For Outsourcing, Make Sure Your Risk Management Is Redundant

By Peter Bigelow, president, xCell Strategic Consulting

Many biotechnology and pharmaceutical companies are struggling with what I call the “sourcing dilemma”: How do I achieve redundancy in my supply chain while keeping costs down and incentivizing my primary suppliers — whether internal or external? Redundancy is expensive, it consumes precious time and resources, and it distracts your team from driving all-important development milestones.

But the potential points of failure in a supply chain represent risks that investors and other stakeholders cannot stomach. Too many vital medicines do not get to patients and too many development programs are crippled because of a breakdown of the “weakest link” and the absence of viable backup plans.

Therefore, drug development organizations need to be deliberate in decision making regarding building redundancy and managing supply chain risks. The following key questions and initial answers can serve as a guide to those deliberations.

1. WHERE EXACTLY ARE THE RISKS?
I suggest drug sponsors undertake a formal supplier risk-assessment process with the specific goal of identifying potential failure points. This list should include quantifying risks associated with capacity, the ability to react to market changes, compliance, and technical capabilities, among other items. There are a number of effective techniques used to perform supply chain risk assessments. As an example, the ISPE Drug Shortage Gap Assessment Tool, available to ISPE members, is an excellent methodology to identify and understand the vulnerabilities in your supply chain. Additionally, some consultants who work in this field have created templates to guide assessments and identify potential points of failure.

In all cases, a common-sense approach — something that makes sense for your organization and product(s) — is essential. Members of your team or outside technical and business specialists with deep knowledge of facilities and processes — and that may include a trusted CDMO or CMO partner — should systematically review all aspects of the supply chain, from raw materials to final product. Initially, your professionals can provide an objective rating you’ve decided on for all areas of operation, particularly for those activities that you may already know from experience or product characteristics could potentially lead to supply problems.

2. HOW BIG ARE THOSE RISKS REALLY, AND CAN I RECOVER QUICKLY FROM A FAILURE?
Next, it’s imperative you understand the potential impact of any supply chain failures. To decide where risk mitigation tools should be employed, determine the resiliency of suppliers and try to assess the time to recover. For example, the time to recover from a problem at a contract packager may be much shorter than at an API manufacturer, so you may prioritize the API manufacturer for further analysis and attention. Many factors can come into play here, starting with, as I’m sure we all recognize, adding a second (or third) manufacturer to your network will require at least changes to filings/dossiers, and additional stability or bioavailability studies. Despite these hardships, I’d put it this way: You have to come to grips with the implications of any supply interruption, and even more importantly, your ability to recover quickly from such a disrupution.

“What if” analyses may be quite useful to understand the various scenarios that could impact product supply: What if a key supplier had a compliance issue? If a natural disaster (e.g., hurricane) occurred, how long could production be curtailed? What if a key ingredient was not available for three months or six months? Again, your current and potential outsourcing partners are good sources to consult, particularly since any disruption will affect them as well. Finally, another important consideration is the accuracy — or uncertainty — of your product forecasts. Has adequate capacity been reserved if the product meets or exceeds upside forecasts? We’ve all heard of issues with incorrect forecasts, and because of the difficulty in understanding future needs and markets, the best policy is to be ready when the forecast is off. Chances are, it will be.

3. CAN THE PRODUCT BE SUPPORTED WITH REDUNDANCY?
It isn’t always easy – or even possible – to qualify a backup supplier. For example, as products are launched, looking to simply divide launch volumes between multiple suppliers may be problematic. That’s because real-world timing, availability, costs, etc., make this more difficult than it may seem at first. Nowadays, with newer and narrower therapy targets, you may have too small quantities to interest a new supplier to make the investment to prepare to manufacture your material. In other cases, it may be difficult to identify a backup supplier with enough available capacity and the appropriate equipment to manufacture or package the product. Of course, cost — to the suppliers and you, the drug owner — is almost always a — if not the — key contributing factor. The risk-cost analysis you perform has to make sense to your entire organization.

