As procurement professionals, we frequently interact with CMO/CRO (Contract Manufacturing Organisations/Contract Research Organisations) as “suppliers” on behalf of our pharma clients. We’ve found that the most successful CMOs and CROs actively seek innovative solutions to help their clients achieve speed to market and supply chain resilience and are diligently committed to carbon footprint reduction.
Pharmaceutical companies (PharmaCos) are under greater pressure than ever before. They need to accelerate drug development and ensure that life-saving drugs reach patients quickly, without disruptions.
Concentration risk is ever-present. The COVID-19 pandemic and Russia/Ukraine conflict have both demonstrated how the pharmaceutical industry became dependent on long, complicated, and vulnerable supply chains. China and India alone account for 31% of FDA-registered facilities. Time-to-market pressures are not easy to address while redesigning resilient and sustainable supply chains. The bottom line is that long-term resilience cannot jeopardise short-term capacity.
PharmaCos are also feeling the effects of rising inflation – the International Monetary Fund still predicts global inflation at 4.7% by the end of 2023 – and the increasing costs of raw materials, excipients, and labour are hitting both drug research and drug manufacturing processes severely.
In simple terms, outsourcing offers the usual benefits to PharmaCos and has been an ongoing trend. However, balancing competing strategic priorities in the current environment is proving unusually difficult. PharmaCos are increasingly realising that the choice of the right CMO/CRO partner is often the solution to otherwise contradictory aims.
What does this mean for you, as a supplier?
When partnering with CMO/CROs as a supplier, PharmaCos are bringing you into their supply chains to help them solve both structural and strategic problems. In turn, you will need to consider whether your in-house capacity and supply chain are set up in a way that allows you to continuously deliver what your clients are looking for.
Staying relevant to your PharmaCo clients is easier said than done. PharmaCos are sophisticated purchasers that outsource for reasons beyond traditional cost reduction. For example, they might require you to help strengthen their inventory and demand planning, require flexible capacity, or need your specific expertise for a project. Whatever the reason, they are seeking a partner who can support them in delivering enhanced innovation within their products and processes.
To serve this need for innovation in the best way possible, it is vital to be on top of the latest market trends:
- Invest in resilience: There is still strong client demand for large-volume, small-molecule APIs, and production capacity remains a key pain point. Outsourcing to cheaper economies, such as India, China, and Eastern European countries, has been ongoing and will continue. However, there is a renewed focus on reducing concentration risk in one or very few countries: cost is no longer the overriding criteria. As a Tier 1 supplier, you must work together with your suppliers to offer cost-effective, scalable production capacity in different geographical areas and win a competitive advantage.
- Be flexible: HPAPIs (Highly Potent Active Pharmaceutical Ingredients) and other specialized APIs are required to deliver innovative patient therapies. When responding to these needs, CMO/CROs often face challenges. It can be difficult to rapidly adapt complex clinical trials and research support services while remaining compliant. Similarly, it is often challenging for manufacturers to produce small batches for R&D, while also having the capacity to scale up quickly later in the lifecycle. In general, CMO/CROs who achieve flexibility through agile relationships with diverse suppliers will solve a challenging problem for their clients.
- Help clients gain value chain visibility: There are high costs and long timelines associated with the dossier registration before getting a drug to the market. This is becoming even more complex with regulators now expanding their oversight into the entire chain of custody. Therefore, CMO/CROs cannot simply focus on their own quality management. The entire supply chain must be vetted and trusted, placing further strain on procurement functions.
- Contribute to sustainability targets: PharmaCos have adopted ambitious targets to improve their supply chain sustainability deep into Scope 2 and Scope 3 emissions. To meet those aims, a transparent supply chain is becoming a must. Enhanced supplier due diligence requirements and higher emphasis on corporate social responsibility are present in every RFP, including CO2 footprint and audit of labour conditions. Digitally savvy PharmaCos are also requiring digital real-time updates and adjustments on their supply chains. With new targets covering the entire value chain down to the ultimate sub-contractors, CMO/CROs should adopt similar procurement and sub-contractor management strategies to remain relevant and competitive.
Understanding your end-to-end supply chain is a prerequisite to leveraging these market trends to your advantage. Procurement plays a key role in enabling supply chain innovation, whilst keeping cost competitiveness in the short and medium term.
How we can help
At Efficio, we have the experience to take a holistic approach assessing procurement and supply chain impact on drug development and manufacturing processes. This includes reviewing your current process maturity and supplier landscapes. We can help CMO/CROs’ procurement and supply chain functions become value generators for the company – and for their clients – delivering strategic value well beyond traditional savings.
If you would like to explore the development journey of your procurement function and related value generation and cost reduction opportunities, please contact us by filling out the form on our Pharma & Healthcare service page.Printable PDF