect of supply chain
glitches on shareholder wealth. Shareholder wealth effects were analyzed by calculating the
abnormal stock returns around the period when information regarding glitches was publicly
broadcasted. Results suggest that when firms announced a delay to promised deliveries due
to supply chain glitches led to a decline in shareholder value by 10.28%. Knight and Pretty
(1996) reported that a disruption caused shareholder value to decrease by approximately
8% with a recovery time of 50 trading days.
The Rice and Caniato (2003) study found that it cost a company about $50 million
to $100 million each day its supply chain was disrupted. Hurricane Mitch, which struck the
Caribbean in 1998, eroded almost the entire Central American banana crop which accounts
for ten percent of world supply. As a result, Dole lost 70 percent of its banana acreage, four
percent of its market share, and more than $100 million in the fourth quarter of 1998.
Further, they took more than one year to recover from the disruption (Griffy-Brown, 2003).
In fact, Dole lost the four percent of market share to its rival, Chaquita because there was
no business continuity plan in place to ensure resiliency in times of sudden disruptions to
banana GSCL. Ericsson lost approximately $400 million in sales because of the 2000 fire
at a Philips microchip manufacturing plant in Albuquerque that disrupted supply of major
components used in mobile phones (Eglin, 2003). To prevent future sudden disruptions,
Ericsson has put in place business continuity plans and implemented new processes and
tools (Norrman and Jansson, 2004).
86
The outbreak of MCD in the UK in 2001 led to the destruction of thousands of
cattle, thus creating shortage in the supply of cowhides for the European shoe industry
(Griffy-Brown, 2003). Global manufacturing industry such as the Personal computer
industry suffered delays in the shipment of electronic parts due to the 1999 earthquake in
Taiwan that interrupted the electronic component supply. Consequently, Apple Computers
suffered a delay in the launching of its Power G4 model and in turn lost a sizable market
share to its rival, Dell (Griffy-Brown, 2003).
Global Supply Chain Risk Management
Risks and uncertainties are quintessential part and parcel of conducting business.
March and Shapira (1987) and Buehler and Pritsch (2003) contend that risk assumption is
ultimately a fact of business and management life. Hence it is the ability to assume and
manage risks is what organizations must do to produce profits and shareholder value
(Buehler and Pritsch, 2003) and indeed "in extremely uncertain environments, shaping
strategies may deliver higher returns, with lower risk, than they do in less uncertain times"
(Courtney, 2001). Those organizations that hesitate to create order out of chaos (Courtney,
2001), manage risks and improve their risk management processes will be faced with a
different kind of risks, including unexpected and severe financial losses that make their
cash flows and stock prices volatile and harm their reputation with customers, employees,
and investors (Buehler and Pritsch, 2003) and higher risk of system failure.
Studies of uncertainty and risks and risks management have been examined in
agricultural economics (Moschini and Hennessy, 1999); economics (Tversky and
Kahnemann, 1992); finance (Smith et al., 1990); management (Simons, 1999; Bettis and
Thomas, 1990); international business (Miller, 1992; Ting, 1988); and SCRM (Ojala and
87
Hallikas, 2006; Juttner, 2005; Norman and Jansson, 2004; Christopher et al., 2002;
Lamming et al., 2001; Johnson, 2001; Lindroth and Norman, 2001; Ritchie et al. 2000;
Hallikas et al. 2000; Zsidisin et al. 2000; Zsidisin and Ellram, 1999; Smeltzer and Siferd,
1998). GSCRM is an emerging discipline that has garnered significant importance in recent
years because of rising uncertainties and risks in GSCL. Therefore, to insure efficient and
effective supply chain performance in the global business environment that is afflicted with
relenting threats of terrorism, natural disasters, pandemic, public policies, etc. requires
proactive and effective risk management and full support of supply chain partners.
Although there is no one best way of defining SCRM, Norman and Lindroth (2002)
defined it as where supply chain partners collaborate and apply risk management process
tools to manage and mitigate risks and uncertainties caused by, or impacting on, logistics
related activities or resources.
Juttner et al. (2003) defined SCRM as "the identification and management of risks
for the supply chain, through a coordinated approach amongst supply chain members, to
reduce supply chain vulnerability as a whole." SCRM represents the process of managing
and mitigating risk through the application of risk management tools, collaboration and
coordination among shareholders to enhance supply chain effectiveness and financial
performance (Tang, 2006; Norman and Jansson, 2004). Kleindorfer and Saad (2005)
asserted that continuous coordination, cooperation, and coordination among supply chain
partners are imperative for risk avoidance, reduction, management and mitigation such that
the value and benefits created are maximized and shared fairly. From the preceding, one
can conclude that to ensure a successful SCRM and in turn improve supply chain
effectiveness and financial performance, coordination, collaboration, cooperation,
88
application of risk managements, and of course information sharing, visibility and/or
transparency are vitally important. Unfortunately, Agrell et al. (2004) pointed out that
because of asymmetry of information some firms opportunistically manage and mitigate
their individual risks without considering the total supply chain goals and objectives.
Harland et al. (2003) advocated that to manage and mitigate the propensity of
supply chain risk exposures, it is necessary for firms to identify both individual risks as
well as the potential risk sources at every link across the supply chain networks.
Kleindorfer (2000) suggests that in order to manage and mitigate supply chain risks one
must execute following integrated processes: 1) identifying underlying sources of risks, 2)
determining the gateways by which such risks can manifest, 3) assessing the potential
impact of these risks under various scenarios, and 4) providing the measures for mitigating
and coping with these impacts. However, Faisal et al. (2007) argued that understanding of
the variables associated with risk mitigation and their relative interdependencies are the
most difficult part of SCRM. Peck (2006) puts it that the primary goal of risk management
is to identify and quantify the potential sources of risks, control and reduce specific
narrowly defined risks.
Based on their literature, Bandyopadhyay et al. (1999) reported that key
components of risk management include 1) risk identification, 2) risk analysis, 3) risk
reduction, transfer and acceptance, and 4) risk monitoring. Indeed, as many organizations
continue to face growing disruption risks to their GSCL, they are under pressure to manage
and mitigate those risks. As a matter of urgency, they are turning to academics,
practitioners, and consultants for supply chain risk management best practices. Gaudenzi
and Borghesi (2006) used analytic hierarchy process (AHP) model to identify supply chain
89
risk factors for the purposes of improving the supply chain objectives (e.g., on-time
delivery, order completeness, order correctness, and damage-free and defect-free delivery)
to satisfy customer value. Essentially, authors used two phases of the method that included
1) the prioritization of supply chain objectives and 2) the selection and evaluation of risk
factors (indicators) and ratios. The theoretical model was tested in a firm that sells medical
equipment to doctors and healthcare firms. Results suggest risk of stock-out in the
processes related to missed deliveries and incomplete deliveries. Authors concluded that
the model seems helpful in creating awareness of supply chain risk factors.
Jutter (2006) utilized an exploratory quantitative survey as well as qualitative focus
group discussions with senior level supply chain management professionals as the primary
methods of data collection. The objectives of the study were to answer the following
questions 1) how well are supply chain risks recognized across a network?, 2) what is the
current state of practice in SCRM?, and 3) what are the perceived critical issues of SCRM
implementation? A selected sample of 1,700 UK-based Chartered Institute for Logistics
and Transportation members with a special interest in supply chain management were sent
questionnaires. Out of the 1,700, only 137 responded. The survey showed that 44 percent
of all eight responding firms expect the vulnerability of their supply chains to increase in
the next five years. However, that the concept of SCRM is still in its embryonic stage, and
understanding of SCRM is limited, both in terms of its key issues and its implementation.
Author concluded that "...while faced with new challenges of what appears to be an
increasingly "uncertain" environment, practitioners have little guidance on their SCRM
approaches.
90
Shi, et al. (2004) explored the use of derivatives to manage supply chain risks. In
their framework they used a simple two-party supply chain (single retailer and supplier). A
simple call option was introduced whose value depends on the level of customer demand
realized by a retailer in a single period. The intent was to show how derivatives can
increase overall supply chain performance and efficiency as well as improve supply chain
coordination. Authors concluded that options can effectively help to manage and mitigate
the risk associated with demand uncertainty. Also, the value of the options improved
supply chain efficiency by providing flexibility, coordinating the channel, and as a conduit
for sharing information between supplier and retailer.
Zsidisin et al (2004) study revealed that purchasing firms can evaluate supply risk
with methods that address supplier quality issues, improving supplier processes, and
minimizing the opportunity for detrimental events and potential loses. From an agency
theory context, risk determination methods can enable information gathering by purchasing
firms to authenticate supplier behaviors, promoting accord between selling and buying
firms, and reducing inbound supply risks and uncertainty (Zsidisin et al., 2004).
Organizations can successfully manage and mitigate risk when they understand the sources
of risks and practice proactive purchasing management (Zsidisin et al., 2004; Smeltzer and
Siferd, 1998). Harland et al. (2003) suggest that the inherent risk in an organization's
overall supply network can be managed and mitigated by identifying, evaluating,
quantifying supply risk probability of occurrence, stage in the product life cycle, exposure,
and drivers.
Pochard (2003) using a real option technique examined the use of dual sourcing to
manage supply chain disruptions. This approach took into account the various parameters
91
such as the frequency of disruption and the loss of market share. Results suggest that dual
sourcing is a real option to manage supply chain disruptions for a limited range of
disruption frequencies. It also pointed out that when the disruption probability is very low,
the best strategy is to rely on the main supplier. A good feature of the model is that it can
demonstrate the value of the option of delaying a decision and that a time-varying dynamic
strategy works the best.
Faisal et al. (2006) analyzed the enablers of SCRM in Indian manufacturing small-
and-medium enterprises using an interpretive structural model (ISM). Based on their
review of literature, the selected enablers or variables that can affect SCRM are 1)
information sharing, 2) agility in the supply chain, 3) trust among supply chain partners, 4)
collaborative relationships among supply chain partners, 5) information security, 6)
corporate social responsibility, 7) aligning incentives and revenue sharing policies in a
supply chain, 8) strategic risk planning, 9) risk sharing in a supply chain, 10) knowledge
about risks in a supply chain, and 11) continual risk analysis and assessment. Authors
concluded that enablers (1), (3), (4), and (10) had high driving power but little dependence.
Overall, these enablers helped in supply chain risks mitigation.
Faisal et al. (2007) used a conceptual framework to model various variables related
to risk mitigation environment (RME) and their relative interdependencies. Authors argued
that using graph theory and matrix techniques, RME can be quantified and presented in the
form of a single numerical index. The proposed model's attraction is its versatility to
integrate new variables which could affect the overall supply chain RME with the potential
to benchmark supply chains on risk mitigation dimension. Also, the model has the ability to
quantify RME by a single numerical index and the capability to capture the dynamics of
92
supply chain environment as it is relatively easy to introduce new variables. RME risk
variables in supply chain as distilled from literature they reviewed considered included
information sharing, supply chain agility, aligning incentives, strategic risk planning and
risk sharing.
To manage and mitigate risk in the upstream supply chains, Giunipero and
Eltantawy's (2004) conceptual study posits that situational factors, including degree of
product technology involved in the item purchased (high-tech vs. low-tech commodities),
security requirements in logistics - handling, packaging and transporting the commodity
(high vs. low), the importance of the supplier (regular vs. critical suppliers); and the
purchasers' previous knowledge with the situation (limited vs. significant experience)
should be taken into account when assessing the degree of risk management in the supply
chain to circumvent potential losses and better anticipation of risks. For supply chain risk
management to be successful, Zsidisin et al. (2000) asserted that it requires continuous
communication, gathering and analysis of relevant information that can enable
development of appropriate risk management strategies. Similarly, Giunipero and Pearcy
(2000) noted that development of risk management skills such as awareness of risk signals
and risk management plans are important for supply risk management success.
Finch (2004) used a combination of literature review and case studies to determine
if large firms exacerbate their exposure to risk by having small-and medium-size
enterprises (SMEs) as supply chain partners. Results of the review suggest that large
organizations' exposure to risk appeared to be increased by inter-organizational networking.
Having SMEs as supply chain partners induced further increased the risk exposure.
Similarly, SMEs increased their own exposure to risk by becoming supply chain partners
93
and few of them had made an assessment of the risks involved and/or had an existing
strategy for managing and mitigating risks. Author concluded it is imperative to conduct
risk assessment and taking into account the need for business continuity planning when an
organization is exposed to inter-organizational networking.
Although risks associated with 1) problems of coordinating supply and demand and
2) disruptions to normal activities are two broad groups of risking impeding supply chain
design and management (Kleindorfer and Saad 2005), authors investigated the latter risks,
which may arise from natural disasters, strikes and economic interruptions, and terrorism.
Using the conceptual framework called "SAM-SAC" (Specification of sources and
vulnerabilities, Assessment, and Mitigation; and Strategies, Actions, and necessary
Conditions for effective implementation examined empirical results from a data set
spanning the period 1995-2000 on accidents in the U.S. Chemical industry.
The McKinsey Quarterly (2006) survey of C-level business executives found that
the actions they currently use to minimize the potential effect or detrimental events of
supply chain risks include performance contracts with suppliers or service providers (54%);
alerting customers well ahead of time to potential concerns (38%); redundant
suppliers/product design (37%); transferring price increases to customers (35%); vertical
integration (29%); currency hedges, e.g., foreign exchange (25%); insurance (20%);
commodity hedges, e.g., options, collars, forward buys (15%); and other (9%). Similarly,
Krishnan et al. (2007) in their survey of executives in Brazil and the rest of Latin America
reported that like respondents globally cited performance contracts with suppliers as risk
management tool.
94
Christopher and Lee (2004) argued that one key factor in any strategy designed to
manage and mitigate supply chain risk is to improve end-to-end information visibility
which in turn can help to improve supply chain "confidence" for shareholders.
Shareholders' confidence in supply chain logistics can deteriorate when it takes time for
material/product, information, and finance to flow from one part of the supply chain to
another. Christopher and Lee (2004) suggest that some of the ways in which supply chain
confidence can be eroded is through not having confidence in 1) order cycle time, 2)
current status of orders, 3) demand forecasts provided, 4) suppliers' capability to deliver, 5)
manufacturing capacity, 6) quality of the products and services delivered, and 7)
transportation reliability.
Visibility has long been recognized as vitally important to achieving supply chain
efficiency. This importance was recognized about 44 years ago when management guru,
Drucker (1962) noted that "distribution is one of the most sadly neglected but most
promising areas of American business... we know little more about distribution today than
Napoleon's contemporaries knew about the interior of Africa. We know it's there, and we
know it's big; and that's about all.. .Most of our present concepts focus on production or on
the stream of money and credit, rather than on the flow of physical goods and its economic
characteristics...To get control of distribution, there requires seeing-and managing..." For
example, Aberdeen Group (2006) reported that 79% of large organizations surveyed
indicated that a lack of critical supply chain process visibility was their area of most
concern. One of the ways to gain visibility and control is through RFID technology-enabled
information visibility (seeing) to mitigate and manage global supply chain logistics
disruption risks.
95
RFID technology-enabled global supply chain logistics information visibility is not
only an important enabler to mitigate disruption risks it is also vital in demand, supply, and
product management. Also, it can provide the opportunity to deal with uncertainty and
reduce buffer stock which usually accumulates at the interface between actors in the supply
chain (Coyle, et al 2003). An industry commentator once asserted that information
visibility "is the battleground relative to supply chain competitiveness." Information
visibility will enable a firm to collect and analyze distributed data, generate specific
recommendations, and match insights to strategy in terms of product, demand, and supply
management. Benefits that can accrue from information visibility include improved
materials management through improved information visibility throughout the backend
supply and manufacturing processes, reduced shrink, improvements in safety stock and
buffer inventories and reduction in materials related manufacturing quality issues. Labor
efficiencies associated with handling materials can be achieved through improved tracking
of critical raw materials, parts, or components in a more real time fashion. Lean
manufacturing activities can become more efficient and quality levels can be improved via
the monitoring of materials and their usage in key manufacturing processes.
In addition to the new security protocols, forward thinking organizations are
proactively seeking other ways to manage and mitigate risks (Peleg-Gillai et al 2006). For
example, Simchi-Levi et al (2002) and Christopher (2003) suggested hedging, flexibility,
collaboration and outsourcing, supply base reduction, agility, and "what i f analysis as the
systematic and strategic approaches organizations can use to build a robust and resilient
supply chains that can deal with the new economic uncertainties and still remain
competitive. Similarly, Kleindorfer and Van Wassenhove (2004) contend that supply chain
96
design, contracting, and risk management systems are the approaches that global firms
have typically used to deal with supply chain risks. Risk management strategies used in
industrial contexts encompasses four integrated processes, including 1) identifying
underlying sources of risk, 2) determining the condition by which risks can materialize, 3)
estimating the potential consequences of these risks under various scenarios, and 4)
providing the means for mitigating and coping with these consequences (Kleindorfer and
Van Wassenhove (2004), Kleindorfer, 2000).
Pharmaceutical Global Supply Chain Logistics
The prevalence of counterfeits in the pharmaceutical global supply chains has
become a serious concern to the public health community and the FDA. Global supply
chain security is critically important to investors and/or the Wall Street. Hence any glitches
to global supply chains can lead to hiccups on Wall Street. For example, Singhal contends
that stock market reactions on days when supply chain glitches are reported can result to
delays in product development by 10%, ramp-up/rollout problems by 11%, production
problems by 10%>, quality problems by 9%>, and parts shortages in manufacturing by 7.5%).
To safeguard against supply chain glitches, it is vitally important that the pharmaceutical
industry embrace SCRM because it has become a necessary mandate by governments, Wall
Street, and shareholders. In short, it has become a prerequisite for survival in today's
turbulent global marketplace landscape.
Protecting and securing the pharmaceutical supply chain requires constant vigilance
in collaboration with all the supply chain stakeholders, including the manufacturers, the
primary wholesaler distributors, pharmacies, state and federal legislators and regulatory
97
agencies (Zimmerman, 2006). Although there is no one best approach that can protect and
secure the global supply chain, the pharmaceutical industry needs to adopt a multilayered
approach to mitigate and manage the PSC vulnerabilities and disruptions (Enyinda and
Tolliver, 2007). Zimmerman (2006) contends that the best strategy to secure and ensure
product integrity and patient safety is through the primary or normal distribution system.
Primary distribution entails the movement of pharmaceutical products from the
manufacturer to the wholesale distributor to the pharmacy.
Pharmaceutical Global Supply Chain Logistics Risk and Uncertainty
The pharmaceutical industry is facing difficult challenges because of its GSCL that
has evolved into a complex network of various stakeholders and ever prominent risks and
uncertainties. The pharmaceutical industry GSCL risks include supplier failure, regulatory
compliance, supply-disruption, capacity risk, R & D , foreign exchange rate, legal liability,
changing competitive environment, counterfeiting, among many others. The 21 st century
pharmaceutical industry increasingly has become susceptible to vulnerabilities as a result
of risks associated with counterfeit and outsourcing initiative. Pharmaceutical firms not
only purchase raw materials or ingredients and manufacturing from dispersed low cost
destination, but also they must depend on foreign contractors to coordinate the manufacture
and distribution of their products. Essentially, raw materials can be procured from one low-
cost country, active ingredients produced in the second country, the final product produced
in the third country, and packaging completed in the fourth country. Indeed, the
pharmaceutical industry GSCL is under constant threat of counterfeiters because of
advancement in technology, increasing numbers of small distributors, growing use of the
Internet and spate in prices of premium drugs (Bright, 2004). Today's "operating
98
environment calls for a supply network design that is both secure and resilient. That means
a supply network that has advanced security processes and procedures in place, while at the
same time being resilient enough to respond to unexpected disruptions ..." (Rice and
Caniato, 2003). Because today's operating environment can no longer be taken for granted,
the pharmaceutical industry needs to build "fit-for-purpose" supply chain networks that are
safe, secure, and resilient.
For the pharmaceutical industry to survive and thrive in today's counterfeiting and
regulatory environments, it is imperative it designs global pharmaceutical supply chain
networks that are resilient. As in other industries, the pharmaceutical industry must develop
the requisite plans for both security and resilience through the ability to sense and respond
in order to mitigate disruption. With business continuity planning, the pharmaceutical
industry can enhance its supply chain security and integrity by exposing potential supply
chain vulnerabilities and then instituting appropriate remedies to cure them.
Sources of Risk and Uncertainty in the Pharmaceutical GSCL
The main sources of uncertainty and risk that are relevant from the pharmaceutical
GSCL perspective: 1) production risk - in the pharmaceutical firm the quality of output
that will result from a given bundle of active ingredients are typically unknown with
certainty, i.e., the production function is stochastic. This risk is due to the fact that
uncontrollable elements such as the quality of active ingredients that plays a fundamental
role in the production of pharmaceuticals. 2) Price uncertainty -the inherent volatility of
pharmaceutical markets due to demand fluctuations or due to FDA's delay to approve a
drug. 3) Technological risk - associated with the evolution of manufacturing methods that
may render quasi-fixed past investments obsolete. The randomness of new knowledge
99
development tends to influence manufacturing technologies. 4) Policy risk - such as
economic policies can impact the pharmaceutical industry through their influence on
variables such as taxes, interest rates, exchange rates, regulation, and provision of public
goods. Arguably, because the global pharmaceutical firms in developed and in developing
nations are characterized by complex system of government interventions, the need to
change these policy interventions has remained strong. This source of uncertainty
encourages considerable risk for the pharmaceutical industry investments. In addition, the
quintessential of a good decision making is the ability to identify these risks and other risk
sources in order to develop strategic and tactical planning necessary to assess and manage
these risks (Wulf et al., 2003). For example, KPMG LLP of U.S. (2005) reported the
pharmaceutical disclosures on risk factor matrix for 1998/2003 (see Figures 11-12).
Figure 11. Pharmaceutical Firms Disclosures.

'5. 18
M 16
c 14
'55
o 12
I ..l.llllllllll
iscl
10 1998
8
6 12003
E 4
2
u. 0
Risk Factor- Matrix
Source: KPMG LLP (U.S.) 2005.
Chan et al. (2002) adopted a two-factor model used by Jorion (1990) and
Williamson (2001) and a sample of US pharmaceutical firms spanning the period 1990-
1999 examined foreign exchange exposure. The three hypothesis tested were 1) there is
100
significant exchange rate exposure effect among US pharmaceutical, 2) there is a
difference in the exchange rate exposure effect for firms producing proprietary drugs
versus those producing generic drugs, and 3) there is a difference in the exchange rate
exposure effect between pre and post-1995 for US pharmaceutical firms.
Figure 12. Pharmaceutical Firms Disclosures in Percentage.

