Most modern pharmaceutical supply chains are complex, global, outsourced, and decentralized. In
addition, many supply chains are vulnerable to security risks, ranging from thefts to malicious
product tampering. Successful security professionals articulate and prove a positive return on
security investments. While the cost of security is easy to estimate, the total cost of loss may not be well understood due to hidden cost factors, especially in large global organizations. Some loss
factors are transparent (e.g., cost of product lost), but others require more scoping and analysis. This paper provides a comprehensive list of cost factors to consider when developing a security return on investment.
Busy professionals do not have time to research the true cost of a security failure. In many cases, the real costs are not known or considered. Poor understanding of security return on investment leads to a view that security is simply a cost, with limited positive contribution to the company’s net results.
Develop a tool for pharmaceutical industry security professionals to estimate the real cost of loss in cargo thefts. A common practice for estimating replacement product cost is to use market value of the product(s) lost. Rarely in cargo theft reports is the replacement product cost valued using manufacturing costs for the firm. “Lost sales” and “product replacement cost” are different costs. Product replacement cost, or manufactured cost, is the actual company cost to produce the product. If the firm does not have products to sell due to theft, and patients or other buyers want to purchase the product, this is categorized as “lost sales”. Lost sales cost evaluations include a profit margin and the loss if buyers change to a competing product due to your product’s unavailability; this may also result in future losses, especially if the competing product adequately meets buyer needs.
While it is important to know the difference between “product replacement costs” and “lost sales”, the first priority of a good supply chain security program is prevention.
BONUS: Download the Cargo Theft – Cost of Loss Worksheet to compliment the White Paper – a great tool to help you succeed in your job!