Avoiding The Supply Risk From Serialisation With CMOs: Part 1

Avoiding The Supply Risk From Serialisation With CMOs: Part 1

For many Pharma companies, the use of contract manufacturing organisations (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.

Serialisation legislation in the US, EU and many other countries means that, without the successful and timely implementation and integration of CMO serialisation capabilities, Pharma companies will no longer be able to supply product.

The complex, evolving, immature and increasingly resource-constrained area of serialisation means that the risk of significant supply interruptions are high.

Be4ward has been implementing serialisation with Pharma companies and CMOs for many years. We have written this document to capture some of our learning throughout that journey and hope it will be useful to you, the reader.

Key learnings 1: Be realistic about the real flexibility that CMOs have

CMOs, like all organisations, have many constraints, both internal and external, 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 serialisation at least, this is not the case at all.

Serialisation is an immature area, with new and evolving legislation and standards. Equipment and information technology (IT) solutions are also 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.

Most CMOs have to deal with many different customers and, from a serialisation perspective, must implement packaging line and IT capabilities and interface them to each of their customers. It is impractical for them to do this and achieve time, cost and quality customer requirements without some compromise.

This compromise often comes by the CMOs having to define a limited operating model, within which customers must conform, in order for the CMO to be able to 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 serialisation requirements-focused, Pharma companies are probably better to assume they will have to adapt to a number of different and relatively inflexible CMO serialisation models.

Key learnings 2: Be realistic about what CMOs are really going to 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 serialisation.

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 serialisation when, in reality, this was never going to be a practical option. CMOs may be able to fairly share the cost of serialisation between customers, but to absorb the costs is unrealistic in many cases.

Therefore, Pharma companies should budget to pick up their fair share of the CMO serialisation implementation and ongoing operation costs and negotiate with their CMOs accordingly.

Key learnings 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 serialisation 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.

Key learnings 4: Be realistic about your CMOs’ views of your importance to them

Pharma companies would all like to think that every CMO treats them as a critical and highly important customer. However, this is just 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, as is sometimes the case, 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 serialisation 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.

Key learnings 5: Use risk management to focus 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, it must also be recognised that this approach comes with a downside. Such a focusing of resource will mean that some areas of the program will have a higher probability of some degree of failure. Management need to recognise this and work with their teams to ensure they understand where compromise is acceptable.

Key learnings 6: Make sure you assess each CMO’s capability and capacity to deliver

Our experience suggests that, just because a CMO claims they can deliver, the Pharma company customer 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 serialisation and are relying, in a large part, on the same over stretched supplier base as everyone else.

Furthermore, CMOs, being lower-margin businesses than the typical Pharma company, are 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.
Should you have any questions about this or any other of my blogs, or would simply like to request a copy of my booklets, please don’t hesitate to contact me at Stephen.McIndoe@be4ward.com

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