a. 120
100
80
\
iilLil.iilli.i MIii
60
40
20
o 0 ^1 11988
2003
Risk Factor-Matrix
Source: KPMG LLP (U.S.) 2005.
Results suggest that the sample firms studied were not subject to significant exchange rate
risk during the overall 1990-1999. However, the same sampled firms were found to be
negatively (positively) affected by the appreciating the US dollar during the 1990-1994
(1995-1999) sub-period. Authors concluded that the proprietary drug producers exhibited
exchange rate sensitivities that change from negative during 1990-1994 to positive during
1995-1999.
Some studies such as Hodder (1982), Shapiro (9975), and Heckerman reported that
fluctuations in foreign exchange rates can influence a firm's value because they can
directly impact its current and future cash flows. Shapiro (1995) made the point that the
main sources of exchange rate exposure for an MNE's are the proportion of foreign sales,
101
the domestic competitive pressure, and the degree of substitutability it faces between
domestic and foreign factors of production. For Marston (2001), it is the level of
competition that exists in an industry which influences the foreign exchange risk exposure
of companies within the industry. According to Chan et al. (200), "this foreign exchange
risk exposure is especially relevant for multinationals because these firms sell and/or
produce their goods and services abroad. Their revenues and/or expenses and unrealized
gains and losses may be denominated in various currencies, thus subjecting these firms to
uncertain profits when converted into their home currency."
Pharmaceutical Global Supply Chain Logistics Risk Management
The increased volatility of global business environments generates increased risks
to the pharmaceutical industry global supply chain logistics. For example, exchange rate
fluctuation is one of the financial risks where the increased volatility is reflected to the
greatest extent. Like other industries, the pharmaceutical are particularly exposed to
exchange rate fluctuation, etc. Therefore, there is a great need to pay special attention to
supply chain risk management of exchange rate because say if the US dollar declines, US
firms with offshore sourcing and operations may suffer increase in labor costs, input
material and shipping costs and supplier risks. Thus, exchange rate risk faced by suppliers
and customers can affect firms' by imposing tremendous pressure on their sourcing
strategies, pricing strategies global, and future demand and in turn increasing their strategic
and operational risks and thereby (Mahidhar, 2006).
Aberdeen Group (2005) benchmark of 180 global enterprises reported that most
firms did not have a strategic approach to supply risk management, particularly at a period
when supply chain risks were on the rise. Following Harland et al.'s (2003) framework (i.e.,
102
analysis of supply chain, identify uncertainty sources, examine the subsequent risk, manage
risk, individualize the most adequate real option, and implement supply chain risk strategy)
on reducing risks in a network, Cucchiella and Gastaldi (2006) examined risks in supply
chain using real option techniques recommended by Seppa (2000) and (Trigeorgis). The
real options included defer, time (or stage), explore, lease, outsource, alter operating state,
abandon, growth, and compound. Based on these options authors investigated a medical
firm's (a firm that produces medical devices) internal sources, e.g., available capacity,
information delays, internal organization; and external risk sources, e.g., customs
regulations, price changes, competitor action, political environment, stochastic cost,
supplier quality, and manufacturing yield (Van Landeghem and Vanmaele, 2002). Results
suggested that outsource option is valuable in reducing those risks.
Summary
Organizations around the globe more than ever are facing challenges posed by a
global business environment saturated with old and new levels of uncertainty and risk.
With respect to global supply chain logistics management, these new levels of uncertainty
and risk are rendering successful execution of old strategies and operating paradigms
irrelevant. Arguably, C-Level executives and supply chain logistics managers are being
challenged by daunting slew of risk-related issues, including supply chain logistics security,
natural and man-made disasters, critical demands imposed by lean supply chain logistics,
just-in-time supply chain management, outsourcing and sourcing around the globe.
Although the studies were insightful and valuable, they focused mainly on purchasing and
supply risks management. Risk management can be formal, informal, qualitative, and/or
quantitative in nature (use of mathematical or empirical model).
103
As a result of risks ranging from environmental to organizational and the dependent
on global supply chain logistics to gain sustainable competitive advantage the need to
adopt a culture of supply chain risk management to safeguard supply chain interruption has
become imperative for C-level executives and Wall Street. Arguably, it has become crucial
to cultivate a culture of supply chain risk management given that business disruption and
contingent business disruption can diminish productivity, earnings, image, customer
relations, and financial health of a firm. SCRM research can be bifurcated into 1) supply
chains risks in general, 2) industry specific risk management issues, and 3) general
quantitative models that examine supply chain risks (Faisal et al., 2007). Some of the
authors who used mathematical models to examine risks in supply chains include Nagurney
et al. (2005) - investigated supply and demand side risk using network equilibrium model;
Faisal et al. (2007) used graph and matrix methods to quantify the RME of a supply chain;
Hallikas used a framework based on qualitative data set to evaluate supply chain risks; and
Sodhi (2005) applying simple models to examine risk measures and demand/inventory in
tactical supply chain planning. Potential consequences of poor SCRM can include seriously
tarnishing corporate reputation, triggering expensive regulatory censure, loss of investor
confidence, and negative impacts on employee.
For a large number of organizations, encouraged by globalization, cost containment,
and to achieve superior performance in the face of dwindling market share and hyper-
competitive global marketplace have extended their supply chain across the national
borders. As a result, they have become inordinately vulnerable to various supply chain
risks inherent in the present global business environment. Indeed, the ambitiousness to
enhance efficiency and effectiveness has invariably made organizations' supply chain value
104
stream more than ever vulnerable risks. The disruptive effects of supply chain risks could
be catastrophic for a pharmaceutical organization if they are not minimized and managed.
For example, inability to deliver drugs at the right and the right place could lead to a
serious health problem for consumers. This inability to deliver drugs could diminish a
firm's brand value, image, financial performance, shareholder value. And organizations
that suffer poor financial performance associated with supply chain disruption are
mandated by Sarbanes-Oxley Act to publicly disclose it.
For the pharmaceutical organizations to be compliance with existing and emerging
regulations, it behooves C-level executives to implement supply chain risk management in
order to minimize and manage disruption risks that could lead to a delay in product
launching and/or delivery. However, according to literature, there exist a handful of C-level
executives who understands risks in their supply chain and have in place the appropriate
mitigation strategies to counteract them. For example, Aberdeen Group (2006) reported
that 82% of firms studied indicated being concerned about supply chain resiliency, whereas
only 11% indicated engaged in this risk. Arguably, it is very imperative that C-level
executives realize the dire nature of supply chain risks inherent in the current business
environment. Therefore, to gain sustainable competitive advantage in today's global
business battleground they must manage risks beyond their internal supply chain silos.
105
CHAPTER 4. RESEARCH METHODOLOGY
In today's global business landscape the prevalence of risk complexity and severity
continues to grow, and the potential influence is more than ever under scrutiny. As a result,
achieving sustainable differentiated advantage in today's ultra-competitive environment
demands C-level executives to have a clear understanding of appropriate approaches to
managing key risks. Thus, organization should have a methodology for identifying and
evaluating the risks it faces and a process for generating intervention plans to mitigate the
risks to an acceptable level. For the pharmaceutical industry, pharmaceuticals are crucial
input into healthcare treatment, so it is imperative that risks attached to the sourcing and
distribution of these products to the ultimate end-users are identified and proactively
managed. Indeed, "the link between risk and reward has never been more important than it
is now in the pharmaceuticals industry as it grapples with the challenges of delivering
profitable, new solutions for better healthcare in the global marketplace" (KPMG). In this
context, the intent of this research is to apply a multi-criteria analysis by a three-level AHP,
to choose optimal mitigation strategies to minimize and manage pharmaceutical supply
chain risks.
Risk and uncertainty are quintessential in any business decision-making
environment. Hardaker et al. (1997) contend that risk exists because of imperfect
knowledge where the likelihood or probabilities of the outcomes are known, while
uncertainty exists when probabilities are known. Harwood, et al. (1999) described risk
management as a process of selecting among alternatives to minimize the effects of risk.
Haimes (1998) emphasizing the imperative of risk assessment and management quoted
Alvin Toffler (1990) who said that "as we advance into the Terra of Incognito of tomorrow,
106
it is better to have a general and incomplete map, subject to revision and correction, than to
have no map at all." Haimes (1998) in translating the preceding suggested "the risk
assessment process implies that a limited database is no excuse for not conducting risk
assessment. On the contrary, with less knowledge of a [network] system, the need for risk
assessment and management becomes more imperative." Therefore, the initial phase in the
risk assessment and management process is to clearly identify all conceivable sources of
risks (Haimes, 1998). According to Dorfman (1994), macroeconomic risk which consists of
market risk, interest-rate risk, currency risk, credit risk, and liquidity risk can be managed
using the following steps - identification, evaluation, development, and selection of
methods for managing risk.
This chapter is concerned with the theoretical and methodological aspects of AHP.
AHP is a mathematical decision making technique that allows consideration of both
qualitative and quantitative aspects of decisions. It reduces complex decisions to a series of
one-on-one comparisons. There is a growing application of AHP in supply chain
management and in managing supply chain risks (Nakagawa and Sekitani, 2004; Agarwal
et al., 2005; Lee et al., 2001; Gaudenzi and Borghesi, 2006). The justification for using
AHP is because it can identify the risks which could impede achieving supply chain
objectives and it can reduce the randomness of subjective evaluations. For example,
Gaudenzi and Borghesi (2006) used AHP to evaluate supply chain risks that are inhibitors
to achieving supply chain objectives such as customer service.
The rest of the chapter is organized into the following broad sections. Section 1
presents the multi-criteria decision-making. Section 2 provides a general description of the
AHP. Section 3 discusses the AHP application to risk management in the pharmaceutical
107
GSCL. Section 4 presents the description of the objectives, sub-objectives, and alternative
policy options. Finally, section 5 presents the summary.
Multi-Criteria Decision Making
A decision-making environment can entail multiple and in some cases conflicting
objectives or criteria called multi-criteria decision making (MCDM) (Hwang and Yoon,
1981). Evaluation and mitigation of global supply chain logistics risk represents a typical
MCDM problem that entails multiple criteria that can be both qualitative and quantitative.
Thus, risk evaluation process demands a formal, systematic and rational mitigation model.
SCRM is generally considered as four-phase processes, 1) risk identification, 2) risk
assessment and evaluation, 3) identification and choosing of proper risk management and
mitigation strategies, and 4) risk monitoring and knowledge management. Without
effective SCRM, Ritchie and Brindley (2004) note that supply chain will deteriorate and in
turn lead to increasing risk and a simultaneous decrease in performance. Also, SCRM is a
MCDM problem which entails evaluation of risk factors or considers a variety of factors in
a hierarchical structure. To perform risk analysis, it is imperative to take into account both
qualitative and quantitative factors simultaneously.
Further, it is critically important to consider multi-criteria factors that are related or
interdependent. MCDM techniques represent key components of decision theory and
analysis (Al-Harbi, 2001) which can take account of more than one criterion in supporting
the decision making process (Belton, 1990). There are many MCDM that exist to select
from such as 1) outranking methods, 2) linear weighted point, 3) judgmental modeling, 4)
interpretive structural modeling, 5) categorical method, 6) fuzzy sets, and 7) AHP.
108
Analytic Hierarchy Process
The pharmaceutical GSCL risk is structured into hierarchy which consists of the
goal, major decision objectives, sub-objectives, and alternative policy options using AHP
developed by Saaty (1980, 1985, 1990, 1991, and 1996). AHP is selected for the present
research. It is selected because it allows decision-makers to model a complex problem in a
hierarchical structure portraying the relationships of the overall goal, criteria (objectives),
sub-criteria (sub-objectives), and alternatives. It permits the use of data, experience, insight,
and intuition in a more logical and thorough manner. It helps decision-makers to derive
ratio scale priorities (weights) instead of arbitrarily assigning the weights. It not only helps
decision-makers to structure complexity and judgments, it also helps decision-makers to
introduce both the objective and subjective considerations in the decision making process
(Forman, 1983). It is attractive because of the use of special ratio scales to capture all sorts
of interactions between tangible and intangible criteria to make effective decisions. It is
also known for its qualitative and quantitative characteristics.
Further, AHP is selected for its desirable properties 1) it is a more useful approach
in dealing with qualitative factors, 2) its ability to deal with both tangible and intangible
attributes, 3) its ability to monitor the consistency with which decision-makers make their
judgment (Roper-Lowe and Sharp, 1990), 4) it is a relatively simple, intuitive method that
can be accepted by decision-makers and managers, 5) its general validity and the ability to
resolve multi-objective decision situations (Saaty, 1994). Millet and Wedley (2002) noted
that AHP "is uniquely positioned to help model situations of uncertainty and risk since it is
capable of deriving scales where measures ordinarily do not exist. By allowing subjective
probabilities to be elicited from knowledgeable people, we can move the decision-making
109
framework from a situation of pure uncertainty to one of measurable risk. If the payoff
measures are unknown in absolute terms, we may be able to use AHP to obtain ratio
measures for the outcomes. When each alternative involves multiple types of outcomes, we
can use AHP to combine such multiple criteria into a single measure."
Although the positive attributes associated with AHP has been widely reported in
the literature, there has been a small number of descending voices as to its theoretical basis.
For example, Belton and Gear (1986) and Dyer and Wendel (1985) argue that AHP lacks
theoretical basis. Watson and Freeling (1982) contend that AHP in order to elicit the
weights of the criteria by way of a ratio scale, it asks decision-makers useless or
meaningless questions such as which of these two criteria is more important for the goal
and how much more. However, in defense of Saaty's AHP, based on the theoretical
research of Harker and Vargas (1987) and Perez (1995), respectively, proved that the
criticisms against AHP method was not valid. They argued that AHP is indeed based on a
firm theoretical ground. As a result, its application has been popularized in many fields.
For example, supplier selection (Lee et al., 2001; Barbarosoglu and Yazgac, 1997;
Ghodsypour and O'Brien, 1998; Nydick and Hill, 1992), project selection and management
(Liberatore, 1987; Al-Jarbi, 2001), international business management (Levary and Wan,
1999; Atthirawong and MacCarthy, 2005), operations and logistics/supply chain
management (Mohanty and Venkataraman; Min, 1992; Burton, Y.P., Burton, J. and
Banerjee, A., 1989), marketing (Dyer and Forman, 1992), pharmaceutical marketing and
management (Ross and Nydick, 1994), accounting (Apostolou and Hassell, 1993),
agricultural economics (Mawapanga and Debertin, 1996), and faculty selection process
(Grandzol, 2005).
110
Attesting to its popularity in diverse applications, the world-wide-web
(http://www.ExpertChoice.com) contains references of more than 1000 articles and
approximately 100 terminal degree dissertations. However, in spite of its extensive
applications in the preceding, its application in supply chain risk management literature is
inordinately scanty. The two recent studies that considered the application of AHP in
supply chain risk management were that of Gaudenzi and Borghesi (2006) and Wu et al.
(2006). Indeed, this seriously suggests that decision concerning risk management in the
pharmaceutical industry GSCL might benefit from the use of AHP method given its
tendency to depend on both tangible and intangible factors. As a three-phase decision
analysis model, AHP can transform the qualitative risk factors into the quantitative metric
reliability.
AHP Application to Risk Management in the Pharmaceutical GSCL
Haimes (1998) once said, "if the adage, to improve risks, one must measure it with
appropriate metrics, constitutes the compass for risk management, then modeling
constitutes the road map that guides the analyst throughout the journey of risk assessment."
In agreement with Haimes, the present study employs AHP to model risk management in
the pharmaceutical GSCL. A typical AHP is composed of the following four-phases. 1)
The construction of a hierarchy which describes the problem. The overall goal is placed at
the top of the structure, with the main attributes on a level below. The so called 'parent'
attributes can be sub-divided on the lower-levels. 2) Deriving weights for the lowest-level
attributes. This can be accomplished by a series of pair-wise comparisons in which each
attribute on each level is compared with its family members in relation to their significance
111
to the parent. However, to compute the overall weights of the lowest-level, matrix
arithmetic is required. 3) The options available to the decision-maker are scored with
respect to the lowest level attributes. Also, it can be accomplished by utilizing the pair-wise
comparison method. 4) Adjusting the options' scores to reflect the weights given to the
attributes, and to add the adjusted scores to produce a final score for each optimum (Roper-
lowe and Sharp, 1990). Thus, following the steps recommended by Saaty and used by Al-
Harbi (2001), hierarchy structure modeling of the pharmaceutical GSCL risks is shown in
Figure 13.
1. Define an unstructured problem and determine the overall goal. According to Simon
(1960), the methodology of decision making process encompasses identifying the problem,
generating and evaluating alternatives, designing, and obtaining actionable intelligence.
The overall goal of the pharmaceutical industry is represented in the first level.
2. Build the hierarchy from the top (the objectives from a supply chain risk manager's
perspective) through the intermediate levels (criteria on which subsequent levels depend on)
to the lowest level which usually contains the list of alternatives. The major decision
criteria or objectives occupy the second level of the hierarchy, while the sub-criteria
occupy the third level of the hierarchy. The decision maker such as the pharmaceutical
supply chain risk manager defines the criteria that will be used to judge the alternative
policy options (i.e., SCRM strategies). The defined decision criteria are
regulation/legislation risk; operational risk; reputational risk; financial risk; market risk;
and relationship risk. And their respective sub-criteria are regulatory approval and change
in legislation risks; distribution and R&D risks; corporate social responsibility (CSR) and
112
disclosure risks; exchange rate and currency risks; competition and key talent risks; and
third party liability risks.
Figure 13. Hierarchy Structure Modeling of Pharmaceutical GSCL Risk.
Criterion 1: Criterion 2: Criterion 3: Criterion 4: Criterion 5: Criterion 6:

Regulation/ Operational Reputation Financial Market Relationship
Legislation Risk Risk Risk Risk Risk
Risk
Distributi Exch. Competi Third Party
Regulatory on CSR rate liability
tion
approval
Disclosure Currency Key M&A

Change in R&D talent
legislation
Alternative 1: Alternative 2: Alternative 3: Alternative 4:

Reduce risk Accept risk Avoid risk Transfer risk
The alternative options occupy the lowest or fourth level of the hierarchy of selecting
SCRM strategies in the pharmaceutical industry GSCL. The alternative policy options
proposed to manage the pharmaceutical industry GSCL risk are risk reduction, risk
acceptance, risk avoidance, and risk transfer. Therefore, the pharmaceutical hierarchy
113
developed consists of four levels with 22 nodes, including criteria, sub-criteria, and
alternatives. Level 1 representing the ultimate goal a supply chain manager intends to
achieve in implementing risk management, i.e. minimize the pharmaceutical GSCL risk. At
level 2, the premier goal is decomposed into six criteria (risk categories), including
regulatory/legislation risk, operational risk, reputation risk, financial risk, market risk, and
relationship risk. At level 3, each criterion is decomposed into sub-criteria (sub-risk factors)
which are meaningful to the supply chain risk manager. Level 4 or the lowest level of the
hierarchy represents the alternative (risk mitigation strategies). Assign a relative weight to
each one and each criterion as well as sub-criterion has a local and global priority. The
factor with the maximum local priority is selected from each category to represent the
category and the relative priorities of the scaling factors are computed. They are used to
determine the global priorities of the independent factors within these categories. The
derived global priorities are used for final rating of the alternative policy options and
selecting the most important and satisfactory policy option. The aggregate of all the criteria
(sub-criteria) below a given parent criterion (sub-criterion) in each level of the model must
equal to one.
3. Utilize a pairwise comparison approach. Reported in Table 3 is the relative scale
measurement developed by Saaty (200) for pairwise comparisons. It allows the
transformation of qualitative judgments and/or intangible attributes into preference weights
(level of importance) or numerical values. The pairwise comparisons are accomplished in
terms of which element dominates or influences the order. AHP can aggregate many
aspects of the decision situation into a single objective function. Its goal is to choose the
best alternative that can optimize the objective function. However, with AHP model, a
114
supply chain risk C-level executive or chief risk officer can make pairwise comparisons of
the criteria using Saaty's nine-point scale. The nine-point scale seeks to know the
dependence criteria, which one will influence the common criteria more and if so how
much more. According to Saaty, a value of 1 between two criteria indicates that both
equally influence the affected node, while a value of 9 indicates that the influence of one
criterion is extremely more important than the other.
Table 3. The AHP Pairwise Comparison Scale of Preference Between Two

Elements.
Preference Definition of Verbal Scale Explanation
weights or
level of
importance
(value of ay)
ay = 1 If the two objectives are equally Two activities or elements
(equal) preferred (importance) contribute equally to the
objective
ay = 3 If objective i is moderately preferred Experience and judgment
or moderately more important than slightly favor activity or
objective j element over another
ay = 5 If objective i is strongly preferred or Experience and judgment

strongly more important than strongly or essentially favor
objective/ one activity over another
ay = 7 If objective / is very strongly An activity is strongly
preferred or very strongly more favored over another and its
important than objective y dominance demonstrated in
practice
ay =9 If objective i is extremely preferred The evidence favoring one
or absolutely more important than activity over another is of
objective j the highest degree possible
of affirmation
ay = 2,4,6,8 Intermediate values Used to represent
compromise between the
preferences listed above or
used to compromise
between two judgments
115
Construction of the Pairwise Comparison Matrix A
The pairwise comparison matrix A, where element a,y of the matrix is the relative
importance of i'h factor with respect toy'"' factor, can be determined as follows:
1 a12 " a
\n
l/a 21 1 ... a In
A = [a,,] = (1)
l/aHi \lanl 1
\<i,j<n
Where the entry in row / and column j of A (a,y) indicates how much more important
objective (criteria) i is than objective j . "Importance" is measured on an integer-valued 1-9
scale, with each numerical value having the interpretation shown in column 3 of Table 3.
For all i, a,, = 1. For example, if an = 3, objective 1 is weakly more important than
objective 3. However, if a/, = k, thus for consistency, it is necessary that a7,= \lk. Then if an
= 3, therefore d^\ = 1/3 must hold. According Saaty (1986), the matrix must possess the
following properties:
1. Reciprocity: if ay = X, ajt = 1/X, with 1/9 < X < 9. In order for the property to reciprocate,
only n(n - l)/2 comparisons are required to build a matrix with a dimension nxn.
2. Homogeneity: If the elements i and j are considered to be equally important then
a,y = a.ji and an = 1 V, (for all i)
3. Consistency: (a^)(a,y) = a# is satisfied for all 1 < i, j , k<n
4. n(n - 1)/judgments are needed to develop a set of matrices in step #3. Reciprocals are
assigned in each pairwise comparison automatically.
116
5. Utilizing the hierarchical synthesis to weight the eigenvectors according to the weights
of the criteria. The total is for all weighted eigenvectors corresponding to those in the next
lower level of the hierarchy.
6. After completing all the pair-wise comparisons, the consistency can be evaluated using
the eigenvalue (kmax), to derive the consistent index (CI). Specifically, Saaty (1990)
recommended that the maximum eigenvalue, Xmax, can be determined as
K,ax=yZaiJW/Wi, (2)
7=1
Where Xmax is the principal or maximum eigenvalue of positive real values in judgment
matrix, Wj is the weight of j ' h factor, and Wt is the weight of i'h factor.
7. Consistency Test - Procedures for Checking Consistency
Consistency happens infrequently because of the inherent subjectivity of the decision
maker. Each pairwise comparison which has several decision elements for CI measures the
entire consistency judgment for each comparison matrix and the hierarchy structure. Thus,
CI and consistency ratio (CR) are used to determine the consistency of the comparison
matrix.
A matrix is assumed to be consistent if and only if ay * a,* = a,* \/uil (for all i,J, and
k). The eigenvalue method is used to check for inconsistencies in the inputted valuation.
When a positive reciprocal matrix of order n is consistent, the principal eigenvalue
possesses the value n. Conversely, when it is inconsistent, the principal eigenvalue is
greater than n and its difference will serve as a measure of CI. Therefore, to ascertain that
the priority of elements is consistent, the maximum eigenvector or relative weightsA,Wax can
be determined. Specifically, CI for each matrix order n is determined by using (3).
117
CI = (Kmax - n)/n - 1 (3)
Where n is the matrix size or the number of items that are being compared in the matrix.
Table 4 shows the Saaty's AHP average random consistency or random index (RI).
Table 4. Saaty's AHP Average Random Consistency or Random Index.

Size of matrix 1 2 3 4 5 6 7 8 9 10
Random 0.00 0.00 0.58 0.9 1.12 1.24 1.32 1.41 1.45 1.49
consistency (n)
Based on (3) and Table 4, the consistency ratio (CR) in (4) can be determined as below:
CR = CI/RI = [(kmax - n)/n - 1 ]/RI (4)
CR is acceptable, if its value is less than or equal to 0.10. However, if it is greater than 0.10,
the judgment matrix will be considered inconsistent. To rectify the judgment matrix that is
inconsistent, decision-makers' judgments should be reviewed and improved.
Synthesized Matrix. To synthesize the pair-wise comparison matrix in (1), divide
each element of the matrix by its column total.
The Priority Vector. The priority vector can be derived by dividing the sum of the
rows associated with the synthesized matrix by the sum of the columns. Alternatively, the
priorities of the elements can be obtained by finding the principal eigenvector w of the
matrix A (Saaty, 1980, 2000). To determine the final priorities of the alternative a,, the
priorities are aggregated as follows:
118
P(a;) = I>*PA(a;) (5)
Where w* is the local priority of the element k and Pâ,) is the priority of alternative a-, with
respect to element k of the upper level
Combining Experts' Judgments and Geometric Mean
The geometric mean (GM) operator represents the traditional aggregation operator
to combine ratio-scale experts' judgments in the Saaty's multi-criteria decision models. Its
key attribute is the reciprocity property of the multiplicative preference relations utilized to
provide the ration preferences (Chiclana et al, 2002). Indeed, the justification for using GM
is that it satisfies the reciprocal properties of pairwise comparisons (Kim et al, 2007). For
example, if an object A is compared with an object B, the relative strength of A over B is
the reciprocal of the relative strength of B over A. Thus, GM as opposed to arithmetic
mean (AM) can be used to determine the mean of experts' individual judgments to estimate
the priority of supply chain logistics risks. Saaty suggests that it is preferable to deploy GM
instead of AM when combining judgments from several experts. For illustration purposes,
the technique solves the combined matrix for the resulting eigenvector. Thus, the combined
matrix is achieved by taking the geometric mean of all the elements of the matrices
provided by individual experts. Specifically,
GMy= U(ai/k)'/K (6)
Where GM;y is the element (/, j) of the combined matrix, a^ is the element (i, j) of the
matrix provided by experts (respondents) k, and K is the number of evaluators.
119
Description of Major Objectives, Sub-Objectives, and Alternative Options
Major objectives and sub-objectives with respect to the pharmaceutical GSCL risk
were evaluated in survey questionnaire by supply chain experts in the pharmaceutical
industry. With the help of the literature, a list of pharmaceutical risk portfolio was
produced for the experts to indicate risks considered most important. The issue of
managing supply chain risk interdependencies is not part of the current research. However,
it is imperative because steps taken to tame one type of risk can raise exposure to other
risks. Kambil and Mahidhar (2005) reported that although eighty percent of firms they
studied suffered losses in market value for exposure to more than one risk, they suffered
because of actions taken to thwart one type of risk like strategic risk can raise exposure to,
say financial or operational risks. However, the pharmaceutical industry major risk
categories identified are regulation/government legislation risk, operational risk,
reputational risk, financial risk, market risk, and relationship risk. Also identified are their
respective sub-risk categories. The following are their discussions:
Regulation/government legislation risk. The stakes are inordinately high for
pharmaceutical firms that operate in an environment that is highly driven by strict
regulatory standards. Regulatory and legislative risk emanating from new and/or existing
regulations and legislation and has been viewed as one of the most challenging risk in
today's business environment. As a result, the cost associated with complying with
regulations and legislation has increased (Case, 2007).
Regulatory approval/Change in government legislation risk. For the
pharmaceutical firms, failure to comply with FDA and Sarbanes-Oxley Act of 2002 can
impose delay in regulatory approval, increase in cots, and erosion in profit margins. An
120
absence of control in the pharmaceutical industry GSCL can result in harm to patient or
worst death, product recalls, loss of integrity, and significant financial liability for a firm.
Current good manufacturing practice (CGMP) regulations stipulate that firms that design
and manufacture pharmaceuticals must ensure that all components, raw materials, and
product from suppliers satisfy predetermined specifications and suppliers and their
operations are in a state of control. Because of the rapid expansion of pharmaceutical
industry GSCL in era of new risks and uncertainties, SCRM is imperative to ensure
regulatory compliance and ultimate end-user safety. As a result pharmaceutical C-level
executives are under constant stream of pressures to meet regulatory compliance,
accommodate customers' growing demand for superior value that is becoming more than
ever difficult to reign in, and manage the prevalence of supply chain risks and uncertainties.
Operational Risk. Exposures to internal processes failures or not ensuring
availability and efficient functioning of processes, supply chain failures, equipment, human
resource supply chain, costs overruns, among others. For the pharmaceutical firms,
operational risk can be defined as the possibility of loss due errors in operations such as
failure to distribute products in real-time manner, R&D outsourcing risks, failures to satisfy
regulatory requirements, among others.
Distribution risk. Distribution or outbound risks are risks associated with
pharmaceutical supply chain outsourcing. Some examples of distribution risks include
counterfeits and diversion, transportation, warehousing, location, and technology risks.
Distribution of finished pharmaceuticals can face the risk of not being delivered at the right
time and at the right place. Regulatory pressure on pharmaceutical industry's distribution is
increasing because of the need to maintain product security and safety. Indeed, firms are
121
more than ever being required to ensure that products flows are tightly controlled,
complying with pedigree requirements, and sustaining track and tracing throughout the
entire pharmaceutical supply chain from the manufacturer to patient.
R&D risk. The pharmaceutical industry has been facing a significant decline in R
& D productivity. Risk and uncertainty is inherent at all levels of R & D. Risks associated
with R & D outsourcing include loss of in-house managerial talent, loss of control of
intellectual property or concerns over confidentiality, and loss of project control.
Reputational risk. Reputation risk has been acknowledged as a great concern to
many industries such as the pharmaceutical industry. Case (2007) pointed out that risks
may affect or be affected by damage to an organization's reputation that can precipitate
negative publicity, reduction in earnings, costly litigation, credit reduction, erosion in
market share and the inability to recruit and retain key talent. Resnick (2006) suggested
that "...one critical threat [that] is too often overlooked [is] the company's reputation.
Unless the key elements of reputational risk are identified, prioritized and monitored, an
enterprise is not fully protected against the impact of potential negative events and issues.)
Corporate social responsibility (CSR) and disclosure risks. In the wake of
corporate scandals, Wall Street and investors have begun to seriously evaluate the
environmental, social and corporate governance risks within their portfolios. In turn,
companies are responding to investor demands by re-examining the way they do
businessfrom the reduction of emissions and energy conservation to fair trade and labor
standards. For disclosure risk, a number of firms are not disclosing much of their
operations and risks associated with their operations due to concern over protection of
confidentiality and integrity.
122
Financial risk. Entail exposure to changes in the level of financial factors such as
currency, exchange rates, interest rates, commodity prices, stock prices, and other
macroeconomic factors. A combination of these forces can pose significant risks to global
pharmaceutical supply chains.
Exchange rate and currency risk. Both exchange rate and currency can pose risk
exposures across the global pharmaceutical supply chains. Hence they are serious threats to
the success of the pharmaceutical industry. The tendency for exchange rate fluctuation
when sourcing commodities from foreign suppliers can have a significant effect on costs
and profit margins. Indeed, fluctuations inherent in exchange rates can lead to reduction in
a pharmaceutical firm's cash flows, positional advantage, and shareholder wealth since
costs are denominated in foreign currencies and revenue denominated in U.S. dollars which
has been in a state of downward decline. Also, exchange rate volatility faced by suppliers
and customers can affect firms indirectly by way of increase exposures to strategic and
operational risks (Mahidhar, 2006). Currency risk is the change in price of one country's
currency against another or relative shifts in currency values that will result in the
depreciation of transactions denominated in foreign currencies. Three types of currency
risk are transaction risk, translation risk, and strategic competitive risk.
Transaction risk is the likelihood that currencies may change between the period an
order is placed and paid for can affect both receivables and payables. For translation risk, it
is the propensity that a shift in currency rates may change the value of foreign assets and
liabilities reported to shareholders, while strategic competitive risk represents the
likelihood that currency fluctuation may disrupt an organization's competitive position
over the long run (Millman, 2004). Global pharmaceutical firms are confronted with
123
currency risk exposure because of their presence or operations in many countries. For
example, Merck & CO reported that currency volatility or both the transaction and
translation risk affected its long-term R&D plans and competitive advantage (Millman,
2004). Mahidhar (2006) points out that "the significant role of China in many corporate
supply chains and the potential appreciation of the Chinese currency together pose a high
degree of risk to U.S. importers", particularly as the value of the U.S. dollar has greatly
been eroded against major trading partners' currencies. For example, as the value of U.S.
dollar U.S. depreciates, "companies with offshore sourcing and operations may face
soaring input material and shipping costs and supplier risks. Similarly, companies with
offshore facilities will see a hike in labor costs in dollar terms [and decision] to pass on the
increased cost to its customers...may result in reduced demand or lost sales " (Mahidhar,
2006).
Market risk. There are a wide range of market risks that the pharmaceutical firms
in their global supply chain operations. Market risks within the context of the
pharmaceutical industry can occur in a number of areas, including commodity price,
transactions, competitive changing environment, and key talent retention.
Competition and key talent risk. A large number of firms are facing increasing
changes in the competitive environment and retention of key talent. Indeed, it has become
increasingly difficult for the pharmaceutical firms to retain key talent as higher salaries are
motivating skilled people to abandon their posts. The increasing lack of astute and
managerial talent in technical and R&D based skills is becoming a significant concern to
the pharmaceutical firms as it affects their competitive advantage.
124
Relationship (supplier failure) risk. Supply chain relationship risks are risks
attached to suppliers' bankruptcy, supply chain disruption, reputation, delay in shipment of
goods, lack of key talent, and mismatch of interests.
Third party liability risk. Exposures to tort and/or breach of contract damage
claims and third party negligence. This kind risk is attached to liability claims that can be
brought against an organization either in terms of environmental degradation or harmful
product such counterfeit drugs. As a result, governments around the wide are increasingly
imposing stringent liability on organizations that distribute defective or unsafe product.
M&A risk. M&A by its very nature is challenging and risky. Some risks that can
be associated with M&A include the inability to achieve financial performance, decline in
productivity, mismatch of cultures, erosion of managerial talent, and clash of management
styles.
Alternative Options/Risk Management Strategies
Risk management in GSCL or SCRM is an emerging discipline that is growing in
importance. Arguably, it is growing in stature because risks must be identified and
measured so that they can be mitigated and managed. However, where they cannot be
managed, they must be avoided, accepted, or retained. Dorfman (1997) suggests that once
the relevant risks have diligently been identified and assessed, the strategies organizations
can deploy to manage them include some of the following: tolerate/retention or acceptance,
treat/mitigation or reduction, avoidance, transfer, and termination/elimination. Following
Dorfman's (1997) and Christiansen (2005), the risk management strategies the
pharmaceutical industry can employ to manage its GSCL risks include the following:
125
Risk reduction. This policy option entails framework, methods, procedures, that
can reduce the impact of supply chain disruption. Examples of actions intended to tame the
probability and impact of identified supply chain risks include supply chain quality
management, multiple sourcing, early supplier integration, information visibility and
sharing, supplier relationship management, among others.
Risk acceptance. Those supply chain risks that cannot be reduced, avoided, and
transferred are accepted or retained. Therefore, "given the axiom that risks cannot be
eliminated, risk assumption [acceptance/retention] is an unavoidable part of strategic risk
management" (Christiansen).
Risk avoidance. Although risk is an integral part and parcel of doing business,
pharmaceutical can adopt a policy option which adopts the mindset of "prevention is better
than cure." Essentially, pharmaceutical industry may avoid risks by not getting involved in
projects with risks. For example, pharmaceutical supply chain-related risks can be avoided
by not engaging in business relationships, M&A, R&D outsourcing, avoiding damaging
reputation, among others. However, avoiding risks means loss of opportunities and
potential profits. Examples of risk avoidance are better supplier selection and acquisition.
Risk transfer. This is where a third party assumes or shares some of the financial
burden attached to supply chain risks. Examples of risk transfer include insurance, contract
management, redundancy at suppliers, outsourcing costly and risky projects, and making
the third party provider assume most of the financial and operational risks.
The selection among the policy options to manage pharmaceutical GSCL risks is
based on financial considerations. Thus, pharmaceutical supply chain operations with high
risk exposure must be avoided because it is also associated with high costs. Also,
126
pharmaceutical supply chain operations with low frequency and high cost consequences
can be transferred, whereas supply chain operations having high frequency of occurrence
and low consequence must reduced because of the associated low cost. According to
Christiansen (n.d.), "whether risks are reduced or transferred, the goal is to bring the
financial exposure associated with a given down to a level where risks can be [accepted].
Summary
The AHP model represents a multi-criteria analysis method which provides a
valuable tool to handle the conflicting objectives or opinions of many experts. It enables a
decision maker to determine the relative importance of multiple objective or criteria and/or
alternatives against a given objective in an intuitive fashion. AHP utilizes a quantitative
comparison approach that is based on pair-wise comparisons of decision objectives as
opposed to utility and weighting functions. The pair-wise comparisons represent the input
of AHP that determines the relative priority of each alternative. Relative implies priority
with respect to a given objective. Saaty (1980) suggests that to determine the relative
priorities, AHP utilizes the eigenvalues and eigenvectors of the pair-wise comparison
matrix. Individual objectives are paired against others and the resulting outputs are
represented in a matrix form.
Using manual computation or Expert Choice Software, the following solutions can
be obtained: 1) synthesizing the pairwise comparison matrix, 2) computing the priority
vector for an objective, 3) computing the CR; 4) computing the principal or maximum
eigenvalue of positive real values in judgment matrix (kmax); 5) computing CI; 6) choosing
the right value of the random consistency; and verifying the consistency of the pairwise
comparison matrix to ascertain if the decision maker's comparisons passed the text or not.
127
CHAPTER 5. DATA AND ANALYSIS PROCEDURES
Saaty's AHP model is evaluated in an actual pharmaceutical industry to select the
appropriate GSCL risk management policy options. The chapter discussion is organized in
the following sections. Section 1 describes the model development and problem
formulation. Section 2 discusses the data source and description. Section 3 presents the
derivation of the major objectives, sub-objectives, and alternative relative priorities,
including the pairwise sub-objectives with respect to major decision objectives. Section 4
explains the evaluation of the alternative risk management policy options. Finally, section 5
explains the AHP and Expert Choice Software.
Model Development and Problem Formulation
The pharmaceutical industry decision problem is structured into relevant categories. The
relevant objectives, sub-objectives, and alternative policy options are selected on the basis
of review of relevant literature. The relevant objectives, sub-objectives, and alternative
policy options are structured in the form of a hierarchy where the objectives at level 2 in
the model have the highest strategic value. The level 2 objectives in the model are
regulation/legislation risk, operational risk, reputational risk, financial risk, market risk,
and relationship risk. The objective the hierarchy is to select the optimum alternative that
will best meet the goal of minimizing pharmaceutical GSCL risk. The alternatives that the
supply chain manager intends to evaluate are portrayed at the bottom of the model in
Figure 13 in chapter 4. The judgments of experts from the case pharmaceutical firms were
sought in comparisons of the relative importance of the criteria and the information of
128
pairwise comparison matrices to be employed in the AHP model. The results of the six
major decision objectives would be deployed in the computation of the pharmaceutical
GSCL risk management composite score.
Data Source and Description
From the hierarchy tree, a questionnaire was developed to enable pairwise
comparisons between all the factors at each level in the hierarchy. The hierarchy structure
is composed of four levels. Level 1 describes the premier or major goal of the decision
problem, i.e., minimize pharmaceutical industry GSCL risk. At level 2, the major goal is
decomposed into six major decision criteria or objectives (regulation/legislation,
operational, reputation, financial, market, and relationship) for minimizing pharmaceutical
industry GSCL. Similarly, at level 3, each major criterion is decomposed into sub-criteria
relevant to the pharmaceutical supply chain managers. The major decision criteria are
logically grouped in a top-down manner into another level associated with their sub-criteria.
Finally, level 4 defines the four alternative risk management policy options.
The pairwise comparison process elicits qualitative judgments or opinions that
indicate the strength of the decision maker's preference in a specific comparison according
to Saaty's 1-9 scale. A survey questionnaire technique approach was used for gathering
relational data to assess the order of importance of the pharmaceutical supply chain
logistics risks. The result of the survey questionnaire technique was used as input for the
AHP. The questionnaire has 93 questions bifurcated into three sections, including questions
regarding preferences of towards regulatory/legislation risk, operational risk, reputation
risk, financial risk, market risk, and relationship risk. In each question, the experts were
129
elicited to compare each criterion with other criteria with respect to the major goal. Section
2 comprised questions eliciting preferences towards various sub-criterion and experts were
requested to compare each criterion with other sub-criteria. Finally, section 3 consisted of
questions designed to elicit preferences for risk mitigation strategy alternatives with respect
to each sub-criterion of the six major criteria.
Essentially, to elicit the opinions of experts from the pharmaceutical firms, they
were requested to respond to several pairwise comparisons where two categories at a time
are compared with respect to goal. Several comparisons were performed in order to
develop the relative importance of major objectives to attain pharmaceutical goal.
Essentially, survey questionnaires were mailed to fifteen (15) pharmaceutical supply chain
experts, including Vice President for Compliance & Enterprise Risk Management & Chief
Compliance Officer, President for Global Manufacturing and Supply, Vice President for
Supply Chain and Contract Manufacturing, President/Team Leader for Global
Manufacturing, Executive VP and President for Manufacturing, Director for Contract
Manufacturing & Logistics, Vice President for Global Logistics, Supply Chain Managers,
and Executive Director for Supply Chain Management. Of the 15 questionnaires mailed to
the above experts, two were returned. Consistent with AHP methodology, the opinions or
judgments of the two experts were adequate to carry out the analysis. Experts were
requested to choose between various pairs of statement. For example, in section 1, for
question A, it reads please mark or circle the criteria number (code) that you assess more or
equal important than other, with respect to the goal: "to minimize pharmaceutical GSCL
risk" and express on the verbal scale the importance of the more or equal important criteria
over the other. The detailed survey questionnaire is reported in Appendix B. Tables 5-6
130
shows experts 1 and 2 judgments in terms of pairwise comparison matrix of major decision
objectives or criteria with respect to the goal.
Table 5. Expe rt #1 Judgment- Pairwise Comparison Matrix of Major Risk Objectives

