Operations Management in the Pharmaceutical Industry

Abstract

The pharmaceutical manufacturing industry has an annual revenue of $1.2 trillion and employs approximately two million people worldwide (Brocker 2024). The drugs produced by the operations of this industry, which include all activities from scientific innovation to supply chain management, play an important role in the health and well-being of millions of people around the world (OECD 2025). Recent disruptions, especially the COVID-19 pandemic, exposed critical limitations in global pharmaceutical operations, spurring widespread concern (Shih 2020). In the U.S., the Biden Administration deemed pharmaceuticals one of four critical national supply chains, the others being semiconductors, large capacity batteries, and minerals (White House 2021). Further, Congress mandated a report from the National Academies of Sciences, Engineering, and Medicine (NASEM) focused on securing the nation's medical product supply chains against quality and supply disruptions (NASEM 2022). Despite the recognition of its importance, operational challenges in this industry remain prevalent. Drug shortages reached a record high in 2024 (ASHP 2024), and their duration has been increasing (USP 2024). Further, quality issues remain common (e.g., Callahan et al. 2024), and the drug recall trend continues to climb (Ghijs et al. 2024).

The opacity and complexity of pharmaceutical operations are two factors driving the continued quality and resilience issues. As Figure 1 depicts, much of the complexity in the U.S. pharmaceuticals industry stems from intermediaries and payors, who are often vertically integrated and powerful, and who can create and benefit from opacity. Additional complexity comes from the roles of powerful regulators, who oversee, among other things, approvals to produce drugs and ongoing drug quality and safety. We discuss many of these forms of opacity and complexity in detail in the next section.

Operations such as these call for rigorous academic explorations that highlight the unique context of the industry (Joglekar et al. 2016). Operations scholars, for example, can address questions related to balancing cost and quality (Lapré and Scudder 2004; Parmigiani et al. 2011), enhancing the resilience of operations and supply chains (Kim et al. 2015; Shen and Sun 2023), implementing new technologies (Angelopoulos et al. 2023), and demonstrating benefits to, and ways to establish, greater transparency (Buell et al. 2017; Lee et al. 2021). Further, operations researchers can identify the role that powerful regulators, such as the Food and Drug Administration (FDA), play with regards to operational performance dimensions such as innovation, resilience, cost, and quality (Wang et al. 2025). Despite all that operations scholarship can offer, and despite the pharmaceutical industry's prominent role in the world's economy and health, the operations of this industry have not received sufficient academic attention, inspiring this special issue (SI).

Another inspiration for this SI stems from the guest editorial team's unique industry and regulatory experiences. All four editors served on a two-year grant and a separate two-year contract with the FDA. Further, one editor served on the NASEM committee mentioned earlier and one served as a part-time consultant at the White House for 18 months, focused mostly on pharmaceutical industry resilience. These experiences created unique perspectives that we share in this editorial. We note that our most relevant experiences were in the U.S., and our secondary-data empirical research employs FDA data, and thus, this editorial is heavily tilted towards issues and examples from the U.S. and the FDA, but most of the discussion we present is globally relevant. However, we do not claim this editorial to be a comprehensive review of all relevant topics related to the operations of pharmaceutical products. For example, we do not discuss pharmaceutical supply chains serving developing countries (Yadav 2015), counterfeit supply chains (Chaudhry and Stumpf 2013), and likely other topics some would believe to be in scope. We begin with an overview through the lens of three core operational dimensions: (1) Structure, (2) Resilience, and (3) Innovation.

We received 31 submissions. Five were desk rejected, and one was sent back to the editors-in-chief (EIC) for lack of fit with the issue. Twenty-five papers were sent out for review; two of these were handled by the EICs as all four of the SI editors had potential conflicts of interest. We followed the standard editorial processes of the journal. Four papers were accepted for this special issue; the handling editor is listed on each paper. We acknowledge the services of the Associate Editors and Reviewers who handled the papers sent out for review for this special issue.

