Better by Design

Sept. 5, 2013
Intent on making the virtual manufacturing model work, pharma's collaborating in new ways to drive risk out and quality into extended supply chains
As the pharmaceutical business moves closer to the virtual manufacturing model, the need to manage quality and risk across the extended supply chain has emerged as a front-and-center challenge to the industry.
Today the virtual model is embraced on a grand scale by the large OEM drug firms. The giants of the industry view it as a cost-effective approach to extending their supply chain to serve emerging markets. At the same time, it enables them to quickly and cost-effectively add new manufacturing capacity worldwide. 
“Over the last three to five years, pharmaceutical companies have started moving 30% to 50% of their manufacturing to contract manufacturers,” says Hussain Mooraj, director, Life Sciences Supply Chain Practice at Accenture. “But as these strategies were adopted, the companies needed a new way of operating.”
In fact, many pharmaceutical firms are struggling to manage their suppliers. “Every company I visit is struggling with this — it’s going to be the issue du jour for the next couple of years,” says KR Karu, director Pharmaceutical Industry Solutions, Sparta Systems, a quality management systems vendor. 
He cites the experience of a drug firm that recently received an FDA warning for not properly managing its suppliers — specifically, not properly evaluating them, and failing to verify that they had a corrective and preventive action (CAPA) system in place. “All suppliers need to be following GMPs and need to provide proof of that,” Karu says.
It’s no secret that most drug manufacturers made the decision to outsource production to a CMO as a way to reduce costs. But product quality can suffer as a result, if proper safeguards — in the form of processes and technologies — aren’t put in place. The rub here is that all too often, the connections between drug manufacturers and their suppliers dealing with quality problems often consist of emails, spreadsheets, faxes and phone calls — not exactly the kind of cutting-edge technologies one would expect multi-billion-dollar companies to depend on in a real time, digital age.

“It’s so much harder to manage a business that way, because if you have a quality issue or some other supply problem, days can go by before all the relevant knowledge gets to all the people,” says Brian Daleiden, senior vice president, marketing at Tracelink Inc., a provider of supplier collaboration tools for the life sciences industry. “The result is that quality issues fall through the cracks.”

“We ask the question, ‘Shouldn’t you have the same level of data for your outsourced product as you do for data on product you produce yourself?’” Daleiden says. “But the problem is that it’s really hard to build the infrastructure to do that.”
According to some, that’s an understatement. “There can be information sharing enabling a pharma to engage a CMO as if it were its own facility and recall batch, training, maintenance and cleaning records, view analyst notebooks, and review process KPIs,” says Ramana Reddy, associate vice president and Practice Leader for Life Sciences at Cognizant Business Consulting. “This would make the client/CMO relationship almost completely transparent and enable partnerships on a much deeper level. This is easier said than done, and we are not aware of any partnerships with this level of integration.”
Given that level of partnership is the goal, what are some best practices for quality monitoring and risk management across the virtual manufacturing and supply network? What does outsourcing success look like, and what technologies can help make it a reality?
One challenge the industry continues to wrestle with is the need to integrate a variety of different information formats and information systems. While the typical pharmaceutical firm has an enterprise resource planning (ERP) system in-house, it may or may not have any kind of smooth communication links with the various different ERP systems in use at the company’s suppliers. “There is an underlying technology gap out there,” Daleiden says. “For companies that may have 30 to 50 different external supply relationships, you could have the same number of unique technology environments for bi-directional information sharing.” 
On the technology side, some pharmaceutical companies have extended their ERP systems to communicate key production data with suppliers. Still others use online portals as a platform for exchanging inventory, batch and other information. “ERP is an excellent tool inside your organization, but there are tremendous challenges to extend it into a network,” says Mooraj. “That’s the hurdle these pharmaceutical companies faced.”
Cognizant’s Reddy agrees, adding, “Most ERP systems and best-of-breed MES (manufacturing execution system) tools offer the possibility of achieving a ‘virtual enterprise’. However, achieving this in practice requires more than the underlying technology, but the experience of successfully deploying these systems across a global network.” 
But Joseph Miles, vice president for SAP’s Life Sciences Solutions Group, points out that SAP’s vertical solution for the pharmaceutical industry offers rich functionality for drug companies. “We are a leading provider of serial track and trace capabilities,” Miles says. “Because all the product and sourcing data are kept in the back-end systems, that information is critical to producing high-quality products,” he adds, pointing out that the technology is critical to both prevent counterfeiting and ensure the security of drugs as they move through the supply network.
