Selecting a Contract Manufacturer
Choosing a supplier that will satisfy your expectations
By Mike Parry
The prolific growth in outsourcing within the pharmaceutical industry began some 20 years ago and as we know has since become a major influence in steering the manufacturing and sourcing strategies of all pharmaceutical companies. During this period, while first being employed as a manager representing the business interests of contract manufacturing organizations (CMOs), and more recently as a director of a company helping clients identify and qualify suitable CMOs, I have become aware of the increasingly complex factors that sponsors are applying to supplier selection. Perhaps such complexity will ultimately lead to better choices being made; it has certainly slowed down the whole selection process, resulting in even longer and more costly projects and significantly detracting from the benefits ultimately expected from outsourcing.
Photo courtesy of Alphora Research
It is not the purpose of this paper to offer yet more advice on how companies should establish multifunctional project teams, send out requests for information to prospective CMOs, establish confidentiality undertakings, etc. etc. Nor is it to provide an alternative, prescriptive model for successful choice of a CMO; I do not profess to hold that “golden key.” It is however my intention to examine the criteria that companies, legislation and “common sense” suggest are important when choosing a supplier and to portray these in the light of factors which influence human decision-making. In considering all of these factors an extremely complicated — perhaps unmanageable — picture emerges. I hope that, in becoming aware of these influences on the overall equation, readers might take account of previously overlooked factors and come closer to the Utopian dream of making entirely rational decisions.
Supplier Selection Criteria
Once upon a time deciding “how to decide” upon a suitable CMO was a relatively straightforward task. In the days of “Make or Buy” decisions frequently only five factors were heralded as selection criteria:
- Legal – Does the CMO hold the necessary manufacturing authorizations?
- Competence – Can the CMO manufacture/pack/test the product(s) in question?
- Quality – Does the CMO comply with the quality standards of the sponsoring company?
- Capacity – Does the CMO have the capacity to meet sales demands?
- Cost – Can the CMO supply the product cheaper than in-house production or competitive suppliers?
Decisions whether to manufacture in-house or to outsource were often opportunistic, tactical choices driven solely by financial or short-term supply factors. However, as the value of outsourced production matured within the pharmaceutical industry, longer-term supply strategies emerged to offer real competitive advantages. Such longer-term commitment of sponsors to their CMOs and “vice versa” naturally called for the consideration of additional criteria when selecting a suitable supplier:
- Commitment – How valued is your business by the CMO?
- Continuity – Is the CMO a secure and thriving business capable of long-term tenure of supply?
- Delivery – Does the CMO deliver orders on time and in full?
- Communication – Does the CMO have an infrastructure and culture capable of providing accurate, comprehensive and timely information?
- Cash Resources – Does the CMO invest sufficiently in maintaining up-to-date technologies?
More recently and as a consequence of the globalization of outsourced manufacturing and an increased awareness of the need to care for workers in emerging industrial countries as well as the planet and its resources, other less tangible selection criteria have been added into the equation:
- Human rights and the need to treat people with respect
- Health and safety of employees
- Environmental awareness and waste reduction
The pharmaceutical industry now embraces outsourcing as a vital part of its operations and as a consequence has begun to recognize CMOs as partners rather than merely as external suppliers. Although CMO selection criteria had already reached substantial numbers, multinational companies, now eager to portray their own particular ethics and values through those of their suppliers, have recently published additional standards of attainment necessary to become their partners:
- Industry leadership
- Continuous improvement
- Proactive member of the community
Of course the above is merely an overview of the issue and in all there are today probably more than 20 supplier selection criteria facing decision makers when searching for a suitable CMO.
In searching for a suitable CMO the question to be answered is how selection criteria are to be ranked with respect to their importance and value to a sponsor. Whilst there is no general answer to this question it is wise to be guided by a fundamental analysis of what the sponsor actually classes as important.
Qualifying – v – Discriminating Criteria
The concept of “order winning –v – order qualifying criteria” was coined by Terry Hill (Manufacturing Strategy: Text and Cases, McGraw Hill, 1999) as a means of assessing the manufacturing capabilities that will provide companies with a competitive advantage. Mr. Hill proposed that marketing professionals should identify and disseminate criteria influencing the marketing of a product into these two categories; it then becomes incumbent upon operations people to deliver the goods.
Adopting a similar analytical approach to supplier selection can provide a valuable means of ensuring that a potential CMO is truly aligned with the marketing needs of a particular product. Order (contract) qualifying criteria are those characteristics of a service necessary for the service to be even considered by a sponsor, whilst order (contract) winners are those characteristics that will possibly differentiate a supplier into a preferred status. To meet qualifying criteria, a CMO must only be as good as the competition; however this does not mean attainment of such is any less important than excelling with contract winning (discriminating) criteria; they are merely different and indeed a potential CMO not complying with an order (contract) qualifying criteria should immediately be excluded from the selection process.
