Strengthening the connection between supply and manufacture

James Cooper, Lime Associates, supply chain specialist, looks at how strengthening supplier relationships can help pharmaceutical manufacturers to protect their businesses in 2016

In 2016, pharmaceutical manufacturers are under closer scrutiny than ever. The industry is changing, and growing concern about pharmaceutical pricing and profit margins is increasing the financial pressure on manufacturers.

At the same time, a growing number of deaths attributed to pharmaceutical products through misuse, misdiagnosis and quality issues means it’s never been more important to stay compliant.

The increasing cost of pharma

On the financial side, we can see some worrying trends emerging in 2016.

As regulations tighten, the industry as a whole is incurring bigger and more frequent financial penalties than ever before. Whilst this is more prevalent in the US market – there’s a really good chance that European manufacturers could face similar scrutiny over the year ahead.

At the same time, the commercial environment is becoming more difficult. New cost constraints, and an increasing awareness about the profits made by the pharma industry means that healthcare providers are weighing up the cost of products like never before.

The traditional business model, in which pharma companies would invest a significant proportion of R&D expenditure into developing ‘blockbuster drugs’, before charging an appropriate premium for the product is under serious threat. Now, there’s an increasing expectation on manufacturers to carefully examine production costs, in an effort to protect margins.

Slashing costs in the supply chain

This creates a real challenge. Putting pressure on suppliers or switching sources might seem like the best way to cut costs, but this comes with serious risk. Tiny changes to seemingly inactive ingredients can make a huge difference to pharmaceuticals.

Despite this, many manufacturers still trust suppliers to provide the right grade and quality of materials, especially when it comes to excipients. If these suppliers get things wrong – it’s the manufacturers who face the consequences.

To minimise risk, pharmaceutical manufacturers need to take a closer interest in their suppliers and the ingredients they provide, examining existing procedures, and working hard to strengthen relationships.

Quality testing beyond the key ingredients

Every manufacturer knows the importance of in house quality control and testing processes. However, many don’t have the same processes in place for the materials sourced from elsewhere.

In 2015, Lime Associates worked with a successful UK-based pharmaceutical manufacturer following a buyout. They had enjoyed a meteoric rise, going from small start-up to a leading manufacturer in the field. Despite the extensive development of the business – the purchasing and supply chain procedures hadn’t kept up with growth.

Apart from the key ingredients manufactured in-house, everything was sourced from a single lab supplier catalogue. The manufacturer had little knowledge and absolutely no control over where ingredients were sourced from, and left it to the catalogue to find and test appropriate grades of excipient.

Should the suppliers have got anything wrong, there was a real risk that the manufacturer would have sent products to market without noticing – which could have had far reaching impacts on patient safety, business finances and reputation.

Sustainability of sourcing and threats to the ‘crown jewels’

The pharmaceutical industry relies heavily on key ingredients – the essential ‘crown jewel’ raw materials that cannot be replaced. Securing the supply chain for these materials is essential – but usually the sustainability of these ingredients lies in the hands of the supplier.

This can be challenging, especially in cases where this material is rare, or can only be sourced from a single supplier. Large pharmaceutical companies get around this by purchasing the supplier outright, but this simply isn’t feasible for smaller businesses.

The problem can be compounded if a key ingredient or feedstock comes from an exotic source, or isn’t a key part of the supplier’s business. In 2016, the industry is sourcing more and more ingredients from marine organisms – but these resources need to be carefully managed if they are to be sustainable over the long term.

Should suppliers exhaust a key resource, it could have serious implications!

Understanding and testing suppliers

To minimise risk in the supply chain, effective supplier relationship management is essential – but it’s becoming a lost art in 2016.

Manufacturers need to know exactly how important they are to their suppliers, and work to develop stronger relationships – but this can be hard in a world dominated by digital communication and e-procurement systems.

Nothing beats meeting people face to face. Taking the time to visit suppliers, getting to know them and building trust can be the difference between success and failure, and will help to keep pharmaceutical businesses compliant in the year ahead