In a similar vein, John Danese, senior director, Life Science Industry at Oracle, another major ERP software provider, says pharmaceutical companies are using its ERP and product lifecycle management (PLM) systems to manage and monitor their suppliers. He recounted a recent incident in which a contact lens manufacturer discovered through the Oracle PLM that a series of complaints had been logged over lens reservoirs that were low or dried out altogether. 
“The case was logged in the PLM as a quality event,” he says. It turned out the problem was caused by sharp edges resulting from out-of-specification tooling at the CMO. “The company put that supplier on hold and assigned production to another vendor until the problem was solved,” Danese says. “The company managed it all through the PLM system.”
Another issue drug manufacturers’ face when managing CMOs is the variety of technology platforms in use throughout the industry. The typical pharmaceutical business may work with a small manufacturer with a totally heterogeneous IT environment and that may not have a shop floor system (MES) integrated with an ERP system. Or there may be several different versions of the same ERP system that have yet to be consolidated. 
Then there is the need to carefully “vet” any new CMO. “You may have an initial cost savings, but doing the due diligence and assessing how this supplier may impact your company from a risk standpoint is essential,” says Deb Kacera, Regulatory and Industry Strategist at Pilgrim Software, a provider of quality and compliance management systems. “You have to have somebody with feet on the ground” checking out the CMO’s manufacturing site, she adds.
An example of a pharmaceutical manufacturer coming to grips with these issues is Merck. Seeking to establish a global supplier network to more economically serve emerging markets as well as mature ones, the company has had to find ways to sharpen visibility into the activities of suppliers and third-party logistics providers. Merck also is using information technology to share information with its supplier community, thereby promoting greater collaboration on important issues such as quality.
“We aspire to have a world-class supply chain,” says Steve Hydzik, executive director, Merck Manufacturing IT. Hydzik described Merck’s plans for the virtual supply chain in a July 2013 webcast at with Merck’s technology partners; Tracelink, a software firm; and Amazon Web Services, which hosts the public cloud on which the supplier network management software runs. 
Merck wants greater visibility and collaboration with suppliers, Hydzik says, with the goals of driving down cost, shortening time to market and meeting ever-increasing customer expectations. “We’ve established a vision of an end-to-end supply chain capability,” he says. “You really need visibility into these business processes. You need to make problems visible to achieve operational excellence.” 
To realize that strategy, Merck “has embraced the concept of an air traffic controller in a collaboration tower with the ability to see all the necessary information,” he says.
Although the company is in the fifth year of implementing a corporate-wide ERP system using SAP, Hydzik says ERP isn’t designed with collaboration at its raison d’etre. “The things ERP does well are inventory management, demand management and purchasing, but what it doesn’t do well is share information with other types of solutions,” he explains. 
In a careful search for the right software to perform the collaboration function, Hydzik says Merck considered three possible approaches — a custom-built system, the purchase of an off-the-shelf software package, or something totally different, such as a cloud-based technology. “We decided to embrace the cloud and move fast, and if necessary, bail fast. We decided to go with Tracelink as an enabler to do that.”
Tracelink, which runs on Amazon Web Services’ public cloud, offers a supply chain collaboration platform enabling manufacturers to share information with business partners on supply, production and distribution. “This technology links brand owners and their CMOs, providing visibility into inventory information and compliance information, which mitigates the risk somewhat,” says Mooraj.
The ability to aggregate key performance metrics by supplier is an essential capability for pharmaceutical firms with extended supply chains, says Shabbir Dahod, president and CEO at Tracelink. “For instance, if there is a recurrence of quality issues among suppliers, it’s helpful to be able to log corrective actions against those suppliers to see which ones are impacting products on a recurring basis,” Dahod says. “This information, in turn, can be fed to a planning group, and they can work with procurement to get an alternate supplier in place.”
He cites the case of a major pharmaceutical firm that had a product in short supply due to a time-consuming quality review process. “They were not releasing batches fast enough to be able to deliver to market on time and in full,” Dahod recalls. “By having a technology platform to share that information, they can solve it much faster than if they had to collaborate via fax or email. With their planners aware of the problem, they were able to plan around the shortage and solve it by sending batches of product where they were most needed.”
In Merck’s case, the company wanted both greater visibility and agility when it comes to managing the various processes in the virtual supply network. “We want to enable our relationship managers to fine-tune the timing of each and every order in the supply chain,” Hydzik says. “The cloud provides that speed and agility. And it allows us to drive a better return on investment.” 
