home > > winter 2010 > tactics and strategies

Tactics and Strategies

Andrew Kelley of Patheon compares strategic to tactical outsourcing and the benefit of partnering for all parties involved

In the past, pharmaceutical companies have pursued outsourcing as a tactical necessity, driven by capacity needs or for specific niche capability requirements. This had led to outsourcing being conducted in a very tactical manner. In this environment, very few companies formed any centralised functional responsibility for outsourcing. Most companies worked with a large number of contract manufacturing organisations (CMOs). Some firms had an external network of up to 500 CMOs around the world. The selection of suppliers was typically based on limited short-term criteria such as price, immediate capability or geographic location, and most companies paid little, if any, attention to the complexity of the external network that was evolving. This led to transactional short-term relationships that often yielded disappointing results for both parties. One of the consequences of this approach is that the value to the CMOs has also been relatively low and, therefore, when process improvements were needed, there were few incentives for the CMOs to respond.

However, the face of outsourcing is changing rapidly. The pharmaceutical industry continues to consolidate – most companies are looking to lower the cost and complexity of their supply chain as part of their merger synergy targets. Sites have historically been divested to contract manufacturers with long-term supply agreements in place; today many companies are attempting to sell facilities with limited, and in some cases, no longterm supply agreement. Many companies are moving the high value and high volume into their own factories to protect their internal jobs and facilities. Furthermore, companies are now rationalising and consolidating existing CMOs in favour of using fewer suppliers to reduce the cost of management. Working against this is the trend of products being brought on board as larger companies acquire smaller companies. These transactions bring with them an inherent existing CMO supplier as part of the acquired supply chain.

As a result of these changes, outsourcing is viewed as a much more strategic element of pharmaceutical companies’ manufacturing network. Frequently, internal and external manufacturing networks are each measured using the same key performance indicators (KPIs) and they often openly compete with one another for business. Dedicated centralised groups are being created within most large pharma companies and are tasked with managing outsourcing – often with the explicit directive to deliver real, quantifiable benefits. These more advanced companies often seek partnerships with their suppliers, which involves working with fewer, more trusted, and reliable CMOs. They are typically looking for many of the following benefits.


Managing 400 to 500 CMOs is costly and often leads to poor performance. Many organisations are now opting to work with a much smaller number of preferred suppliers. By rationalising the supplier base there are several advantages that can be achieved:

  • Product portfolios can be created and product bundles formed with bigger volumes for the selected CMOs. These larger bundles carry an economy of scale that make them more attractive to suppliers and enable a more aggressive pricing policy, yielding lower, more competitive pricing to the buyer
  • These higher volumes make the business far more important to suppliers. Consequently there is the additional benefit of higher level management involvement and commitment from the suppliers focusing on retention and performance
  • For the buyer, the reduced number of suppliers reduces complexity and facilitates closer, more strategic relationships with suppliers, leading to improved performance and reduced internal cost


Outsourcing is now being embraced for all stages of both development and commercial operations. Organisations may outsource development activities (for example, product formulation, analytical and CTM) as standalone pieces of work to help manage a specific capacity constraint, or to gain access to a specific technology. Equally, many products are in-licensed during the development phases. In both these cases there is always the possibility of insourcing at a later date, but this takes time and increases risk through additional technical transfer activities. It also creates regulatory hurdles through site changes, as well as potential equipment changes.

A faster, often less risky approach for a product can be to move it through all development stages to commercial manufacture and launch with a single outsourced supplier. This heightens the need to select partners who have full development capabilities and are able to take all the developed dose forms through to full commercial supply. This allows the product owner to see how the product performs in the marketplace prior to making expensive long-term investments. It is therefore crucial to work with CMOs who offer the full range of capabilities such as:

  • Preformulation work
  • Analytical development
  • Formulation development
  • Scale up, validation and technical transfer
  • Registration and stability testing
  • Clinical trial manufacturing and packaging
  • Full scale (small and large) commercial manufacturing and packaging


For specific niche technologies, outsourcing companies need to work with specific suppliers with the appropriate technology or intellectual property. However, as well as seeking the full range of services from development to commercial operations, and when looking for the benefits that can be achieved through network rationalisation or consolidation of suppliers, it is necessary to work with suppliers that can handle a wide range of product formats in a variety of locations and as close as possible to the market. Breadth of capability and scale are therefore becoming competitive advantages. Experience and expertise, as well as approvals from the various regulatory authorities, such as the FDA, EMA and ANVISA and Japan, are also becoming increasingly important to be able to act as a global supplier. Equally, with long-term partnerships being developed, it is important to find suppliers that can help manage the product portfolio life cycle by offering alternative dose formats and development services to support new product line extensions, prolonging product life without the need to move to new suppliers.


In the selection of these ‘preferred suppliers’ or ‘partners’, clear financial benefits are still key, but companies are moving away from purely price-driven decisions and are now looking at a more secure long term balanced partnership approach. Alongside the price, there are additional criteria that need to be met:

Financial Stability
As the industry and its CMOs consolidate, smaller, less stable or robust suppliers are finding the economics of the CMO business more and more challenging. There have been recent examples of companies falling at this hurdle and simply going out of business. Clearly, such an immediate impact on the supply of product creates huge disruption to the outsourcing company and the impact of lost sales can be very damaging. Selecting partners that can withstand the volatile economy we are now experiencing is a critical factor to achieve long-term benefit.

