There’s no question that good supplier selection is of utmost importance in the pharmaceutical industry. With trends of even greater outsourcing, cost pressures, tight timelines, global markets, and very visible impacts from quality problems, it’s a constantly moving target. Couple that with M&A, both in the originator company and in the supply base, with a dizzying change in the players involved, and it’s no wonder that those of us responsible for selecting and managing suppliers feel more than a little anxiety.

But it’s not all bad out there. There are a lot of capable and experienced firms focused on serving your needs. Information is increasingly at your fingertips. With a little thoughtful planning, you can meet your company’s goals, whether you’re a start-up seeking to outsource your first GMP API work or you’re an established player wishing to build additional commercial capacity. 

So let’s walk through an approach to how you can get a good start in identifying and screening potential suppliers before making a major commitment to them.

Internal planning
First thing you’ll want to do is to focus on your planning, in particular, the internal planning within your own organization. As I mentioned in a previous article (ref: Lessons Learned from Managing CMOs, Jan/Feb 2014), this comes down to understanding your role. You are the company’s advocate when dealing with the CMO, and you are the CMO’s advocate when dealing with your company. The first part is easy; as they say in that ubiquitous insurance commercial, “everybody knows that!” But the second part is harder. Things will go wrong. The CMO will be the easiest entity to blame, and you may face pressures, to punish or even replace them, that aren’t necessarily warranted. You will need to get to the truth, and hold people accountable, and it’s better if you appreciate that right from the start.

Next, you’ll want to understand your own company’s culture and approach. Are you a large company, with huge resources but complex internal processes that can sop up the time? Are you a small but nimble company, with limited resources, but also limited experience with the details of the type of work being outsourced? There are advantages and disadvantages of any size company, but you need to be careful about your assumptions. You cannot assume, for example, that as a small company you are unattractive to a CMO. You may represent an important new market, or fit a niche that the CMO wishes to develop. Similarly, you can’t assume that your large company’s business will be automatically attractive to a CMO either.

As you look at your own internal processes, think ahead to potential barriers to timely decisions. I hate to pick on lawyers (not really), but your draft contract for a development run could sit in an inbox if your attorneys are swamped by corporate projects. Go meet with your attorneys ahead of time, and see if you can anticipate barriers, and get them started with potentially outsourcing this legal work, if your project is relatively straightforward. Another barrier is if you have internal decision-making groups that meet infrequently, or sometimes even skip meetings. Be up front on what’s needed (be it financial, Legal, IP) and keep yourself from getting surprised.

Consider also your goals for the work being outsourced. For example, is this a partnership you have in mind, or do you have a transaction focus. I’m big on partnerships, in general, but sometimes a transaction is all you want. I came into a small company that was getting close to wrapping up its Phase II solid oral dose development and manufacturing, and the CMO was hungry for Phase III. It didn’t take me long to see that they wouldn’t be a fit for commercial launch. They didn’t even have a loading dock. If they couldn’t be my commercial manufacturer, I didn’t want to get started with Phase III with them either. So I issued the POs for the remaining Phase II work, and would certainly consider them again for other early-stage projects, but I moved on to other suppliers for our lead program.

When facing a new outsourcing project, I like to sit and think about the composition of my internal team. To do this, I start with reflecting on the nature of the thing to be outsourced. Is this a new product/project, or an extension of an old one? Where is the business headed? What are the key drivers of success—such as quality, capacity, flexibility, and cost? I mention cost, because it’s obvious that it’s an important factor in any business endeavor, but I really don’t talk about it very much. That’s because I find cost is rarely the key driver in this decision process.

So, who should be on the team? Quality Assurance is a given, no matter what you’re up to, and as a reader of this publication, you already understand their role. Consider a technical person or persons, depending on the complexity of the sourced material or service. You might be comparing subtle differences between specifications or characteristics that could be critical to your product’s function. Supply chain/logistics should be considered as well. Among other tasks, they can help figure out what the optimal order quantity is and consider issues such as storage and security.

I hold Legal representation as a special case. Of course, they will review any contract terms and help determine what the key issues are. Pay special attention to confidentiality, invention ownership, and termination terms. Whether they’re a full member of your team or an adjunct member, you’ll want to agree up front what kind of support you’ll get and what turnaround time to expect. I’ve found them to be far more receptive to helping you when, unlike their other projects, you provide a little heads-up so they know something’s coming in a few days. 

Other groups to involve are more situational. I’ve included Finance in some teams, particularly if there are issues relating to payment schedules and how they tie in to milestones achieved, or in cases where there is equipment that is acquired or leased, and especially if it is operated at the CMOs site. As an aside, I find owning equipment that the CMO uses is a messy business, due to insurance and maintenance issues in particular, and I’d always rather work out a way for them to purchase that equipment. Also, tying in their ownership schedule to the amount of work you’ve contracted for over time is a good approach.

