Question

According to Peters (2017), the pharmaceutical industry faced a challenging situation in September 2017 with the significant weather disruption incurred by their manufacturing plants when the island of Puerto Rico was hit by damaging Hurricane Maria. How big of a deal was it for the industry? For many years, favorable tax laws made it cost beneficial for pharmaceutical companies to locate manufacturing plants in Puerto Rico. In fact, almost 75% of Puerto Rico’s exports in 2016 were pharmaceutical products according to the Bureau of Labor Statistics. Shortly after Maria hit, the U.S. Food & Drug Administration identified a list of more than 40 high-priority pharmaceutical drugs where short-term distribution disruption could be an issue! That’s a huge hit to the industry which it likely had not planned for and would have to incur significant additional costs to remedy. Bye-bye to some of those cost savings…

If the CEO of a newer pharmaceutical company was in the process of looking to outsource the manufacturing of a medication currently produced at a plant in the U.S. to Puerto Rico when Maria hit, should (s)he immediately stop his/her consideration of the plans because of the hurricane, even if it was financially favorable to outsource there?

Vetting each qualitative and quantitative matter takes time and resources, but it is necessary to make sure the company makes sound business decisions from both perspectives.

Answer 1

Following are the headwinds that the pharmaceutical manufacturing industry has to face in Puerto Rico due to hurricane Maria :-

1. Lack of Power supply => Hurricane Maria had a devastating impact on the powergrids of the whole puerto rico. Many operations are dependent on power and if there will be no power supply then the production capacity will be disrupted and come to a halt.

2. Manpower problem => All the manpower themselves are facing personal problems. Their homes are destroyed, some of employees's family members went missing, many of them are facing food related problem, thus employees will not be able to come to the manufacturing plants and without them production cannot be supposed to be done. Thus, the entire production process came to halt.

3 .Security of employee => Also companies have to ensure the security of employees and due to such level of devastation that itself was a challenging task.

4 .Damage to plant => Plants and machineries of companies also have to face the negative impact of the weather as several machines were submerged under water and thus bacame non workable requiring immediate repairs.

5.Damage to basic infrastructure => Basic infrastructural facilities like roads, ports etc. We're also being damaged, thus, adversely affecting the transportation of finished goods.

6. Damages to local suppliers and distributors => Also there was damages to local distribution channel thus adversely affecting the supply chain.

All these factors created a lot of stress on the pharmaceutical industry and resulted in a big maless for the industry as a whole.

Secondly, if CEO of newer pharmaceutical company is in the process of looking to outsource manufacturing of a medication currently being produced at it's plant in us to Puerto Rico then it should defer it's decision of outsourcing for a while, it is because all the facilities mentioned above which are adversely affected the hurricane will require a considerable amount of time to get to the normal position till then normal production capacity cannot be accepted from the local plants of puerto Rico.