Available Capacity
Most organisations now run a leaner supply chain; put simply, there is less product held in inventory. One of the consequences of this change is that when there is a surge in demand driven by the market, such as the flu pandemic, there is a need to be able to respond rapidly by bringing on-stream additional capacity, to meet demand. The CMOs need to be able to flex their capacity, for example through means such as rapid technical transfer to alternative equipment. Key partners must have the capability to respond, with experienced project teams to bring these alternative options into effect rapidly.

High Levels of Performance
It may sound obvious, but ‘on time delivery in full’ remains a key measure of success. The consequences of late delivery are painful for all organisations. Regular monitoring and communications of agreed KPIs is something that can help provide a level of assurance that a supplier is under control and is less likely to face supply problems. When orders are missed, CMOs should have ‘skin in the game’ to assure alignment with their customer’s objectives. It is important that agreed KPIs cover the underpinning metrics that are required to come together to deliver on time. These can typically include aspects such as ‘batches right first time’, ‘CAPA closure’, ‘schedule adherence’ and so on. The point is that these should be thought through and communicated routinely so that any adverse trends can be dealt with before a problem occurs.

Regulatory Performance
It goes without saying that any regulatory issue can have a dramatic impact on supply. Any company with a warning letter from the FDA, for example, knows what that means to supply. Regulatory performance is well publicised and must be a key criterion when selecting a partner.

Significant changes in a supplier’s business model can create substantial disruption to their ability to maintain a stable network. For example, if a single product represents 50 per cent of a site’s annual volume, and it goes off patent and suffers a substantial drop in demand, the remaining site volumes may not be sufficient to maintain a viable business. Having both a diverse range of clients and products reduces these risks significantly.


Finally, outsourcing companies looking for strategic partnerships also expect a more collaborative way of working and a more tailored approach for their specific business. This strategic relationship management-led approach can include several aspects:

  • The implementation of a dedicated relationship and project manager. The purpose behind this is to have a single point of contact that is aware of the entire relationship and is able to overview progress, identify issues and bring them to the attention of senior management on both sides if necessary to facilitate quick resolution. This ensures that the service provider is able to co-ordinate all activities and provide the optimum service. It also provides a ‘go-to’ person for both organisations
  • Many organisations now embrace continuous improvement programmes such as ‘lean six sigma’. These programmes can deliver real benefits in terms of process simplification and cost reduction. To maximise the benefits it is advantageous to perform joint projects between companies. Within the more strategic relationships, an approach is to share both the cost and the savings for mutual benefit
  • Regular project and business oversight meetings are held at an agreed frequency, depending on the maturity of the relationship or project. These review meetings typically include several levels from both organisations and are tasked to monitor performance and relationships and to take actions when necessary to keep things on track
  • The simplification of business processes is an area that can be developed in these relationships. For example, overarching global supply agreements to set global standards and expectations can be agreed. This removes the need to negotiate terms each time a new project or product is introduced. It improves speed and flexibility with clear benefits to both parties


With the changes we are experiencing in the pharmaceutical industry, outsourcing has moved from being transactional to transformational. The future successful suppliers have to rapidly develop and change their ways of working to meet the needs of the outsourcing companies. Partnering with fewer, more trusted and more reliable suppliers is becoming a key part of the pharma manufacturing strategy. Let’s hope they choose wisely.

Read full article from PDF >>

Rate this article You must be a member of the site to make a vote.  
Average rating:

There are no comments in regards to this article.

Andrew Kelley joined Patheon in January 2006 as Vice President of Operations, UK, progressed to the position of Vice President of Operations, UK and France, and now holds the position of Senior Vice President of Commercial Operations for Europe and Asia Pacific. Andrew joined Patheon from Cardinal Health, where he spent 15 years in progressively senior production and operational roles, lastly serving as Vice President, Operations for Europe and Site Leader for Swindon. Prior to Cardinal, he held manufacturing management roles at Boehringer Ingelheim and at Roussel Laboratories. He began his career as a Process and Technical Services Engineer at Esso Chemicals Ltd. Andrew holds a BSc in Chemical Engineering from the University of Birmingham and a MBA from Henley Management College in Oxfordshire, UK.
Andrew Kelley
Print this page
Send to a friend
Privacy statement
News and Press Releases

CRO and Sponsor Quality Award Finalists Announced by ACRP, The Avoca Group

Washington, DC – The Association of Clinical Research Professionals (ACRP) and The Avoca Group will jointly recognize leading Sponsors and CROs at the ACRP Awards & Recognition Ceremony on Friday, May 1, during the ACRP 2020 annual conference in Seattle, Washington.
More info >>

White Papers

The Emerging Use of Social Media in Orphan Disease Drug Research

Worldwide Clinical Trials Ltd

The use of various social media platforms, such as Twitter, Instagram, Facebook, and LinkedIn, for dissemination of clinical trial information has created a cornucopia of possibilities enabling clinical trial performance. Characterized by a people-to-people immediacy, social media permits extraordinarily adaptive modification of study information in real-time, and it does so in a highly targeted fashion.
More info >>

Industry Events

World Vaccine Congress Washington

27-29 September 2020, Walter E Washington Convention Center, Washington, US

The World Vaccine Congress is an award-winning series of conferences and exhibitions that have grown to become the largest and most established vaccine meeting of its kind across the globe. Our credibility is show through the prestigious scientific advisory board that spend months of hard work creating a new and topical agenda, year on year.
More info >>



©2000-2011 Samedan Ltd.
Add to favourites

Print this page

Send to a friend
Privacy statement