Materials Sourcing

By Kevin Lee, DPT Laboratories | June 5, 2013

Managing the complexities of global supply chain

With the increased globalization and accompanying complexity of the pharmaceutical supply chain, managing the role of materials sourcing has become extremely challenging. Reducing time and costs are important goals of sourcing, but increased regulations and more rigorous enforcement make these goals difficult to achieve. Current trends have forced life science industry companies to more rigorously optimize sourcing activities for raw materials, intermediates, active pharmaceutical ingredients (APIs) and other material components for both clinical supplies and commercial manufacturing. If managed improperly, sourcing can result in supply chain interruptions, significant unexpected expenses and quality control issues. As companies increasingly rely on highly qualified contract development and manufacturing organizations (CDMOs) to manage the sourcing role, how can you ensure effective sourcing?

Today’s risky, complicated supply chain environment has pharmaceutical and life sciences executives concerned about supply safety, legal and regulatory compliance, and the timeliness of receiving materials. A report co-sponsored by PriceWaterhouseCooper,1 based on a survey of 112 industry executives worldwide, found that 50% see raw materials sourced outside of the U.S. as the greatest vulnerability to the supply chain and 61% view contaminated or nonconforming raw materials as the top threat, even as 78% believe global sourcing will increase. Only 25% stated they share common practices and information with suppliers, while nearly 60% said they are concerned about the willingness of suppliers to provide information to address regulatory requirements.

We shall discuss ways to overcome regulatory hurdles, avoid supply chain disruptions, ensure quality, gain price and scheduling advantages, and improve inventory management. Also included is a checklist of qualifications your outsourcing partner should employ to manage materials sourcing.

Navigating Increased Legal and Regulatory Hurdles
A growing number of U.S. agencies have become involved in the legal and regulatory processes for pharmaceutical material imports. In addition to the U.S. Food and Drug Admini-stration (FDA) and Drug Enforcement Agency (DEA), the U.S. Customs Service and the Department of Homeland Security play an increasing role. A CDMO can help sponsor com-panies navigate the requirements and nuances of all legal and regulatory entities, including foreign government agencies and distributors, and U.S. distributors, certification agencies and regulatory authorities at the federal, state and local levels.

In many situations, advance notification of a shipment as well as supporting documentation such as end-user (sponsor) letters, bill of lading, and packing slips are required before an export shipment can leave its port of origin. Understanding the documentation and timing requirements for importation is critical. When a shipment arrives at Customs, the importer of record — generally the sponsor company or its contract partner — is responsible for ensuring the goods comply with local laws, filing required documents, and paying import duties. With an API import, the FDA follows certain procedures to ensure that it was manufactured by a drug facility that is in compliance with FDA drug establishment registration regulation and is an appropriate source for the API.

Managing these complex situations often requires direct communication with the regulating port agency as well as a thorough understanding of the applicable regulations. FDA compliance officers and import entry reviewers check for valid FDA registration at all ports of entry, and imports that are not in compliance with all FDA regulations or are from unregistered drug facilities are subject to FDA import detention, import alerts and refusal of admission. Lack of awareness of required regulations and noncompliance can result in long, unexpected delays and significant additional costs.

In most cases, these problems are avoidable, especially if companies work with a CDMO that provides the right regulatory help and guidance. Your provider must have a thorough understanding of regulatory requirements and experience in importation to ensure your shipments arrive in a timely manner, with minimal financial risk and in good condition.

While U.S. laws and regulations governing imports have not changed significantly in recent years, imported materials and ingredients have been undergoing more rigorous FDA scrutiny, in keeping with the agency’s increasingly risk-based focus. Information about imports must be readily available even before imports reach the U.S. The FDA is increasingly using its import database to verify the status of an API, its manufacturer and whether it is referenced in a valid NDA or has a valid IND. The IND must be in effect before importing the API into the U.S. Advanced planning and working with a knowledgeable customs broker and experienced quality and regulatory professionals are recommended.

Avoiding Supply Chain Delays
Avoiding disruptions in the global supply chain typically requires more than just managing internal inventories, supplier lead times and delivery delays and having all the proper documentation in order. It also requires advanced planning to minimize environmental impacts and prevent delays. In advance of a shipment, companies must be aware of global geopolitical events and understand how they could impact the supply chain. To prevent a disruption, one must conduct a risk assessment of the supply chain and prepare a contingency plan to activate if the supply timeline is interrupted. The plan may include keeping a safety stock of materials or finished goods, or identifying and qualifying a secondary source, which help secure the supply chain while minimizing risks and cost.

Vigilance is not limited to political issues, and should include situations such as unpredictable weather and changing market trends. Supply chain interruptions have commonly occurred from extreme weather and geological events, such as hurricanes, the volcano in Iceland, the tsunami in Japan, the flooding in Southeast Asia and droughts in New Zealand, but an effective contingency plan helps minimize damages.

The decline in market demand of one commodity can directly impact the supply of another. Chemicals produced as a by-product of other manufacturing processes are highly susceptible to supply chain interruptions. For example, our company experienced a situation where the decline in the automobile industry after the 2008 financial crash affected the supply of a chemical commonly used in pharmaceutical laboratories. Had we been unaware of the manufacturing process and associated risk, the company might have encountered a shortage. Because we had a close relationship with the supplier, and knowledge of the risk, we were prepared for the supply chain constraints, while many other industry companies suffered setbacks.

A good CDMO analyzes risk in the supply chain for anomalies that might disrupt the supply chain, and has management systems in place to rectify problems. But unexpected events occur, and a lost shipment or spoiled product can cost millions. In case of an emergency, the CDMO must communicate with the sponsor, supplier, regulatory agency, or other entity involved to ensure swift corrective actions are taken.

