Supply Chain Management

Management Approach

Ensuring our high-quality medicines are available wherever and whenever patients need them is one of our top priorities. We are committed to maintaining the safety and integrity of our medicines, which begins with the procurement of materials and extends throughout the production process. Through integration of Lilly-owned facilities and external suppliers, we aim to manufacture our medicines in an efficient, effective and safe manner. The Lilly Quality System supports this integration and is the foundation for our quality standards and processes throughout the product development life cycle, including auditing and assessing third-party risk.

In addition to our efforts internally, we promote strong health, safety and environmental (HSE) practices with our suppliers and contract manufacturing operations (CMOs). We work to mitigate counterfeit medicines and illegal compounding to protect patient safety. We also comply with governmental efforts around conflict minerals (see more on conflict minerals below).

A significant portion of Lilly's environmental and social impact is embedded in our supply chain. We are committed to supporting our suppliers and CMOs as they work to continuously improve their operations.

We believe that doing business with a varied set of suppliers also helps Lilly accelerate innovation and deliver strong results. We seek out fresh perspectives and insights by engaging minority group-owned, women-owned and small businesses.

Supply Chain Governance

Our supply chain augments our operations and we strive to instill our company’s operating principles within our supplier network. We support the United Nations Global Compact (UNGC) principles, adhere to human rights and labor laws, comply with anti-corruption practices, endeavor for a diverse supplier base and promote sustainability efforts designed to minimize our environmental footprint.

Lilly utilizes a risk-based approach designed to prevent product shortage so that patients have access to the right medicine at the right time. To help maintain a reliable supply of medicines, Lilly is expanding its manufacturing capacity, including new facilities in United States, Ireland and Germany.

We rely on our suppliers and CMOs, including those that supply us with research and development materials, active pharmaceutical ingredients (APIs) and final drug products, to provide the ongoing availability of our medicines. As our manufacturing base has grown, we’ve taken significant steps designed to reduce our exposure to risks inherent in managing a global supply chain.

We continue to strengthen efforts to monitor our supply chain for quality and HSE events and risks. We have additional procedures for monitoring suppliers that may pose higher risks, and we intervene quickly when appropriate. Both quality and HSE considerations are integrated into Lilly’s process for evaluating potential new contract manufacturers, and formal assessments are conducted routinely (approximately every three years) for existing contract manufacturers.

We have also taken steps to educate and engage our suppliers directly on HSE issues and to help them build expertise around HSE topics. This includes our ongoing work as part of the Pharmaceutical Supply Chain Initiative (PSCI), a non-profit business membership organization founded in 2006. PSCI, along with its member companies, created and maintains the Pharmaceutical Industry Principles for Responsible Supply Chain Management (the PSCI Principles). The PSCI Principles provide our industry with consistent supplier performance standards in the areas of ethics, labor, health and safety, the environment and related management systems. At Lilly, we have aligned several codes, policies and procedures with the PSCI Principles, including:

• Internal product stewardship requirements that detail our approach to managing risk across the supply chain

• The Lilly Supplier Code of Business Conduct, which applies to all suppliers

• Relevant procurement standards

• Standard contract language applicable to providers of contract manufacturing services.

Learn more about our HSE governance.

Third Party Risk Management

We engage with third parties to provide differentiated services, enable our focus on our core competencies and gain operating efficiencies. Working with third parties may increase potential risks such as service disruptions, data and security breaches, reputational harm, penalties and fines. Mitigating potential risks and protecting Lilly’s reputation is a companywide responsibility that includes third party participation.

With leadership from an internal center of excellence, we have established a third party risk management program focused on identifying and managing potential risks posed to the organization by working with third parties. Lilly’s program has five foundational operating model components: governance and delivery, policies and standards, management processes, tools and technology, and risk metrics and reporting.

The third party risk management program focuses on the following risk areas: anti-corruption, information security, privacy, information systems quality, customer information quality, animal welfare, business continuity and financial due diligence. Additional risk areas are expected to be phased in as the program evolves. The third party risk management program covers the full third party risk management lifecycle including due diligence activities that are conducted pre-contract and ongoing monitoring activities that are conducted post-contract through the life of the engagement.

Assessing & Auditing Third Party Operations

To meet the expectations of the Lilly quality system, our Global Quality Auditing and Compliance team conducts risk based audits to oversee both internal Lilly manufacturing sites and external third-party operations. We regularly assess the results of these assessments to inform audit plans and identify areas for improvement.

Lilly manufacturing sites conduct internal risk assessments of purchased material (raw materials, APIs, intermediates, packaging materials, and GMP consumables) based on quality standards. The risk assessments evaluate the supplier, complexity of the supply chain and how the material will be used at our internal sites to determine an overall risk classification. The overall risk classification helps inform the actions needed to approve a new supplier, and the ongoing requirements to manage the supplier. Lilly oversees contract manufacturers’ conformance with regulatory requirements and quality expectations, including performing quality audits as needed.

For managing HSE risks, our manufacturing procurement contracts ask suppliers to support the PSCI Principles for Responsible Supply Chain Management, which set out the relevant practices any business operating within the pharmaceutical supply chain is expected to uphold in the areas of ethics, human rights and labor, health and safety, environment and management systems. Lilly also expects our suppliers to conform to the HSE expectations outlined in our Lilly Supplier Code of Business Conduct. Standard contract language also requires that manufacturing suppliers, if requested by Lilly, agree to submit to audits that assess compliance with our expectations. Additionally, we engage with key suppliers on environmental sustainability topics such as climate change (greenhouse gas emissions), waste reduction and other relevant opportunities to minimize the environmental footprint of our supply chain.

Partnerships and Leadership

We are an active member of external associations and consortiums aimed at enhancing the security, quality and safety of pharmaceutical supply chains. Team members of Lilly’s global quality auditing and compliance group actively participate in Rx-360 and International Pharmaceutical Excipients Council (IPEC) working groups to provide input into industry guidelines and standards and align our processes with our peers.

We currently hold a seat on the board of directors at Rx-360 and participate in several of the consortium’s working sub-groups to help ensure we stay informed of and help set industry best practices. During 2024, we are continuing the use of Rx-360 Supplier Audit Reports to supplement our internal audit plan as needed.

We continued to mentor small and Disadvantaged suppliers by expanding support programs with the aim of helping these suppliers build stronger business practices. We hosted multiple virtual and in-person networking events to connect qualified suppliers with our procurement professionals and to enhance our partnership with advocacy groups.

See important information about our Sustainability report.