I’ve also included IT on teams, especially if there are issues such as data feeds for inventory or sales. Sales Operation is another group to consider if some portion of your contract relates to finished goods logistics. This has the added benefit of them getting more skin in the game to provide reliable sales forecasts. Regulatory Affairs is another function that could be important, depending on how closely the CMO’s work is driven by progress or issues in regulatory filings, in particular any special requirements from new international markets.

External planning
Now that you’ve got a sense of your own internal issues in embarking upon outsourced efforts, it’s worth a moment to think about how you and your team look from an outsider’s perspective. I have an expression I like to use: if you want to have excellent suppliers, you have to be an excellent customer. What does this mean? Ask yourself honestly, what kind of customer will you be? Will you be predictable? Will your work represent high dollar volume? Will you be low-maintenance, with few special and last-minute efforts? Will you have a long-term focus? It’s hard to be all of these things, which is what the supplier wants, of course. But there’s tremendous value in sorting this out early. Not only can you work internally to fix your own issues, but you can start to think about which suppliers are a good cultural match for the work you want done, so you’ll stay on the same page.

For example, I had a CMO who was interested in supporting my start-up biotech’s clinical campaign, but they insisted that all raw materials be at their site four weeks before any campaign could start. I could understand why they wanted that. But I also looked around my company and knew that we could never live with that kind of brittle planning. So I went elsewhere. And, yeah, I pushed the selected CMO’s desired two week lead time at least twice, but it ended up being a good fit.

Before getting too far down the path of actually assessing suppliers, it’s best to plan how you will parcel out the work you have. For example, will you seek a large CMO that can handle all aspects of your work, or will you divide up the work to better match CMO skill to the specifics of your need. This will depend on a lot of factors, including technical complexity, which can amplify the impact of tech transfer, and on the nature of those specific skills. And if you’re in a small organization, you may face a management bandwidth issue, where you’re willing to pay extra to have, for example, more powerful project management that resides in your CMO.

Depending on your schedule, you may find an advantage to having more segmented work, despite the higher management workload, if it allows the work to proceed in parallel. I had a development project that was nearing the end of Phase II, and I wanted to get started on selecting the Phase III supplier, which was going to be a lengthy process. But I also knew that validating the analytical methods was going to take a while, and I didn’t want to wait. So I chose a specialized lab to begin validation, taking it off my critical path, while I embarked upon manufacturer selection at my leisure. I also knew that the transfer of a validated method from one lab to another would be a snap compared to that validation itself.

You’ll also want to plan out how many suppliers to employ. You will certainly want to investigate multiple potential suppliers as a part of your process. That’s how you compare options, and frankly, the responses you get will help you figure out how complete your Request for Proposal (RFP) is, and thus modify it.

But it’s better to have a plan ahead of time on whether you are choosing one supplier or multiple suppliers. Sole sourcing helps address your limited management bandwidth, for assessment, selection (including quality audits), and later tracking. It also concentrates your business, which can improve your influence with suppliers if you have custom needs. Multiple sourcing can get you the best pricing (although that depends on the economies of scale of the work you’re doing), and improves your supply security, due to technical, scheduling, and business issues. This multiple sourcing is the gold standard, but you’ll find that in many cases you can’t afford the time and cost it will take to implement.

My general approach is to prefer to start out sole sourcing and add suppliers later as necessary, once you’ve had experience with the size of the actual market you’re selling into, as well as the reliability of your initial provider. To build supply stability while sole-sourced, I find that boosting inventory (if the product is stable), creating multiple warehouse locations, or having your supplier qualify a second site within their network are all approaches that create security at a fraction of the trouble that true second-sourcing entails.

The final planning step is to decide how many suppliers to put into your evaluation. You may find that your options are limited, but that is unusual. It’s far more likely that you’ll get bogged down by collecting information on a large number of suppliers. Even the simple steps of setting up CDAs, introductory meetings, and in some cases ordering and evaluating samples can add up. And you can’t afford the hit to your credibility if you end up ordering samples that you never get around to evaluating.

In one case, we had a new implantable drug product that used an existing generic peptide. My sourcing manager proudly announced that she had found eleven potential suppliers who were all eager to send us samples. That was fine, up to that point, but we quickly winnowed the field to 3-4, and ended up choosing just one.

Execution
That was a lot of planning, but I do want to stress its importance:  planning like that will save you time and money in the long run. The Execution stage is where you take that knowledge of your own needs and match them up with your potential suppliers, starting with things you can find out on your own, then moving on to outreach to selected candidates.