The four papers that we accepted for publication in this SI cover different aspects of the operations of pharmaceutical products. Srai et al. (2025) study how collaborative networks work to enable a major technological breakthrough—continuous manufacturing—to get from the R&D stage to the point where operations are designed and operable at scale. Key in this paper is describing how regulators, academics, technology companies, and product companies structured their collaboration to dynamically enable this innovation to get to market. While the central role of regulators is a key trait of this industry, it is not unique, and the paper offers insights for other early-stage collaborations to enable new technologies.

Naumov et al. (2025) develop a system dynamics model to evaluate the effectiveness of three interventions on reducing drug shortages: expediting drug approvals, encouraging manufacturers to ramp up production, and implementing a “quality reward” initiative. They find that while expediting approvals and nudging manufacturers to increase production can provide short-term relief, their long-term impact is limited. In contrast, the quality reward intervention sustainably reduces shortages by promoting higher manufacturing quality, thereby minimizing supply disruptions. However, an unintended consequence of this approach is the potential emergence of a monopolistic market dominated by a single high-quality manufacturer. The study proposes a carefully designed quality disclosure mechanism to mitigate this risk.

Skilton et al. (2025) examine how pharmacies' upstream supply chains affect their tendency to oversupply opioids to their communities, creating a diversion risk; that is, a risk that these drugs be diverted to individuals without a prescription. A key finding is that pharmacies with more complex upfstream supply chains are more likely to create a diversion risk.

Finally, in Yang et al. (2025), the authors examine the importance of guidelines for clinical practice on the effectiveness of pharmaceutical treatments for psychiatric care. Using data collated for 2009–2019 from the FAERS database, FDA Orange Book, FDA Drug Approval database, Bloomberg, and Clinical Pharmacogenetics Implementation Consortium (CPIC) guidelines, the authors find that using CPIC guidelines leads to a nearly 25% reduction in serious adverse events in psychiatric care. In addition, the benefits of the guidelines are greater for drugs with FDA label warnings and for CPIC guidelines based on stronger evidence.

Taken together, these four studies span the operations of pharmaceutical products. Srai et al. (2025) examine the collaborative development of new technology and the new supply chains they necessitate. Naumov et al. (2025) examine incentives to improve the quality of manufacturers currently producing. Skilton et al. (2025) study the end of the retail supply chain and their supply chain intermediaries, while Yang et al. (2025) uncover the impacts of operational decision rules for providers on patient outcomes.

The unique and evolving features of the pharmaceutical industry, as well as its importance to public health, provide fruitful opportunities for operations management researchers to contribute to academic literature, practice, and public policy. We hope that, by articulating key aspects of the current state of the operations of pharmaceutical products, this editorial motivates such research. In addition, we believe that the four papers in the special issue serve as exemplars of how to contribute to this domain.

We close with these broad questions: Why are the operations of the pharmaceutical industry seemingly not improving, and how can OSCM researchers help to improve them? Consider the operations of most other product industries—automobiles, electronics, semiconductors, agriculture, textiles, and so forth. While none is perfect, in all cases one can point to major improvements in quality, cost, and delivery, driven by continuous improvement and technological and managerial innovations. The answer to the question as to why this has not happened, at least to the same degree, in the pharmaceutical industry lies somewhere in the structure of the industry discussed above, with its two very different product markets (original and generic drugs), and the interplay of regulation, powerful intermediaries, supply chain opacity, and globalization. Operations scholars have been instrumental in the improvements in other industries, and we believe the more they look under the hood of this industry, the more solutions will emerge. Focusing on the context and the unique traits of an individual industry is in the tradition of industry studies research. Such research has led to some highly influential work; for example, MIT's International Motor Vehicle Program, which resulted in the book The Machine that Change the World. We believe that careful research in the pharmaceutical industry on how and why operational performance varies between firms, facilities, and products could have a similar impact. Operations scholars can use their skills and knowledge to pinpoint, for example, how to design regulations that ensure quality without harming other operational performance dimensions or how to overcome implementation challenges for promising new technologies. We hope that this editorial and the four selected special issue papers motivate more operations scholars to perform careful, phenomenon-driven research in this industry so that our field plays a leading role in its improvement. Human lives and health are, literally, at stake.