with Respect Ito the Goal.
Regulatory/ Operational Reputation Financial Market Relationship
Risk
Regulatory
/Legislation 1 2 1 3 3 2
Risk
Operational
Risk 1 2 3 3 3
Reputation 1
Risk 2 2 2
Financial
Risk 1 2 2
Market
Risk 1 2
Relationship 1
Risk
Table 6. Expert #2 Judgment- Pairwise Comparison Matrix of Major Risk Objectives

with Respect to the Goal.
Risk
Regulatory
Risk
Operational
Risk 1 2 2 2 3
Reputation
Risk 1 3 3 5
Financial 1
Risk 1 2
Market
Risk 2
Relationship 1
Risk 1
131
Derivation of Major Objectives, Sub-Objectives, and Alternatives Relative Priorities
The geometric mean scores associated with the major objectives, sub-objectives,
and alternative risk management policy options reported in Tables 7-25 were derived using
Microsoft excel spreadsheet. The geometric mean scores were computed from the
individual scores on the scale of 1 - 9 provided by two out of 15 experts elicited. The
Expert Choice 11.5 software package (2000-2004) based on AHP was deployed to estimate
weights of the importance of the six major objectives (regulatory/legislation, operational,
reputation, financial, market, and relationship) and their sub-objectives, and to test for
inconsistency between preferences within individual experts. Also, it was used to estimate
the rankings of the four alternatives. And the graphs of the weights of the objectives and
sub-objectives can be used to represent the relative priorities of experts.
Table 7. Combined Experts' Judgments - Pairwise Comparison Matrix of Major Risk

Objective wilth Respect to the Goal.
Goal Legislation Risk Risk Risk Risk Risk
Risk
Regulatory
Risk
Operational
Risk 1/2 1 2 2 2 3
Reputation
Risk 1/1 1/2 1 2 2 3
Financial
Risk 1/3 1/2 1/2 1 1 2
Market
Risk 1/3 1/2 1/2 1/1 1 2
Relationship
Risk 1/3 1/3 1/3 1/2 1/2 1
132
Pairwise Sub-Objectives with Respect to Major Decision Objectives
Table 8. Pairwise Comparison Matrix for Sub-Objectives with Respect

to Regulation/Legislation Risk.
Regulation/Legislation Risk Regulatory Approval Change in legislation
Regulatory Approval 1 3
Change in Legislation 1/3 1

Operational Risk.
Operational Risk Distribution R&D
Distribution 1 3
R&D 1/3 1
Table 10. Pairwise Comparison Matrix for Sub-Objectives with Respect to

Reputation Risk.
Reputation Risk CSR Disclosure
CSR
1 2
Disclosure 1/2 1
Table 11. Pairwise Comparison Matrix for Sub-Objectives with Respect to

Financial Risk.
Financial Risk Exchange Rate Currency
Exchange Rate 1 3
Currency 1/3 1
Table 12. Pairwise Comparison Matrix for Sub-Objectives with Respect to Market
Risk.
Market Risk Competition Key Talent
Competition 1 2
Key Talent 1/2 1

to Relationship Risk.
Relationship Risk Third Party Merger & Acquisition
Third Party Liability 1 3
M&A 1/3 1
133
Evaluation of Alternative Risk Management Options
A set of pairwise comparisons was performed for the relative effect of each of the
alternative policy options, including risk reduction, risk acceptance, risk avoidance, and
risk transfer on the sub-objectives. The number of such pairwise comparison matrices is
dependent on the number of sub-objectives. In this case, there are 12 sub-objectives, which
resulted to 12 pairwise matrices.
Table 14. Pairwise Comparison Matrix for Alternatives with Respect to Regulatory
Approval Risk.
Regulatory Approval Reduce Accept Avoid Risk Transfer Risk
Risk Risk Risk
Reduce Risk 1 3 2 2
Accept Risk 1/3 1 1 2
Avoid Risk 1/2 1/1 1 1
Transfer Risk 1/2 1/2 1 1
Table 15. Pairwise Comparison Matrix for Alternatives with Respect to Change in
Legislation Risk.
Change in Legislation Reduce Risk Accept Avoid Risk Transfer Risk
Risk Risk
Reduce Risk 1 3 2 2
Transfer Risk 1/2 1/2 1/2 1
Table 16. Pairwise Comparison Matrix for Alternatives with Respect to Distribution
Risk.
Distribution Risk Reduce Risk Accept Risk Avoid Risk Transfer Risk
Reduce Risk 1 4 1 3
134
Table 17. Pairwise Comparison Matrix for Alternatives with Respect to R&D Risk.
R&D Risk Reduce Risk Accept Risk Avoid Risk Transfer Risk
Reduce Risk 1 2 1 2

Table 18. Pairwise Comparison Matrix for Alternatives with Respect to CSR Risk.
CSR Risk Reduce Risk Accept Risk Avoid Risk Transfer Risk
Reduce Risk 1 5 1 2
Avoid Risk 1 1/4 1 1
Table 19. Pairwise Comparison Matrix for Alternatives with Respect to Disclosure
Risk.
Disclosure Risk Reduce Risk Accept Risk Avoid Risk Transfer Risk
Reduce Risk 1 1 2 2
Table 20. Pairwise Comparison Matrix for Alternatives with Respect to Exchange
Rate Risk.
Exchange Rate Risk Reduce Risk Accept Risk Avoid Risk Transfer Risk
Reduce Risk 1 2 1 1
Avoid Risk 1 1/3 1 2
Table 21. Pairwise Comparison Matrix for Alternatives with Respect to Currency
Risk.
Currency Risk Reduce Risk Accept Risk Avoid Risk Transfer Risk
Reduce Risk 1 4 4 2
135
Table 22. Pairwise Comparison Matrix for Alternatives with Respect to Competition
Risk.
Competition Risk Reduce Risk Accept Risk Avoid Risk Transfer Risk
Reduce Risk 1 3 2 2
Table 23. Pairwise Comparison Matrix for Alternatives with Respect to Key Talent
Risk.
Key Talent Risk Reduce Risk Accept Risk Avoid Risk Transfer Risk
Reduce Risk 1 2 2 2
Transfer Risk 1/2 1/1 1 1
Table 24. Pairwise Comparison Matrix for Alternatives with Respect to Third Party
Liability Risk.
Third Party Liability Risk Reduce Risk Accept Risk Avoid Risk Transfer Risk
Reduce Risk 1 2 1 3
Table 25. Pairwise Comparison Matrix for Alternatives with Respect to M&A Risk.
M&A Reduce Risk Accept Risk Avoid Risk Transfer Risk
Reduce Risk 1 4 2 3
Transfer Risk 1/3 1 1/2 1
The AHP and Expert Choice Software
The Analytic Hierarchy Process (AHP) is a powerful and flexible decision making
process to help people set priorities and make the best decision when both qualitative and
quantitative aspects of a decision need to be considered. By reducing complex decisions to
a series of one-on-one comparisons, then synthesizing the results, AHP not only helps
136
decision makers arrive at the best decision, but also provides a clear rationale that it is the
best. AHP is designed to reflect the way decision makers actually think.
The AHP and Expert Choice software engage decision makers in structuring a
decision into smaller parts, proceeding from the goal to objectives to sub-objectives down
to the alternative courses of action. Decision makers then make pair-wise comparison
judgments throughout the hierarchy to achieve overall priorities for the alternatives. The
decision problem may involve risk, social, political, technical, and economic factors. AHP
enables decision makers to deal with the intuitive, rational and the irrational, and with risk
and uncertainty in complex settings. It can be deployed to predict likely outcomes, plan
projected and desired futures, facilitate group decision making, exercise control over
changes in the decision making environment, allocate resources, and select alternatives.
Expert Choice is intuitive, graphically based and structured in a user-friendly fashion with
the view to be valuable for conceptual and analytical thinkers and experts. Because the
criteria are presented in a hierarchical structure, decision makers are able to drill down to
their level of expertise, and apply judgments to the objectives deemed relevant to achieving
their goals. At the end of the process, decision makers are fully cognizant of how and why
the decision was made, with results that are meaningful, easy to communicate, and
actionable (http://www.expertchoice.eom/markets/index.html#AHP).
137
CHAPTER 6. EMPIRICAL RESULTS
This chapter presents the estimation results and supply chain risk management
interpretations of the AHP methodology for the pharmaceutical industry GSCL. The AHP
methodology used in modeling risk management in the pharmaceutical industry GSCL is
analyzed using the Expert Choice Software.
The discussion of the empirical results is divided into three major sections. Section
1 discusses the results of major decision objectives, including the local priorities and global
priorities associated with major decision objectives and decision sub-objectives, pairwise
comparisons of the major decision criteria. Section 2 discusses the synthesis results,
including ideal synthesis, distributive synthesis, and synthesis details of all the priorities or
weights and alternative policies with respect to the goal - minimizing pharmaceutical
GSCL risk and/or major decision criterion or objective. Section 3 reports on the sensitivity
analysis, including dynamic, performance, gradient, weighted head-to-head, and two-
dimensional plot.
Major Decision Objectives
The hierarchy structure in Figure 14 portrays at level 1 the pharmaceutical goal, the
major decision objectives with associated local and global priorities, and the sub-objectives
with their associated local and global priorities (or eigenvectors). Similarly, the
eigenvectors or local priority vectors are the weighted priorities of the major decision
objectives shown in the second column of Table 26 is derived by synthesizing the pairwise
of comparison matrix for the six objectives (criteria) by dividing each element of the matrix
138
(from Table 7) by its column total. After generating the synthesized matrix, we then divide
the sum of the rows by the number of objectives (columns), i.e., 5, in order to obtain the
following approximate values of 0.291, 0.228, 0.200, 0.107, 0.107, and 0.067.
Figure 14. Pharmaceutical Hierarchy with Local and Global Priorities.
0 Goal: Minimize Pharma GSCL Risk

Regulation/ Legislation risk (L: .291G: .291)
- Regulatory approval (L: .250 G: .073)
Change in legislation (L: .750 G: .218)
Operational risk (L: .228 G: .228)
Distribution (L: .250 G: .057)
M l R&D (L: .750 G: .171)
Reputational risk (L: .200 G: .200)
aCSR(L:.667G:.134)
B Disclosure (L: .333 G: .067)
Financial risk (L: .107 G: .107)
Exchange rate (L: .750 G: .080)
Currency (L: .250 G: .027)
Market risk (L: .107 G: .107)
Competition (L: .333 G: .036)
Key talent (L: .667 G: .071)
Relationship risk (L: .067 G: .067)
Third party (L: .200 G: .013)
M&A(L:.800G:.054)
The pairwise comparison of the major criteria or objectives is shown in Figure 15.
Regulation/legislation is the most important risk factor to minimize and manage in the
pharmaceutical industry GSCL with a priority of 0.291 (29.1%). This result is consistent
with AON's 2007 global risk management survey finding. The survey finding suggests that
new or existing regulations and legislation are perceived as one of the greatest risks facing
organizations such as the pharmaceutical firms. Hence non-compliance with regulatory
rules can lead to punitive consequences. Operational and reputational are also major risk
139
factors with an importance priority of 0.228 (22.8%) and .200 (20%), respectively.
Although operational risk is under the direct control of the pharmaceutical firms, reputation
risk is an increasing concern.
Table 26. Priorities of Major O >jectives.

Objective Priority Rank
(or eigenvector)
Regulation/Legislation Risk 0.291 1
Operational Risk 0.228 2
Reputational Risk 0.200 3
Financial Risk 0.107 4
Market Risk 0.107 4
Relationship Risk 0.067 5
Inconsistency Ratio 0.03
Figure 15. Comparing Priorities of Major Objectives.

Priorities with respect to:
Goal: Minimize Pharma SC Risk
Regulatory/Legislation risk .291

Operational risk .228
Reputational risk .200
Financial risk .107
Market risk .107
Relationship risk .067
Inconsistency = 0.03
withO missing judgments.
The reputation risk result is about consistent with AON's global risk management
survey which indicated that 29% of pharmaceutical firms surveyed reported increase in
reputational risk (Case, 2007). Therefore, reputational risk must be mitigated because
damage to organizational reputation can precipitate negative publicity, decline in profit
margin, expensive law suit, market growth and market share erosion. Arguably, positive
reputation can be a crucial source of sustainable differentiated or position advantage
140
because it "strengthens market position, reduces the price of capital, increases corporate
value, insulates the brand, enables organizations to change higher prices, helps to attract
top talent, protects...unwelcome takeover bids, arms them for merger and acquisition.. .and
raises the potential returns from share offerings" (AON, 2007). While financial and market
risk are tied in importance with a priority of 0.107 (10.7%). Relationship risk is less
important with a priority of 0.067 (6.7%). The normalized priorities associated with Figure
15 are shown in Figure 16. The importance associated with the major objectives can be
interpreted as aforementioned.
Figure 16. Normalized Priorities.

Priorities with respect to:
Regulatory/Legislation risk 1.000

Operational risk .784
Reputational risk .690
Financial risk .368
Market risk .368
Relationship risk .231
Table 27 shows results of the composite scores associated with risk reduction, risk
acceptance, risk avoidance, and risk transfer. The GSCL risk management (GSCLRM) for
an alternative policy option i (GSCLRMj) represents the summation of the products of the
relative importance priorities of the alternative policy option (Aia) and the relative
importance priorities of the major decision objectives (Oa) of the GSCLRM. Specifically,
GSCLRMj = XAiaOa.; where Aja is the relative importance of alternative priorities and Oa is
the relative importance of major objective priorities. Results of the composite score
indicate that risk reduction is the most preferable risk management policy option.
141
Table 27. Priority of Objectives with Respect to Alternative Options.
Alternative Priority
Objective Priority Reduce Accept Avoid Transfer
Risk Risk Risk Risk
Regulation/Legislation .291 0.425 0.215 0.190 0.169
Risk
Operational Risk .228 0.346 0.273 0.256 0.124
Reputation Risk .200 0.427 0.241 0.192 0.141
Financial Risk .107 0.333 0.317 0.240 0.110
Market Risk .107 0.334 0.233 0.222 0.211
Relationship Risk .067 0.396 0.308 0.177 0.119
Composite Score 0.386 0.252 0.213 0.148
Synthesis Results
Expert Choice Software recommends two ways in which a decision maker can
synthesize the local priorities of the alternatives employing the global priorities of their
parent objectives or criteria, namely the ideal synthesis mode and the distributive synthesis
mode. Both synthesis modes can be performed for the whole pharmaceutical risk model or
part of it.
Ideal Synthesis Mode
The ideal synthesis mode allocates the full priority or weight of each major criterion
to the best (highest priority) alternative policy for each covering criterion
(regulation/legislation risk, operational risk, reputation risk, financial risk, market risk, and
relationship risk). Also, the other alternatives receive weights under each covering criterion
proportionate to their priority relative to the best alternative policy strategy under each
covering criterion. The priorities for all the alternative policies sum 1.0 when normalized.
As shown in Figure 17, risk reduction turns out to be the most preferable risk management
policy option among the three alternatives, with an overall priority score of 0.337. The risk
142
management policy options are ranked according to their overall priorities as follows risk
reduction/mitigation, risk transfer, risk avoidance, and risk acceptance.
Figure 17. Ideal Synthesis with Respect to the Goal.

Synthesis with respect to:
Overall Inconsistency = .03
.337 ^HII^^^H^^^HHIII^^H^^^HH^^Î^^HII^^Î
2.30 ^ ^ ^ ^ ^ ^ ^ i
.221 BHB^^^^^^^^^^H^^^^^^^HI
.212 ^ ^ m i ^ ^ g j ^ ^ ^ ^ ^ ^ m i ^ ^ ^ ^ j
Distributive Synthesis Mode
The distributive synthesis mode distributes the priority of each major criterion to
the alternative policies under each major criterion. Essentially, the weight of a criterion
reflects the preference or importance that the decision maker such as the supply chain
manager attaches to the dominance of each alternative policy option relative to other
alternative policy options under a given criterion. For example, upon obtaining the local
priorities for the major decision objectives and the alternative policy options via pairwise
comparisons, the priorities of the major decision objectives were synthesized to compute
the overall priorities for the alternative policy options. As depicted in Figure 18, once again,
risk reduction is the most important risk management policy option among the three
alternative policy options, with an overall priority score of 0.332. Although risk reduction
strategy is most preferable in both the ideal synthesis mode and the distributive synthesis
mode, the rankings of the remaining alternatives are different. For distributive mode, the
alternative policy options are ranked as follows: risk reduction (0.332), risk acceptance
(0.227), risk transfer (0.226), and risk avoidance (0.215).
143
Figure 18. Distributive Synthesis with Respect to the Goal.
Synthesis with respect to:
Overall Inconsistency = .03
:
Reduce risk .332 I,'.,.. , , :.:,.' r ,: ~ ;. > 1
Accept risk .227 l:i>.*.; . ...\. ,. .i,-rwtl%A-$-t~ '. - I
Avoid risk .215 I &' H . * ' , " i i - " - !< t" " ;. ' I
T r a n s f e r risk .226 \~-r*A 3 - -,>,'>; .-. - i
Sensitivity Analysis Scenario for Major Decision Objectives
The sensitive analysis options of the Expert Choice Software have been used to
explore how the pharmaceutical supply chain managers' judgments might impact final
decision. Sensitivity analyses from the goal node depict the sensitivity of the alternative
policy strategies (reduce risk, accept risk, avoid risk, and transfer risk) with respect to all
the criteria (regulation/legislation risk, operational risk, reputation risk, financial risk,
market risk, and relationship risk) below the goal (minimizing the pharmaceutical GSCL
risk). Similarly, sensitivity analyses can be carried out from the nodes under the goal as
long as the model possesses more than three levels to depict the sensitivity of the
alternatives with respect to criteria or sub-criteria (Expert Choice, 2000-2004). To perform
a sensitivity analysis, a decision maker can vary the weights or priorities of the criteria in
order to assess how the priorities of the alternative policy strategies would change. There
are five types of sensitivity analysis recommended by Expert Choice, including 1) dynamic,
2) performance, 3) gradient, 4) head to head, and 5) two-dimensional (2D) plot.
144
Dynamic Sensitivity
Several sensitivity analyses were performed to examine the impact of changing the
priority of the objectives/criteria on the risks' ranking. Dynamic sensitivity analysis in
Figure 19 is employed to dynamically change the priorities of the criteria to evaluate how
these changes can influence the priorities of the alternative policy options. Indeed, a
decision-maker can utilize each sensitivity analysis to compare a "what-if' scenario by
increasing or decreasing the criterion's priorities in the left column to observe if there will
be changes in the priorities of the criteria in the right column as shown in Figure 19.
Figure 19. Dynamic Sensitivity for Nodes Below - Goal: Minimize

Pharmaceutical GSCL Risk.
29.1% Regulatory/Legislation risk 33.4% Reduce risk
22.8% Operational risk 21.1% Accept risk
20.0% Reputational risk 22.2% Avoid risk
10.7% Financial risk 23.3% Transfer risk
10.7% Market risk
6.7% Relationship risk
j
0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1 0 .2
The sensitivity analysis enables the decision-maker in the case of the pharmaceutical
supply chain manager to manipulate the priorities assigned to the criteria. For example,
what if a pharmaceutical firm believes that regulation and/or legislation will change very
145
soon by the FDA? This expectation would likely change the priority placed on
regulation/legislation, one way or another. Figure 20 depicts the alternative policy
strategy's bars in multiple sections.
Figure 20. Dynamic Sensitivity Analysis with Component Option

Selected.
29.1% Regulation/Legislation risk 33.4% Reduce risk
r==dllllkVlZttJm
C
F=lllllkVr/HW
VTA I 1 LMVti-y
10.7% Market risk
J I I l I l I I Lj I I I l I . I i
0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1 0 .1 .2 .3 .4 .5
Indeed, it provides a mechanism that can help pharmaceutical supply chain managers
define the range of possibilities that the pharmaceutical industry will be confronted with.
The supply chain leader can manipulate the importance of regulation/legislation risk,
operational risk, reputation risk, financial risk, market risk, or relationship risk, and observe
the proportional change in the prioritization placed upon risk reduction, risk acceptance,
risk avoidance, and risk transfer. The sensitivity analysis is dynamic in nature in the sense
that one can move the criterion's priority bars back and forth on a real-time fashion to
observe the associated change on the alternative policy strategy priorities. The impact of
146
changing priority of six major decision objectives on overall results was examined. Figures
21-26 shows six sensitivity scenarios. As shown in Figure 21 (scenario 1), when the
relative importance of regulation/legislation risk increased from .291 (29.1%) to .582
(58.2%), the risk management policy options' (alternatives') ratings or rankings were
insensitive.
Figure 21. Scenario 1 - Dynamic Sensitivity for

Regulation/Legislation Risk.
I
6.3% Market risk
I
.1 . .2 .3 .4 .5 .6 .7 .8 .9 1
Risk reduction remained the best risk management policy option. In Figure 22
(scenario 2), when the relative importance of operational risk increased from .228 (22.8%)
to .456 (45.6%), risk reduction and risk transfer policy options did not change in their
numbers one and two rankings, respectively. However, risk acceptance and risk avoidance
rankings changed.
147
Figure 22. Scenario 2 - Dynamic Sensitivity for Operational Risk.
31.6% Reduce risk
20.5% Regulation/Legislation risk
18.5% Accept risk

45.6% Operational risk
23.2% Avoid risk

14.1% Reputational risk
26.6% Transfer risk
7.5% Financial risk
7.5% Market risk

0 .1 .2 .3 .4 .5 .6 ' .7 ' .8 .9 1 0 .1 .2 .3 .4 .5
When the reputation risk relative importance increased from .200 (20%) to .400 (40%) as
shown in Figure 23 (scenario 3), risk reduction strategy did not change. However, risk
acceptance ranked two in relative of importance, while risk avoidance and risk transfer
were insensitive to the change.
For Figures 24-25 (scenarios 4-5), when the relative importance of financial risk
and market risk changed from 0.107 (10.7%) to 0.213 (21.3%), respectively, the
alternatives did not change. With respect to relationship risk in Figure 26 (scenario 6),
when its relative importance was increased from 0.067 (6.7%) to 0.135 the risk
management alternatives did not change. Overall, these results are not sensitive to changes
in the relative importance of regulation/legislation risk to relationship risk.
148
Figure 23. Scenario 3 - Dynamic Sensitivity for Reputation Risk.
40.0% Reputationai risk 21.5% Avoid risk
8.0% Market risk

.1 .2 .6 .7 .8 1 0
Figure 24. Scenario 4 - Dynamic Sensitivity for Financial Risk.

