6 Best Practices for Reducing Risk in Procurement
When outsourcing a critical path pharma project to a Contract Manufacturing Organization (CMO) you’re putting a lot of trust in the relationship. The success of your project rests on the ability of the supplier to successfully complete the project – on time and on budget.
Yet, many factors can come into play to sabotage the most well-laid plans. We’ve all seen it happen during the pandemic: many operations were shut down, ports were closed and many pharma projects came to a screeching halt. Aside from the pandemic, however, there is always a level of uncertainty and risk in every pharma manufacturing project that no one can anticipate. Situations range from erupting volcanoes, hurricane, other natural disasters, to FDA audits that don’t turn out well and facilities that get shut down. I’ve also heard of CMOs being acquired by pharmaceutical companies leaving clients completely at a loss when informed their projects need to be moved out, since the new owners need the capacity for themselves. Other projects have been impacted because of the Russia/Ukraine war due to lack of availability of critical reagents and resources.
Yet every time a project is delayed because of a company or supplier issue – whether avoidable or not – significant money is lost and successful commercialization is jeopardized.
What Can Be Done to Mitigate Supplier Risk?
The logical solution is to make sure one doesn’t put all of their eggs (or APIs) in one basket. Diversifying the supplier base can provide the redundancy needed and lessen the chances of project delays because of issues impacting a single-source supplier.
Adding diversity to the supply chain, however, is expensive and time-intensive. Especially in later phases of development, when Good Manufacturing Practice (GMP) protocols have a whole checklist of items required to get suppliers qualified. There are audits, tech transfer of analytical methods and chemistry results and other requirements. There is also the risk of what can be lost during tech transfer that can impact project success and send you back to the starting line.
But despite the challenges of bringing in a secondary CMO, diversifying really is the only way to ensure redundancy.
Six Best Practices for Diversifying Your Supplier base and Mitigating Supplier Risk
- Include a second supplier in the budget from the beginning. It can take many months to vet a new supplier and then upwards of a year to get one up and running, so don’t wait until there’s an issue to get a second one on-board. Include it as a key line item in the initial budget.
- Secure investor buy-in. When adding a secondary CMO to a line item to the budget, make sure to properly convince investors, through data and statistics, that the cost of a secondary source, is significantly less than the cost of a delayed or failed project.
- Properly vet your secondary supplier. Selecting the secondary source should be as thorough as the first one. One should conduct an in-person audit when possible or virtual when not, inquire about relevant experience and look for any FDA issues that have been reported. The industry has seen a situation in which a biotech company pulled an API out of one supplier and moved it to another in the validation stage. This tactic resulted in the FDA not approving the drug immediately because the new supplier didn’t have enough experience manufacturing it.
- Include as many back-up sources as feasible. Big pharma firms can minimize their risk with multiple suppliers, but that too is often costly for smaller firms. To have at least one additional partner is wise for the smaller firms.
- Consider suppliers closest to clinical trials. Ideally, an API and drug product supplier should be within the country or location where the clinical trials will be held. If your primary source is located in the same region, the regulations and logistics for transfer to the next stage can be more seamless.
- Work with a qualified consultant. An experienced biotech CMC consultant can be a great source for qualifying a CMO, as well as working as a go-between for you and the CMO, to make sure things are running smoothly and on schedule. Their decades of experiences and insights can go a long way to saving you time and avoiding extra costs.
The Hidden Costs of Single-Source and Other Strategies
A single supplier holds a lot of leverage. Regardless of what is set out in the contract, unexpected issues can arise that cause the costs to rise as well. When you’re entering the later stages of your project and have already invested millions of dollars, you’re really at the mercy of the supplier, who can require additional money to finish the project – you really often have no other choice.
Another CMO tactic is to require a five-year contract for commercial manufacturing, with money paid upfront. Yet, if the product fails for whatever reason, that money is lost. Unfortunately, we’ve seen this played out with several small pharma firms that didn’t know they had another choice. It’s also important to point out that with or without a contract, costs can change at any time.
Diversifying your supplier base keeps the competitive spirit alive while giving you some level of control over the relationship and the budget. In addition, sometimes your secondary supplier will go above and beyond to win your trust, and I’ve seen some turn out to become primary suppliers through their hard work, honesty, and competitive pricing. That’s a nice possibility to put out there.
As the saying goes, the only constant is change. Situations can change quickly when it comes to pharma manufacturing, but those companies that anticipate challenges and proactively address them with good supplier back-up options, not only mitigate risk, but they also form the strongest supplier relationships built upon mutual transparency and trust.
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