Avoiding serialization supply risk with CMOs

For many pharma companies, the use of contract manufacturing organizations (CMOs) to package commercial product is an integral part of their supply chain. Indeed, for virtual companies, it may be the only way their products are packaged. Serialization legislation in the US, EU and many other countries means that, without the successful and timely implementation and integration of CMO serialization capabilities, pharma companies will no longer be able to supply product.

The complex, evolving, immature and increasingly resource-constrained area of serialization means that the risk of significant supply interruptions is high. In this first article I will look at the first six of our key learnings in this area, they include:

• Be realistic about the flexibility CMOs have.
• Be realistic about what CMOs will actually pay for.
• Understand the CMO’s decision-making process.
• Be realistic about how important you are to your CMO.
• Use risk management to direct resource application.

Let us take a look at each of these learnings in detail.

1: Be realistic about the flexibility CMOs have

CMOs, like all organizations, have many constraints that limit what they can practically offer. It is all too easy for pharma companies to assume that as they are the customer a CMO will be able and willing to accommodate any requirement they have. Unfortunately, in the area of serialization at least, this is not the case at all. Serialization is an immature area, with new and evolving legislation and standards. Equipment and information technology (IT) solutions are evolving and maturing rapidly. Furthermore, the whole supply base is capacity-constrained as the demand for equipment, IT systems and consulting services has outgrown the limited pool of skilled resource.

The whole supply base is capacity-constrained as the demand for equipment, IT systems and consulting services has outgrown the limited pool of skilled resource.

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Most CMOs handle many different customers and, from a serialization perspective, must implement packaging line, IT capabilities and interface them to each of their clients. It is impractical for them to do this and achieve time, cost and quality customer requirements without a little compromise. This often comes in the shape of CMOs having a limited operating model, within which customers must conform, so the manufacturer can effectively manage the situation. In many cases, the equipment and IT solutions they are using will impose constraints on them that they have no realistic way of avoiding in the current environment.

Therefore, rather than expecting CMOs to be infinitely flexible and customer-serialization-requirements focused, it is safer for pharma firms to assume they will need to adapt to a number of different and relatively inflexible CMO serialization models.

2: Be realistic about what CMOs will actually pay for

CMOs are relatively low margin businesses when compared with most pharma companies. Indeed, one could argue that this is due to the pharma companies doing a good job of ensuring they only pay a reasonable price for the services they receive. Therefore, CMOs do not typically make the profit margins that would allow them to absorb the very significant costs of implementing serialization. We have seen a number of clients waste a lot of time and effort trying to negotiate for a CMO to absorb the cost of serialization when, in reality, this was never going to be a practical option. Therefore, pharma companies should budget to pick up their fair share of the CMO serialization implementation and ongoing operation costs and negotiate with their CMOs accordingly.

3: Understand the CMO’s decision-making process

Following on from our discussion about being realistic about what CMOs are going to pay for, pharma companies also need to understand the key decision-making processes within a CMO and how this will impact their own activities. As an example, understanding the funding approval processes within a CMO can be key to ensuring a timely serialization implementation.

 How a CMO makes its funding commitment decisions and what commitments they need from their customers along the way, should shape a pharma company’s engagement plan. All too often, a project will encounter unexpected and sometimes unexplained delays because the funding and commitment processes of the pharma company and CMO are not aligned.

How a CMO makes its funding commitment decisions and what commitments they need from their customers along the way, should shape a pharma company’s engagement plan

4: Be realistic about how important you are to your CMO

Pharma companies would all like to think that they are a critical and highly important customer to their CMOs. However, this is not realistic for most pharma-CMO relationships. Certainly, you may be in the fortunate position of being a priority customer for a small number of your CMOs, but it is unlikely to be the case for all of them. This is particularly true if a CMO is in fact a pharma company themselves. In this situation, there may be two issues playing against you as the customer:

• As a contract supply product, your supply is often low margin and low priority for the supplying pharma company.
  

• Pharma companies are typically not well set up, with respect to serialization and often culturally, to service a model where they are the CMO, as this is different to a model to where they are the customer.

Planning on the basis of a realistic expectation of the CMO’s view of your business will help avoid unnecessary supply risks.

5: Use risk management to direct resource application

It is unlikely that you will have enough of the right resource to manage all CMOs in the same way and mitigate all risks entirely. Therefore, managing the portfolio of CMO integration projects using a risk-based approach will give you an effective way to focus resource where it will pay the highest dividends. Different companies will measure business risk in different ways, but the principle of applying most resource to mitigate the highest business risks is likely a sensible approach. However, this approach does come with a downside. Such a focusing of resource will result in some areas of the program having a higher probability of some degree of failure. Management need to recognize this and work with their teams to ensure they understand where compromise is acceptable.

“The first step is to acknowledge the problem, and then you can move on to risk management and analysis”

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6: Assess each CMO’s capability to deliver

Our experience suggests that, just because a CMO claims they can deliver, the pharma company should not take this at face value, unless failure does not matter in the bigger scheme of supply risks.

The majority of CMOs are stretched to achieve serialization and are relying, in a large part, on the same over-stretched supplier base as everyone else. Furthermore, as CMOs are lower margin businesses than the typical pharma company, they need to run much leaner than the typical pharma company. This typically exposes pharma companies to delivery risk levels that may not be acceptable to them.

An assessment of any CMO’s likely ability to deliver can be made to help understand this risk and actively decide if and how to mitigate it. Areas of assessment can include:

•  Overall approach and plans

•  Key skills:
  - Subject matter expertise
  - Project management
  - Quality and validation

•  Supplier capability

•  Internal and external resource capacity.

More to follow on this subject in Andrew's next column posts, meanwhile why not read his previous posts.