Sustainable Supply Chains of Pharmaceutical Companies in Germany. Comparison to the Gap Frame Criteria


Academic Paper, 2017

38 Pages, Grade: 90.0


Excerpt

Table of Contents

1.0. Introduction
1.1. Gap Frame Focus
1.2. Sustainable Development Goal Focus
1.3. Geographic Focus

2.0. Assessing the Gap Frame Criteria
2.1. Sustainable Production
2.1.1. Sustainable Production Indicators
2.1.2. Sustainable Production Criticism
2.2. Sustainable Consumption
2.2.1. Sustainable Consumption Indicators
2.2.2. Sustainable Consumption Criticism
2.3. Resource Use
2.3.1. Resource Use Indicators
2.3.2. Resource Use Criticism

3.0. GRI G4 Criteria
4.0. Sustainability through industry wide associations
4.1. German Industry-wide Initiatives
4.2. Global Initiatives

5.0. Sustainability in the Supply Chain
5.1. Drug Discovery and Development
5.2. Drug Production
5.3. Drug Delivery and Dispensing

6.0. Challenges within Germany

7.0. Company Case Studies
7.1. Bayer
7.1.1. Bayer commitment to Sustainability
7.1.2. Sustainability Initiatives at Bayer
7.1.3. Bayer and the Gap Frame Criteria
7.2. Roche
7.2.1. Roche Sustainability Overview
7.2.2. Sustainability Initiatives at Roche
7.2.3. Roche and Gap Frame Criteria

8.0. Meeting SDG based on GAP Frame Criteria
8.1. Focus on Specific SDGs
8.2. Use Gap Frame Indicators as Guidelines
8.3. Join Industry Wide Organizations
8.4. Develop Company Targets and Goals

9.0. Overcoming the challenges in Germany

10.0. Conclusions

11.0. References

12.0. Appendices

1.0. Introduction

The purpose of this paper is to investigate the pharmaceutical industry in terms of sustainable supply chains and comparing this to the Gap Frame Framework. Two companies, Bayer and Roche, will be analyzed to provide a look into current practice.

1.1. Gap Frame Focus

The Gap Frame is a framework that translates the Sustainable Development Goals (SDG) into nationally relevant issues and indicators for business (Gap Frame, 2017a). The aim of this framework is to aid companies in shifting their behavior and strategic perspectives by showing both the inside-out and outside-in perspectives of environmental challenges a country is facing. By using the Gap Frame from an outside-in perspective, businesses can address the challenges highlighted by the circle model and use an integrative approach to better align their operations in order to reach the SDGs (Muff, 2017). The four sustainability dimensions in the circle model are Planet, Society, Economy and Governance. The focus of this research will be on the economy dimension, which includes several issues:

- Innovation
- Employment
- Resource Use
- Sustainable Production
- Sustainable Consumption The three last items, marked in bold, will be the area of focus for this paper, as they can be applied to the pharmaceutical industry’s supply chain to evaluate a company’s sustainable behavior. These issues are also more relevant to our chosen sustainable development goal, which will be discussed next.

1.2. Sustainable Development Goal Focus

The SDGs are 17 global priorities and aspirations for 2030 developed by the United Nations and signed by several countries and nations (Bosch. et. al, 2017). These goals focus on the need for an integrated effort by all parties: governments, the private sector, civil society, the public sector and individuals (United Nations, 2017a). The goals evaluate many areas of sustainable development in the future, including for poverty and gender equality. For the sake of this paper the focus will be on SDG 12: Responsible Consumption and Production. Achieving Goal 12 requires a strong national framework for sustainable consumption and production that is integrated into national and sectoral plans, sustainable business practices and consumer behavior, together with adherence to international norms on the management of hazardous chemicals and wastes (United Nations, 2017b). SDG 12 can also be directly linked to the Gap Frame areas already mentioned, which are sustainable consumption, sustainable production and resource use. The goals contain specific targets, which act as indicators for businesses regarding which areas they can target their efforts to aid in the progress towards achieving the goals.

1.3. Geographic Focus

The geographic area of focus in this paper will be Germany. As the world’s fourth largest pharmaceutical market with revenues around EUR 38 billion in 2015, the German pharmaceutical companies have given Germany a reputation of being the world’s pharmacy. As the country is the second leading medical biopharmaceutical producer, sustainable supply chain management is of great importance in both production and transport of chemicals (German Trade and Investment, 2017).