17.7% Reputationai risk 22.4% Avoid risk
21.3% Financial risk

Tiara
24.5% Transfer risk
9.4% Market risk
.1 .2 .3 .8 .9 1 0
149
Figure 25. Scenario 5 - Dynamic Sensitivity for Market Risk.
9.4% Financial risk
21.3% Market risk
.1 .2 .3 .6 .7 .8 .9 1 0
Figure 26. Scenario 6 - Dynamic Sensitivity for Relationship Risk.

9.9% Financial risk mmmmma

22.9% Transfer risk
9.9% Market risk
.1 .2 .9 1 0
150
Performance Sensitivity Analysis
The performance sensitivity analysis in Figure 27 portrays how the alternative
policies are prioritized relative to other alternative policies with respect to each major
criterion as well as overall. To determine the best risk mitigation strategy or policy is
compared to other strategies, a decision maker can read the overall priority from the
intersection of right "y-axis" and the overall priority for each alternative strategy.
Figure 27. Performance Sensitivity Analysis.

Obj% AB,.
Operational Financial ri Relationship

Regulation/I Reputational Market risk OVERALL
For example, risk reduction strategy is about .33, risk transfer is about .23, risk avoidance
is about .22, and risk acceptance is about 21. For each major criterion's priority that is
based on the decision maker's paired comparison, the left y-axis is utilized. Based on the
performance sensitivity analysis, regulation/legislation risk is about .29, operational risk is
151
about .23, reputational risk is .20, both financial and market risks is .11, and relationship
risk is about .07.
For the alternative policy priorities with respect to each major objective or criterion
and reading from the right y-axis, with regulation/change in legislation risk, risk reduction
is about .85; risk transfer is about .39; risk avoidance is about .34; and risk acceptance is
about .43. With respect to operational risk, risk transfer is approximately .69; risk reduction
is approximately .55; risk avoidance is approximately .50; and risk acceptance is
approximately .26. Regarding the reputational risk, risk acceptance is .85; risk reduction
is .50; risk avoidance is .40; and risk transfer is .30. With respect to financial risk, risk
transfer is about .65; risk reduction is about .63; risk avoidance is about .50; and risk
acceptance is about .25. For marketing risk, risk reduction is approximately .80; risk
avoidance is approximately .45; and both risk transfer and acceptance is .40. Finally, for
the case of relationship risk, risk avoidance is .75; risk reduction is .70; and while both
risk transfer and acceptance is .30
Gradient Sensitivity Analysis
The gradient sensitivity analysis graph in Figure 28 portrays the alternative
policies' priorities with respect to one objective or criterion at a time. By clicking on the
Expert choice software menu command "X axis" the decision maker can choose which
criterion appears on the X-axis. As depicted on the graph, the red vertical solid line is the
criterion's (regulation/legislation) priority based on the decision maker's pairwise
comparisons. Following similar steps in dynamic sensitivity analysis, the decision maker
152
can indicate where a criterion's priority changes by simply dragging the red solid bar to
right or left. This action produces a new vertical line that appears as a blue dashed vertical.
Figure 28. Gradient Sensitivity Graph.

Alt%
.40
.30
Accept risk
.20
Transfer risk
.10
"" 0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1
Regulation/legislation
By increasing the priority of regulation/legislation from .29 to .55 changes the choice of the
alternative policy with respect to regulation/legislation. Similar processes can be performed
for the rest of the major criteria (operational risk, reputation risk, financial risk, market risk,
and relationship risk).
Weighted Head-to-Head Sensitivity Analysis
The head-to-head sensitivity analysis in Figure 29 depicts how risk reduction and
risk acceptance alternative policies are compared to each other against the major criteria in
153
a decision. Reduce risk alternative policy on the left hand side is constant while the accept
risk on the right hand side can be varied by selecting a different alternative policy tab such
as avoiding risk (see Figure 30), and risk transfer.
Figure 29. Weighted Head-to-Head Sensitivity Analysis Between Risk

Reduction and Risk Acceptance.
Reduce risk <> Accept risk
^^^Kial
^ ^ ^ H e t risk
R^Hiship risk
Overall
I 1 1 1 1 1 1 1 1
12.30% 9.22% 6.15% 3.07% 0% 3.07% 6.15% 9.22% 12.30%
Listed below the alternative policies are the major decision criteria. If the decision maker
prefers the left hand side alternative policy to the right hand side alternative policy with
respect to one of the major criteria, a horizontal bar will be displayed on towards the left
hand side. For example, pharmaceutical supply chain manager prefers risk reduction
alternative policy (approximately 6%) to risk acceptance alternative policy (approximately
3%) with respect to regulation/legislation risk against reputational risk. The overall result
shown at the bottom of the weighted head-to-head graph suggests that 12.30% of risk
reduction associated with regulation/legislation risk is better than accepting risk linked with
reputational risk.
154
For risk reduction versus risk avoidance in Figure 30, the pharmaceutical supply
chain manager prefers risk reduction to risk avoidance with respect to regulation/legislation
risk criterion. The overall result implies that risk reduction is approximately 10% better
than risk avoidance. This finding is consistent with literature which suggests that in today's
operating environment regulation and legislation are on the rise. This means that supply
chain C-Level executives must have appropriate proactive regulation and legislation risk
reduction plan. It is crucial because the global pharmaceutical industry is the most
regulated industry and such compliance with both existing and new rules is imperative.
Figure 30. Weighted Head-to-Head Sensitivity Analysis Between

Risk Reduction and Risk Avoidance.
Reduce risk <> Avoid risk
^ ^ H e t risk
Relatio iship risk
Overall
I 1 1 1 1 1 1 1 1
12.52% 9.39% 6.26% 3.13% 0% 3.13% 6.26% 9.39% 12.52%
Two Dimensional (2D) Sensitivity Analysis
The 2D in Figure 31 portrays the alternative policies with respect two major
decision criteria at one time. The supply chain manager can change the major decision
criteria displayed by simply clicking the Expert Choice software menu tabs "X - axis and
Y - axis." The 2D is bifurcated into quadrants. Based on the quadrant, risk reduction
155
shown in the upper right-hand corner is the most favorable alternative policy with respect
to legislation/legislation risk (approximately .43) and operational risk (approximately .27),
while risk transfer shown in the lower left-hand corner is the least favorable alternative
policy with respect to regulation/legislation risk decision criterion (about .22) and
operational risk decision criterion (about .11).
Figure 31. Two Dimensional Sensitivity Analysis Plot.

.. Operational risk
.40
Transfer risk
.30
t Reduce risk
r"ii."-w* 'jMJUMWjHipPi "-I-. hh .
.20
Accept risk
.10
.00 I I , !
00 .10 .20 .30 .40 .50

Regulation/Legislation risk
Sub-Objectives
Table 28 portrays the priority pairwise sub-objectives with respect to major
decision objectives. Change in legislation risk (0.750) is the most important risk than
approval risk (0.250) with respect to regulation/legislation risk. The low score associated
with the regulatory approval suggests that the pharmaceutical industry does it best to
ensure that it minimizes risk that can impede drug approval. R&D risk (.750) is the most
156
important risk than distribution risk (0.250) with respect to operational risk. CSR risk
(0.667) is the most important risk as compared to disclosure risk (0.333) within the
category of reputational risk. For financial risk group, exchange rate risk (0.750) is more
important than currency risk (0.250). Key talent risk (0.667) is more important than
competition risk (0.333) with respect to market risk. Finally, for relationship risk, M&A
risk (0.800) is more important than third party liability risk (0.200). With respect to overall
ranking of risk, M&A risk (0.800) is the most important followed by change in legislation,
R&D, and exchange rate risks with 0.750 each; CSR and key talent with 0.667 each. For
the global priority column of Table 28, it can be observed that change in legislation, R&D,
CSR, exchange rate, key talent, and M&A are the top six rankings in the list of sub-risk
factors.
Table 28. Priority Pairwise Sub-Objectives with Respect to Major O )jectives.

Priority CR Rank Overall Rank
Local Global
(L) (G)
Regulation/Legislation Risk
Regulatory Approval .250 .073 0.000 2 5

Change in Legislation .750 .218 1* 2 ***
Operational Risk
Distribution .250 .057 0.000 2 5
Research &Development .750 .171 1* 9 ***
Reputational Risk
Corporate Social Responsibility .667 .134 0.000 1* 2 ****
Disclosure .333 .067 2 4
Financial Risk
Exchange Rate .750 .080 0.000 1* 2 ***
Currency .250 .027 2 5
Market Risk
Competition .333 .036 0.000 2 4
-5 * * * *
Key Talent .667 .071 1*
Relationship Risk
Third Party Liability .200 .013 0.000 2 6
Merger and Acquisition .800 .054 1* I **
157
Regulation/Legislation Risk: Regulatory Approval and Change in Legislation
Figure 32 shows the pairwise comparison of regulatory approval and change in the
legislation for regulation/legislation objective. For regulation/legislation objective, change
in legislation (0.750) is considered more important than regulatory approval (0.250).
Results of the priorities associated with regulatory approval and change in legislation
within regulation/legislation risk in Figure 33-34 show risk reduction as the most preferable
risk management strategy followed by risk acceptance.
Figure 32. Comparing Regulatory Approval/Change in Legislation for

Regulation/Legislation Risk.
Change ^^^^^^^^^^HH^^^^^^^^^^HH^^^^^^^BH
Regulatory approval .250 ^ ^ ^ ^ H H H H
Inconsistency = 0.
Figure 33. Risk Management Options' Priorities for Regulatory Approval Risk.
Reduce .432 ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ i
Accept risk
Avoid risk
Transfer risk
Figure 34. Risk Management Options' Priorities for Change in Legislation Risk.
Reduce .423 ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ i
Accept risk
Transfer risk
Avoid risk
Operational Risk: R&D and Distribution
Figure 35 depicts the pairwise comparison of R&D and distribution for operational
risk objective. Based on the bar graph, R&D (0.750) is considered more important than
distribution (0.250). The relative importance of R&D is consistent with literature. Results
158
of the priorities associated with R&D risk in Figure 36 shows risk transfer (0.424) as the
most preferable risk management strategy followed by both risk reduction and risk
avoidance (0.227), while distribution risk in Figure 37 depicts risk reduction (0.405) as the
most preferable risk management strategy followed by risk avoidance (0.341).
Figure 35. Comparing R&D/Distribution for Regulation/Legislation Objective.

R&D .750
Distribution .250
Inconsistency = 0.
Figure 36. Risk Management Options' Priorities for R&D Risk.

Transfer risk
Reduce risk
Avoid risk
Accept risk
Figure 37. Risk Management Options' Priorities for Distribution Risk.
Reduce risk .405

Avoid risk .341
Accept risk .130
Transfer risk .124
Reputation Risk: CSR and Disclosure
Figure 38 portrays pairwise comparison of CSR and disclosure for reputational risk
objective. Based on the bar graph, CSR (0.667) is considered more important than
disclosure (0.337). The relative importance of CSR is consistent with literature in terms of
its growth and requirements by investors. Results of the priorities associated with CSR risk
in Figure 39 shows risk acceptance (0.587) as the most preferable risk management
159
strategy, while disclosure risk in Figure 40 depicts risk reduction (0.334) as the most
preferable risk management strategy followed by risk avoidance (0.254) and risk
acceptance (0.245).
Figure 38. Comparing CSR and Disclosure for Reputation Risk.

.667 ^ ^ ^ ^ ^ ^ ^ ^ H
Inconsistency = 0.
Figure 39. Risk Management Options' Priorities for CSR Risk.

Accept risk
Reduce risk
Avoid risk
Transfer risk
Figure 40. Risk Management Options' Priorities for Disclosure Risk.

Reduce ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ l
Transfer H ^ ^ B H ^ ^ ^ H
Financial Risk: Exchange Rate and Currency
Figure 41 shows pairwise comparison of exchange rate and currency risks for
financial risk criteria. Based on the bar graph, exchange rate risk (0.750) is considered
more important than currency (0.250). Indeed, the relative importance of exchange rate risk
is prevalent in the pharmaceutical operating environment and consistent with literature.
Results of the priorities associated with exchange rate risk in Figure 42 shows risk transfer
(0.362) as the most preferable risk management strategy followed by both risk reduction
(0.272) and risk avoidance (0.255), while currency risk in Figure 43 depicts risk reduction
160
(0.507) as the most preferable risk management strategy followed by risk transfer (0.210)
and risk avoidance (0.178).
Figure 41. Comparing Exchange Rate and Currency for Financial Risk.
Exchange ^^^HH^^^^HHB^^^^H^^^^HIÎ^^H
Currency ^ ^ ^ ^ ^ ^ ^ H
Inconsistency = 0.
Figure 42. Risk Management Options' Priorities for Exchange Rate Risk.
Transfer ^^^^^^^|H|^|^^^^H^^^|^^^^|^^^^^H
Reduce risk .272
Avoid risk .255
Accept risk .111
Figure 43. Risk Management Options' Priorities for Currency Risk.

Reduce ^^^^^^^^^^^^^^^^^^H
Transfer risk
Avoid risk
Accept risk
Market Risk: Competition and Key Talent
Figure 44 portrays pairwise comparison of key talent and competition for market
risk objective. Based on the bar graph, key talent (0.667) is considered more important than
competition (0.333). The key talent result is consistent with literature. Results of the
priorities associated with key talent in Figure 45 indicates that risk reduction (0.400) is the
most important risk management strategy, while competition risk in Figure 46 depicts risk
reduction (0.428) as the most preferable risk management strategy.
161
Figure 44. Comparing Key Talent and Competition for Market Risk.
Key talent .667
Competition .333
Inconsistency = 0.
Figure 45. Risk Management Options' Priorities for Key Talent Risk.
Reduce risk
Accept risk
Avoid risk
Transfer risk
Inconsistency = 0.
Figure 46. Risk Management Options' Priorities for Competition Risk.

Reduce risk .428
Avoid risk .233
Accept risk .175
Transfer risk .164
with 0 missing judgments.
Relationship Risk: Third Party Liability and M&A
Figure 47 shows pairwise comparison of M&A and third party liability risks for
relationship risk objective. Based on the bar graph, M&A (0.800) is considered more
important than the third party liability risk (0.200). The relative importance of M&A is
consistent with literature. Results of the priorities associated with third party liability risk in
Figure 48 shows risk reduction (0.363) as the most preferable risk management strategy
followed by risk avoidance (0.326), while M&A risk in Figure 49 depicts risk avoidance
(0.415) as the most preferable risk management strategy followed by risk reduction (0.293).
162
Figure 47. Comparing M&A and Third Party Liability for Relationship Risk.
M&A .800
Third party .200
Inconsistency = 0.
Figure 48. Risk Management Options' Priorities for Third Party Liability Risk.
Reduce risk .363
Avoid risk .326
Accept risk .163
Transfer risk .148
Figure 49. Risk Management Options' Priorities for M&A Risk.

Avoid risk
Reduce risk
Transfer risk
Accept risk
Dynamic Sensitivity Analysis for Sub-Objectives
Sensitivity for Regulatory Approval and Change in Legislation Below

Regulation/Legislation Risk
Figure 50 shows the original result of sensitivity for regulatory approval and change
in legislation within regulation/legislation risk. Current results show that risk reduction
(0.334) is the most important risk management strategy. To observe if there will be
different outcome, a series of sensitivity analyses were performed to examine the effect of
changing the priority of the sub-objective or sub-criteria on the risk management policy
options' or strategies' ranking.
163
Figure 50. Dynamic Sensitivity of Regulation/Legislation Risk with
Respect to Regulatory Approval and Change in Legislation.
25.0% Regulatory approval 33.4% Reduce risk
75.0% Change in legislation 21.1% Accept risk
22.2% Avoid risk

.' ! ' ^ r . - . f . W W ' j i i
23.3% Transfer risk
J i i , i_
0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1 0
The impact of changing priority of 12 sub-objectives on overall results was examined.
Figures 51-67 show 12 sensitivity scenarios. As shown in Figure 51 (scenario 1), when the
relative importance of regulatory approval was changed from .250 (25.1%) to .184 (18.4%),
the risk management policy options' (alternatives') ratings or rankings were insensitive.
Risk reduction remained the best risk management policy option. In Figure 52 (scenario 2),
when the relative importance of change in legislation risk increased from 0.750 (75%) to
0.875 (87.5%), there was no change in risk reduction strategy's ranking or others.
Sensitivity for Distribution and R&D Below Operational Risk
Changing the relative importance of distribution from .250 (25%) in Figure 53 to 0.501
(50.1%o) in Figure 54 (scenario 1) had a considerable impact on the risk management
strategies' rankings. Risk reduction was found to be most important followed by risk
avoidance. Changing the relative importance of R&D risk from .750 (75%) in Figure 53
164
to .601 (60.1%) in Figure 55 (scenario 2) placed both risk reduction and risk transfer in the
rank. Thus, suggesting that reduction and transfer risk strategies are very important for the
pharmaceutical industry.
Figure 51. Sensitivity Analysis Scenario 1 for Regulatory Approval.

16.7% Avoid risk

tK&m&mm
19.3% Transfer risk
i i i i i
0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1 0 .4 .5
Sensitivity for CSR and Disclosure Below Reputation Risk
Changing the relative importance of CSR from 0.667 (66.7%) in Figure 56 to 0.336
(33.6%) in Figure 57 (scenario 1) had an impact on the rankings where risk
reduction/mitigation strategy is more important than the risk acceptance strategy. Changing
the relative importance of disclosure risk from .333 (33.3%) in Figure 56 to .664 (66.4%)
in Figure 58 (scenario 2) did not have any impact on the risk management strategies'
rankings.
165
Figure 52. Sensitivity Analysis Scenario 2 for Change in
Legislation.
16.6% Avoid risk
19.5% Transfer risk
0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1 0
Figure 53. Dynamic Sensitivity of Operational Risk with Respect

to Distribution and R&D.
25.0% Distribution 27.3% Reduce risk
75.0% R&D 12.4% Accept risk
25.6% Avoid risk
34.6% Transfer risk
.1 .2 .3 .4 .5 .6 .7 .8 .9 1 0
166
Figure 54. Sensitivity Analysis Scenario 1 for Distribution.
28.5% Avoid risk
27.2% Transfer risk
i . i i i . i i i
0 .1 .2 .3 .4 .5 .7 .8 .9 1 0
Figure 55. Sensitivity Analysis Scenario 2 for R&D.

27.4% Avoid risk
30.0% Transfer risk
.1 .2 .3 .7 .8 1 0
167
Figure 56. Dynamic Sensitivity of Reputation Risk with Respect
to CRS and Disclosure.
66.7% CSR 24.1% Reduce risk
33.3% Disclosure 42.7% Accept risk
19.2% Avoid risk

KgKSvSil
14.1% Transfer risk
J
0 .1 .2 .3 .4 .5 .6 .9 1 0 .6
Figure 57. Sensitivity Analysis Scenario 1 for CSR.

33.6% CSR 32.2% Reduce risk
24.6% Avoid risk
16.4% Transfer risk
1 0
168
Figure 58. Sensitivity Analysis Scenario 2 for Disclosure.
44,4% CSR 27.2% Reduce risk
21.2% AvoidI risk
15.0% Transfer risk
i . i . i
0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1 0 .1 .2 .3 .5 .6
Sensitivity for Exchange Rate and Currency Below Financial Risk
Changing the relative importance of exchange rate from .750 (75%) in Figure 59 to
0.805 (80.5%) in Figure 60 (scenario 1) did not have an impact on the risk management
strategies' rankings. However, changing the relative importance of currency risk from .250
(25%) in Figure 59 to .601 (60.1%) in Figure 61 (scenario 2) had an impact on the rankings,
particularly the preference for risk reduction as opposed to risk transfer.
169
Figure 59. Dynamic Sensitivity of Financial Risk with Respect to
Exchange Rate and Currency.
75.0% Exchange rate 31.7% Reduce risk
25.0% Currency 11.0% Accept risk
24.0% Avoid risk
wmm
33.3% Transfer risk
0 .1 .2 .3 .4 .5 .6 .7 .9 1 0
Figure 60. Sensitivity Analysis Scenario 1 for Exchange Rate.

24.4% Avoid risk

;*w;;,.; ;,^;aw
33.9% Transfer risk
i i i , i . i i i
.2 .3 .4 .5 .6 .9 1 0
170
Figure 61. Sensitivity Analysis Scenario 2 for Currency.
21.1% Avoid risk
27.5% Transfer risk
. i
0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1 0
Sensitivity for Competition and Key Talent Below Market Risk
When the importance of competition risk was increased from .333 (33.3%) in
Figure 62 to 0.585 (58.5%) in Figure 63 (scenario 1), there was no impact on the risk
management strategies' rankings. Similarly, changing the importance of key talent risk
from .667 (66.7%) in Figure 62 to .802 (80.2%) in Figure 64 (scenario 2) had no impact on
the rankings.
171
Figure 62. Dynamic Sensitivity Analysis of Market Risk with
Respect to Competition and Key Talent.
33.3% Competition 40.9% Reduce risk
66.7% Key talent 19.2% Accept risk
21.0% Avoid risk
18.9% Transfer risk
0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1 0
Figure 63. Sensitivity Analysis Scenario 1 for Competition.

18.6% Accept risk
21.9% Avoid risk
17.9% Transfer risk
_J J 1...
0 .1 .2 .3 .4 .5 .6 .9 1 0 .2 .3
172
Figure 64. Sensitivity Analysis Scenario 2 for Key Talent.
80.2% Key talent 19.5% Accept risk
20.6% Avoid risk

tififfiaiailil
19.3% Transfer risk
i i i i i i i i i
0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1 0
Sensitivity for Third Party Liability and M&A Below Relationship Risk
Changing the importance of third party liability risk from .250 (25%) in Figure 65
to 0.400 (40%) in Figure 66 (scenario 1) had no effect on the risk management strategies'
rankings. Similarly, changing the importance of M&A risk from .750 (75%) in Figure 65
to .604 (60.4%o) in Figure 67 (scenario 2) had no impact on the rankings.
173
Figure 65. Dynamic Sensitivity Analysis for Relationship Risk
with Respect to Third Party Liability and M&A.
25.0% Third party 35.3% Reduce risk
75.0% M&A 13.8% Accept risk
36.9% Avoid risk
0 .1 .2 .3 .4 .5 .6 .7 .9 1 0
Figure 66. Sensitivity Analysis Scenario 1 for Third Party Liability.

37.8% Avoid risk
17.0% Transfer risk
0 .1 .2 .3 .4 .5 1 0
174
Figure 67. Sensitivity Analysis Scenario 2 for M&A.
^^^^
^^~
37.6% Avoid risk