In adopting the above approach as a guide to supplier selection, it is of course important that a sponsor clearly understands and defines which selection criteria are the qualifiers and which are the potential winners. Such an analysis should reflect the business needs of the company, the type of product being outsourced and its position in its lifecycle. In a search for a suitable CMO it is vital to evaluate and rank the relative values of selection criteria at an early stage and have these thoroughly understood and agreed by all those responsible for the final decision. Once site visits begin and a CMO’s own sales spin is applied, it inevitably becomes more difficult to value services objectively, if the guiding principles were not clear to begin with.
Of course evaluating and ranking the selection criteria that a company considers important is not a simple task. Consider the typical makeup of a company’s CMO selection team:
- Supply chain manager
- Quality manager
- Finance manager
- Operations manager
- Project leader
It is not difficult to picture the preferences each of these people will apply to their choice of a CMO, since professional biases will inevitably creep in. Furthermore people have many subconscious biases, which have been shown to characterize decision-making processes.
Decision-making and Behavioral Biases
Below are just a few of the many biases that have been studied in the context of business decisions and scientific research:
- Bandwagon effect – the tendency to do (or believe) things because many other people do (or believe) the same.
- Confirmation bias – the tendency to search for or interpret information in a way that confirms one’s preconceptions.
- Contrast effect – the enhancement or diminishment of a weight or other measurement when compared with a recently observed contrasting object.
- Déformation professionelle – the tendency to look at things according to the conventions of one’s own profession, belittling others or forgetting any broader point of view.
- Extreme aversion – the tendency to avoid extremes, being more likely to choose the “middle ground.”
- Information bias – the tendency to seek information even when it cannot affect action.
- Mere exposure bias – the tendency for people to express preferences merely because they are familiar.
- Need for closure – the need to reach a verdict in important matters; to have an answer and to escape the feeling of doubt and uncertainty.
- Outcome bias – the tendency to judge a decision by its eventual outcome rather than based on the quality of the decision at the time it was made.
- Status quo bias – the tendency for people to like things to stay relatively the same.
Behavioral biases are instinctive responses to a particular situation and while these occur without predetermined thought, being aware of their existence and influence can lead towards more objective decisions being made, particularly when a group or project team is involved.
Performance of CMOs
It is not until the most suitable CMO has been chosen, technical and commercial contracts agreed, technology transfer completed and routine commercial supply established that a sponsor really begins to learn if the diligence that has been put into the selection process has been successful.
A clue as to how effective sponsors are in assessing potential CMOs can be gained from a review of outsourcing surveys. In particular Contract Pharma’s annual survey of the “biggest complaints you have with a Contract Service Provider” portrays a very clear picture of the overall weaknesses experienced in outsourcing relationships. The 2007 survey reveals the following categories of complaints:
Type of Complaint / Percentage of Respondents
- Quality - 13.1%
- Costs - 7.1%
- Competence - 21.4%
- Communication - 13.1%
- Customer Service - 10.7%
- Delivery - 11.9%
Source: Contract Pharma
It becomes evident from such surveys that, while the selection criteria being applied to searches for CMOs have expanded with the evolution of outsourcing in the industry, the present lack of satisfaction on behalf of sponsors still relates more closely to those basic criteria established many years ago and which still remain the key measures of success. Interestingly the survey also reflects just how difficult it can be to assess such criteria as communications ability and competence, in all their aspects, during site visits and due diligence exercises, prior to choices being made.
From personal experience I know that sponsors will almost certainly wish to perform quality compliance audits of potential suppliers and in return CMOs expect to host such events and are usually cooperative in presenting whatever detailed information is demanded in support of their bid for the contract. At the time of supplier selection such transparency of a CMO’s capabilities is however rarely so transparent in respect to delivery performance, communications or customer service, even though these criteria are regularly highlighted as weaknesses in satisfaction surveys. It is incumbent upon selection teams to demand hard evidence — e.g. “On Time in Full” scores — of the supply performance of prospective CMOs.
Outsourcing the production of pharmaceutical products is today an important aspect of the manufacturing strategy of drug companies and, because of the regulated nature of the industry, the costs of selecting and qualifying the most suitable supplier — along with registering that supplier in often several territories — are high both in terms of money and time. A considerable burden is therefore placed on those involved in the process; it is important that those entrusted with the choice of supplier make use of every tool available to them.
In this brief article I have attempted to highlight just how complex the process of selecting a suitable CMO can be and significantly more so than can be successfully addressed by merely identifying and empowering the appropriate team members, mapping out a selection process, reviewing proposals from CMOs, performing site visits and assuming a satisfactory conclusion will therefore be reached.
Having a plan is of course essential, but it is also vital that the values of the sponsor are clearly reflected by a list of appropriate selection criteria ranked in their importance to the business. Understanding those selection criteria that are regarded by the sponsor as either qualifying or discriminating factors is also a valuable means of guiding choices.
As well as understanding the “rules of engagement,” it is also important that decision-making teams are aware of at least some of the range of human, subconscious biases will have a profound bearing on the views they and their colleagues will adopt when making choices.
While it is often said that any decision is better than no decision, I hope that thinking more about the process will lead to a more fruitful outcome.