4. WHAT TYPE OF REDUNDANCY SHOULD BE CONSIDERED?
While redundancy overall is a vital risk-mitigation tool, all redundancy is not created equal. For example, qualifying two equipment/manufacturing trains within a single facility may be one tactic, and this occurs probably more than you might think. However, qualifying manufacturing trains in two separate facilities often provides a higher level of comfort and risk mitigation. But do you want those two facilities to be owned by the same CMO? That’s another thought process. Moreover, consider that redundant suppliers can be set up for a “cold start” (requiring new procedural activities and longer time) or a “warm start” (where product may already be in smaller production at a provider but needs to be ramped up). These have to be recognized as quite different strategies.

It’s also important to point out redundancy considerations can occur at different production and management levels. Consideration and analysis should reach down to individual systems within a plant, and even to specific product components. Should you install a complete secondary high-purity water loop within a manufacturing plant, in case the first one requires maintenance? Could you even approach your CMO with the idea? Should you qualify a second supplier of rubber stoppers for an aseptic vial product, in case the primary supplier has a problem? Does your CMO already have this covered? There are no pat answers, but these types of questions should be addressed so you arrive at the responses best for you and your development and manufacturing partners.

There are many strategies that may not be immediately obvious, such as, for example, building strategic inventory, including work in progress (WIP) at key points in the supply chain to provide a buffer in case of a short-term interruption. In some cases — and we are starting to see this with Big Pharma — it may make sense to reserve capacity at a supplier even if the current forecast does not warrant it (as we touched on above). Of course, options like these will come with a cost. Don’t forget about effective lean manufacturing/ Six Sigma programs: These programs have proved to improve performance, reduce cycle times, and allow a faster recovery period on a product-by-product basis. As most of us know, at times our products themselves come with inherent risks, but those can be reduced by improving the formula or manufacturing process.

5. WHAT IS THE RIGHT BALANCE?
Understanding all the trade-offs involved in your redundancy-related decisions allows you to more clearly understand individual decisions and your entire supply chain. We might expect a company with a single new product in development to have a much lower tolerance for risk than a generic firm or a company with many products. Trade-offs are decided in large part by setting priorities, both on a corporate and project level. We might like to believe that risks with the potential for highest impact get addressed first. Yet some mitigation activities are inexpensive and easy to accomplish and can immediately impact the risk scenario positively. Qualifying multiple packaging component suppliers could be an example of this. A thoughtful balance between risks, time, and costs will go a long way in guiding your decisions.

Actually, all the questions above in one way or another address your balancing risk and reward. Once these have been asked, hearty discussions by the right technical and business experts have taken place, and honest assessments and analyses have been made, I suggest establishing (yet another) formal plan. This one would be a multi-year look to clearly outline priorities, identify constraints, and mention mitigation strategies, that is brought to the organization’s senior executive level for approval. With that, full internal socialization of the plan is critical.

Two more points here: First, your best estimates of all costs should be built into all budgets being formulated for your development and manufacturing of a product. Second, don’t forget your partners. Consult with them, and at the same time agree to put metrics in place that effectively measure performance and provide leading indicators of possible issues. This should be viewed as something that helps guide both you and your development and manufacturing service providers. The best policy is to develop a culture of collaboration with your suppliers. When that happens, those metrics more than measure; they drive the right behavior in the first place. This also means that issues are anticipated or recognized early, and performance improvement is the continued expectation.

EXPECT RISK ASSESSMENT REVIEWS
The intense focus on reducing drug shortages throughout the drug industry has created a fuller awareness of the impact of supply chain failures — and has created the expectation that bio/pharmaceutical companies must have robust programs to prevent shortages in the first place. Around the world, regulators are asking to review risk assessments and mitigation strategies, and you can expect this to become the norm. Having transparent and understandable risk-management plans and activities in place will go a long way in helping your organization get your products to patients.