WJX "VSTW,* * îy^siiti
16.9% Transfer risk
I , I , ! , I
0 .1 .2 .3 .4 .5 .6 .7 .9 1 0 .2 .3
Composite Score for Sub-Objectives of the GSCLRM
GSCLRM for an alternative policy option i (GSCLRMj) represents the summation
of the products of the relative importance priorities of the alternative policy option (Aja)
and the relative importance priorities of the sub-objectives (SOa) of the GSCLRM.
Specifically, GSCLRMi = XAiaSOa; where SOa represents the relative importance of the
sub-objective priorities. Table 29 shows results of the composite scores associated with risk
reduction, risk acceptance, risk avoidance, and risk transfer. The composite scores indicate
that risk reduction (0.193) is the most appropriate alternative policy option followed by risk
transfer (0.150), risk avoidance (0.131), and risk acceptance (0.127) for the pharmaceutical
GSCLRM. Further, the detail summaries of all the objectives' priorities and alternative
policies or options are reported in Tables 1-10 under Appendix A.
175
Table 29. Composite Score of Alternative Option.
Risk Risk Risk Risk Rank
Reduction Acceptance Avoidance Transfer
Regulatory Approval 0.031 0.015 0.014 0.012 5
(0.250)
Change in 0.092 0.047 0.035 0.043 1
Legislation (0.750)
Distribution (0.250) 0.024 0.008 0.020 0.007 8
R&D (0.750) 0.039 0.021 0.039 0.072 2
CSR (0.667) 0.015 0.057 0.013 0.011 3
Disclosure (0.333) 0.028 0.021 0.021 0.014 7
Exchange Rate 0.026 0.010 0.024 0.034 4
(0.750)
Currency (0.250) 0.011 0.002 0.004 0.005 11
Competition (0.333) 0.015 0.006 0.008 0.006 10
Key Talent (0.667) 0.030 0.015 0.015 0.015 6
Third Party Liability 0.006 0.003 0.005 0.002 12
(0.200)
M&A (0.800) 0.016 0.006 0.023 0.010 9
Composite Score of 0.193 0.127 0.131 0.150
Alternative Policy
Option
Rank 1 4 3 2
176
CHAPTER 7. SUMMARY AND IMPLICATIONS
Summary and Comments for Future Research
This study evaluates an actual pharmaceutical industry to select the appropriate
GSCL risk management policy options. Accomplishing this goal required developing an
extension of an existing multi-criteria decision making model such as AHP. The extension
entails modeling risk management in the pharmaceutical industry GSCL leveraging AHP
methodology. AHP methodology is selected because it allows 1) decision makers to model
a complex problem in a hierarchical structure portraying the relationships of the overall
goal, criteria (objectives), sub-criteria (sub-objectives), and alternatives; 2) the use of data,
experience, insight, and intuition in a more logical and thorough manner; 3) decision
makers to derive ratio scale priorities (weights) instead of arbitrarily assigning the weights;
and 4) the use of special ratio scales to capture all sorts of interactions between tangible
and intangible criteria to make effective decisions. The specific objectives is to identify
pharmaceutical GSCL risk sources, estimate risk impact, generate risk priorities and
evaluate them in terms of the most important risks to manage and selecting appropriate
alternative policy options (reduce risk, accept risk, avoid risk, and transfer risk) to
minimize such risks.
A survey questionnaire technique approach was used for gathering relational data to
assess the order of importance of the pharmaceutical supply chain logistics risks. From the
hierarchy tree, a questionnaire was developed to allow pairwise comparisons between all
the factors at each level in the hierarchy. The hierarchy structure is composed of four levels.
Level 1 describes the major goal of minimizing pharmaceutical GSCL risk. At level 2, the
major goal is decomposed into six major objectives. Similarly, at level 3, each major
177
objective is decomposed into sub-objective relevant to the supply chain managers. Finally,
level 4 defines the four alternative risk management policy options. The pairwise
comparison process elicits qualitative judgments or opinions that indicate the strength of
the decision maker's preference in a specific comparison according to Saaty's 1-9 scale.
The result of the survey questionnaire technique was used as input for the AHP. According
to literature, some of the risk objectives that can affect pharmaceutical supply chain
performance include regulatory/legislation, operation, reputation financial, market, and
relationship. And their associated sub-criteria are regulatory approval and change in
legislation; distribution and R&D; corporate social responsibility (CSR), and disclosure;
exchange rate and currency; competition, and key talent; and third party and M&A,
respectively. For every objective and objective measure, weights may be elicited from
experts. These weights represent the importance of the criteria or measures to the risk in the
pharmaceutical supply chain logistics. The hierarchy is then determined from the bottom
up employing the pairwise comparisons and weights to create a ranking of the relative risk
of the pharmaceutical GSCL.
Result of the pairwise comparison of the major indicate that regulation/legislation
risk is the most important risk factor to minimize and manage in the pharmaceutical
industry GSCL with a priority of 0.291 (29.1%). This finding suggests that new or existing
regulations and legislation are perceived as one of the greatest risks facing the
pharmaceutical industry. Operational and reputational are also major risk factors with an
importance priority of 0.228 (22.8%) and .200 (20%), respectively with inconsistency of
0.03. With respect to the major objectives, results of the composite scores indicate that risk
reduction or mitigation (0.386) is the most preferable risk management policy option
178
%
followed by risk acceptance (0.252), and risk avoidance (0.213). Both Ideal synthesis
(0.337) and distributive synthesis (0.332) with an overall inconsistency of 0.03 indicate that
risk reduction is most preferable.
The sensitive analysis options of the Expert Choice Software package were used to
explore how decision makers' judgments might affect final decision outcome. The five
types of sensitive analysis performed included dynamic, performance, gradient, head-tot-
head, and 2-dimensional plot. The initial dynamic sensitivity result suggests that risk
reduction strategy is most important. However, when the relative importance of
regulation/legislation and operational risks were increased, the risk management policy
alternatives' ratings or rankings were insensitive. Overall, results indicate risk management
alternatives' rankings were insensitive or did not change to changes in the relative
importance of regulation/legislation to relationship risk.
For the priority pairwise sub-objectives with respect to major objectives, results
indicate that under the regulation/legislation risk, change in legislation risk is the most
important risk than approval risk; under operational risk, R&D risk is the most important
than distribution; with respect to reputational risk, CSR risk is more important than
disclosure; for the case of financial risk, exchange rate risk is more important than currency;
with respect to market risk, key talent risk is preferable than competition; and in the case of
relationship risk, M&A is the most important than third party liability.
Risk reduction management strategy is most important for both regulatory approval
and change in legislation followed by risk acceptance; risk transfer is a better strategy for
R&D risk, while risk reduction strategy is most important for distribution; risk acceptance
strategy is required for CSR risk, while risk reduction strategy is better for disclosure risk;
179
risk transfer strategy is more important followed by reduction risk for the exchange rate
risk, while risk reduction strategy is preferable followed by risk transfer strategy for
currency risk; risk reduction strategy is more important followed by risk acceptance
strategy for key talent risk, while risk reduction option is better followed by risk avoidance
for competition risk. For third party liability risk, risk reduction option followed by risk
avoidance option is important, while risk avoidance option followed by risk reduction
option is preferable to deal with M&A risk. Ideal synthesis, distributive synthesis, and
sensitivity analysis including dynamic, performance, gradient, head-to-head, and 2D plot
were performed for the sub-objectives. The composite score of the alternative policy
options indicate that risk reduction strategy is preferable followed by risk transfer, risk
avoidance, and risk acceptance strategies.
The comparison of this study results to those found by other studies is difficult,
since models, data bases, industry, and estimation procedures are not similar. Nevertheless,
the comparison of this study with other studies offered some useful insights. For example,
the need to reduce or mitigate risks associated with regulation/legislation, regulatory
approval and change in legislation, reputational, CSR, competition, exchange rate, M&A,
among others found in this study are consistent with relevant literature reviewed.
The contribution of this research to literature has been to extend AHP model by
modeling risk management in the pharmaceutical GSCL and to evaluate risk management
strategies in terns of risk reduction, risk avoidance, risk acceptance, and risk transfer. This
is imperative because managing portfolio of pharmaceutical GSCL risks requires huge
financial investment. As a result, it is important for the pharmaceutical industry to
understand that the best strategy to manage portfolio risks is to prioritize them. This
180
research could be extended by comparing estimates from the AHP model used here with
estimates from analytic network process (ANP) model also developed by Saaty. There are
other areas in which the present study can be extended. One such area is the integration of
goal programming to reveal more information about pharmaceutical GSCL risks and risk
management options. This may yield vital insights into the pharmaceutical supply chain
managers' decision making behavior.
Overall, empirically, the AHP model yielded plausible estimates for the risk factors
considered in the study. The AHP model reasonably predicted the relevant risks inherent in
the pharmaceutical industry and identified the appropriate risk management strategies to
tame such risks. The predictive power of the AHP model was very good. As a result, the
pharmaceutical industry may adopt AHP model to evaluate portfolio of risks and
prioritization of such risks for risk management implementation.
Implications
Since 9/11 SCRM has become a popular agenda for both the pharmaceutical and
non-pharmaceutical industries. Those industries that can aggressively minimize and
manage the risk and uncertainty inherent in their supply chain value stream will achieve
superior competitive performance over rivals in the global marketplace. Globalization,
outsourcing, single sourcing, just-in-time supply chain management, lean and agile supply
chains have made the pharmaceutical industry GSCL more vulnerable to risks. The
pharmaceutical GSCL is exposed to risks such as counterfeiting and diversion, regulatory
compliance, exchange rate fluctuation, interest rate, inflation rate, tariff or duty rates, price
of commodity, availability of quality labor, labor union strike, political conditions,
181
terrorism, natural disasters, and supply chain infrastructure. Those firms that can manage
supply chain risks will create shareholder value and will be well positioned with Wall
Street expectations. And firms that neglect to respond to the call to implement SCRM do so
at their own peril. According to McBeath (2004) "understanding the risks and managing to
avert them can prevent unplanned cost and improve total performance. As the inventible
disruptions occur every day in supply chains (as in life), those that are the most resilient
will win by a long shot." The pharmaceutical industry has a responsibility to shareholders
and consumers to pursue SCRM implementation. For those pharmaceutical firms that are
successful in inoculating their supply chains against disruptions risks will reap the reward
As global pharmaceutical firms for better or worse shift their emphasis from
sourcing and producing their products internally to outsourcing to low-cost destinations
risks and uncertainties will continue to be prevalent. Increasingly, China and India have
become the choice destinations for the pharmaceuticals manufacturers because of 1) cost
reduction strategy, 2) more flexibility with manufacturing and capacity, 3) lower labor
costs, 4) capital does not need to be invested in machinery or plant capacity, and 5) not a
core competency (Sun, 2006). However, the pharmaceutical industry executives are facing
the hard reality that risk of disruptions in the form of counterfeit to its legitimate drug
supply chain can devastate public health, patient safety, and the bottom line. Therefore,
supply chain managers must understand that inability to plan, measure, mitigate and
manage risk elements in their supply chains can adversely impact drug quality, customer
retention/confidence, brand strength, and financial performance.
182
To survive and thrive in the twenty-first century global economy, pharmaceutical
firms must learn how to adapt to today's environment that is faced with daunting
challenges. This means pharmaceutical organizations "need a new way of operating that
gives them the flexibility to respond quickly to unexpected changes" (Heinrich and Betts
2003). Therefore, to succeed, pharmaceutical firms must look towards the adoption of
SCRM implementation in order to become resilient to sudden disruptions in their global
supply chains. The ever changing regulatory requirements, Sarbanes-Oxley Act, drug
pedigree laws (track and tracing) and their compliance means firms must embraced SCRM
culture. And failure to do so means that firms may see their brands damaged by negative
publicity or a major product recall or de-listing, banks can view firms as too high an
investment risk, significant regulatory penalty, increase in legal costs and insurance
premiums (IBM, 2004).
Further, in today's competitive global business environment, organizations'
performance and profitability strength are hinged upon their ability to sense and respond to
consumers' changing demand behavior, changing government regulations, and constant
threat of disruptions. Arguably, Wall Street is more than ever demanding visibility into
supply chain operations because the traditional sales forecasts and quarterly profits are
providing less trustworthy insights into an organizations' long term competitiveness than
their ability to move things well.
183
REFERENCES
Aberdeen Group (2006). Global Supply Chain Benchmark Report: Industry Priorities for
Visibility, B2B Collaboration, Trade Compliance, and Risk Management.
http://www-935.ibm.com/services/us/igs/pdf/aberdeen-benchmark-report.pdf
Aberdeen Group. (2005). Supply Risk Management Benchmark: Assuring Supply and
Mitigating Risks in an Uncertain Economy.
http://www.aberdeen.com/summarv/report/benchmark/RA SupplyRiskMgmt TM
1970.asp.
Adams, J. (1995). Risk. Routledge: London.
Agarwal, A., Shankar, R. and Tiwari, M. K. (2005). Modeling the Metrics of Lean, Agile
and Leagile Supply Chain: An ANP-Based Approach. European Journal of
Operational Research, 173(1), 211-225.
Al-Jarbi, K.M.A.-S. (2001). Application of the AHP in Project Management.

International Journal of Project Management, Vol. 19, pp. 19-27.
Andrews, K. R. (1987). The Concept of Corporate Strategy, 3 rd Edition in Leveraging

Information for Action. Homewood, IL: Richard D. Irwin.
Apostolou, B. and Hassell, J.M. (1993). An Overview of the Analytic Hierarchy Process
and its use in Accounting Research. Journal of Accounting Literature, Vol. 12, pp.
1-28.
Arntzen, B. C , Brown, G. G., Harrison, T. P., and Trafton, L. L. (1995). Global Supply
Chain Management at Digital Equipment Corporation. Interfaces, Volume 25, pp.
69-93.
Ashton, W. B. and Stacey, G. S. (1985). Technical Intelligence in Business:

Understanding Technology Threats and Opportunity. International Journal of
Technology Management, Special Issue on the Management of Technological
Flows Across Boundaries, Vol. 10 No. 1, pp. 79-104.
Atthirawong, W. and MacCarthy, B. (2005). An Application of the Analytic Hierarchy

Process to International Location Decision-Making. Proceedings of the 7th
Cambridge Research Symposium on International Manufacturing,
www.ifm.eng.cam.ac.uk/cim/imnet/symposium2002/papers/Atthirawong.pdf.
Austin, W., Hills, M., & Lim, E. (2003, November 11). Outsourcing of R&D: How
Worried Should we be? GUIRR Council Meeting.
184
Backman, M. and Segrestin, B. Drug Design Strategies: The New Challenge of
Discovery Departments in Pharmaceutical Companies.
http://vvrww.cgs.ensmp.fr/publications/cornmunications/BackmanSegrestinIPDMDr
ugdesi gnstrate gies .pdf
Bandyopadhyay, K., Mykytyn, P. and Mykytyn, K. (1999). A framework for Integrated

Risk Management in Information Technology. Management Decision, Vo. 37 No.
5, pp. 437-44.
Barbarosoglu, G. and Yazgac, T. (1997). An Application of the Analytic Hierarchy

Process to the Supplier Selection Problem. Production Inventory Management
Journal, First Quarter, pp. 14-21.
Barron, J.N & Kreps, D.M. (1999). Strategic human resources: frameworks for
general managers. New York: Wiley.
Barry, J. (2004). Supply Chain Risk in an Uncertain Global Supply Chain Environment.
International Journal of Physical Distribution & Logistics Management, Vol. 34 No.
9, pp. 695-697.
Beamon, B. M. (1998). Supply Chain Design and Analysis: Models and Methods.
International Journal of Production Economics, Volume 55, pp. 281-294.
Belton, V. (1990). Multiple Criteria Decision Analysis: Practically the only way to Choose.
In Hendry LC, Eagles RW, Editors. Operational Research Tutorial Papers, pp. 53-
102.
Belton, V. and Gear, T. (1983). On a Shortcoming of Saaty's Method of Analytic

Hierarchy. Omega, Vol. 11 No. 3, pp. 228-30.
Berrittella, A., Certa, A., Enea, M. and Zito, P. (2007). An Analytic Hierarchy Process for
the Evaluation of Transport Policies to Reduce Climate Change Impacts.
www.feem.it/Feem/Pub/Publications/WPapers/default.htm, pp. 1-23.
Bettis, T. and Thomas, H. (Eds). (1990). Risk, Strategy and Management. Greenwich, CT:
JAI Press.
Bettis, R. A., Bradley, S. P., & Hamel, (1992). Outsourcing and Industrial Decline.
Academic Executive, 6(1), 7-22.
Bhatnagar, R., Pankaj, C , and Goyal, S. K. (1993). Models for Multi-Plant Coordination.
European Journal of Operational Research, 67, pp. 141-160.
Bosman, R. (2006). The New Supply Chain Challenge: Risk Management in a Global
Economy, www.fmglobal.com. Global, 1-10.
185
Bright, J. (2004). Finding the ROI in the FDA's Counterfeit Drug.
http:/www.usingrfid.com/features/read.asp?id= 15.
Buehler, K.S. and Pritsch, G. (2003). Running with Risk. The McKinsey Quarterly, No.
4, 40-49.
Burwell, H. P. 2004. Online Competitive Intelligence, Tempe, AZ:Facts on Demand Press.
Calaf, J. E. (1995). Value-added Network in Contract. Annual International Conference

Proceedings, American Production and Inventory Control Society, Falls Church,
VA, 521-4.
Caputo, A.C., Cucchiella, F., Fratocchi, L. and Pelagagge, P.M. (2005). An Integrated
Framework for E-Supply Networks Analysis. Supply Chain Management: An
International Journal, 10(2), 84-95.
Carter, J. R. and Narasimhan, R. (1996). Purchasing and Supply Management: Future

Directions and Trends. International Journal of Purchasing and Materials
Management, 32 (4), 2-12.
Case, G. (2007). Global Risk Management Survey 2007. AON Corporation,

1-119.
Cavinato, J.L. (2004). Supply Chain Logistics Risks: From the Back Room to the Board
Room. International Journal of Physical Distribution & Logistics Management,
34 (5), 383-387.
Chan, K. C , Seow, G.S. and Tarn, K. (2002). Foreign Exchange Risk and Firm Value:
Analysis of US Pharmaceutical Firms. Managerial Finance, 28(3), 57-72.
Chiclana, F., Herrera, F., and Herrera-Viedma, E. (2002). The Ordered Weighted
Geometric Operator: Properties and Application in MCDM Problems. Studies in
Fuzziness and Soft Computing.
ftp://decsai.ugr.es/pub/arai/tech rep/decision/libroOWG.pdf.
Childerhouse, P., Hermiz, R., Mason-Jones, R., Popp, A. and Towiil, D. (2003).
Information Flow in Automotive Supply Chains-Present Industrial Practice.
Industrial Management & Data Systems, 103 (3), 137-49.
Chopra, S. and Meindl, P. (2001). Supply Chain Management: Strategy, Planning and
Operation. Prentice-Hall, Upper Saddle River, New Jersey.
Christiansen, J. R. (2005). An Integrated Standard of Care for Healthcare Information

Security: HIPPA, Risk Management and Beyond. American Health Lawyers
Association.
186
Christiansen, J. R. A Healthcare Case Study on Managing Enterprise Risks in Email.
Retrieved October 10, 2008, from
http://www.zixcorp.com/pdf/Zixcorp HealthCarewhitepaper.pdf.
Christopher, M. and Lee, H. (2004). Mitigating Supply Chain Risk through Improved
Confidence. International Journal of Physical Distribution & Logistics
Management, 34 (5), 388.396.
Christopher, M. and Lee, H. (2001). Supply Chain Confidence. Working Paper,

Cranfield School of Management, UK.
Christopher, M. G. et al. (2002). Supply Chain Vulnerability, Report of Department of

Transport, Local Government and the Regions, Cranfield University, Cranfield.
Christopher, M. (2003). Creating Resilient Supply Chains: A Practical Guide.

www, cranfield. ac. uk/som/scr, 1-100.
Christopher, M. (1999). Creating the Agile Supply Chain.

http://www.sclgme.org/shopcart/Documents/creating the agile supply chain.pdf.
Christopher, M. (2003). Understanding Supply Chain Risk: A Self-Assessment

Workbook, www.cranfield.ac.uk/som/scr, 1-48.
Christopher, M. and Towill, D. R. (2001). An Integrated Model for the Design of Agile
Supply Chains. International Journal of Physical Distribution and Logistics
Management, 31(4), 235-246.
Closs, D. J. and McGarrell, E. F. (2004). Enhancing Security throughout the Supply

Chain, www.businessofgovernment.org, 1-52.
Cohen, M. A. and Lee, H. L. (1989). Resource Deployment Analysis of Global

Manufacturing and Distribution Networks. Journal of Manufacturing and
Operations Management, Volume 2, pp. 81-104.
Conklin, J. M. (1994). Extending Capabilities through Contract Manufacturing. In the

Proceedings of Electro International Conference, 145-53.
Contract Research Manufacturing & Services, (n.d.). Retrieved October 15, 2008, from
http://www.researchandmarkets.com/reports/c86978.
Cooper, M., Lambert, D. and Pagh, J. (1997). Supply chain management: More than just a
Name for Logistics. The International Journal of Logistics Management, 8 (1), 1-14.
Council for Supply Chain Management Professionals. (2005). Available online at

http://.cscmp.org/website/aboutCSCMP/Definitions/Definitions.asp.
187
Courtney, H. (2001). Making the Most of Uncertainty. The McKinsey Quarterly, No. 4,
38-47.
Coyle, J. J., Bardi, E. J., and Langley, C. J. (2003). The Management of Business Logistics:
A Supply Chain Perspective, 7th Ed, South-Western, Canada.
Crowe, T.J. and Noble, J.S., Machimada, J.S. (1998). Multi-attribute Analysis of ISO
9000 Registration using AHP. International Journal of Quality and Reliability
Management, 15 (2), 205-222.
Cucchiella, F. and Gastaldi, M. (2006). Risk Management in Supply Chain: A Real

Option Approach. Journal of Manufacturing Technology Management, 17(6), 700-
720.
Datamonitor. (August 2006). Pharmaceutical Outsourcing: New opportunities in a fully

Integrated Global Outsourcing Strategy. Datamonitor Pharmaceutical Report.
Dess, G.G., Rasheed, A. A., McLaughlin, K. J. & Priem, R. L. (1995). The new
Corporate Architecture. Academic Management Executive, 9(3), 7-20.
Desouza, K. C , Awazu, Y. and Mehling, J. (2004). The Risks of Outsourcing. Retrieved

September 10, 2008, from http://www.japaninc.com/article.php?articleID=1404.
Dimasi, J. A., Hansen, R. W., and Grabowski, H. G. (2003). The Price of Innovation:
New Estimates of Drug Development Costs. Journal of Health Economics, 22, 151-
185.
Dorfman, S. (1994). Risk Management & Insurance 5 ed., Englewood, N.J.: Prentice
Hall.
Doner, M. (2005). Supply Chain Intelligence: Using Information as Your Competitive

Advantage. American Fastner Journal, pp. 1-4.
Drucker, P. F. (1962, April 3). The Economy's Dark Continent. Fortune, p. 103.
Dyer, J.S. and Wendel, R.E. (1985). A Critique of Analytic Hierarchy Process. Working
Paper 84/85-4-24. Department of Management, The University of Texas at Austin.
Dyer, R.F. and Forman, E.H. (1991). An Analytic Approach to Marketing Decisions,
Prentice Hall, Englewood Cliffs.
Economist. (2002, December 5). "A Moving Story.
Eglin, R. (2003, November 23). Can Suppliers Bring Down Your Firm?" Sunday Times
(London), Appointments Sec, p. 6.
188
Engardio, P. (2001, March 19). Why the Supply Chain Broke Down. Business Week, Issue
3724, p. 41.
Enyinda and Szmerekovsky (2007). Sense and Respond Logistics Model: A Prescription
for Mitigating the U.S. Pharmaceutical Supply Chain Vulnerabilities and the Risk
of Counterfeit Drugs. In Proceedings of the International Academy of Business
and Public Administration Disciplines.
Enyinda, C. I., Tolliver, D., and Szmerekovsky, J. (2007). Mitigating and Managing
Global Supply Chain Risks and Security: Leveraging RFID Technology. In
Proceeding of the Society for Advancement of Management.
Enyinda, C. I. and Tolliver, D. (2007). Taking Counterfeit Drugs out of Pharmaceutical

Supply Chain Logistics Network in Sub-Saharan Africa: Key Issues and
Multilayered Mitigation Approach. In Proceedings of the International Academy
of African Business and Development.
Enyinda, C. I., Obuah, E. (2006). The Political Economy of US Global Trade Supply Chain
Security Measures: Implications for Trade under African Growth and Opportunity
Act. Journal of Sustainable Development in Africa 9(1), 2007, 117-132.
Enyinda, C. I. and Dunu, E. (2005, Fall). Managing Global Logistics and Supply Chains in
the New Security Environment: Challenges and Implications for Multinational Firms.
Journal of Business and Behavioral Sciences, 13(1), 122-136.
Enyinda, C. I., Obuah, E. and Ojadi, F. (2005). International Trade Supply Chain Logistics in
the New Security Environment: Impact on African Growth and Opportunity Act. In
Proceedings of 2005 International Academy of African Business and Development.
Enyinda, C. I., Williams, M., and Ogburia, S. (2005, Spring). Global Outsourcing of
Services under the Threat of New Protectionism: The Next Battleground for Free
Trade. The International Journal of Business and Public Administration, 2(1), 49-62.
European Generic Medicines Association. (2006, July 19). Business with Certified Partners
Only: Position Paper on Anti-counterfeit Policy. Retrieved October 5, 2006, from
www.egagenerics.com/doc/ega-anticounterfeit position.pdf.
Europe Fortune 500: Outsourcing Logistics Report. (2006). Retrieved February 10, 2006,
From http://www.evefortransport.com/outsourceuro/Outsourcing Logistics
_2006_reportnew.pdf.
Faisal, M.N. Banwet, D.K. and Shanker, R. (2006). Supply Chain Risk Mitigation:
Modeling the Enablers." Business Process Management Journal, 12 (4), 535-552.
Faisal, M.N., Banwet, D.K. and Shanker, R. (2007). Quantification of Risk Mitigation
Environment of Supply Chains using Graph Theory and Matrix Methods. European
189
Journal of Industrial Engineering, 1(1), 22-39.
Fill, C. and Visser, E. (2000). The Outsourcing Dilemma: A Composite Approach to the
Make or Buy Decision. Management Decision, 38(1), 43-50.
Finch, P. (2004). The Supply Chain Risk Management. Supply Chain Management: An
International Journal, 9(2), 183-196.
Forman, E.H. (1983, Fall). The Analytic Hierarchy Process as a Decision Support System."
Proceedings of the IEEE Computer Society.
Financial times. (2001, July 31). p. 10.
Fraiche, D.D. (2003). Jobs and Outsourcing: A politically sensitive issue. Manzella
Trade Communications, Inc.
Froilan, S. Competitive Intelligence Approach to Financial Risk Management in

Banking. Retrieved August 15, 2008, from,
http://www.ermsymposium.org/2007/pdf/papers/Sia.pdf.
Fuld, L. 1995. The New Competitor Intelligence. New York: Wiley.
Gaonkar, R. and Viswanadham, N. (2004). A Conceptual and Analytical Framework for

the Management of Risk in Supply Chain. In the proceedings of the 2004 IEEE
International Conference on Robotic and Automation. New Orleans, USA.
Gaudenzi, B. and Borghesi, A. (2006). Managing Risks in the Supply Chain Using the AHP
Method. The International Journal of Logistics Management, 17(1), 114-136.
Gilad, B. (1994). Business Blind Spots: Replacing your Company's Entrenched and
Outdated Myths, Beliefs, and Assumptions with the Realities of Today's Markets.
Chicago: Probus.
Gilley, K. M., Greer, R. C , & Rasheed, A. A. (2004). Human resource outsourcing

and organizational performance in manufacturing. Journal of Business
Research, 57, 232-240.
Grossman, G. M & Helpman, E. (2002). Outsourcing in a global economy. NBER

Working paper 8728. Retrieved May 25, 2005, from
http://www.nber.org/papers/w8728
Giunipero, L.C. and Eltantawy, R.A. (2004). Securing the Upstream Supply Chain: A
Risk Management Approach. International Journal of Physical Distribution &
Logistics Management, 34(9), 698-713.
Giunipero, L.C. and Pearcy, D.H. (2000). World-Class Purchasing Skills: An Empirical
190
Investigation. Journal of Supply Chain Management, 36(4), 4-13.
Goshal, S. and Westney, D. (1991). Organizing Competitor Analysis Systems.

Strategic Management Journal, 12, 17-31.
Grabowski, H. G. and Vernon, J. (2002). The Distribution of Sales Revenue from

PharmacoEconomics. Supplement 1, 18(3), 21-23.
Graig, T. (2003). 4PL versus 3PL: A Business Process Outsourcing Option for
International Supply Chain Management. Retrieved January 10, 2008, from
http://whitepapers.techrepublic.com.com/abstract. aspx?&docid=94271&promo=ll
OOOOw
Grandzol, J.R. (2005, August 24). Improving the Faculty Selection Process in Higher
Education: A Case for the Analytic Hierarchy Process. Association for Institutional
Research, 6, 1-13.
Griffith, S.E. (1971). Sun Tzu: The Art of War, New York, Oxford University Press.
Griffy-Brown, C. (2003). Just-in-Time to Just-in-Case: Managing a Supply Chain in

Uncertain Times. Graziadio Business Report. 6, Issue 2.
Hafeez, K., Zhang, Y. and Malak, N. (2002). Determining Key Capabilities of a Firm
using Analytic Hierarchy Process. International Journal of Production Economics,
76(1), 39-51.
Hallikas, J. Virolainen, V. and Tuominen, M. (2002). Risk Analysis and Assessment in

Network Environments: A Dyadic Case Study. International Journal of Production
Economics, 78(1), 45-55.
Haimes, Y. (1998). Risk Modeling, Assessment and Management. John Wiley and Sons,
Inc., New York.
Hardaker, J. B., Huirne, R.B.M, and Anderson, J.A. (1997). Coping with Risk in
Agriculture. New York: CAB International.
Harland, C , Brenchley, R. and Walker, H. (2003). Risk in Supply Networks. Journal of

Purchasing and Supply Management, 9(1), 51-62.
Harland, C. and Brenchley, R. (2001, June 3-5). Risk in Supply Networks. Paper Presented
at the 8th International Annual Conference, European Operations Management
Association, Bath, 306-15.
Harwood, J.R. Heifner, K., Coble, T., Perry, T. and Somwaru, A. (1999). Managing Risk
in Farming: Concepts, Research and Analysis. Agricultural Economics Report No.
774. Market and Trade Economic Division, Economic Research Service U.S.
191
Department of Agriculture, March
Health Industry Group Purchasing Association . (2004). Integrity of the Pharmaceutical

Supply Chain: Product Sourcing for Patient Safety.
Heckerman, D. (1972). The Exchange Risks of Foreign Operations. Journal of Business,

45, 42-48.
Heinrich, C. and Betts, B. (2003). Adapt or Die: Transforming your Supply Chain into an
Adaptive Business Network. John Wiley & Sons, Inc.
Hendricks, K. B. and Singhal, V. R. (2005, Spring). An Empirical Analysis of the Effect of

Supply chain Disruptions on Long-Run Stock Price Performance and Equity Risk
of the Firm. Production and Operations Management, 14(1), 35-52.
Hendricks, K. B. and Singhal, V. R. (2003). The Effect of Supply Chain Glitches on

Shareholder Wealth. Journal of Operations Management, 21, 501-522.
Hillman, M. and Keltz, H. (2007, January). Managing Risk in the Supply Chain - A
Quantitative Study. AMR Research Report, 1-22.
Hodder, J. (1982). Exposure to Exchange-Rate Movements. Journal of International

Economics, 29, 217-236.
Holton, G. A. (2004). Defining Risk. Financial Analysts Journal, 60(6), 19-25.
Hirschhorn, G., & Gilmore, T. (1992). The new boundaries of the boundaryless
company. Harvard Business Review, 70(3), 104-15.
http://www.iproceed.com/blog/2004/07/pharma-biotech-rd-growth-opportunities.html.
http://www.in-pharmatechnologist.com/news/ng.asp?id=58484-outsourcing-to-show.
http://www.kaloramainformation.com/Pharmaceutical-Outsourcing-Opportunities-.
http://www.researchandmarkets.com/reports/c86978.
Nishith Srivastava, N. (2002, September). The Trends in the Biotech/Pharmaceutical

Outsourcing Industry. CanBiotech BioMed Outsourcing, Newsletter: 1, Issue 1.
Dwivedi, J. (2004, July 19). Pharma & Biotech R&D: Growth Opportunities in
Outsourcing Solutions. Retrieved November 15, 2008, from
http://www.iproceed.com/blog/2004/07/pharma-biotech-rd-growth-
opportunities.html.
Interphex. (2004). Outsourcing - The Pharmaceutical Industry's Strategy of Choice for
192
Managing Risk and Rapid Change. Retrieved February 10, 2008 from
http://www.touchbriefings.com/pdf/750/outs 041 interphex tech.pdf.
IBM Business Consulting Services. (2005). Pharma 2010: The Value-Creating Supply
Chain. Retrieved February 10, 2008, from
http//www.93 5 .ibm.com/services/dc/bcs/pdf/2006/pharma_2010_supplychain.pdf.
IBM Business Consulting Services. (2004). Consumer-Driven Supply Chain Networks:

Building the Supply Chain of the Future. Retrieved February 10, 2008, from
http://www-935.ibm.com/services/us/imc/pdf/g510-3620.consumer-supply-chain-n
erworks.pdf.
IBM Business Consulting Services. (2004). Pharma 2010: The Threshold of Innovation.
Retrieved February 10, 2008, from
http://www-03.ibm.com/industries/healthcare/doc/content/bin/pharma_2010_04.pdf
IMS Health (2005). IMS National Sales Perspective. Retrieved February 2005 from
http://www.imshealth.eom/ims/Portal/front/articleC/0.2777.6599 49695983 69891
374,00.html
Johns, B. (1995). Chip Makers Puts Sourcing in Spotlight. Journal of Commerce, Jan. 30,
p. 1A
Johnson, E., & Pyke, D. (2000). Supply Chain Management: Innovations for Education,
Production and Operations Management Society, Miami, Florida, USA
Johnson, M. E. (2001). Learning from Toys: Lessons in Managing Supply Chain Risk
from the Toy Industry. California Management Review, 43(3), 106-24.
Jorion, P. (1990). The Exchange-Rate Exposure of US Multinationals. Journal of

Business, 63, 331-345.
Juttner, U. (2005). Supply Chain Risk Management: Understanding the Business

Requirements from a Practitioner Perspective. The International Journal of
Jutter, U. (2006). Supply Chain Management: Understanding the Business Requirements

from a Practitioner perspective. The International Journal of Logistics
Management, 16(1), 120-141.
Juttner, U., Peck, H. And Christopher, M. (2003). Supply Chain Risk Management:
Outlining an Agenda for Future Research. International Journal of Logistics:
Research and Applications, 6(4), 197-210.
Kahaner, L. (1996). Competitive Intelligence: From Black Ops to Boardrooms, How

Business Gather, Analyze, and Use Information to Succeed in the Global
193
Marketplace, New York: Simon and Schuster.
Kakabadse, N. and Kakabadse, A. (2000). Critical Review - Outsourcing: A Paradigm

Shift. Journal of Management Development, 19(8), 670-728.
Kambil, A., and Mahidhar, V. (2005). Disarming the Value Killers: A Risk Management
Study. Deloitte Research Study, 1-13.
Karningsih, P. D., Kayis, B., and Kara S. (2007). Development of Knowledge Based
Systems for Supply Chain Risk Identification in Multi-Site & Multi-Partners
Global Manufacturing Supply Chain", In the Proceedings of the 13th Asia Pacific
Management Conference, Melbourne, Austria, 466-471.
Kim, H., Han, Y, and Choi, M. (2007, March). Curriculum Design and Evaluation for E-
Commerce Security Education Using AHP. IEICE Trans. Inf. & Syst, E90-D (3),
668-675.
Kleindorfer, P. R. and Van Wassenhove, L. N. (2004). Managing Risk in Global Supply

Chains, in H. Gatigon and J. Kimberly (eds.), The Alliance on Globalization,
Cambridge University Press.
Kleindorfer, P.R. and Saad, G. H. (2005, Spring). Managing Disruption Risks in Supply
Chains. Production and Operations Management, 14(1), 53-68.
Kleindorfer, P. R. (2000). Industrial Ecology and Risk Analysis. Retrieved September 18,
2006, from http://grace.wharton.upenn.edu/risk/downloads/01-25-pk.pdf.
Knight, Rory and Deborah Pretty. (1996). Impact of Catastrophes on Shareholder Value.
The Oxford Executive Research Briefings.
Knight, F. H. (1921). Risk, Uncertainty and Profit. Chicago, University of Chicago Press.
Koe, L. and Rash, K. (2005). Building Supply Chain Capabilities in the Pharmaceutical
Industry Part 1: Trends Impacting the Supply Chain. Retrieved September 18, 2006,
from http://www.ups-scs.com/solutions/white papers/wp_pharmal .pdf.
Koe, L. and Rash, K. (2005). Building Supply Chain Capabilities in the Pharmaceutical
Industry Part 2: Winning Supply Chain Capabilities. Retrieved September 18, 2006,
from http://www.ups-scs.com/solutions/white papers/wp pharmal.pdf.
Kotabe, M. M., & Murray, J. (1990). Linking product and process innovations and
modes of international sourcing in global competition: a case of foreign
multinational firms. Journal of International Business Studies, 20(3), 215-34.
KPMG. (2005). Risk Management in the Pharmaceutical Industry. Retrieved September

18, 2006, from
194
http://www.worldconRress.com/events/nw700/pdf/thoughtLeadership/KPMG-
Pressure-Points-Web.pdf
Krishnan, M., Parente, E. and Shulman, J.A. (2007, May). Understanding Latin America's
Supply Chain Risks. The McKinsey Quarterly Web Exclusive, 1-4.
Lakhal, S., Mattel, A., Kettani, O. and Oral, M. (2001). On the Optimization of Supply
Chain Networking Decisions. European Journal of Operational Research, 129,
259-70.
Lambert, D. M., Emmelhainz, M. A., Gardner, T. J. (1999). Building Successful

Logistics Partnerships. Journal of Business Logistics, 20(1), 165-181.
Lambert, D., Cooper, M. & Pagh, J. (1998). Supply Chain Management; implementation
issues and research opportunities. The International Journal of Logistics
Management, 9(2), 1-20.
Lamming, R., Caldwell, N., Harrison, D. and Phillips, W. (2001). Transparency in Supply
Relationships: Concept and Practice. Proceedings of the 10th International IPSERA
Conference, 585-94.
Lee, H. L. (2004, October). The Triple -A Supply Chain. Harvard Business Review,
October, 101-112.
Lee, H. L and Billington, C. (1995, September-October). The evolution of Supply-Chain-

Management Models and Practice at Hewlett-Packard. Interfaces 25(5), 42-63.
Lee, H. L. Padmanabhan, V. and Whang, S. (1997). Information Distortion in a Supply

Chain: The Bullwhip Effect. Management Science, 43(4), 546-58.
Lee, H. L, Padmanabhan, V. and Wang, Seungjin (1997). The Bullwhip Effect in Supply
Chains. Sloan Management Review 38(3), 93-102.
Lee, H. L. and Billington, C. (1992, Spring). Managing Supply Chain Inventory: Pitfalls
and Opportunities. Sloan Management Review, 65-73.
Lee, E.-K., Ha, S. and Kim, S-K. (2001, August). Supplier Selection and Management
System Considering Relationships in Supply Chain Management. IEEE
Transactions on Engineering Management, 48(3), 307-318.
Levary, R. and Wan, K. (1999). An Analytic Hierarchy Process Based Simulation Model
for Entry Mode Decision Regarding Foreign Direct Investment. The International
Journal of Management Science, Omega, 27(6), 661-667.
Le Monde. (2003, April 23). Apres l'industrie, le secteur des services commence a
elocaliser [After industry, the services sector begins to delocalize]
195
Liberation. (2003, February 24). La crise de l'informatique profite a l'lnde [India
profits from the computing crisis].
Lonsdale, C. & Cox, A. (1997). Outsourcing: risks and rewards. Supply

Management, 2(14), 32-34, 3 July.
Lindholm, A. and Suomala, P. (2004). The Possibilities of Life Costing in Outsourcing

Decision Making. Frontiers of E-Business Research. Retrieved July 7, 2007, from
http://www.im.tut.fi/cmc/pdf/The Possibilities of Life Cycle Costing in Outsour
cing Decision_Making.pdf
Lindroth, R. and Norman, A. (2001, September 13-14). Supply Chain Risks and Risk
Sharing Instruments: An Illustration from the Telecommunication Industry."
Proceedings of the Logistics Research Network 6th Annual Conference, Heriot-Watt
University, 297-307.
Lowery, R. (2004). Supply Chain: Risky Business. Logistics Today, 1-4.
Lowrence, W. W. (1976). Of Acceptable Risk. William Kauffman, Inc., Los Altos, CA.
Lummus, R. (1999). Defining Supply Chain Management: A Historical perspective and

Practical Guidelines, Industrial Management and Data Systems, 99(1), 11-17.
Lurquin, M. G. (1996). Streamlining the Supply Chain in the Pharmaceuticals Industry."

Logistics Information Management, 9(6), 6-10.
Lutter, R. W. (2006). On Pharmaceutical Supply Chain Security. A Subcommittee on

Criminal Justice, Drug Policy, and Human Resources Committee on Government
Reform United States House of Representatives, 661-677.
Mahidhar, V. (2006). Managing in the Face of Exchange-Rate Uncertainty: A Case of

Operational Hedging. A Deloitte Research Study, 1-6.
March, J. and Shapira, Z. (1987). Managerial Perspectives on Risk and Risk Taking.
Management Science, 33(11), 1404-1418.
Markeset, T. and Kumar, U. (2004). Dimensioning of Product Support: Issues, Challenges,

and Opportuities, Paper Presented at the Reliability and Maintainability Symposium
(RAMS).
Mason, S. J., Cole, M. H., Ulrey, B. T., and Yan, L. (2002). Improving Electronics
Manufacturing Supply Agility through Outsourcing. International Journal of
Physical Distribution & Logistics Management, 32(2), 610-620.
Marston, R.C. (2001). The Effects of Industry Structure on Economic Exposure. Journal
196
of International Money and Finance, 20, 149-164.
Mason-Jones, R. and Towill, D. R. (1998). Shrinking the Supply Chain Uncertainty

Cycle. Institute of Operations Management Control Journal, 24(7), 17-23.
Mason-Jones, R. and Towill, D. R. (1997). Information Enrichment: Designing the Supply

Chain for Competitive Advantage. The International Journal of Supply Chain
Management, 2(4), 137-48.
Mathes, D. (2006). The DOW Chemical Company Strategy for Supply Chain
Sustainability. Paper Presented at the 2006 Supply Chain Innovation Award
Submission, Council of Supply Chain Management Professionals (CSCMP),
Retrieved December 28, 2006, from
www.cscmp.org/Downloads/Resources/Dow.pdf.
Mawapanga, M.N. and Debertin, D. L. (1996, September). Choosing Between Alternative

Farming Systems: An Application of the Analytic Hierarchy Process. Review of
Agricultural Economics, 18(3), 385-401.
McBeath, B. (2004). Resilient Supply Chains - The Next Frontier. Retrieved December 28,
2006, from chainlinkresearch.com/research/detail.cfm?...
McGillivray, G. (2000). Commercial Risk under JIT. Canadian Underwriter, 67(1), 26-30.
McKinsey Quarterly. (2006, September). Understanding Supply chain Risk: A McKinsey

Global Survey. 1-9.
Mclvor, R. T., Humphreys, P. K. and McAleer, W. E. (1997). A Strategic Model for the
Formulation of an Effective Make or Buy Decision. Management Decision, 35(2),
169-178.
Mentzer, J.T., Dewitt, W., Keebler, J.S., Nix, N.W., Smith, CD., and Zacharia, Z.G.
(2001). Supply Chain Management, Sage: Thousand Oaks, CA.
Mergers and Acquisitions -Reasons for M&A. (n.d.). Retrieved March 3, 2008, from
http://ww.aiaa.org/tc/mgt/presentations/aerospace industry investment(M&A)
.PDF
McGonagle, J. J. and Vella, V. E. (2002, July/August). A Case for Competitive Advantage.

The Information Management Journal, 35-40.
Miller, J. (2000). Millennium Intelligence, Medford, NJ: Cyber Age Books.
Millet, I. and Wedley, W.C. (2002). Modeling Risk and Uncertainty with the Analytic
Hierarchy Process. Journal of Multi-Criteria Decision Analysis, 11, 97-107.
197
Miller, K. (1992). A Framework for Integrated Risk Management in International
Business. Journal of International Business Studies, Second Quarter, 311-331.
Millman, G. (2004). Taming the Currency Tiger. Retrieved on December 6, 2008 from
http://www2. financialexecutives.org/mag/articles/10-2004_ic. cfm?Site=_fei
Milgrom, P. & Roberts, J. (1991). Economics, organization, and management. New

York: Prentice Hall.
Min, H. and Zhou, G. (2002). Supply Chain Modeling: Past, Present and Future.
Computers and Industrial Engineering, 43, 231-249.
Min, H. (1992). Selection of Software: The Analytic Hierarchy Process. International

Journal of Physical Distribution & Logistics Management, 22(1), 42-52.
Mitroff, I. and Alpasslan, M. (2003, April). Preparing for Evil. Harvard Business Review,
81 (4): 109-15.
Mohanty, R.P. and Venkataraman, S. (1993). Use of the Analytic Hierarchy Process for
Selecting Automated Manufacturing Systems. International Journal of Operations
and Production Management, 13(8), 45-7.
Moorman, C. (1995). Organizational Market Information Process: Cultural Antecedents

and New Product Outcomes. Journal of Marketing Research, 32, 318-335.
Moschini, G. and Hennessy, D. A. (1999). Uncertainty, Risk Aversion and Risk

Management for Agricultural Producers. In Bruce Gardner and Gordon Rausser,
Eds., Handbook of Agricultural Economics, Amsterdam: Elsevier Science
Publishers.
Murphy, J. (2006). Managing Supply Chain Risk: Building in Resilience and Preparing
For Disruption. Retrieved April 4, 2007, from
http://www.wisdomnet.net/documents/whitepapers/SCM_Risk_2006.pdf.
Nagurney, A., Cruz, J. and Zhang, D. (2005). Supply Chain Networks, Electronic
Commerce, and Supply Side and Demand Side Risk. European Journal of
Operational Research, 164(1), 120-142.
Nakamoto, M. (1997, February). Fire Hits Parts Supply Network at Toyota. Financial
Times, 4, 34.
Nillesen, P, Pollitt, M. and Keats, K. Identifying and Quantifying the Gains from Merger
and Acquisition. Retrieved March 18, 2008, from
http://www.icfi.com/publications/doc_files/valuingmabenchmarking-eprm.pdf.
Niwa, K. (1989). A Knowledge-Based Risk Management in Engineering in United
198
States, John Wiley & Sons Inc.
Norrman, A. and Jansson, U. (2004). "Ericsson's Proactive Supply Chain Risk

Management Approach After a Serious Sub-Supplier Accident." International
Journal of Physical Distribution & Logistics Management, 34(5): 434-456.
Nydick, R. L. and Hill, R. P. (1992). "Using the Analytic Hierarchy Process to Structure
the Supplier Selection Procedures." International Journal of Purchasing Material
Management, Spring, pp. 31-36.
OECD. (2002). Supply Chains and OECD Guidelines for Multinational Enterprises.
Oguz, M. T. (2002). Business Intelligence in Competitive Strategy. Retrieved August 15,

2008, from
http://www.dmreview.com/news/5601-html?tvpe=printer friendly.
Ojala, M. and Hallikas, J. (2006). Investment Decision-making in Supplier Networks:

Management of Risk. International Journal of Production Economics, 104 (1), 210-
213.
Olson, D. L and Wu, D. (2008). New Frontiers in Enterprise Risk Management. Retrieved
January 25, from
http://www.springerlink.com/content/h768714060865455/
Outsourcing to show healthy growth in pharma. (n.d).Retrieved November 15, 2008, from
http://www.in-pharmatechnologist.com/news/ng.asp?id=58484-outsourcing-to-show.
Pande, A., Raman, R. and Srivatsan, V. (2006, March). Recapturing your Supply Chain
Data. The McKinsey Quarterly: The Online Journal of McKinsey & Co., March.
Papageorgiou, G. E., Rotstein, G. E. and Shah, N. (2001). Strategic Supply Chain

Optimization for the Pharmaceutical Industries. Industrial Engineering of
Chemical Research, 40, 275-286.
Patton, S. (2006). Cracks in the Pharmaceutical Supply Chain. Retrieved January 25, from
http://www.bio-itworld.eom/newsitems/2006/ianuary/l 1 -18-06-news-supply-
chain.
Pharmaceutical Business Review Online (2007). The pharmaceutical industry: key

strategies for challenging times. Retrieved August 15, 2007 from
http://www.pharmaceutical-business-review.com/article_feature_print.asp7guid
=B6694D55-05AA-440B-B1D1-D4B0F68A2502.
Persson, G. and Virum, H. (2001). Growing Strategies for Logistics Service Providers:
A Case Study. International Journal of Logistics Management, 12(1), 53-64.
199
Pharmaceutical Business Review Online (2008). Pharmaceutical Companies must Adapt
to Changing Market Dynamics in 2008. Retrieved June 20, 2008, from
http://www.pharmaceutical-business-
review.com/article_feature jrint.asp?guid=ABB99A8F-465D-41A9-AD76-
AF84BA996D3D.
Peck, H. (2006, June). Reconciling Supply Chain Vulnerability, Risk and Supply Chain
Management. International Journal of Logistics: Research and Applications, 9(2),
127-142.
Peleg-Gillai, B., Bhat, G., and Sept, L. (2006). Innovators in Supply Chain Security:
Better Security Drives Business Value. Retrieved August 15, 2007, from
www.nam.org/institute, pp. 1-33.
Piachaud, B. S. (2002). Outsourcing in the Pharmaceutical Manufacturing Process: an

Examination of the CRO Experience. Technovation, 22(2), 81-90.
Pochard, S. (2003). Managing Risks of Supply Chain Disruptions: Dual Sourcing as a Real
Option. Master Degree Thesis. MIT, 1-101.
Porter, M. (1998). Competitive Strategy, NY: The Free Press.
Porter, M. E. and Miller, V. E. (1985). How Information gives you Competitive

Advantage. Harvard Business Review, 63(4), 149-160.
Prahalad, C. K. & Hamel, G. (1990). The core competence of the corporation.

Harvard Business Review. July-August, 79-91.
Prescott, J. E. (1999). The Evolution of Competitive Intelligence: Designing a Process for

Action. Retrieved August 30, 2008, from http://www.apmp.org/fr-154.aspx.
Prescott, J. E. and Gibbons, P. (Eds.). (1993). Global Perspectives on Competitive

Intelligence, Alexandria, VA: Society of Competitive Intelligence Professionals
(SCIP).
PricewaterhouseCoopers LLP. (2006). How can Pharmaceutical and Life Sciences

Companies Strategically Engage Global Outsourcing. Retrieved June 7, 2008, from
http://www.pwc.com/extweb/industrv.nsf/docid/7B0752138EAE01368025728F004
BC182
Proceedings.ndia.org/4af6/Blaker.pdf.
Quin, F. (1999). The Payoff Potential in Supply Chain Management. In Achieving Supply
Chain Excellence Through Technology, Montgomery Research, Inc., San Francisco,
CA.
200
Ramamoorthy, C. V., Chandra, C , Ishihara, S. andNg, Y. (1993). Knowledge Based
Tools for Risk Assessment in Software Development and Reuse. 1993 IEE
International Conference on Tools with Artificial Intelligence, Boston, MA.
Resnick, J. T. (2006). Reputational Risk Management: A Framework for Safeguarding

Your Organization's Intangible Asset. Opinion Research Corporation, 1-24.
Rice, J. B and Caniato, F. (2003). Building a Secure and Resilient Supply Network.
Supply Chain Management Review, September/October, 22-30.
Riede, C. and Ferrari, B. (2004). The Risks and Reward of an Adaptive Supply Chain
Directions for SAP. Retrieved January 20, 2007, from
http://searchsap.techtarget.com/searchSAP/downloads/Ferrari.
Ritchie, B., Brindley, C , Morris, J. And Peet, S. (2000). Managing Risk within the Supply
Chain. Paper Presented at the 9th Annual IPSERA Conference, Twente University,
March, 25-27.
Roper-Lowe, G.C. and Sharp, J.A. (1990, January). The Analytic Hierarchy Process and its
Application to an Information Technology Decision. The Journal of the
Operational Research Society, 41(1), 49-59.
Ross, M.E. and Nydick, R.L. (1994). Structuring the Selection Process of Licensing
Candidates in the Pharmaceutical Industry Using the Analytic Hierarchy Process.
Journal of Pharmaceutical Marketing and Management, 8(Issue 1), 21-36.
Rudolf, P. M. and Bernstein, I. B. 2004. Medical Biology on Counterfeit Drugs. New

England Journal of Medicine, 350:1384.
Saaty, T.L. (2000). Fundamentals of Decision Making and Priority Theory (2nd ed).
Pittsburgh, PA: RWS Publications.
Saaty, T.L. (1980). The Analytic Hierarchy Process. New York: McGraw-Hall.
Saaty, T.L. (1985). Decision Making for Leaders. Belmont, California: Life Time Learning
Publications.
Saaty, T.L. and Kearns, K.P (1991). Analytic Planning: The Organization of Systems. The
Analytic Hierarchy Process Series, Vol. 4 RWS Publications. Pittsburgh: USA.
Saaty, T. L. (1994). How to Make a Decision: The Analytic Hierarchy Process. Interfaces,
24(2), 19-43.
Saaty, T. L. (1990). The Analytic Hierarchy Process. RWS Publications, Shallowater, TX.
Sadler, I. and Gough, R. (2005). Applying a Strategic Planning Process to Several Supply
201
Chain Partners. Journal of Manufacturing Technology Managements 16(8), 890-
908.
Salma, B.; Lyes, K.; Abderrahman, E.-M.; Younes, B. (2007, June). Quality Risk in
Outsourcing. Service Systems and Service Management, 2007 International
Conference, Issue 9-11, 1-4.
Schryver, J.C. and Haire, M.J. (n.d.). Spallation Neutron Source Availability Top-Down
Apportionment using Characteristic Factors and Expert Opinion. Oakridge National
Laboratory, pp. 1-18.
Shah, N. (2004). Pharmaceutical Supply Chains: Key Issues and Strategies for
Optimization. Computers and Chemical Engineering, 28, 929-941.
Shapiro, A.C. (1975). Exchange Rate Change, Inflation, and the Value of Multinational
Corporations. Journal of Finance, 30, 485-503.
Shapira, Z. (1995). Risk Taking: A Managerial Perspective, Russell Sage Foundation, New
York, NY.
Sheffi, Y. And Rice, J. B. (2005, Fall). A Supply Chain View of the Resilient Enterprise.
MIT Sloan Management Review, 47(1), 41-48.
Sheffi, Y. (2001). Supply Chain Management under the Threat of International

Terrorism. The International Journal of Logistics Management, 12(2),
1-11.
Shi, D., Daniels, R. and Grey, W. (2004). Managing Supply Chain Risks with
Derivatives. IBM Research Report, 1-27.
Simchi-Levi, D, Snyder, L. and Watson, M. (2002). Strategies for Uncertain Times.

Supply Chain Management Review, January/February, 11-12.
Simchi-Levi, D., Kaminsky, P. and Simchi-Levi, E. (2003). Designing and Managing the
Supply Chain; Concepts, Strategies, and Case Studies, Irwin/McGraw-Hill.
Simons, R. (1999). How Risky is your Company? Harvard Business Review, 77(3), 85-94.
Sink, H. L. and Langley Jr., J. C. (1997). A Managerial Framework for the Acquisition
of Third Party Logistics Services. Journal of Business Logistics, 18(2), 163-189.
Smeltzer, L. and Siferd, S. (1998). Proactive Supply Management: The Management of

Risk. International Journal of Purchasing & Materials Management, 34(1), 38-45.
Smith, C. Smithson, C. and Wilford, S. (1990). Managing Financial Risk. New York:
Harper and Row.
202
Snee, R. D. (2006). Lean Six Sigma and Outsourcing: Don't outsource a process you
don't understand. Retrieved October 11, 2008, from
http://www.contractpharma.com/articles/2006/10/lean-six-sigma-and-outsourcing
Sodhi, M.S. (2005). Managing Demand Risk in Tactical Supply Chain Planning for a
Global Consumer Electronics Company. Production and Operations Management,
14(1), 69-79.
Spekman, R. E. and Davis, E. W. (2004). Risky Business: Expanding the Discussion on

Risk and the Extended Enterprise. International Journal of Physical Distribution
and Logistics Management, 34(5), 414-433.
Srivastava, N. (2002, September). Outsourcing Issues: The trends in the

biotech/pharmaceutical Outsourcing Industry. CanBiotech BioMed Outsourcing
Newsletter: Volume 1, Issue 1
Sun, C.C. (2006, February). Pharmaceutical Services: Organizing into Global Supply
Chains. SHI Consulting-Life Sciences Strategies.
Tang, C. S. (2005). Perspective in Supply Chain Risk Management: A Review. Retrieved

October 1, 2006, from http://repositories.cdlib.org/anderson/dotm/CT39.
Tang, C.S. (2006). Perspectives in Supply Chain Risk Management. International

Journal of Production Economics, 103(2), 451-488.
Tan, K. C , Kannan, V. R. and Handfield, R. B. (1998). Supply Chain Management:

Supplier Performance and Firm Performance. International Journal of Purchase
Material Management, 34(3), 2-9.
The Global Pharmaceutical Industry, (n.d.). Retrieved May 27, 2007, from
http: //www, duke, edu/web/soc 142/team2/shifts .html.
Ting, W. (1988). Multinational Risk Assessment and Management. Westport, CT:

Greenwood Press.
Towill, D. R. (2005). The Impact of Business Policy on Bullwhip Induced Risk in Supply
Chain Management. International Journal of Physical Distribution & Logistics
Management, 35(8), 555-575.
Tversky, A. and Kahnemann, D. (1992). Advances in Prospect Theory: Cumulative

Representation of Uncertainty. Journal of Risk and Uncertainty, 5, 297-323.
Tyndall, G., Gopal, C. partsch, W., and Kamauff, J. (1998). Supercharging Supply Chains:
New Ways to Increase Value Through Global Operational Excellence. Wiley, New
York, NY.
203
U.S Food and Drug Administration. (2004, February). Combating Counterfeit Drugs: A
Report of the Food and Drug Administration, 1-42.
U.S. Department of Defense (2006, February). Quadrennial Defense Review Report, 6, 1-

113.
U.S. Water Resources Council. (1990, September 28). Principles and Standards for Water
and Related Land Resources Planning. Federal Register.
UNCTAD. (2003). E-commerce and development report, Geneva.
Van Landeghem, H. and Vanmaele, H. (2002). Robust Planning: A New Paradigm for
Demand Chain Planning. Journal of Operations Management, 20, 769-83.
Vibert, C. (2006, April). Using Online Competitive Intelligence to Help Identify

Organizational Risk. The Workplace Review, 37-42.
Wang and Regan (2003). Reducing Risks in Logistics Outsourcing. Retrieved May 2, 2007,
from
http://whitepapers.techrepublic.com.com/abstract.aspx?&docid=263658&promo=l
00511.
Watson, S.R. and Freeling, A.N.S. (1985). Assessing Attribute Weights." Omega, 10(6),
582-3.
Weber, C. A., Current, J. R. and Benton, W. C. (1991). Vendor Selection Criteria and
Methods. European Journal of Operational Research, 50(2), 2-18.
Wilding, R. (1998). The Supply Chain Complexity Triangle: Uncertainty Generation in

the Supply Chain. International Journal of Physical Distribution & Logistics
Management, 28(8), 599- 616.
Willis, H. H. (2007, February). Using Risk Analysis to Inform Intelligence Analysis",

Working Paper, Rand Corporation, 1-15.
Wilkins, L. Richard. (2007). Competitive Intelligence: The New Supply Chain Edge.
Supply Chain Management Review, Retrieved August 23, 2008, from
http://www.scmr.com/index. asp?lavout=articlePrint&articleID=CA6406211 &arti
cle_prefi...
Winkleman, M., Dole, D., Pinkard, L., and Molley, J. (1993). The Outsourcing Source
Book. Journal of Business Strategy, 14(3), 52-56.
Wu, T., Blackhurst, J. and Chidambaram, V. (2006). A Model of Inbound Supply Risk
Analysis." Computers in Industry, 57, 350-365.
204
Yates, J. F. and Stone, E. (1992). The Risk Construct, in Yates, J.F. (Ed.), Risk Taking
Behavior, John Wiley and Sons, New York, NY.
Zahra, S. A. and Chaples, S. S. (1993, May 7). Blind Spots in Competitive Analysis. The
Academy of Management Executive, 2, 7-28.
Zajac, E. and Bazerman, M. (1991). Blind Spots in Industry and Competitive Analysis:
Implications of Inter-firm (Mis)perceptions for Strategic Decisions. Academy of
Management Review, 16, 37-56.
Zoyza, S. D. and Russel, A. D. (2003). Knowledge-Based Risk Identification in

infrastructure Projects. Canadian Journal of Civil Engineering, 30, 511-
522.
Zhang, Z., Lei, J., Cao, N., To, K., and Ng, K. (n.d.). Evolution of Supplier Selection
Criteria and Methods. Retrieved February 19, 2007, from
www.pbsrg.com/. /Zhiming%20Zhang_Evolution%20of%20
Selection%20Criteria%20and%20Methods.pdf.
Zimmerman, C. (2006). Protecting the Pharmaceutical Supply Channel. Journal of

Pharmacy Practice, 19(4), 236-238.
Zinnov LLC. (2006). Pharmaceutical Outsourcing Landscape - An Overview. Retrieved

September 17, 2008, from
http://www.zinnov.com/presentation/pharmaceutical_outsourcing overview.pdf
Zsidisin, G.A., Ellram, L.M., Carter, J.R. and Cavinato, J.L. (2004). Analysis of Supply
Risk Assessment Techniques. International Journal of Physical Distribution &
Zsidisin, G.A. Panelli, A. and Upton, R. (2000). Purchasing Organization Involvement

in Risk Assessments, Contingency Plans, and Risk Management: An Exploratory
Study. Supply Chain Management, 5(4), 187-198.
Zsidinsin, G.A. and Ellram, L.M. (1999, June). Supplier Risk Assessment Analysis. Practix,
Best Practices in Purchasing and Supply Chain Management, 9-12.
205
APPENDIX A: DETAILS OF SYNTHESIS
The details of synthesis in Tables 1-10 report on all the priorities and alternative
policies with respect to the goal and/or the major criteria chosen. Essentially, it depicts all
criteria, sub-criteria and alternative policy strategies.
Table 1. Details of Synthesis for Regulation/Legislation Risl c.

