Goodwin Insights September 27, 2021

Navigating the New Normal: Disruption and Reinvention: The Pivot to Local Supply Chains

Introduction

It seems like there is a new article every day about how the COVID-19 pandemic has impacted the supply chain, particularly as economies reopen and we move into the next phase of the “new normal.” The disruptions in the supply chain caused by the pandemic has resulted in a perfect storm in global transportation, which has been further compounded by an increased demand for goods and an unusual amount of congestion in major shipping ports. What does such a global disruption mean for life sciences companies that have one or more of the critical component of their operations located overseas? Alternatively, how have U.S.-based companies been impacted by the global transportation conundrum? Although many life sciences companies were strategically positioned to keep or move certain elements of production state-side pre-pandemic, COVID-19 has potentially accelerated this process, effectually creating a new disruption in the competition for finding localized lab, biomanufacturing, and industrial space.

The Disruption and The Pivot

The COVID-19 pandemic has left no industry untouched — causing disruption, and driving reinvention and innovation. While the life sciences industry has proven resilient in numerous ways, many life sciences companies have experienced a strain on their operations due to the disruption in the global supply chain. The implementation of quarantines, the shutting down of economies, and the closing of overseas facilities have caused many companies to reassess their existing supply chains. For example, a biopharma company with its biomanufacturing facility located overseas may have experienced setbacks in its pipeline, especially in the era of developing and fast-tracking successful drugs. Alternatively, life sciences companies who had localized their operations pre-pandemic may have experienced large growth since the beginning of 2020, raising a separate issue of outgrowing their current space as a result of such success.

This pandemic has exposed the missing links in the existing supply chain, but it has also encouraged and accelerated the reshaping of the life sciences industry. One of the ways this industry may be pivoting is towards the localization of supply chains. The trend towards localization is by no means a new concept for this sector, and may not be the definitive solution to long-term supply chain resilience. However, this trend is certainly gaining attention and traction in the industry not only as a reaction to the shortfalls of the supply chain brought on by COVID-19, but also in anticipation of the next disruption. As life sciences organizations look into bringing back certain elements of production into the local markets, there arises a potential new disruption — a need for space.

The Race for Space

It has been widely reported that deliveries of industrial space hit record highs in the third quarter of 2020, and supply chain models are being transformed in days or weeks instead of months or years. While most would attribute this to retailer and other consumer-based organizations looking to localize their distribution centers to appease the consumer’s expectation of same-day delivery, the life sciences sector has also spawned the dramatic growth in demand for industrial space. By way of example, the life sciences sector has reportedly been shifting certain aspects of production (such as manufacturing and distribution) on-shore, in hopes of thwarting the effects of any future catastrophe, be it a natural disaster, another global pandemic or some other form of global disruption. There is a systemic push to ensure that life sciences R&D activities are in close geographic proximity to manufacturing and distribution operations, and to reduce dependence on foreign soil to supply such real estate. In a pandemic or in the wake of a natural disaster, dependence on foreign supply could prove disastrous, since a company facing such a situation would be unable to capitalize on its investment in a high level of intellectual capital and the resulting benefit to the health and safety of American citizens.

Conclusion

It is safe to say that the industrial asset class will continue on its track of exponential growth in the coming months and years, not only as a result of retailers looking to localize their supply chains to meet increasing consumer demands of same-day delivery, but also due to the demands from all Americans to have access to and be the recipients of the gold standard in health care, which inexorably dictates that life-sciences manufacturing should be carried out closer to the consumer. We at Goodwin look forward to guiding our clients through the resultant complexities inherent in this unprecedented time.