Ensuring Quality
Mitigating risk is an important consideration in purchasing decisions. In addition to having contingency plans for unexpected issues, ensuring supply security involves such strategies as using market intelligence, procuring from multiple sources, conducting quality audits, having effective communication, and establishing long-term supply agreements with the most highly qualified, reliable suppliers. Weighing the cost advantages of imports against quality and supply continuity is a critical consideration in the choice of suppliers.

Maintaining careful oversight of the supply chain, the CDMO should understand the inherent vulnerabilities and risks of each product, the methods by which it is packed, transported, stored, imported and distributed, and ensure the ingredients are authentic. Optimally, the specifications for each material purchased, from chemicals and APIs to packaging components, should be maintained in a quality information system. When an order arrives, Quality Assurance will check the materials against the specifications and conduct a rigorous inspection, with sampling of all materials performed following American National Standards Institute guidelines.

Whether sponsors require sourcing from their qualified suppliers or rely on their CDMO to choose suppliers, spending extra effort on due diligence to qualify sources can make a big difference in ensuring the supply quality. An effective CDMO will qualify the suppliers you recommend and if there is any indication a supplier is not suited, will encourage you to reconsider.

An experienced CDMO will have long-established, flexible relationships with reliable, reasonably priced suppliers
that have a good track record, have demonstrated their loyalty, and make every effort to provide safe, high-quality materials in a timely manner. Some have a few preferred suppliers in their network who go above and beyond to secure each shipment.

A good CDMO qualifies suppliers through a rigorous audit and evaluation program. Key suppliers should be monitored regularly through an evaluation program based on quality, on-time delivery, lead times, price and service. In addition to conducting an initial audit to qualify suppliers followed by periodic audits, one should maintain a scorecard system throughout the year and review results with each supplier to ensure continuous improvement. Failure to exhibit progress should result in removal of the supplier from the CDMO’s roster.

Another essential element to mitigate risk is effective communication. Beyond the initial negotiations, purchasers should clearly communicate to key suppliers their global supply chain objectives and their importance. Sponsors, CDMOs and suppliers should be able to determine the status of shipments in real time, and should agree on corrective actions and communication plans to implement if issues arise.

Optimizing Costs, Timing and Inventory Management
Pharma companies can benefit from the economies of scale provided by a CDMO, which leverage the combined volumes of many customers and commodities to keep escalating material costs to a minimum. This enables both pricing and scheduling advantages, which may not be available to a pharma company that sources internally. CDMOs can also leverage their relationship with key suppliers to gain customer benefits by considering all special customer arrangements with the supplier, including contract pricing, minimum order quantities and reduced lead times.

When deciding whether to outsource purchasing services to a CDMO, a sponsor must be sure to factor in all costs not directly associated with the piece price of the item. Consider the costs of qualifying and auditing each supplier, required resources and technology, and additional material costs.

A CDMO’s purchasing service should include inventory management systems that ensure efficiencies throughout each step of the procurement process. In an optimal CDMO system, the provider would introduce an item into its enterprise resource planning (ERP) system after a thorough review of the supplier’s qualification credentials and receipt of material specifications. Before committing to place the order, the procurement manager would assess the request, prepare for any special handling, testing and storage conditions the material may require, and identify any potential supply chain issues. Procurement of the item would only occur after all requirements are met, minimizing regulatory and financial risks.

ERP and quality systems should also be utilized to develop customized reports that facilitate retrieval of historical information. Records of ordering patterns, lead times, volumes, on-time deliveries, price and forecast fluctuations, and quality data are extremely valuable when attempting to secure the supply chain and negotiate pricing.

How Qualified is Your Outsource Partner?
Use the following checklist to determine whether your outsource partner has the appropriate qualifications to effectively manage your materials sourcing:
  • A strong knowledge of global regulatory requirements and industry standards for importing pharma materials
  • Expertise, considerable experience, resources, and strong project management skills in global sourcing
  • Resources and technologies to efficiently manage the global supply chain
  • A broad supplier base, including several established, high-quality, reliable suppliers
  • Effective collaboration between the CDMO and sponsor, suppliers, shippers, etc.
  1. How well and frequently do they communicate? Does the CDMO provide data in real time?
  2. Does the CDMO share information and common practices with suppliers?
  3. Does your outsource partner understand your objectives and requirements?
  • A risk-based approach utilizing:
  1. A formal, robust quality agreement with suppliers
  2. Initial supplier review, checking nonconformance and on-time delivery data
  3. Continuous supplier/project oversight with periodic audits and frequent analysis
  4. Reliable communication
  5. Effective responses to deviations: i.e., swift corrective action when material or documentation does not comply with U.S. requirements
  • Reasonable costs and solid record of on-time delivery

Increased globalization and more stringent enforcement of increasingly complex import laws and regulations have made pharmaceutical sourcing extremely challenging. Partnering with a CDMO that has considerable experience and a strong track record of effective supply chain management can prevent costly delays and steep penalties. Forward-thinking CDMO purchasing managers practice vigilance by thoroughly assessing suppliers, understanding and accurately fulfilling current regulatory requirements, establishing preventive and corrective action plans, and effectively communicating with all parties involved.

  1. Global Supply Chain Visibility, Control and Collaboration: Business Imperative, Regulatory Necessity. Research report co-sponsored by Price Waterhouse Coopers and published by Axendia. Pharmaceutical Executive. December 2010. http://blog.pharmexec.com/2010/12/06/what-happens-when-the-pharmaceutical-supply-chain-goes-global-how-to-let-it-not-be-more-counterfeiting-intellectual-property-theft-and-contamination/

Kevin Lee is senior purchasing manager, DPT Laboratories. He can be reached at kevin.lee@dptlabs.com.