Level 2 Level 3 Level 4 Priority Objective Alternative
Objective Sub-Objective Alternative Rank Rank
Percent Reg /Leg 29.1 1
Risk
(L: 0.291 G:
0.291)
Percent 7.2 12
Regulatory
Approval
(L: 0.250 G:
0.073)
Reduce 0.031 1
Regulation/Legisl Risk
ation Risk Regulatory Accept 0.015 2
Approval Risk
Avoid 0.014 3
Risk
Transfer 0.012 4
Risk
Percent Change in 21.9 3
Legislation
(L: 0.750 G:
0.218)
Reduce 0.092 1
Risk
Change in Accept 0.047 2
Legislation Risk
Avoid 0.035 4
Risk
Transfer 0.043 3
Risk
206
Table 2. Details of Synthesis for Operational lisk.
Level 2 Level 3 - Level 4 Priority Objective Alternative
Objective Sub- Alternative Rank Rank
Objective
Percent 23.1 2
Operational Risk
(L: .228 G: .228)
Percent 5.9 14
Distribution
(L: 0.250 G:
0.057)
Reduce 0.024 1
Risk
Distribution Accept 0.008 3
Operational Risk Risk
(L: .228 G: .228) Avoid 0.020 2
Risk
Transfer 0.007 4
Risk
Percent 17.2 5
R&D
(L: 0.750 G:
0.171)
Reduce 0.039 2
Risk
R&D Accept 0.021 3
Risk
Avoid 0.039 2
Risk
Transfer 0.072 1
Risk
207
Table 3. Details of Synthesis for deputation Ilisk.
Level 2 - Level 3- Level 4 Priority Objective Alternative
Objective
Percent 18.1 3
Reputational Risk
(L: .200 G: .200)
Percent 9.6 8
CSR
(L: 0.667 G:
0.134)
Reduce 0.015 2
Risk
Reputation Risk CSR Accept 0.057 1
Risk
Avoid 0.013 3
Risk
Transfer 0.011 4
Risk
Percent 8.4 10
Disclosure
(L: 0.333 G:
0.067)
Reduce 0.028 1
Risk
Disclosure Accept 0.021 3
Risk
Avoid 0.021 3
Risk
Transfer 0.014 2
Risk
208
Table 4. Details of Synthesis for Financial Risk.
Level 2 - Level 3 - Level 4 Priority Objective Alternative
Objective
% Financial Risk 11.6 6
(L: 0.107 G:
0.107)
% 9.4 9
Exchange
Rate
(L: 0.750 G:
0.080)
Reduce 0.026 2
Financial Risk Risk
Exchange Accept 0.010 4
Rate Risk
Avoid 0.024 3
Risk
Transfer 0.034 1
Risk
% Currency 2.2 17
(L: 0.250 G:
0.027)
Reduce 0.011 1
Risk
Currency Accept 0.002 4
Risk
Avoid 0.004 3
Risk
Transfer 0.005 2
Risk
209
Table 5. Details of Synthesis of Market Risk.
Level 2 - Level 3 - Level 4 Priority Objective Alternative
Objective
% Market Risk 11.0 7
(L: 0.107 ;G:
0.107)
% 3.5 16
Competition
(L: 0.333
G: 0.036)
Reduce 0.015 1
Risk
Market Risk Competition Accept 0.006 3
Risk
Avoid 0.008 2
Risk
Transfer 0.006 3
Risk
% Key Talent 7.5 11
(L: 0.667
G: 0.071)
Reduce 0.030 1
Risk
Key Talent Accept 0.015 2
Risk
Avoid 0.015 2
Risk
Transfer 0.015 2
Risk
210
Table 6. Details ol ' Synthesis for Relationship Risk.
Level 2 Objective Level 3 Sub- Level 4 Priority Objective Alternative
Objective Alternative Rank Rank
% Relationship 7.1 13
Risk
(L: 0.067; G:
0.067)
% Third- 1.6 18
Party
(L: 0.200
G: 0.013)
Reduce 0.006 1
Risk
Relationship Risk Third-Party Accept 0.003 3
Risk
Avoid 0.005 2
Risk
Transfer 0.002 4
Risk
% M&A (L: 5.5 15
0.667
G: 0.071)
Reduce 0.016 2
Risk
M&A Accept 0.006 4
Risk
Avoid 0.023 1
Risk
Transfer 0.010 3
Risk
211
Table 7. Details of Synthesis by Alternative - Accept Risk.
Level 4 Level 2 Level 3 Priority
Alternative Objective Sub-Objective
% Accept Risk 21.2
% Financial Risk 1.2
(L: .107 G: .107
Exchange Rate 0.010
Financial Risk (L: .750 G: .080
Currency (L: .250 0.002
G: .027)
% Market Risk 2.1
(L: .107 G: .107)
Competition 0.006
Market Risk (L: .333 G: .036)
Key Talent (L: .667 0.015
G: .071)
% Operational Risk 2.9
(L: .228 G: .228)
Distribution 0.008
Operational Risk (L: .250 G: .057)
Accept Risk R&D (L: .750 0.021
G:.171)
% Regulation 6.2
/Legislation Risk
(L: .291; G: .291)
Regulatory Approval 0.015
Regulation/Legislation (L: .250; G: .073)
Risk Change in Legislation 0.047
(L:.750;G:.218)
% Relationship Risk 0.9
(L: .067; G: .067)
Third-Party (L: .200 0.003
Relationship Risk G: .013)
M&A (L: .800 0.006
G: .054)
% Reputational Risk 7.8

(L: .200; G: .200)
CSR (L: .667 0.057
Reputational Risk G: .134)
Disclosure (L: .333 0.021
G: .067)
212
Table 8. Details of Synthesis by Alternative - Avoid Risk.
Level 4 Level 2 - Objective Level 3 - Sub- Priority
Alternative Objective
% Avoid Risk 22.3
(L: .107 G: .107
Exchange Rate 0.024
Financial Risk (L: .750 G: .080)
Currency (L: .250 0.004
G: .027)
% Market Risk 2.3
(L: .107 G: .107)
Competition 0.008
G: .071)
(L: .228 G: .228)
Distribution 0.020
Avoid Risk R&D (L: .750 0.039
G:.171)
% Regulation 5.0
/Legislation Risk
(L: .291 G: .291)
Regulation/Legislation (L: .250 G: .073)
(L: .750 G: .218)
(L: .067 G: .067)
M&A (L: .800 0.023
G: .054)

(L: .200 G: .200)
CSR (L: .667 0.013
G: .067)
213
Table 9. Details of Synthesis by Alternative - Reduce Risk.
% Reduce Risk 33.4
(L: .107 G: .107
Exchange Rate 0.026
Currency (L: .250 0.011
G: .027)
% Market Risk 4.5
(L: .107 G: .107)
Competition 0.015
G: .071)
(L: .228 G: .228)
Distribution 0.024
Reduce Risk R&D (L: .750 0.039
G:.171)
% Regulation 12.3
/Legislation Risk
(L: .291 G: .291)
Regulation/Legislation (L: .250 G: .073)
(L: .750 G: .218)
(L: .067 G: .067)
Relationship Risk G:.013)
M&A (L: .800 0.016
G: .054)

(L: .200 G: .200)
CSR (L: .667 0.015
G: .067)
214
Table 10. Details of Synthesis by Alternative - Transfer Risk.
% Transfer Risk 23.2
(L: .107 G: .107
Exchange Rate 0.034
Currency (L: .250 0.005
G: .027)
% Market Risk 2.1
(L: .107 G: .107)
Competition 0.006
G: .071)
(L: .228 G: .228)
Distribution 0.007
Transfer Risk R&D (L: .750 0.072
G:.171)
% Regulation 5.5
/Legislation Risk
(L: .291 G: .291)
Regulation/Legislation (L: .250; G: .073)
(L: .750; G: .218)
(L: .067; G: .067)
M&A (L: .800 0.010
G: .054)

(L: .200; G: .200)
CSR (L: .667 0.011
G: .067)
215
APPENDIX B. PHARMACEUTICAL INDUSTRY RISK SUPPLY CHAIN
LOGISTICS ANALYSIS SURVEY QUESTIONNAIRE
Dear:
My name is . I am a Ph.D. candidate in Transportation and Logistics with

emphasis in Logistics and Supply Chain Management, Department of Transportation and
Logistics, Upper Great Transportation Institute, North Dakota State University, Fargo, ND.
My dissertation topic is "Modeling Risk Management in the Pharmaceutical Industry
Global Supply Chain Logistics Using AHP Model Approach."
I am writing to elicit your opinion as an expert on risk management and/or enterprise risk
management. I am investigating the opinions of experts by means of a survey questionnaire.
Experts do not have to agree on the relative importance of the criteria, sub-criteria or the
rankings of the alternative.
This questionnaire uses Analytic Hierarchy Process (AHP) to model risk management in
the pharmaceutical supply chain logistics. As an expert on risk management and/or
enterprise risk management, your opinion will be significantly invaluable to my research.
216
Figure 1. Hierarchy Structure Modeling of Pharmaceutical GSCL Risk.
Goal: Minimize Pharmaceutical

Supply Chain Logistics Risk
Criterion 1: Criterion 2: Criterion 3: Criterion 4: Criterion 5: Criterion 6:

Risk
Distributi CSR Exch. competiti Third Party

Regulatory on rate on
approval
Disclosure Currency Key M&A

Change in R&D talent
legislation
Alternative 1: Alternative 2: Alternative 3: Alternative 4:

Reduce risk Accept risk Avoid risk Transfer risk
Level 1 (Goal): To Minimize Pharmaceutical Supply Chain Logistics (GSCL); Level 2

(Criteria): Major Supply Chain Risk Factors; Level 3 (Sub-Criteria): Supply Chain Sub-
Risk Factors; and Level 4 (Alternative): Risk Mitigation Strategies or policies
For your opinion as an expert, the pair-wise comparison scale by Saaty, reported in Table 1,
can be used to assess or express the importance of one element over another.
217
Table 11. Saaty Scale Pairwise Comparison Values or Scale of Preference
Between Two E ements.
Preference Definition of Verbal Scale Explanation
weights or
intensity of
importance
1 Equally preferred or equal Two activities or elements
importance of both elements contribute equally to the
objective
3 Moderately preferred or moderate Experience and judgment
importance of one element over slightly favor activity or
another element over another
5 Strongly preferred or strong Experience and judgment
importance of one element over strongly or essentially favor
another one activity over another
7 Very strongly preferred or very An activity is strongly
strong importance of one element favored over another and its
over another dominance demonstrated in
practice
9 Extremely preferred or extreme The evidence favoring one
importance of one element over activity over another is of
the highest degree possible
of affirmation
2,4,6,8 Intermediate values Used to represent
compromise between the
preferences listed above or
used to compromise
between two judgments
Reciprocals of In comparing elements I and j
above if i is 3 compared to j ; then j is 1/3 compared to i
PLEASE SEE EXAMPLES BELOW
Please mark or circle the criteria number (code) that you assess more or equal important
than other, with respect to the goal: "managing risk" and express on the verbal scale the
importance of the more or equal important criteria over the other.
If you mark or circle "4" in the following question, means that "Operational Risk" is 4
times more important in your expert opinion than the "Regulatory/Legislation Risk."
1 Regulatory 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Operational
/Legislation Risk
Risk
218
Conversely, marking or circling the number " 1 " in the following question, means that
"Regulatory/Legislation Risk" is as important as "Reputation Risk."
2 Regulatory 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Reputation
/Legislation Risk
Moreover, marking or circling "4" in the following question, means that

"Regulatory/Legislation Risk" is 4 times more important than the "Financial Risk."
3 Regulatory 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Financial
/Legislation Risk
It is my hope that the above examples are very helpful. Please contribute your expert
opinion by marking (X) or cycling (O) for your choice of number.
Section I: Criteria (Major Risk Factors or Categories)
Question A. Please mark or circle the criteria number (code) that you assess more or equal
important than other, with respect to the goal: "to manage risk in the pharmaceutical
supply chain logistics" and express on the verbal scale the importance of the more or
equal important criteria over the other.
1 Regulatory 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Operational
/Legislation Risk
Risk
2 Regulatory 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Reputation
/Legislation Risk
Risk
3 Regulatory 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Financial
/Legislation Risk
Risk
4 Regulatory 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Market Risk
/Legislation
Risk
5 Regulatory 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Relationship
/Legislation Risk
Risk
6 Operational 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Reputation
Risk Risk
7 Operational 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Financial
Risk Risk
8 Operational 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Market Risk
Risk
9 Operational 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Relationship
Risk Risk
10 Reputation 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Financial
219
Question D. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) "change in legislation" and
express on the verbal scale the importance of the more or equal important sub-criteria over
the other.
1 Reduce Risk 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Accept
Risk
2 Reduce Risk 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Avoid
Risk
3 Reduce Risk 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Transfer
Risk
4 Accept Risk 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Avoid
Risk
5 Accept Risk 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Transfer
Risk
6 Avoid Risk 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Transfer
Risk
Question E. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) "distribution" and express
on the verbal scale the importance of the more or equal important sub-criteria over the
other.
Risk
Risk
Risk
Risk
Risk
Risk
Qu estion F. Please mark or circle the alternat ive nuntibe r(c ode) that you assess more or
equ al important than other, with respect to sub-criteria (fa cto r) "R&D" and express on the
ver mi scale the importance of the more or equa impor tant su ^-criteria over the other.
Risk
Risk
Risk
Risk
221
Question D. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) "change in legislation" and
the other.
Risk
Risk
Risk
Risk
Risk
Risk
Question E. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) "distribution" and express
other.
Risk
Risk
Risk
Risk
Risk
Risk
Question F. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) "R&D" and express on the
ver Dal scale the importance;ofthe more or equa important su ^-criteria over the other.
Risk
Risk
Risk
Risk
221
Risk
Risk
Question G. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) "corporate social
responsibility (CSR)" and express on the verbal scale the importance of the more or equal
important sub-criteria over the other.
Risk
Risk
Risk
Risk
Risk
Risk
Question H. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) "disclosure" and express
other.
Risk
Risk
Risk
Risk
Risk
Risk
Question I. Please mark or circle the alternative number (code) that you assess more or
equal importance than other, with respect to sub-criteria (factor) "exchange rate" and
the other.
Risk
Risk
222
Risk
Risk
Risk
Risk
Question J. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) "currency" and express on
the verbal scale the importance of the more or equa importan t sub-criteria over the other.
Risk
Risk
Risk
Risk
Risk
Risk
Question K. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) "competition" and express
other.
Risk
Risk
Risk
Risk
Risk
Risk
223
Question L. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) "key talent" and express on
the verbal scale the importance of the more or equa irriportant sub-criteria over the other.
Risk
Risk
Risk
Risk
Risk
Risk
Question M. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) "third party" and express
other.
Risk
Risk
Risk
Risk
Risk
Risk
Question N. Please mark or circle the alternative number (code) that you assess more or
equal important than other, with respect to sub-criteria (factor) merger and acquisition
("M&A") and express on the verbal scale the importance of the more or equal important
sub-criteria over the other.
Risk
Risk
Risk
Risk
224
Risk
Risk
Once again, thank you so much for your time and for offering your expert opinion.
225
APPENDIX C. CURRICULUM VITAE
ACADEMIC BACKGROUND
Ph.D. (ABD) in Transportation and Logistics. North Dakota State University, Fargo, ND
{Expected Graduation -fall 2008).
Major Concentration Area: Logistics and Supply Chain Management
Supporting Areas: Transportation Economics/Regulation and Military Logistics
Dissertation Topic: "Modeling Risk Management in the Pharmaceutical Industry Global

Supply Chain Logistics using Analytic Hierarchy Process Model."
Ph.D. in Applied/Ag Economics. The University of Tennessee, Knoxville, May 1995.

First Concentration Area: Marketing and Price Analysis
Second Concentration Area: Logistics and Transportation Management
Supporting Area: Economics
Dissertation Topic: "An Econometric Analysis of Multimedia Advertising Effects on

Consumers' Purchase Decisions at the Supermarket Level Using Scanner-Derived Data."
MBA - Alabama A & M University, Normal, AL, July 1999.

Major Area: Management
M.S - Alabama A & M University, Normal, AL, May 1983.

Major Area: Economics
Supporting Area: Management
B.S - Alabama A & M University, Normal, AL, December 1981.

Major: Agribusiness Management
Minor: Economics
HONORS/AWARDS/LEADERSHIP POSITIONS
Best Paper Award for 2009: Best Paper in Supply Chain Management Track, 16th Annual
American Society of Business and Behavioral Science to held in Las Vegas, February 19-
22, 2009.
Best Paper Award for 2008: Best Paper in Supply Chain Management Track, Global
Academy of Business and Economic Research International Conference, Orlando, Florida,
September 17-19.
President: International Academy of African Business and Development, 2007 - 2010.
Vice President: International Academy of African Business and Development, 2004 -
2007.
Executive Chairman: Sir Omehia Foundation USA (OFUSA), Inc., 2007.
Vice Chairman: Rivers State Foundation USA, 2005 - 2006.
President/CEO: Cidges Logisupplychain Management Consulting (CLMC)
226
Visiting Professor: Upper Great Plains Transportation Institute & Department of
Transportation and Logistics, North Dakota State University, Fargo, ND, August 23-24,
2005.
Chair: Faculty Affairs Committee, Faculty Senate, 2003 - 2008.
Coordinator: Logistics/Supply Chain Management & International Business Programs,
2000 -2008.
Advisor: AAMU Association of Logistics and Supply Chain Management, 1998-2008.
Advisor: AAMU International Business Association, 2006-2008.
Faculty Senator: Alabama A & M University, 1998 - 2008.
Service Award: International Academy of African Business and Development, 2005.
School of Business Representative: Alabama A&M University Research Council, 2002 -
2005.
School of Business Representative: R & D - Intellectual Property Right Review
Committee, 2005 - 2008.
Best Research Paper Award for 2005: Best Paper in Logistics and Supply Chain
Management Track, American Society of Business and Behavioral Sciences, Las Vegas,
Nevada, February.
Track Chair: Logistics and Supply Chain Management, the International Academy of
Business and Public Administration Disciplines, 2005.
Service Award: International Academy of Business and Public Administration Disciplines,
2005.
Track Chair: Logistics and Supply Chain Management, American Society of Business and
Behavioral Sciences, 2004
Intra-Campus Research Grant Award ($1,000), Office of Research and Development,
2005.
Track Chair: Logistics, Supply Chain Management and Urban Issues, International
Academy of African Business and Development, 2004 - Present.
Track Co-Chair: Ecological/Environmental/Agricultural Issues, International Academy of
African Business and Development, 2005.
Best Research Paper Award for 2004: Best Paper in International Business Track, the
International Academy of Business and Public Administration Disciplines Conference,
Tunica, Mississippi, May 24-26
Track Chair: International Business, the International Academy of Business and Public
Administration Disciplines, 2004.
Service Award: International Academy of Business and Public Administration Disciplines,
2004.
Behavioral Sciences, 2003.
Behavioral Sciences, 2002.
Faculty Fellowship Award: U.S Department of the Army, Office of the Assistant
Secretary for Manpower and Reserve Affairs, Equal Employment Opportunity/Civil Right
Agency, July 21-August 20, 2003.
Team Leader: AAMU Lean Management Institute, 2003-Present
227
Best Research Paper Award for 2003: Best Paper in Logistics and Supply Chain
Management Track, American Society of Business and Behavioral Sciences, Las Vega,
Nevada, February.
Outstanding Researcher for 2000-2001: Research & Development, Alabama A & M
University
NASA/MSFC Summer Faculty Fellowship: May 17, 2000 - July 30, 2001.
NASA/MSFC Summer Faculty Fellowship: May 15, 2001 - July 30, 2000.
Reviewer: Journal of African Business, 2000 - Present.
Service Award: Dedicated Service as Track Chair, International Academy of African
Business and Development, 2000.
Track Chair: Foreign Direct Investment, International Academy of African Business and
Development, 1999-2002.
Co-editor and Reviewer: The African Economic and Business Review, 1997 - 2001.
Best Research Paper Award for 1999: Best Paper in Retailing, Society for Marketing
Advances Track.
Graduate Faculty: Admitted to Full Membership, 1995 - Present.
Thesis Committee Member: Department of Agribusiness Management, Alabama A & M
University.
Faculty Fellowship Award: Direct Marketing Institute for Professors by the Donald &
Geraldine Foundation and Direct Marketing Educational Foundation, February 13, 1997.
Track Chair: Channels of Distribution, Logistics, & Retailing, Academy of Business
Administration, 1997-1998.
Best Research Paper Award for 1995: Best Paper in Sales Management, Advertising,
Public Relations & Sales Promotion, Southern Marketing Association.
An award/ Recognition for an Outstanding Support: Professional awareness and program
of a seminar/workshop on "Competitive Advantage through Strategic Total Quality
Management. By Energy Systems Waste Management Organization Y-12 Plant; a division
of Lockhead Martin Marietta Energy Systems, Inc. October 19, 1995.
History of Full Time Employment/Teaching Experience

Professor 2002-Present
Department of Management & Marketing, School of Business
Alabama A & M University, Normal, AL
Associate Professor 1998-2002

Assistant Professor 1993-1998

Instructor, 1984-1993
Department of Business Administration, School of Business
228
TEACHING RESPONSIBILITIES
MBA Program: Graduate Courses Taught (1984-Present)
Survey of Logistics, International Logistics and Marketing, Logistics and Supply Chain
Management, Logistics Strategy and Policy, Independent Research in Logistics and Supply
Chain Management, Production/Operations Management, International Business, Global
Issues in Business, Basic Management and Marketing, Applied Business Statistics, Applied
Mathematics for MBA, and Managerial Economics.
Undergraduate Course (1984-Present)

Transportation Management, Supply Chain Risks Management, International Logistics and
Supply Chain Management, Advanced Procurement, Purchasing and Supply Chain
Management, Production/Operations Management, Introduction to Logistics and Supply
Chain Management, International Business, International Management, Quality Management,
and Organizational Behavior and Theory.
Instructor (1983-1984)
Department of Economics and Finance, School of Business, Alabama A & M University,
Normal, AL
Undergraduate Graduate Courses: Managerial Economics, Intermediate Microeconomics,
Microeconomics I/Macroeconomics II, Business Statistics I/II
HISTORY OF PART-TIME EMPLOYMENT/TEACHING EXPERIENCE

Adjunct Professor/Research Advisor (1998-2003)
Leadership Education for the Adult Professional (LEAP): Adult Completion Program
Oakwood College, Huntsville, AL
Courses Taught: Managerial Economics, Marketing, Human Resource Management, and
Organizational Behavior and Theory
Adjunct Professor (1998-2006)

Department of Business and Information Technology, Oakwood College, Huntsville, AL
Courses Taught: Macro/Micro Economics, Managerial Economics, Marketing Research,
Principles of Marketing, Consumer Behavior, Advertising and Promotion,
Production/Operations Management, and Principles of Management
Lecturer (Summer 1999-Summer 2000; Fall 2005)

Department of Economics and Finance
College of Administrative Science
University of Alabama in Huntsville (UAH)
Courses Taught: Macroeconomic Theory and Microeconomic Theory
Adjunct Professor (April 2004-October 2004 - Online)

College of Business Administration
American Intercontinental University-Dunwoody Campus, Atlanta, GA
Courses Taught: Macro/Microeconomics, Marketing Research, Operations Management,
Sales Management, Marketing Management, International Business Operations, Lean supply
Chain Management, logistics and supply chain management
229
Graduate Research and Teaching Assistant, 1989-1993
Department of Ag/Applied Economics and Department of Marketing, Logistics and
Transportation, The University of Tennessee, Knoxville, TN
Adjunct Professor, 1990-1991

Business Division, Knoxville College, Knoxville, TN
Courses taught: Macro/Micro Economics, Managerial Economics, Small Business
Management/Entrepreneurship, Human Resources Management, Transportation
Management, Production/Operations Management, Marketing Management, and Principles
of Management
TEACHING METHODS USED

Discussion of contemporary and/or emerging issues in global transportation management,
logistics, and supply chain management; global business; continuous process improvement
techniques (total quality management/ lean thinking philosophy/lean supply chain
management), Case Method; Management & Marketing Reports, Ethical & Social Issues in
Global Business Reports; Documentary firms/Videos; Quest Speakers; Experiential
Exercises; Role Playing; Powerpoint Presentation; and Executive Quotations.
TEACHING INTERESTS
Transportation Management, Lean Supply Chain Management, Logistics and Supply Chain
Risk Management, Purchasing and Supply Chain Management, Advanced Logistics &
Supply Chain Management, International logistics and Supply Chain Management,
Production/Operations Management, Quality Management (Lean Management/6-Sigma),
International Business Management and Marketing, Management & Marketing, Quantitative
Methods & Statistics.
RESEARCH INTERESTS
Pharmaceutical and Healthcare Supply Chain Logistics; Transportation and Supply Chain
Security; Supply Chain Logistics Risks; Supply Chain Corporate Social Responsibility,
International Business, Logistics and Supply Chain, Retail Supply Chain Logistics, Lean
supply chain, Sense and Respond Supply Chain, Applications of RFID and Swarm
Intelligence in Supply Chain, Supply Chain Economics, and Commercial Space
Transportation Logistics.
TEACHING EFFECTIVENESS
Student teaching evaluations range from very good to excellent; Innovative teaching methods
often used.
Curriculum Development in Logistics/Supply Chain Management and International

Business Programs
Business Administration (BS) - Concentration in Logistics and Supply Chain

Management
Some of the prominent courses that I developed are as follows:
Supply chain risks management
230
Advanced logistics and supply chain management
Strategic logistics and supply chain management
Purchasing and supply chain management
Negotiation techniques and supply chain management
International logistics and supply chain management
Business Administration (BS) - Concentration in International Business

Curriculum Development in International Business
Responsible in developing the following courses:
International Management
International Logistics and Supply Chain Management
MBA in Logistics and Supply Chain Management

