Ensuring a safe and reliable supply of needed therapies is critically important, but the rising cost and complexity of managing supply chains in Europe has biopharma companies straining to handle the pressure. In part 1 of this 3-part series, we introduced the economic and regulatory factors that are driving the situation.
The major economic factors include Europe’s aging population, rising healthcare costs, and the impacts of parallel distribution. The regulatory factors include the EU Falsified Medicines Directive, growing requirements regarding out-of-stock (OOS) reporting, the increasing mandatory application of digital ordering, and various green policies.
These factors combined push up inventory levels and increase supply chain complexity while also requiring biopharma companies to invest more in tracking and reporting technologies, Sales and Operations Planning (S&OP) / Integrated Business Planning (IBP) processes, and additional supply chain infrastructure components. As a result, biopharma companies face rising costs and eroding profit margins. These factors also create additional barriers to potential new entrants.
The remainder of this series will outline some strategies that biopharma companies can use to manage this complexity. Part 2 focuses on “upstream” supply chain strategies while part 3 will focus on “downstream” strategies. For our purposes here, “upstream” refers to the manufacturing and packaging steps in the value chain, while “downstream” refers to all that happens when transferring a packaged and labeled product to the point of dispensing it to a patient.
In this paper, we discuss a range of potential upstream strategies. This list is not intended to be fully comprehensive. However, we think it represents a robust range of ideas for helping mitigate complexity, cost, and risk.
To Outsource…or Not?
A company must plan its approaches to manufacturing and packaging—as well as risk mitigation in those areas—very early. This is true regardless of whether the company plans to manufacture in-house or rely on outsourcing. Obviously, creating in-house manufacturing is a time-consuming, complex, and lengthy process. However, the same is true for outsourcing. Identifying, evaluating, selecting, contracting, qualifying, and ramping up a contract manufacturing organization (CMO) takes a lot of time and effort.
Moreover, once choices are made, they will be essentially fixed for a number of years. Manufacturing and packaging steps must be included in the regulatory dossier submission process, and making changes can result in dossier approval delays, launch delays, or supply issues after launch.
Determining what to keep in-house vs. external is not always easy to do. Such decisions require leaders to explore capabilities, conduct analyses, build business cases, and shepherd their decisions through vetting with executive leaders and even the Board of Directors in some cases.
Building in-house capabilities requires high up-front investments and potentially involves a long learning curve, but it allows the company to keep control over its technology / intellectual property and the manufacturing capacity of the asset. Outsourcing can offer more flexibility, faster ramp-up, and a lower financial burden, but it makes the company fully dependent on its external vendor(s). It also requires intensive and ongoing vendor management once things are up and running.
Single-Sourcing vs. Multi-Sourcing
Apart from the outsourcing question, the next question is whether to use single sourcing or dual (or even triple) sourcing approaches. Single sourcing, although the “leanest” and easiest to set up, also means a single potential point of failure with limited opportunities for back-up.
On the other hand, it’s more likely to afford the company better volume leverage, a faster learning curve, and the chance to build better partnerships. Dual/multiple sourcing allows for better risk mitigation, cost negotiation leverage, and higher available capacity for demand surges.
The Need for Understanding Risk and Business Continuity Planning
When planning for manufacturing and packaging, leaders must make well-informed decisions, with a strong understanding of the potential implications of their choices. It’s always advisable to perform a thorough risk assessment, weighing in on best and worst case scenarios. Ultimately, any decisions should be backed up with a strong business continuity plan (BCP).
A good BCP should allow a manufacturer to understand and manage risk across the full manufacturing and packaging chain at any time. BCPs might include elements such as capacity reservation, inventory policies, dual sourcing, options to extend capacity (e.g. by increasing production shift hours), set up of back-up vessels, mixers, lines, etc., and also well-informed location choices (e.g. one CMO in Europe and one in the US).
Finally, for Europe, the Manufacturing & Importation Authorization (MIA) strategy must be well thought through. This is essential to fulfilling GMP requirements. A MIA can be obtained by biopharma companies but can also be outsourced (which is often the case with start-up companies) to a CMO. Outsourcing, however, limits the ability to change if a second source is sought and also increases the dependency on the CMO.
Another method for ensuring a secure supply is to address bottlenecks in the process. Here, we highlight three ways to “de-bottleneck” upstream:
- Decoupling manufacturing from packaging
- Applying a kind of “takt time” concept
- Optimizing batch-sizes for packaging runs
Decoupling Manufacturing from Packaging
When we refer to “decoupling manufacturing from packaging,” we basically mean two things:
- Having different entities or work centers manufacturing active pharmaceutical ingredients (API) and/or bulk drug product (DP)—whether in-house or via a C(D)MO—vs. performing labeling, packaging, and serialization operations
- Splitting the manufacturing step from the packaging step; For example, a company may produce tablets in bulk and then store them in inventory before placing them in bottles or blister packs followed by packaging them in cartons and applying labeling and serialization, which would make them country-specific.
API and bulk DP manufacturing processes are heavily governed by GMP, often involving long lead times and resulting in batches that bring fairly long forward demand coverage. Process hiccups are somewhat common, resulting in deviations and delays, hence schedule adherence is always a big challenge.