One of the secrets to Merck’s success in moving to the cloud-based solution to manage its virtual supply network was the company’s recognition that the project was business-driven, as opposed to IT-driven. “The key fundamental principle was that this was not an IT project — it was all about business outcomes,” Hydzik adds. 
Another essential ingredient was supplier buy-in. “We saw it as an opportunity for a win-win with our suppliers, because it was anchored in driving out inefficiency in business processes.” But prior to moving to the new platform, Merck had varying approaches for managing processes such as purchasing. “Each business manager had his own way of purchasing management with his suppliers,” Hydzik points out. “The ability to drive standardization, eliminate waste and make the information visible to Merck and the CMO was a win-win.” 
The benefits to be obtained by suppliers quickly became apparent. “It allowed suppliers to trade up,” Hydzik says. “Instead of having a CMO focused on inventory position or  ‘Where’s this purchase order,’ it was, ‘How can we improve the packaging line?’ It wasn’t a tough sell, and we are actually finding an amount of support from CMOs.”
The most advanced pharmaceutical manufacturers are working with CMOs to integrate their information platforms to facilitate collaboration, Mooraj says. “The new approaches to collaboration in the extended supply network have to do with how to develop shared processes,” he says. “A first step is to segment suppliers to identify those that are strategic, and then find ways to integrate platforms with them to exchange information and provide end-to end visibility.” The idea, he says, is to “develop a bi-directional feedback culture with your partners.”
Perhaps more important than the technological links are the organizational and cultural changes required to bring about this level of collaboration. “You have to have the focus to eradicate the barriers that exist, including the people, process and organizational challenges,” Mooraj says. 
He recommends that pharmaceutical firms first adopt the necessary over-arching strategy. “They need to develop a holistic strategy for contract manufacturing that will take their relationship with their suppliers from ‘arm’s length,’ to a collaborative relationship,” Mooraj adds. 
Instead of treating all CMOs and other suppliers alike, pharmaceutical companies should adopt a segmented approach, focusing on establishing a close collaboration with a handful of strategic suppliers. Mooraj recommends developing a set of bi-directional metrics so that results are measured and people are held accountable for those results. 
Another best practice to ensure successful outsourcing of production from a quality and risk view is to conduct regular site visits and audits to verify that the contract firm is following good manufacturing principles and has employees who are trained to adhere to the client’s standard operating procedures. 
“One of the big differences between a contract facility and a company facility in terms of quality is that the client’s product is rarely the only product being manufactured at that site, and often the client doesn’t know what the other products are,” says Reddy of Cognizant. “Aside from the biggest concern of cross-contamination, there are issues such as ensuring that equipment is not being swapped around, or if it is, that it is validated. The best practice is vigilance. Random batch inspections and verification of the CMO’s analysis by the client firm’s analysts should be part of any partnership.”
Not surprisingly, communication also looms large when trying to keep a tight and accurate pulse of the virtual supply chain’s health — not only for operational or logistical reasons, but also for managing quality and risk. As an example, quality incident reporting can suffer if communication is not totally candid. “For example, cultural issues at the CMO facility may prevent bad news from moving up the chain, so that the client is not aware of delays or failed batches until it’s too late to head off the problem,” Reddy adds.  
When dealing with suppliers that have recurring production issues, it may be necessary to institute more careful and frequent product inspections. “The client can use a risk-based approach to inspect incoming products,” says Kacera of Pilgrim Software. “The inspections can be based on the level of risk for that supplier, or on the level of risk associated with the product,” she adds. 
Ultimately, though, it’s better to catch manufacturing deviations early on via some electronic means of reporting from the CMO to the pharmaceutical company. As Kacera puts it, “You need real-time feedback from suppliers to see where their non-conformances are and see if there is a trend.” 
Finally, driving many of these concerns is the industry’s need to comply with FDA requirements. “The regulatory environment for contract manufacturing is getting tougher,” observes Accenture’s Mooraj.  
For example, in May the FDA issued a draft of new guidance governing drug manufacturers’ relationships with CMOs to ensure product quality. The FDA recommended that pharmaceutical companies and their contractors implement written Quality Agreements to delineate their responsibilities to ensure the quality, safety and effectiveness of the drugs they produce. 
“The FDA says the pharmaceutical companies need to be auditing their suppliers, and that they are fully accountable for that product,” says Miles of SAP. “You can outsource the process, but not the accountability.” 
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Doug Bartholomew | Doug Bartholomew