Where can you get this early screening information? Lots of places. Start with experts from your own company, and their past experience with similar needs. You may also choose to hire consultants, but they may not know your company’s background and culture. I’ve found consultants to be most useful when one has specific and current knowledge that’s not found within your company. Publications (such as Contract Pharma) are useful for general information about suppliers. Particularly useful are shows, such as CPhI or Informex, where you can meet in person and collect specific information very quickly. Best of all is a site visit, if it’s convenient to where you are already, but be careful. Even a convenient trip may sop up time that’s wasted on what turns out to be an inappropriate source.

What about getting information on suppliers from the FDA? The FDA publishes actions, such as 483s, Warning Letters, Recalls, and Consent Decrees, and you can sign up to get a weekly email listing new Warning Letters on their site (www.fda.gov). You can even get the recent 483s in spreadsheet form and sort to assess the trends that matter to you.

But I find that, as interesting as FDA actions are, it’s like looking in the rear-view mirror. Most problems visible there have frankly been apparent for a while. Even the 483 letter is typically issued some six+ months after the inspection that prompted it. And if the company hasn’t already largely completed the response to a Warning Letter by the time you hear of it, that’s trouble. But, on the other hand, you don’t want to overreact to a 483, and there can be an explanation that’s worth hearing. And let’s face it, the FDA doesn’t have the bandwidth to cover all of your sourcing needs.

Where else can you turn? The Better Business Bureau (www.bbb.org) can be of some help. It’s easy and free, but incomplete. Many companies do not seek registration, so it’s hit or miss. Another option is a Dunn and Bradstreet report (www.dandb.com) which costs money, but can be particularly useful when you’re dealing with a small, private supplier and you seek more assurance that their financial strength and legal situation are clean.

Finally, once you have some information to start with, extending your search on the web can point you quickly to some options. But be warned. A Google search for “pharmaceutical packaging companies” returned about 1,820,000 results! The more precisely you can define your needs, the better will be your ability to identify candidates. I don’t know how many websites I’ve seen with a long list of chemistries employed or equipment they own: these leave me cold unless I see something specific.

An interesting twist on the use of the web is how to use LinkedIn. I think it’s a great way to use your contacts to get help, as long as you preserve confidentiality on specifics and don’t wear out your welcome. Once you identify a company, you can see who you know, and who they know. You’ll want to note who has left a company vs. who is still there, recognizing that you will learn more from the former.

Contacting Suppliers — Generic Steps
Now that you’ve got an idea of who your candidates are, I like to follow these general steps:

• Introduce yourself, ask for literature. Confirm their potential interest and fit.
• Arrange for a meeting—telecon, in-person, possibly Skype.
• Set up a CDA after the scope is clear. You don’t want to burden yourself with a CDA too early, especially if it’s not clear what technology the supplier will be using, particularly if it overlaps with yours. This process will teach you a lot about future dealings with this company: the process of negotiation, reasonableness of initial proposals, and sense of urgency and attention to detail.

And, frankly, this process will teach them about what you’re like to deal with too.

• Arrange a site visit, if practical. This tends to give the edge to more local suppliers, but that’s a worthy consideration anyway.
• Describe your needs, possibly in a formal RFP if the work is complex enough to warrant it. Include your decision process and timing. I like to bring a limited number of suppliers to this step, preferably 2-4. I let them know how many are included, but not who. 
• Review their proposal or quote. Make sure that the scope lines up with your RFP, and provide feedback if any part is unclear.
• Request and review their references if they’re still in the running. This is just like references for an individual, in that they will be careful in who they select, but it is still possible to get value from this effort. Probe the reference to find out as much as possible about their project and how it compares to yours. Then ask tough, open-ended questions, such as: What have you seen in other suppliers that you did not see in them? What would you do differently if starting over? How soon did you hear about deviations, schedule changes, personnel changes?
• Evaluate and compare proposals and incorporate your other background information. Here’s where the big team described earlier comes into play. You will want to develop your own evaluation metric that fits your needs and the type of work being done. Try to keep it broad, so it covers issues such as “depth of technical staff” or “communications” in addition to quantitative measures. Be careful with the level of detail—more isn’t necessarily better, and you may need to tweak your tool so that your team is confident that it points in the right direction.
• Once you’ve made your decision, get started. But also provide feedback to the CMOs not selected. If they see that you used a fair process, they’re more likely to be a strong bidder on your next project.

There are no guarantees that everything will work out well, of course. After all, this is the pharmaceutical business, and we face all kinds of challenges that can derail a project from a host of directions. But a thoughtful, clear approach with outsourcing can put your firm on the best footing for future success. 

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George Tyson is a CMC and supply chain consultant. Prior to this, he led manufacturing, supply chain, and process development at phama companies ranging in size from start-ups to global enterprises. He can be reached at gktyson@gmail.com.