1 Chapter I Introduction I.1 Background The pharmaceutical supply chain is a complex system involving various stages in the production, distribution, and delivery of pharmaceutical products from manufacturers to end consumers (Samjiskar et al., 2022). Fundamentally, the pharmaceutical supply chain encompasses all activities necessary to ensure that medications and other health products are available in the right quantities, at the right time, and with the appropriate quality standards. This process involves multiple stakeholders, including raw material suppliers, drug manufacturers, distributors, pharmacies, and healthcare facilities (D. Kapoor et al., 2018). The pharmaceutical supply chains (PSCs) are not confined to operational aspects but also encompass various other aspects such as regulations, policies, and information technology. This supply chain must operate within a strict regulatory framework, including safety and quality requirements set by national and international drug regulatory authorities. Additionally, advanced information technology is required to monitor the movement of products in real-time, ensuring efficiency and transparency at every stage of the process (Mishra et al., 2020). The pharmaceutical supply chain is a highly complex and unique system when compared to supply chains in other industries. These fundamental differences make the pharmaceutical supply chain particularly special. Essentially, the pharmaceutical supply chain encompasses the entire process from the procurement of raw materials, production, and distribution to the delivery of pharmaceutical products to end consumers, such as pharmacies and healthcare facilities. The uniqueness and complexity of the pharmaceutical supply chain are driven by several key factors that distinguish it from supply chains in other sectors, such as having extremely stringent quality and safety requirements, requiring specific handling methods, having shorter life cycles and more unpredictable demand, having ethical considerations to ensure medications are accessible (Covarrubias et al., 2022; Tutam, 2023; Shakouhi et al., 2023; Silva et al., 2023). 2 Globally, the pharmaceutical supply chain is confronted with formidable obstacles, especially in low- and middle-income nations where access, cost, and availability of necessary medications, such as antibiotics, continue to be issues. Inefficient supply chains frequently result in shortages, the improper use of substitute medications, and a growth in antimicrobial resistance, which is made worse by the infiltration of substandard and falsified medications (Kamere et al., 2023). These problems have been made worse by the COVID-19 epidemic, which has put tremendous strain on international supply networks as a result of rising demand, lockdowns, border closures, and stockpiling. This has brought attention to the need for the supply chain to be more resilient and transparent (Årdal et al., 2021). The rising issue in the US, the dependency on global supply chains for generic APIs has revealed that many APIs are produced by a limited number of facilities, making the supply chain susceptible to disruptions (Socal et al., 2023). In Ethiopia, the implementation of the Integrated Pharmaceuticals Logistics System (IPLS) has shown some progress, but issues such as poor storage, weak stock management, and irrational use persist, highlighting the need for better infrastructure and logistics management information systems (Alemu et al., 2021). In Nigeria, the supply chain system is plagued by issues such as difficulty in medicine selection, procurement, distribution, inventory management, financial constraints, and inadequate human resources, all of which contribute to frequent stock-outs and worsened conditions during the pandemic (Olutuase et al., 2022). In the Indonesia context, the pharmaceutical industry seems to have had a remarkable expansion over multiple periods of time, which is attributed to the implementation of Foreign Investment (Penanaman Modal Asing - PMA) and Domestic Investment (Penanaman Modal Dalam Negeri - PMDN) laws in the 1960s result in significant progress in the pharmaceutical sector. Recently, by observing the GDP of Chemical, Pharmaceutical, and Traditional Medicine Industries, there was a growth rate of 9.39% year-on-year (yoy), surpassing even the previous year's growth rate of 8.48% (yoy) observed in 2019 (Ministry of Industry Indonesia, 2021). However, the industry also faces several challenges in 3 the supply chain aspect, such as inadequate supply, stringent government regulations, and global disruption like COVID-19. The Book of Industrial Developmental Analysis by the Ministry of Industry Indonesia (2021) analyzes the perpetual discrepancy between the value of exports and imports, resulting in a persistent trade deficit. The Indonesian pharmaceutical industry has witnessed a 2.68% rise in export value between 2018 and 2020, with pharmaceuticals reaching a value of USD 635.3 million. However, there is a decrease of 7.02% in terms of volume, with the majority of export contribution going to Asian countries such as Singapore, Japan, Philippines, India, and Thailand. The fifth country on this list accounted for 58% of the total export value for Indonesia's pharmaceutical industry worldwide. Conversely, the import value for the industry rose from USD 1.52 billion in 2018 to USD 1.68 billion in 2020. The increase in import value can be attributed to the scarcity of goods caused by the COVID-19 pandemic, which led to an increased demand for medicines and health supplements. The largest imports within the pharmaceutical industry, originating from China, amounted to USD 416.9 million in 2020, displaying an average annual growth rate of 7% and culminating at USD 1.68 billion by the end of that year. This deficit predominantly arises from an insufficiency in the trade balance for pharmaceutical materials, which escalated to USD 729.3 million in 2020, an increase of 37.4% compared to the deficit recorded in 2019. An essential challenge faced by the Indonesian pharmaceutical sector is its heavy reliance on imported raw materials, accounting for approximately 90-95% of its supply chain (Ministry of Industry Indonesia, 2021). It is essential for the effective operation of the healthcare system and guaranteeing a steady supply of pharmaceuticals since the pharmaceutical sector plays an essential part in providing life-saving medication (Hung et al., 2005). Any risks that impact the Pharmaceutical Supply Chains (PSCs) can have far-reaching consequences, affecting not only the availability of drugs but also compromising 4 the overall effectiveness of the healthcare system (Hoon Kwak & Dixon, 2008). Therefore, it becomes imperative to thoroughly examine and mitigate these risks to establish practices within the PSCs that prioritize business sustainability. Notably, researchers have focused on risk assessment within the pharmaceutical sector in recent years. Many studies have concentrated on specific activities within the supply chain to identify potential vulnerabilities and develop strategies to address them effectively. A recent study by Hoon Kwak & Dixon (2008) identifies the best practices in risk management within high-technology industries. Their study highlighted robust risk assessment, proactive mitigation measures, and agile response mechanisms as key strategies. However, limitations were noted, including the need for further exploration of drug development projects' risk management and the transferability of risk management practices from other industries to pharmaceuticals. Another research by Moktadir et al. (2018) contributes to the field of supply chain management by presenting a comprehensive risk assessment framework tailored for Pharmaceutical Supply Chains (PSCs).