2.0. Assessing the Gap Frame Criteria

Though the Gap Frame has developed criteria for assessing progress in sustainable development goals, these criteria are mostly national measures. This poses a problem for companies, as criteria can be difficult to apply to a business scenario. Each issue of focus will be further discussed, especially regarding what the indicators are and how these indicators can be relevant for businesses.

2.1. Sustainable Production

Sustainable Production in the Gap Frame is defined as the need for companies and nations to encourage attention to environmental, social and economic costs as well as benefits because of their production process. This should be done to ensure that produced goods and services are safe for workers and healthful for consumers and communities, which is especially important within the pharmaceuticals industry. Within sustainable production is also the consideration for economic players to be sound, solid and responsible. Since this is a part of the economy dimension, these factors are included. The supply chain should have a focus on avoiding waste and ecologically incompatible by­products that are hazardous to human health or to the environment (Gap Frame, 2017d). Companies are not bound to comply with any of these recommended approaches, but are free to use them as indicators regarding where to focus their sustainability efforts.

2.1.1. Sustainable Production Indicators

There are three indicators for sustainable production. These indicators are irrigated agricultural land, companies with a sustainability report and an assessment on the soundness of banks. These are national indicators chosen by the Gap Frame.

Irrigated agricultural land refers to the impactful need of agricultural areas purposely provided with water. This measurement is taken as a percentage of total agricultural land (World Data Bank, 2017). In Germany, this figure is at 2.2% as of 2013, which is a marginal increase from the 2006 figure of 1.4% (World Data Bank, 2017).

Companies with a sustainability report refers to the number of companies that complete a GRLI report as a percentage of all stock-quoted companies. The GRLI is the Globally Responsible Leadership Initiative (GRLI, 2017). The companies are supposed to report on carbon in their annual financial and CR reports with the ultimate aim of reducing carbon emissions globally, as set out by the UN Climate Talks (KPMG, 2015).

The assessment of the soundness of banks is a measure more on the state of the economy of a nation. Germany has a value of 5.4 for its banks, ranking it 46th out of 140 (Schwab, 2015).

2.1.2. Sustainable Production Criticism

There is much criticism for how these indicators could be used by companies. Irrigated agricultural land can be difficult to directly link to one company’s production and to monitor. Instead, this indicator could be used by companies to monitor water usage in agricultural fields or the condition of agricultural lands.

Next, a sustainability report does not measure how effective the company efforts are in terms of sustainable production. Thus, this indicator is rather ambiguous. Since this is also a national measure, application to an individual company is compromised. Sustainability reports are usually produced by the company itself and can therefore not be evaluated without keeping in mind that the information provided is likely to be biased and presented in a favorable way. This GRLI does encourage companies to disclose emissions data, which is important for transparency.

The assessment of soundness of banks is also not applicable on a company level, as it represents the health of the entire industry. According to the GAP Frame, there are missing indicators that would measure fossil fuel subsidies as well as true cost considerations (Gap Frame, 2017d). There are no global indicators yet available for these proxies, but perhaps these could still be evaluated on a companywide or industry level.

These provided indicators are mostly only applicable on a national level; contributions of individual firms are not easily applied nor measured. Some additional indicators companies could use are the efficient use or reduction of exhaustible resources, including water and energy. This would provide statistics for companies to measure their efficiency of resource use in their production processes. Another indicator could be increases in the use of non-polluting production processes compared to previous processes. The number of safety incidents could also be measured, as this adversely affects sustainable production processes.

2.2. Sustainable Consumption

The Sustainable Consumption issue seeks to describe a situation where people and communities consume materials, products and services in a way that has minimal impact on the environment (Gap Frame, 2017e). Conscious consumption is a result from sustainable lifestyles adopted by societies that purchase, consume and reuse goods and commodities with respect to the environment.

2.2.1. Sustainable Consumption Indicators

The indicators for Sustainable Consumption include carbon consumption and energy savings. Carbon consumption represents the national carbon production and transfers while energy savings is a process that monitors the progress in energy use reduction as well as plans and activities. Germany ranks critical for both indicators (Gap Frame, 2017c).

