Patheon Puts Its Money Where Its Mouth Is

Patheon’s metrics have improved to the point that it is incorporating on-time delivery guarantees and other new wrinkles into its contracts.

By Paul Thomas, Senior Editor

Pharmaceutical contract manufacturers rely as much upon reputation as anything. If word has it that you’re good, pharma clients will beat a path to your door. These days, however, reputation only goes so far and prospective partners are looking for a little more surety.

In response, Patheon has taken the bold step of writing “service-based” performance guarantees into its contracts: We’ll deliver what we promised, on time, or you’ll get something back.

The idea is CEO Wes Wheeler’s. Since taking over at Patheon late in 2007, Wheeler has overseen the implementation of an operational metrics program—using 18 different key performance indicators (KPIs)—at each of Patheon’s nine global manufacturing facilities. The metrics are being used to improve productivity at the sites, as well as to gauge the performance of site managers and other employees, Wheeler says.

As indicators have steadily improved across the sites—facilities in Italy, France, and Toronto have maintained excellence, he says, while those in Cincinnati and Puerto Rico have “struggled” but come along—Wheeler is now at a point where he is ready to guarantee performance, no matter where the work is done.

“We’re ready to put our money where our mouth is,” he says. At the start, the one KPI that will matter will be “On Time In Full”—that is, a complete order is delivered on or before a date that is predetermined by the contracting parties. All Patheon sites are now performing above 95% in this regard, Wheeler says, giving him the confidence to tie contracts to the KPI (though each contract will be client- and project-dependent and thus carry unique stipulations).

Performance guarantees are nothing new, of course. Patheon itself has a history of providing yield-based performance guarantees—to produce so many batches from a given amount of API, for example. But the service-based guarantee is a new wrinkle, one that will be added to all new and renewed contracts.

And should Patheon miss its guaranteed mark? That will depend on the contract, Wheeler says, but in most cases the client a discount on future deliveries.

Patheon’s Lean Times
To read a talk with Paul Garofolo, Executive Vice President & Chief Technology Officer, about the Patheon Advantage Lean Six Sigma program, click here.

 The guarantees will require Patheon to be more diligent in its Sales and Operations Planning (S&OP), and in developing its three-month “firm zone forecast,” Wheeler says. The company produces some 2,000 batches a month, so any kind of backlog could prove costly.

If the system works, Wheeler hopes to expand the metrics being tagged to the guarantees. “At some point in the future, we’ll couple this with our Right First Time metric, as well as one for compliance,” he says.

Culture Change

The performance guarantees are a by-product of a culture change that Wheeler has witnessed since beginning the “Patheon Advantage” Lean Six Sigma program and instituting internal performance metrics. (See Box.) Updates of all of the KPIs are posted prominently in each facility, so that employees are keenly aware of how they’re doing collectively. “Even if the numbers are not great, they have a great impact,” he says.

The performance guarantee program is reflective of a shift in pharmaceutical contracting, in which contract manufacturers are held more accountable than in the past. Customer service has also become increasingly important, and Patheon is building this into its contracts as well. Another program it has begun is allowing clients to hand pick those Patheon full-time employees they wish to have dedicated to given jobs.

In another sign of the times, Patheon has also begun to offer clients what it terms “restructuring services,” assisting them to shut down facilities altogether, or to reduce their workload. “We work with clients and identify 10, 25, or even 100 SKU’s to carve out, and we’ll pull them out and put them in our sites,” he says. The service includes transfer and regulatory help as well.

All of these initiatives have conspired to effect a culture change within Patheon and this, says Wheeler, is the indicator that he is most proud of.

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