Developed the following courses for MBA in Logistics and Supply Chain Management:
Logistics and supply chain management
International marketing and logistics/supply chain management
Adaptive supply chain management
Logistics and supply chain risk management
Independent research in logistics and supply chain management
Strategic supply chain planning.
CONSULTING EXPERIENCE AND GRANT PROPOSALS
> Lean Management - Rolls-Royce Mentor-Protege Program, 2006 - 2007 (Dr. Emeka
Dunu - Co-P.I.) Manzi Metals, Inc. - Provided Training on Lean Culture/Lean, Lean
Distribution, Lean Transportation, Lean Supply Chain Management, Supplier
Relationship Management, and Value Stream Mapping
> Lean Manufacturing - Rolls-Royce Mentor-Protege Program, 2006 (Dr. Emeka Dunu -
Co-P.I.)-$34,123
The Purdy Corporation (Aerospace Manufacturing) - Provided Training on Lean
Culture/Lean Manufacturing and Value Stream Mapping
> Supplier Relationship Management and Development - Boeing Mentor-Protege
Program, sponsored by the U.S. Navy, 2005 (Dr. Emeka Dunu - Co-P.I.) - $25,439
DACA (a Machine Tooling Company) - Provided Training on Principles of Supply
Management, Transportation, Lean Supply Chain Management, Forecasting and
Materials Management, Negotiations, Supplier Management, Inventory
Management
> Lean Management - Teledyne Brown Engineering, 2005
Provided Training on Lean Office Administration
> Cost Effective Supply Chain Management - Boeing Mentor-Protege Program, Sponsored
by the U.S. Navy, 2004 (Dr. Emeka Dunu - Co-P.I.) - $42, 748
Precision Machine Manufacturing Company - Provided Training on Cost-Effective
Supply Chain Management and Lean Supply Chain Management
> American Intercontinental University - Dunwoody, Atlanta, GA, April 2004
Developed Supply Chain Management Concentration for the MBA Program
231
($10,500)
> Supply Chain Management - Mentor-Protege Program, Sponsored by U.S. Air Force and
U.S. Navy, 2003 (Dr. Emeka Dunu - Co-P.I.) - $34,057
> Logistics University (Log U)/Redstone Arsenal Civilian Personnel
Taught Logistics and Transportation Management Courses
> ISS, Inc./DOD Mentor-Protege Program
Conducted Marketing Research under the auspices of AAMU Research Institute,
Integrated Solutions and Services (ISS), Inc., and Science Applications International
Corporation. January 2003.
> PrSM Corporation/DOD Mentor-Protege Program
Conducted Decontamination & Decommissioning Marketing Research under the
auspices of AAMU Research Institute, September 2002.
> THA, Inc./DOD Mentor-Protege Program
Conducted Computer Security Marketing Research under the auspices of AAMU
Research Institute, September 2002.
> Training and Workforce Planning for Organizational Excellence and Quality
Management - Federal Highway Administration, U.S. Department of Transportation,
2001 (Co-P.I. - Dr. Emeka Dunu).
> How Changes in Goods Movement Impact Disadvantaged Populations - Federal
Highway Administration, U.S. Department of Transportation, 2001 (Co-P.I. - Dr. Emeka
Dunu).
> Energy Systems Waste Management Organization Y-12 Plant; a division of Lockhead
Martin Marietta Energy Systems, Inc., Oak Ridge, TN. Total Quality Management
Consultant, March 15, 1995
Conducted workshop on Total Quality Management
BOOK CHAPTER
Enyinda, C. I., S. Ogburia, and A. O. Ogbuehi. The Political Economy of Privatization in

Post-Military Nigeria. In Dimensions of African Business and Development (edited
by Sonny Nwankwo, et al.), SHU Press, England, UK, 2003.
BOOK
Dunu, S., C. I. Enyinda, Sr., and H. Jamshidi. Applied Mathematics and Statistics for
Business. Normal: Alabama A & M Printing Services, 1995.
MANUSCRIPTS SUBMITTED SUMMER 2008

Enyinda, C. I. Tolliver, D., and Szmerekovsky, J. "Mitigating and Managing Global Supply
Chain Risks and Security: Leveraging RFID Technology." Submitted to the Global
Review of Business and Economic Research - Under Review.
Enyinda, C. I. and Tolliver, D. "Taking Counterfeit Drugs out of Pharmaceutical Supply

Chain Logistics Network in Sub-Saharan Africa: Evidence from Nigeria and
Multilayered Mitigation Approach." Submitted to the Journal of African Business -
Under Review.
232
REFEREED JOURNAL PUBLICATIONS
Enyinda, C. I., Briggs, C , and Koo, W. (2009, Spring). "The Role of Competitive
Intelligence Leverage in Supply Chain Risk Management Strategy." Global Review
of Business and Economic Research (Forthcoming).
Enyinda, C. I. and Szmerekovsky, J. (2008). "Sense and Respond Supply Chain: A

Prescription for Mitigating Vulnerability in the U.S. Pharmaceutical Value
Chain." The Journal of Global Business Issues, Vol. 2, issue 2 Summer/Fall, pp. 95-
103.
Enyinda, C.I. and Szmerekovsky, J. (2008). "Leveraging Lean Supply Chain for Value
Chain Management: A Comparative Assessment of Military and Commercial
Organizations." Journal of Business and Behavioral Sciences, Volume 18, Number
1, summer, pp. 165-181.
Enyinda, C. I. and Obuah, E. (2007). "The Political Economy of U.S. Global Trade Supply
Chain Security Measures: Implications for Trade under African Growth and
Opportunity Act." Journal of Sustainable Development in Africa, Volume 9, No. 1,
pp. 117-132.
Enyinda, C. I. and Dunu, E. (2005). "Managing Global Logistics and Supply Chains in the
New Security Environment: Challenges and Implications for Multinational Firms."
Journal of Business and Behavioral Sciences , Volume 13, Number 1, Fall, pp. 122-
136.
Enyinda, C. I. (2005). "Newspaper and Broadcast Advertising Impact on Shoppers' Price

Sensitivity at the Retail Level." Journal of Business and Behavioral Sciences,
Volume 12, Number 2, Spring, pp. 108-121.
Enyinda, C. I., Williams, M. and Ogburia, S. (2005). "Global Outsourcing of Services under
the Threat of New Protectionism: The Next Battleground for Free Trade." I
nternational Journal of Business and Public Administration, Volume 2, Number 1,
Spring.
Enyinda, C. I. and Elike, E. (2003). "An Econometric Analysis of Variables Associated With
Demand for Meat Groups: Results Based On Metropolitan Data." Journal of
Industrial, Business & Economic Research (ISSN: 1118-9487), Vol. 7, No. 2, Jun-
Dec.
Enyinda, C. I., E. E. Obuah, and A. O. Ogbuehi. 2000. "Multinational Enterprises' Role in

the Development and Growth of Regional Economic Integration in West Africa: An
Assessment and Trade Policy Implications." Journal of African Business.
Enyinda, C.I. and A. O. Ogbuehi. 1997. "An Empirical Analysis of Retail Price and
Multimedia Advertising Effects on Sales Performance," Journal of Food Products
233
Marketing, Vol.
4(1).
Enyinda, C. I. 1995. "The Relevance of Retail Industry Scan Data in Applied Demand
Analysis", The Journal of the Alabama Academy of Science.
BEST PAPER AWARDS (REFEREED PROCEEDINGS PUBLICATIONS)
Enyinda, C. I., Briggs, C , and Koo, W. (2008). "The Role of Competitive Intelligence
Leverage in Supply Chain Risk Management Strategy." In Proceedings of Global
Academy of Business and Economic Research (Best Paper Award in Supply
Chain Management Track.
Enyinda, C. I. (2005). "Managing Global Logistics and Supply Chains in the New Era of
Homeland Security Regulations and Compliance: Challenges and Implications for
Multinational Firms." In Proceedings of 2005 American Society of Business and
Behavioral Sciences (Best Paper Award in Logistics and Supply Chain
Management Track).
Enyinda, C. I., Williams, M., and Ogburia, S. (2004). "Global Outsourcing of Services under
the Threat of New Protectionism: The Next Battleground for Free Trade." In
Proceedings of 2004 the International Academy of Business and Public
Administration Disciplines (Best Paper Award in International Business Track).
Enyinda, C. I. and Dunu, E.S. (2003). "Logistics and Transportation Within NAFTA in the
New War Economy: Issues and Implications for Just-in-Time Supply Chain
Management Strategy." In Proceedings of 2003 American Society of Business and
Behavioral Sciences (Best Paper Award in Logistics and Supply Chain
Management Track).
Enyinda, C. I. and Jungki Lee. 1999. "An Investigation of the Influence of Advertising on
Consumers' Price Sensitivity: A Demand System Estimation Calibrated on Optical
Scanner Data." In Proceedings of Society for Marketing Advances (Best Paper
Award in Retailing Track).
Enyinda, C. I. 1995. "An Estimation of Short-Run Advertising Elasticity of Demand for

Variable Weight Products Using Supermarket Level Scan Data." In Proceedings of
1995 Southern Marketing Association (Best Paper in Sales Management,
Advertising, Public Relations and Sales Promotion Track).
234
REFEREED PROCEEDINGS PUBLICATIONS
Enyinda, C. I., Briggs, C , Tolliver, D., and Mbah, C. (2008). "Lean Supply Chain
Implementation: Transforming Nigerian Military Supply Chain Value Stream into a
Lean Sustainment Enterprise for the 21st Century." In Proceedings of 2008 the
International Academy of African Business and Development.
Enyinda, C. I., Ogbuehi, A. and Briggs, C. (2008). "Global Supply Chain Risks
Management: A New Battleground for Gaining Competitive Advantage." In
Proceedings of American Society of Business and Behavioral Sciences, Volume 15
No 1, pp. 278-292.
Enyinda, C. I, and Tolliver, D. (2007). "Taking Counterfeit Drugs out of the

Pharmaceutical Supply Chain Logistics Network in Sub-Saharan Africa: Evidence
from Nigeria and Multilayered Mitigation Approach" In Proceedings of 2007 the
Enyinda, C. I, Tolliver, D. and Szmerekovsky, J. (2007). "Mitigating and Managing Global

Supply Chain Risks and Security: Leveraging RFID Technology." In Proceedings of
2007 Society for Advancement of Management.
Enyinda, C. I. and Szmerekovsky, J. (2007). "Sense and Respond Logistics Model: A

Prescription for Mitigating the U.S. Pharmaceutical Supply chain Vulnerabilities
and the Risk of Counterfeit Drug." In Proceedings of 2007 the International
Academy of Business and Public Administration Disciplines.
Enyinda, C. I. and Szmerekovsky, J. (2007). "Managing Value Chain Through Lean

Supply Chain Logistics: A Comparison of Military and Commercial
Organizations." In Proceedings of 2007 American Society of Business and
Behavioral Sciences.
Enyinda, C. I. (2006). "Improving HIV/AIDS Healthcare Supply Chain Logistics in Sub-

Saharan Africa: Leveraging the New Partnership for Supply Chain Management."
In Proceedings of 2006 International Academy of African Business and Development.
Enyinda, C. I. and Dunu, E. (2006). "A Dose of Lean Thinking Philosophy: Prescription for
Healing Ailing Healthcare Supply Chain Logistics." In Proceedings of 2006
American Society of Business and Behavioral Sciences.
Enyinda, C. I., Obuah, E. and Ojadi, F. (2005). International Trade Supply Chain Logistics
in the New Security Environment: Impact on African Growth and Opportunity
Act." In Proceedings of 2005 International Academy of African Business and
Development.
Enyinda, C. I. (2004). "Implementing Lean Logistics and Supply Chain Management: The
New Battlegrounds for Building Differentiation and Sustainable Strategic
235
Competitive Advantage." In Proceedings of 2004 American Society of Business and
Enyinda, C. I. and Ogbuehi, O. A. (2004). "Stimulating Trade and Foreign Direct Investment
Inflows in Nigeria: A Matter of Transportation Logistics Infrastructure Investments."
In Proceedings of 2004 International Academy of African Business and Development.
Obuah, E. and Enyinda, C.I. (2004). "Regional Economic Integration Among Failing or
Failed States in Economic Community of West African States: Implications for
Foreign Direct Investment." In Proceedings of 2004 International Academy of
African Business and Development.
Enyinda, C. I., Kenea, H. and Williams, A. (2003). "Issues and Critical Strategies for
Improving U.S. Businesswomen Success in International Business Negotiations." In
Proceedings of 2003 American Society of Business and Behavioral Sciences.
Enyinda, C. I. (2002). "On Global Logistics and Supply Chain Management in Post-
September 11 Era Within NAFTA: New Challenges for Global Marketing." In
Proceedings of 2002 Atlantic Marketing Association.
Enyinda, C. I. (2002). "Averting the Sting of Bullwhip Effect in Supply Chain Management
Through Collaborative B2B E-Commerce: Marketing Performance Implications." In
Proceedings of 2002 Society for Marketing Advances.
Ogbuehi, A. O., Enyinda, C. I. and Mbah, Chris. (2002). "Assessing the Impact of the
Internationalization of Information Technology Services on Emerging Markets." In
Proceedings of 2002 Decision Sciences Institute.
Enyinda, C. I. 2001. "Second Generation Reusable Launch Vehicle Development and Global
Competitiveness of U.S. Space Transportation Industry: Critical Success Factors
Assessment." Research Reports-2001 NASA/ASEE Summer Faculty Fellowship
Program (NASA/CR-2002-211840).
Enyinda, C. I. and C. Chukwuogor-Ndu. 2001. Logistics/Transportation Problems and

Challenges in Sub-Saharan Africa: Implications for Economic Growth and
Development." In Proceedings of 2001 International Academy of African Business
and Development.
Chukwuogor-Ndu, C. and C. I. Enyinda. 2001. Recent Trends in FDI: Strategies for

Attracting More FDI Flows to Africa in the 21 st Century." In Proceedings of 2001
Enyinda, C. I. 2000. NASA/MSFC Logistics Services Department Benchmarking Study: The

Planning Phase." Research Reports-2000 NASA/ASEE Summer Faculty
Fellowship Program (NASA/CR-2001-210797).
236
Enyinda, C. I. and J. Lee. 2000. "A Comparative Analysis of Newspaper and Broadcast
Advertising on Food Shoppers' Price Sensitivity: Implications for Retail Media
Strategy." In Proceedings of 2000 Society for Marketing Advances.
Enyinda, C. I., A. O. Ogbuehi, and U. Elike. 2000. "International Trade Liberalization and
Labor Standards in Globalization Era: Evidence from Developing Nations." In
Proceedings of 2000 International Academy of African Business and Development.
Enyinda, C. I., S. Ogburia, and A. O. Ogbuehi. 2000. "The Political Economy of

Privatization in Post-Military Nigeria." In Proceedings of 2000 International
Academy of African Business and Development.
Enyinda, C. I. and J. Lee. 2000. "The Short-Run Electronic Media Advertising on Shoppers'
Price Sensitivity: A Retail-Level Analysis." In Proceedings of 2000 Association of
Marketing Theory and Practice.
Enyinda, C. I., A. O. Ogbuehi, and Horace Rice. 2000. "Sweatshop Operations in Developing
Nations: Ethics and Social Responsibility of U.S. Multinational Enterprises." In
Proceedings of 2000 International Academy of Business Disciplines.
Ogbuehi, O. A., S. Nwankwo, J. F. Aiyeku, and C. I. Enyinda. 1999. "Free Trade in a

Dynamic Global Environment: The Construct, the Evidence, and Trade Policy
Implications. "In Proceedings of the Academy of Marketing Science .
Enyinda, C. I., E. E. Obuah, and A. O, Ogbuehi. 1998. Assessment of Multinational

Enterprises' Role in the Development and Growth of Regional Economic Integration
in West Africa." In Proceedings of 1998 Academy of International Business.
Enyinda, C. I. and A. O. Ogbuehi. 1998. An Examination of Short-Term Retail Grocery

Advertising Effects on Consumer Elasticities. In Proceedings of 1998 Western
Decision Sciences Institute.
Enyinda, C. I. and A. O. Ogbuehi. 1997. "Organizing Retail Level Scanning Data For
Marketing Research: The Case of Variable Weight Products." In Proceedings of 1997
Atlantic Marketing Association.
Enyinda, C. I. and Okwudili Onianwo. 1997." An Empirical Measurement of a Local Retail

Advertising and its Carryover (Lagged) Effects on Food Sales: A Trial Using Scanner
Data." In Proceedings of 1997 Southern Marketing Association.
Enyinda, C. I., D. B. Eastwood, A. O. Ogbuehi, and S. Dunu. 1996. "Econometric

Measurement of Multimedia Advertising Effects on Demand Elasticities: An
Exploratory Study of Consumer Demand Behavior Using Scanner Data." In
Proceedings of 1996 Southern Marketing Association.
Enyinda, C.I. 1996. "Advertising as Information: Incorporating Its Effects nto Almost Ideal
237
Demand System." In Proceedings of 1996 Academy of Economics and Finance.
Enyinda, C. I. and A. O. Ogbuehi. 1996. "A Multimedia Advertising and Promotion

Influence On Retail Sales Performance: A Weekly Time series Analysis." In
Proceedings of 1996 Association of Marketing Theory and Practice.
Enyinda, C. I. and A. O. Ogbuehi. 1996. "A Theoretical and Empirical Analysis of Marginal
Effects of Advertising on Elasticities of Demand: A Systems Approach." In
Proceedings of 1996 Academy of Business Administration.
Ogbuehi, O. A. and C. I. Enyinda. 1996. "A Marketing Education Paradigm for Small- and
Medium-Sized Firms." In Proceedings of 1996 Southern Marketing Association.
Jamshidi, H., D. S. Ang, and C. I. Enyinda. 1996. "Batch and Scheduling Part Families in
Multi- Product Production Facility." In Proceedings of 1996 American Society of
Enyinda, C. I. 1995. "An Econometric Analysis of Multimedia Advertising Effects on

Consumers' Purchase Decisions At The Supermarket Level Using Scanner-Derived
Data." Ph.D. Dissertation. The University of Tennessee, Knoxville.
Enyinda, C. I. 1992. "Logistics Quality: Delivering Better Through Monitoring." Working

Paper. The University of Tennessee, Knoxville.
Enyinda, C. I. 1991. "Logistics Problems in Relations to Economic Development in West

Africa." Working paper. The University of Tennessee, Knoxville.
OTHERS
Enyinda, C. I. "Total Quality Management in Higher Education: Deming's 14 Points Applied
to Alabama A & M University." Campus Intercom, Alabama A & M University, Vol.
35, Dec. 1997.
PRESENTATIONS
Enyinda, C. I, Tolliver, D. and Szmerekovsky, J. (2007). "Mitigating and Managing Global

Supply Chain Risks and Security: Leveraging RFID Technology." In Proceedings of
2007 Society for Advancement of Management, March 25-28, 2007.
Enyinda, C. I. and Szmerekovsky, J. (2007). "Managing Value Chain through Lean Supply
Chain Logistics: A Comparison of Military and Commercial Organizations."
American Society of Business and Behavioral Sciences, 14th Annual Meeting
February 22-25, 2007.
Enyinda, C.I. (2006) "Developing Transportation and Supply Chain Logistics

Professionals in Sub-Saharan Africa: Impetus for Trade and Economic
238
Development." In proceedings of International Academy of African Business and
Development (IAABD) International Conference, Accra, Ghana, May 23-27
Enyinda, C. I. (2006). "HIV/AIDS Healthcare Supply Chain Logistics in Nigeria: The Case
of Rivers State." Rivers State Foundation Annual Conventions, Bethesda,
Maryland, September 01-04, 2006
Enyinda, C.I. "Improving Logistics & Transportation Infrastructure Development in Rivers

State of Nigeria: Policy Responses and Economic Development Implications." Paper
Presented at the Rivers State Foundation Annual Convention, August 29-September 1,
2003.
Enyinda, C. I. 2002. "An Assessment of Logistics and Supply Chain Management in

Franchising: Some Relevant Issues in Food Retailing Industry."
Enyinda, C. I. and Elike, E. (1999). "An Econometric Analysis of Variables Associated With
Demand for Meat Groups: Results Based On Knoxville Metropolitan Data. In
Proceedings of 1999 Academy of Economics and Finance.
Enyinda, C. I. 1997. "Demand Response to Supermarket Advertising/Promotion in a Local

Market in Tennessee: An Exploratory Empirical Examination." Paper Presented at
the American Society of Business and Behavioral Sciences Annual Conference, Las
Vegas, Feb. 2-6,
1997.
Enyinda, C. I. 1997. "Consumer Demand Behavior in a Local Market in Tennessee:

Managerial Economics Implications." Paper Presented at the Academy of Economics
and Finance Annual Conference, Lafayette, LA, Feb. 12-15, 1997.
Enyinda, C. I. and A. O. Ogbuehi. 1996. "Market Reforms in Eastern Europe: Issues and
Considerations for Global Marketing." Paper Presented at the Association For Global
Business National Conference, Dallas, TX, Nov. 21-24, 1996.
WORK IN PROGRESS
Supply Chain Risk Management: Leveraging Swarm Intelligence Approach
Quality Supplier Selection and Building a Sense-and-Respond Supply Chain Social
Responsibility: An Analytic Hierarchy Process Application
Supply Chain Intelligence: Key Source for Gaining Differentiated Competitive Edge
Managing Reputation Risk in the Retail Industry: A Comparative Assessment of Wal-
Mart and Costco
Enhancing Value Creation through Supply Chain Risk Management
The Political Economy of Transportation Logistics Infrastructural Development and
Investment in the Niger Delta of Nigeria: Evidence from Rivers State
Impact of Government Policies on Transportation Logistics and Supply Chain
Development: The African Context
239
Streamlining Air Transportation Industry in Nigeria through Lean Philosophy:
Implications for Safety and Efficiency
Critical Issues in Transportation Logistics Operations and Services in ECOWAS
Meeting Africa's Talent Pool Gap in Logistics and Supply Chain Management
SEMINAR/WORKSHOP PRESENTED
Fundamentals of Research Methods: An Overview of the Essentials. Presented to School of
Business faculty, 17 February 1999.
Total Quality Management: Making it an Integral Part of the New Attitude at Alabama A &
M University. Presented at the Annual Faculty/Staff Conference, 14-15 August 1997.
Writing for Professional Publication/Call for Papers Seminar. Sponsored by the Department
of Business & Information Systems Management, Oakwood College, May 27-28.
Competitive Advantage Through Strategic Total Quality Management. Paper presented at the
Professional Awareness and Appreciation Seminar at Martin Marietta Energy Systems, Oak
Ridge, Tennessee, March 1995.
THESIS COMMITTEE
Department of Agribusiness Management
TRAINING/SEMINAR ATTENDED
Lean Enterprise Value/Lean Aerospace Initiative, Massachusetts Institute of Technology,
June 15-17, 2004.
Faculty Development Consortium: Instructional Technology Conference, March 20-22, 1997,

Auburn University.
The Teacher Training Program (TTP) Workshop at the 24th Annual Meeting of the Academy
of Economics and Finance, 15 February 1997.
Hands-on Application of Research Strategy, Design, and Data Analysis. Southern

Management Association, New Orleans, Louisiana, Nov. 6-10, 1996.
Grant-writing Workshop, Stillman College, 07 May 1996.
Learn About Local Resources to Sell your Product Overseas. Co-Sponsors: NEAR SBDC,
Chamber of Commerce of Huntsville/Madison County, College of Administrative Science,
the University of Alabama in Huntsville, and the U.S. Department of Education, February 15,
1995.
Inventory Control and the Customer and Changes within and Teamwork" American
Production and Inventory Control Society - Tennessee Valley Chapter, September 12, 1995.
240
Total Quality in Higher Education: Creating Customer Value. A Workshop by the
Management Development Center, University of Tennessee, Knoxville, June 5-10, 1995.
International Business Seminar Series. North Alabama International Trade Association,

January 25, 1995.
Fifth Space Logistics Symposium, Society of Logistics Engineer, 1993.
TQM Seminar Sponsored by CareerTrack Management Consultants, 1993.
Writing for Professional Publications. College of Continuing Studies, University of Alabama,

Tuscaloosa, 1988.
SERVICE TO THE UNIVERSITY/SCHOOL OF BUSINESS/DEPARTMENT
Logistics and Supply Chain Management Coordinator (1995-Present): Played primary role in
upgrading the Logistics Concentration to Logistics and Supply Chain Management.
Developed
and/or redesigned the following courses: Supply Management and Negotiation Technique,
Advanced Logistics & Supply Chain Management, Strategic Logistics and Supply Chain
Management, and Supply Chain Risk Management
Chair, Faculty Affairs Committee (Faculty Senate) - 2003 - Present
Faculty Senator, 1998-Present.
Member, Research Council Committee, 2002-2005.
Chair, Intellectual Contributions and Faculty Development Committee, 2000-2002.
Intellectual Contributions Committee Member, 1997-Present.
Chair, Search Committee for Chairmanship Position, Department of Management &

Marketing, May 1998.
Member, Search Committee for Dean, School of Business, June 1997.
Chair, Search Committee for Faculty position in the Dept. of Management and Marketing,
April 1996.
Chair, Curriculum Content and Evaluation Committee, 1995-1996.
Member, Assistantship, Scholarship, and Research Committee of the Graduate Council,

1995-1996.
Facilitator, Operation Jump-Start, for Freshmen Students, 1995-1997.
241
Member, Undergraduate Programs Accreditation Council, 1995-1996.
Co-Advisor, American Production and Inventory Control Society, Alabama A & M Chapter,
1994-Present.
Committee Member, Financial Resources, Facilities, and Equipment, 1988 - 1989.
Committee Member, School of Business Honor Day, 1988-1989.
Advisor, African Students' Association, 1983-1985; 1995 -Present.
Committee Member, Conference on Entrepreneurship and Economic Development, 1987.
Advisor, International Students' Association, 1983-1986.
SERVICE TO THE COMMUNITY
Conducted Workshop for FamilyFinders on Total Quality Time Management, 2001
Judge, Miss Alabama Teen USA Pageant 1988.
Voter Registration Drive and Scholarship Drive for Black Students under the auspices of
Alpha Phi Alpha, Inc., 1988.
PROFESSIONAL AFFILIATIONS
American Society of Transportation and Logistics, Council of Supply Chain Management
Professionals, Society of Logistics Engineers, Institute of Supply Management, Society For
Marketing Advances, American Society of Business and Behavioral Sciences, International
Academy of African Business and Development, The International Academy of Business and
Public Administration Disciplines, and Association for Global Business.
242

Out

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Out

Uploaded by

Copyright:

Available Formats

MODELING RISK MANAGEMENT IN THE PHARMACEUTICAL

INDUSTRY GLOBAL SUPPLY CHAIN LOGISTICS USING

ANALYTIC HIERARCHY PROCESS MODEL

Chris Iheanyi Enyinda

In Partial Fulfillment of the Requirements

Fargo, North Dakota

CHRIS IHEANYI ENYINDA

Enyinda, Chris Iheanyi, Ph.D., Department of Transportation and Logistics, College of

Achieving sustainable differentiated advantage in today's ultra-competitive

environment demands supply chain C-level executives to have a clear understanding of

appropriate approaches to managing key risks. Thus, organization should have a

and more competitive when surprised.

In this context, the intent of this research is to apply a multi-criteria analysis by a

four-level AHP methodology, to choose optimal mitigation strategies to manage

encompasses criteria (risk categories); Level 3 is composed of sub-criteria (sub-risk

pharmaceutical industry. Hierarchical models can be used to decompose a complex value

The results based on modeling risk management in the pharmaceutical industry

literature is modeling of risk management strategies in the pharmaceutical industry GSCL

and/or enterprise risk management executives in the selection of appropriate measures to

perceptive comments and/or constructive feedback in near real-time. My gratitude to the

Reza Maleki for accepting to serve and for their support.

Unequivocally, I am very thankful and indebted to Dr. Denver Tolliver, Director of

and helpful in allowing me to use every available resource to enhance my academic

advice and encouragement, support, world-class professionalism, and willingness to help.

supporting and approving my sabbatical leave. My gratitude to special friends, including

intelligent, and loving. I love you with all my heart.

LIST OF TABLES xiii

LIST OF APPENDIX TABLES xix

LIST OF APPENDIX FIGURES xx

Statement of the Problem 6

CHAPTER 2. THE PHARMACEUTICAL INDUSTRY 11

Pharmaceutical Trends and Challenges 11

Mergers and Acquisition 14

Pharmaceutical Industry Global Supply Chain Outsourcing 20

Pharmaceutical Global Supply Chain Outsourcing Drivers 23

Pharmaceutical Global Supply Chain Outsourcing Activities 27

Merits and Demerits of Pharmaceutical Global Supply Chain

Pharmaceutical Global Supply Chain Outsourcing Risk 33

Pharmaceutical Global Supply Chain Logistics 35

Nature of Pharmaceutical Industry Global Supply Chain Logistics 38

Pharmaceutical Global Supply Chain Logistics Security Threats 42

Pharmaceutical Pedigree Requirements Legislation 45

Supply Chain of Custody 48

Sense and Respond Pharmaceutical Supply Chain 50

Pharmaceutical Supply Chain Competitive Intelligence 53

Supply Chain Blind Spots and Competitive Early Warning System 56

Supply Chain Intelligence Cycle 61

CHAPTER 3. LITERATURE REVIEW 71

Risk and Uncertainty Controversy 72

Global Supply Chain Logistics Risk and Uncertainty 73

Supply Chain Logistics Vulnerability 78

Sources of Supply Chain Logistics Risk and Uncertainty 82

Impact of Risk on Global Supply Chain Logistics 84

Global Supply Chain Risk Management 87

Pharmaceutical Global Supply Chain Logistics 97

Pharmaceutical Global Supply Chain Logistics Risk and

Sources of Risk and Uncertainty in Pharmaceutical

Pharmaceutical Global Supply Chain Logistics Risk Management 102

Multi-Criteria Decision Making 108

Analytic Hierarchy Process 109

AHP Application to Risk Management in Pharmaceutical

Construction of the Pairwise Comparison Matrix A 116

Combining Experts' Judgments and Geometric Mean 119

Description of Major Objectives, Sub-Objectives, and