2.2.2. Sustainable Consumption Criticism

The Gap Frame has stated that an additional indicator is necessary, for individual meat consumption, but a national indicator is not yet available (Gap Frame, 2017e). However, even if there was an indicator, this hardly seems relevant for the individual company. In terms of the other two indicators, carbon consumption is measured nationally. To make the measure relevant for companies, and industry wide standard could be set which an individual company must meet. Additionally, companies should monitor their own carbon production yearly. For energy savings, companies should set internal regulations for energy savings year by year. Since the goal of sustainable consumption is to consume resources in a way which results in a minimal impact, companies should have indicators that show their environmental impact and perhaps implement programs to counteract this.

2.3. Resource Use

The Resource Use issue is relevant to the consumption of resources (e.g., energy, water, land, materials) in a responsible, sustainable and efficient manner to keep pace with the needs of a continuously growing global population. This issue is underrepresented in the Agenda 2030 and the secure access to resources is perceived as one of the key elements in sustainable development (Gap Frame, 2017f).

2.3.1. Resource Use Indicators

The Gap Frame identifies two indicators for resource use: energy intensity and natural resources depletion. Energy intensity represents the cost of primary energy consumption as a percentage of GDP while natural resources depletion represents a sum of net forest, energy as well as mineral depletion (Gap Frame, 2017f). Germany has an energy intensity rating of 9.0 and a natural resources depletion rating of 9.8, making the resource use rating towards ideal (Gap Frame, 2017c).

2.3.2. Resource Use Criticism

According to the criteria, energy intensity should be a percentage of GDP. This makes energy intensity difficult to measure and compare among companies. Perhaps companies could instead use the amount of primary energy consumed compared to secondary energy consumed. They could also use the cost of primary energy as a percentage of total revenues.

Natural resources depletion is also quite difficult to measure for companies as it is just a sum and depletion is difficult to calculate. To make a more comparable statistic, companies could measure the percentage of wasted materials. Another suggestion would be in terms of replenishing natural resources; this could be calculated as percent replenished divided by the percent used by the company. Such a measure could encourage companies to work to replace what they have used, and thus, create a more sustainable supply chain in terms of resources used.

3.0. GRI G4 Criteria

The G4 criteria for economy focuses more on the state of the national economy than it does on the chosen SDG and relevant issues. The SDG seemed to better fit with the G4 criteria of Product Responsibility. Product responsibility addresses reporting and how the products of the organization directly affect consumers. Considered are aspects such as health and safety, labeling, marketing and privacy (GRI, 2011). This can be applied to the pharmaceutical industry, as pharmaceutical products are created with the intent to improve quality of life, with a focus on health and safety.

The Product Responsibility performance indicators include customer health and safety, product and service labeling, marketing communications, customer privacy and compliance. Though all the indicators are relevant for the pharmaceutical industry, the focus will only be on the first two, customer health and safety and product and service labeling. Customer health and safety focuses on the impacts of products and services regarding their improvement and the percentage of significant product and service categories subject to such procedures. This category includes the total number of incidents of non-compliance with regulations and voluntary codes concerning the health and safety impacts of products and services throughout their life cycle (GRI, 2011) . Product and service labeling focuses on the requirements for labeling procedures, such as the type of information required as well as the percentage of products and services requiring this information (GRI, 2011).

The Product Responsibility criteria seems to fit well within Sustainable Production which aims towards safety for workers and healthful products for consumers. Again, this is extremely relevant for the pharmaceutical industry whose overall goal is to produce products which improve the health of communities.

4.0. Sustainability through industry wide associations

Several industry wide associations have appeared that help companies meet sustainability goals in a way relevant to their businesses. There are initiatives both globally and within Germany.

4.1. German Industry-wide Initiatives

German pharmaceutical companies are considered and classified as chemical companies; due to the nature of their operations, there have been several initiatives in the industry aimed at achieving a unified front to important challenges and opportunities through the collaboration of different companies. The following German associations for pharmaceutical companies are recognized by the German Trade and Investment organization (2017):

- German Association of Research-based Pharmaceutical Companies (VFA)
- German Association for the Pharmaceutical Industry (BPI)
- German Association of Pharmaceutical Producers (BAH)
- Pro Generika

The VFA joined the German Chemical Industry Association (VCI), the Mining, Chemical and Energy Industrial Union (IG BCE), and the German Federation of Chemical Employers’ Associations (BAVC) in launching a nation-wide sustainability framework called “ Chemie ³” (Chemistry³). They have recognized the chemical industry as being a key sector for sustainable development, due to the part the industry plays in aiding the improvement of the quality of life in a growing world population and its size in Germany. The aim is to further engage companies through offering guiding principles for the community under the sector-specific umbrella. The initiative is aimed at both enterprises and their workforce (VCI, IC BCE, BAVC, 2013).