Labeling, packaging, and serialization are not as strictly governed by GMP, more distinct, and organized per stock keeping unit (SKU). They can be planned on short notice and—once set up—are easily repeatable. Unlike DP and manufacturing, they don’t typically come with many deviations and corrective and preventive actions (CAPAs). This allows for more agility and can result in specific and smaller batches for certain markets or groups of markets. Furthermore, rework is fairly easy to organize. Ideally, packaging runs are automated, but rework can be set up semi-automated or even fully manual.
Hence, this final step in the manufacturing process is where a company can gain flexibility for reacting to changing market dynamics. Of course, that assumes that the prior steps resulted in sufficient stocks of base material (in particular API and DP bulk stocks).
Applying a “Takt Time” Concept
The “takt time” concept basically sets the pace and rhythm of a manufacturing process and aligns it with customer demand. As a metric, it represents the amount of time “budgeted” to manufacture each part—in this case an SKU—such as producing one part every x seconds. It is typically applied in discrete manufacturing environments, of which drug packaging is an example.
A company can “tune” its packaging operation to market demand by (for example) creating a concept much like a bus schedule. This involves mapping distinct SKUs across the available scheduling hours per packaging line, with regular timeslots that can be used, reserved, or remain flexible. A key condition for success is to have a sufficient inventory of packaging components at all times. That’s a fairly low-cost investment, and ordering lead times for packaging components are relatively short (typically 4-6 weeks).
Optimizing Batch Size
Optimizing the batch size for packaging runs can be achieved, for example, by combining smaller volume SKUs with larger volume SKUs, based on market forecast. This means that multi-market packs need to be created, which is allowed within the regulatory frameworks. A key element to watch is the available space on the artwork components, which is not unlimited. There must be room to fit all the required languages or pictogram components as well as to fulfill serialization requirements.
Strengthen (or Develop) S&OP / IBP
An essential enabler to recognizing and mitigating potential supply chain challenges, especially in the mid- to long-term, is to have some form of a Sales and Operations Planning (S&OP) process in place. In its most mature form, which few companies actually achieve, such a process is referred to as Integrated Business Planning (IBP).
Even though the process is not always liked—typically because it requires a significant level of commitment across functions—it can be key to driving the right executive, tactical, and operational decisions to prevent situations with short supply, whether due to unexpected high demand, manufacturing or distribution issues, or other unexpected disruptions.
Proper S&OP / IBP identifies upside / best case scenarios and downside / worst case scenarios and evaluates their likely respective impacts on the organization, supply chain, and so on. Via a cross-functional process, planners document the desired expectations and outcomes, then develop action plans (complete with supporting business cases) for achieving their goals.
This type of cross-functional planning provides a forcing function that drives leaders to think through possible scenarios ahead of time, be proactive about how to deal with them, stay focused on generating the desired results, and be more conscious of the trade-off decisions required. It integrates perspectives related to product development, regulatory needs, commercial issues, technical operations, supply chain needs, and finance.
In simple words, “to govern is to predict.” S&OP / IBP builds in preparation time, helping the organization to be proactive and ready to act, rather than reactive and always trying to play “catch-up.”
SKU Clustering and Artwork Exemptions
There are various packaging and SKU-related measures that could be used to ensure a more reliable supply. A quite common approach is to create a single package design that can be used in multiple countries, thus reducing the total number of independent SKUs that the company must manage. For example, one larger country could be combined with typically one or two smaller countries to ensure supply in each of the markets.
However, that solution might not be as simple as it seems, as there could be differing serialization, distribution, blue box, and other constraints that make it difficult to create packaging that satisfies the requirements of multiple countries. A thorough analysis is needed to identify the best opportunities for clustering and working out the details. Having the right combination of countries clustered will help to level out demand fluctuations in different markets. As we will explore in part 3, it is essential to keep stock in the right places to ensure the company’s ability to leverage SKU clusters as much as possible.
Another strategy that can help limit the number of SKUs or increase cluster size could be to request exemptions to the labeling and package leaflet obligations based on Directive 2001/83/EC article 63. Although there are limited formal regulations to fall back on, companies may request translation exemptions or ask to omit part of the information on the artwork.
For example, an English or German language package could be made available in the Czech Republic, provided the relevant authorities approve and certain local measures are taken to safeguard the safety of the product. This may involve providing the package leaflet in the local language separately. Especially in early access, ultra-low prevalence, or unforeseen stock-out situations, this could be a feasible solution to ensure supply.
A manufacturer should do the necessary work to understand its opportunities for clustering and for exemptions. It should then develop a clear plan of action and request exemptions in a timely manner. Both strategies can help reduce SKUs and complexity while serving to proactively smooth out supply issues.
In part 3, we will explore “downstream” strategies. Specifically, we will offer some perspectives on topics such as
- Active SKU management
- Product life cycle management
- The potential to apply direct delivery models
- The introduction and management of supply allocation models
That’s a relatively extensive list. The key to success for any company will likely be finding the right combination of upstream and downstream strategies.
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