Joined-up thinking – selecting a supply chain partner

1 April 2015

Global supply chains have long provided big pharma with cost savings and efficiencies. However, things can go seriously wrong if suppliers aren’t aligned with a company’s principles of corporate responsibility. Ross Davies meets Peter Murray, former quality director at GlaxoSmithKline, to discuss the best strategy for the selection and monitoring of third parties, and what makes for a sustainable supply chain.

The Heparin drug scandal of March 2008, which engulfed Baxter International, remains the most cautionary of tales when it comes to big pharma and global supply chain management.An investigation conducted by the FDA after contaminated counterfeit ingredients in Baxter's blood-thinning product led to 19 fatal poisonings in the US led back to several uncertified chemical suppliers in China.

In its report, the FDA concluded that the bogus ingredients were "added intentionally to heparin for financial reasons because it is a very cheap material prepared by a simple synthetic process".

While Baxter was quick to issue a product recall after the contaminant was indentified, it was too late to prevent the subsequent shockwaves that rumbled through the supply chain community. In the immediate wake of Heparin's removal, almost a dozen countries issued recalls, which linked back to other Chinese supply points. For Baxter, however, the fallout was even worse. CEO Bob Parkinson was forced to admit that the scandal had "clearly been damaging to our reputation".

False economies

Despite ramping up its efforts in tackling the problem of falsified ingredients entering the legal supply chain - the Heparin case is sadly not an isolated incident - some still doubt whether the FDA has the sufficient remit or funds to conduct regular inspections in overseas locations.

As Roger Bate, an economist at think tank American Enterprise Institute, says, ensuring a transparent and harmonious supply chain is "going to be down to the companies themselves".

What could this entail? The end of global outsourcing as we know it? Pharmaceutical companies manufacturing drugs and ingredients closer to home, and, in effect, insulating themselves from the risks posed by shady, third-party manufacturers in far-flung lands?

"Pharma companies are always going to get complaints, but they need to be carefully analysed to determine which are the results of product faults attributable to the manufacturer, and which are simply the results of poor product design."

Not likely. For big pharma, outsourcing services to third-party contract manufacturers still remains an attractive option - like it does for countless other industries. The procurement of cost-efficient, fluid and quicker production techniques means companies are free to dedicate more time and energy to their respective core competencies.

What is clear, though, is that the pharmaceutical industry, like never before, is being called upon from all sides to become more accountable. This is mirrored by today's rigorous regulations, such as the EU's Falsified Medicines Directive.

Because of this, companies are becoming increasingly prudent in not only how they go about vetting their outsourcing options, but also how they instil the same sense of corporate responsibility in third-party suppliers.

This is especially important for mid pharma (bigger groups tend to already be engaged in long-term partnerships, in which supplier trust is implicit).

Measures of success

So what is the best strategy for monitoring the performance of a supplier? Objective, hard-line performance metrics can certainly help, but, as Peter Murray, former quality director at GlaxoSmithKline, explains, while this is method is popular among pharma, straight data extrapolation is not as cut-and-dried a process as one might think.

"Take compliance and quality as an example," he says. "Like all metrics, they need to be interpreted with some care. You can pin numbers on things like rejects and reworks, as these are things you either have or don't, and they can therefore be used to measure a supplier's competence. On the other hand, they might also be cases of contract manufacturers doing their best with what is an inherently unstable process."

Similarly, complaints and product recalls, despite being a numerical metric, can be influenced by external mitigating factors beyond the control of contract manufacturers.

"Pharma companies are always going to get complaints," explains Murray. "But, again, they need to be carefully analysed to determine which are the results of product faults attributable to the manufacturer, and which are simply the results of poor product design. Both parties need to come to an agreement on this. So, while these metrics are quite objective, not many are absolutes."

Suppliers need to align themselves with a company's respective set of corporate principles. In order to achieve this, tight lines of communication should be established from the get-go - even before any contractual agreements are drawn up - to ascertain key performance indicators.

If this can't be attained, the concept of partnership, and a shared idea of corporate propriety, will almost certainly fail, warns Murray.

"Long-term communication is dependent on the initial setup," he says. "You, the pharma company, must have the right people, and they need to have a clear understanding of what the deal involves. The same goes for metrics and how they will be used.

"It's a case of management asking itself what metrics it wants, why it needs them and what it is going to do with them. Everybody needs to be clear about that, with a common understanding, because if you try to bring these things about later on, your relationship with your contract manufacturer will be far from ideal."

Marriages of conveniences

Murray is a clear supporter of the advantages of partnering third-party players, but he takes semantic issue with the term 'partnership', which he rejects as "warm and fuzzy business speak", and which doesn't stand up to reality as it's "something of a fallacy".

"Partnership is an overused euphemism for what is generally a more limited commitment," he states. "It's not a marriage, more an amicable cohabitation. In my experience, I've worked with a number of very good suppliers, and there has been a high level of working cooperation, but we are essentially talking about two separate legal entities, which rarely wish to subordinate their respective best interests."

Instead, Murray reiterates his faith in clearly defined metrics as a way of gauging whether a company-supplier partner is as strong as it can be. But he does accept that metrics are rarely set in stone, and are susceptible to change in line with the demands of the industry.

For this reason, an increasing number of pharma companies are starting to use periodic reviews of their metrics to ensure they are still relevant. "Periodic reviews are vital," says Murray, "especially when you have metrics that are less objective and more subject to interpretation.

"These are often assessed internally, and are not an absolute measure in themselves. Therefore, you have to look at them periodically to check that there is still a good proxy for whatever it is you are trying to assess.

"Take quality. You are trying to assess whether, first of all, there is any patient risk, and, secondly, whether there are any regulatory and compliance risks. Whenever there are changes in legislation, your metrics have to move to accommodate the reality that there are now new risks."

Contractual difficulties

The contract manufacturing organisation sector has grown exponentially over the last decade. While the lion's share of players still come from Europe and the US, the effects of austerity, which are still being felt in those markets, have paved the way for emerging countries, and a more globalised, complex industry.

"Whenever there are changes in legislation, your metrics have to move to accommodate the reality that there are now new risks."

Consequently, cheap contract manufacturing in the BRIC economies - particularly China - has opened up in recent years, but, as highlighted by the Heparin scandal, entry into poorly regulated local markets can carry grave consequences, such as counterfeiting at the hands of opportunists.

For instance, how can a US-based pharmaceutical company ensure full logistical compliance across a supply chain, which might extend across thousands of miles and cross-country borders, not to mention language and cultural barriers?

Culture clash

"Going outside your own language or culture group has its challenges," observes Murray. "Pharma companies that do venture into new markets therefore need to adapt their approach and strategy.

"It doesn't just go for emerging markets. Japan, for instance, isn't an emerging nation, but there are some very significant cultural differences for Western pharma companies in terms of how they reach agreements. You need to be aware of those when you are setting things up and in the day-to-day administration of whatever agreement is reached."

As mentioned above, the FDA doesn't appear to be shirking its responsibilities in driving for more sustainable supply chains across the global pharmaceutical sector.

One of its notable recommendations is for drug-makers to draft quality agreements in tandem with their suppliers.No doubt the FDA will issue more proposals in the coming months and years, but it can only do so much.

Ultimately, the responsibility of ensuring that suppliers are able to keep to their side of the bargain - while upholding liability across the supply chain - lies with the pharma companies themselves. Accountability starts at home. Just ask Bob Parkinson.

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