4.2. Global Initiatives

The Responsible Care initiative is a global initiative for the chemical industry by the chemical industry (Responsible Care Initiative, 2017). Practiced around the globe with over 65 member countries, it sets a global standard for sustainability practices and focuses on chemical manufacturers. The aim of this initiative is to increase responsibility through safe production practices and to improve transparency through reporting (ICCA, 2017). This is an industry wide commitment to implementing sustainable development concepts to conserve natural resources for the benefit of future generations.

5.0. Sustainability in the Supply Chain Figure 1: Pharmaceutical Supply Chain

Abbildung in dieser Leseprobe nicht enthalten

Source: self-made from cited references

The supply chain of the pharmaceutical industry has evolved during modern times and is becoming more complex due to different external factors. The overall industry has seen a decline in profits, increased safety concerns, increased pressure to put new products on the market and more global regulation, so the pressure on the companies to stay profitable has increased (Chircu. Sultanow, Saraswat, 2014). With these external forces all putting pressure on the pharmaceutical companies, PWC (2017) has identified sustainability and ecofriendly processes as a top trend likely to affect the overall success of the supply chain. These new external forces have forced the pharmaceutical industry to change several parts of their supply chain, and focus specifically on the main recognized phases; distinct phases – drug discovery and development, drug production, and drug delivery and dispensing.

5.1. Drug Discovery and Development

During this initial phase, research and development is considered a major part, with the involved actors being R&D labs, the equipment suppliers and the suppliers of initial chemicals and biological specimens for testing. This part of the supply chain is not as heavily affected regarding the scope of this paper, as it has low consumption of scarce resources and contributes a low percentage compared to other parts of the value chain.

5.2. Drug Production

The drug production phase consists of the suppliers of raw materials and the production equipment supplier as a minor actor. The production phase is one which requires a lot of energy and is aligned to carbon emissions and consumption. This stage should be monitored for responsible production and is a field which has seen a lot of attention from companies and regulators in the involved countries. The production also consists of the biological production, which involves the agriculture sector. There has been concerns regarding the effect of gene modified organisms such as the biological compounds and how this affect natural gene selection and measurements are necessary to protect this.

5.3. Drug Delivery and Dispensing

During the delivery and dispensing phase, the final participants are the wholesalers, hospitals and clinics, traditional pharmacies, mail order and Internet pharmacies, government buyers, and finally the patients who ultimately consume the pharmaceutical products. Regarding safe consumption and consumer protection this phase is seeing an increasing trend of counterfeit products being sold, with tens of millions of counterfeit tablets being seized yearly in in European Union member countries alone (Schiltz, 2009; Perrone, 2012). This aspect of the supply chain requires extensive monitoring.

6.0. Challenges within Germany

The Gap Frame has created a national overview of Germany looking at the four gap frame dimensions (Gap Frame, 2017c). The score for economy is 7.3, which is at the “watch list” level. This model does not look at any one industry, but rather provides a comprehensive look at the country’s overall level. Resource use is towards ideal while sustainable production and sustainable consumption are both at a critical level (Appendix).

7.0. Company Case Studies

Two companies, Bayer and Roche, were analyzed to consider the sustainable objectives within the companies. The companies are both known for performing well on sustainability indices, with Roche placing first on the Dow Jones Sustainability Index and Bayer 3rd (RobecoSAM, 2017). Both companies have also received A grading on the Carbon Reduction Project indices for 2017.

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Details

Title
Sustainable Supply Chains of Pharmaceutical Companies in Germany. Comparison to the Gap Frame Criteria
College
Cologne Business School Köln
Grade
90.0
Author
Year
2017
Pages
38
Catalog Number
V594219
ISBN (eBook)
9783346197252
ISBN (Book)
9783346197269
Language
English
Tags
supply chain management, sustainability, pharma, pharmaceuticals
Quote paper
Hanna Kattilakoski (Author), 2017, Sustainable Supply Chains of Pharmaceutical Companies in Germany. Comparison to the Gap Frame Criteria, Munich, GRIN Verlag, https://www.grin.com/document/594219

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