End Of An Outsourcing Era: Quality And Procurement In Balance

By Louis Garguilo, Chief Editor, Outsourced Pharma

For those in drug development and manufacturing outsourcing through the first decade and a half of this new century, it’s now safe to glance back … and finally put an end to an era focused on costs.

This will raise the rafters at CDMOs and CMOs, particularly those situated in the Western hemisphere. Moreover, says William A. (Al) Kentrup, VP Global Quality Compliance and Systems, Takeda Pharmaceutical Company, it also ushers in a new cooperation between quality professionals (like him) and procurement departments at pharmaceutical and biotech companies.

A Post-Procurement Era

Kentrup, who recently articulated three keys to outsourcing, spoke with me specifically about what it was like as a quality executive during the continental shift to outsourcing in countries like China and India, and an era that empowered procurement departments to bear down on contract costs at service providers.

He starts by pointing to some results from that time period. More than a few companies were impacted significantly by warning letters or regulatory problems, and supply interruptions. “Look at some of those procedures at that time,” says Kentrup. “The real outcomes of decisions to focus too much on cost alone, and thus create constant change [of vendors], have been made clear.”

What’s now clear, he adds, is a consensus for all departments involved in outsourcing decisions – and particularly quality and procurement – to strike a balance.

“So, yes, you could drive down five cents a kilo on material from a CMO, and somebody in procurement would understandably get recognition for saving $200,000,” says Kentrup. “But years later, you realize there’s not a sustainable supply anymore. There may be problems with delivery of product, or deviations. The total cost of those decisions – the real bottom line in the pursuit of lower pricing and changing vendors more often – can easily become higher cost and long-term risk.’”

I can’t resist asking: When those unfortunate and negative consequence came home to roost, were there meetings between procurement and quality departments to set the record straight on what had been happening, and how to navigate a new course?

“The discussions were actually productive,” says Kentrup diplomatically, “and dealt with any actual issues that came about on the regulatory side first.” He continues: “And it was made clear by expectations within FDASIA [Food and Drug Administration Safety and Innovation Act of 2012] that drug-owners were to be held fully accountable for quality issues and drug shortages. This helped change any overemphasis on the role of procurement, and helped bring quality and other departments back in balance in decision-making. ”

The result is quality “participates actively in the governance of procurement in supply-chain decisions, so it’s not purely an upfront financial decision. It’s now looking at the overall scorecard for performance and sustainability at partners.”

Kentrup believes that in this post-procurement era (as I’ve labeled it), “the concept of sustainable supply is the overriding factor in judging how procurement functions perform.” He sees less emphasis on “change for the cheaper, and more on a recognition of change for the better.” Procurement and quality departments are working together more collaboratively in this new era.

But even with this positive development, will the industry continue to see an increase in outsourcing? Kentrup isn’t sure about that.

What Goes Up …

Since recovering from the 2008 recession, the pharmaceutical industry has experienced an increase in outsourcing of practically every service, from drug discovery through commercial manufacturing. There have been adjustments to success metrics and business strategies. In the most recent past, Big Pharma and Bio have voiced consistent concerns about a CMO capacity shortage for new biologics coming down pipelines. So will we continue on a path of evermore outsourcing?

“I know of several companies that have receded from that,” says Kentrup. “Look at the situation with the expansion into India and other countries, based on labor and material costs. They’ve found the sustainable supply of products was impacted, even by what would seem relatively minor items, such as having to reduce shelf life for materials that were not equivalent in nature. Then when you look out over the past ten-year period, the costs for labor haven’t stayed low anyways. I think many firms are reconsidering all this.”

And bringing more drug development and production under their own roofs?

“You’re already seeing that in facilities in the European region, and even in North America. The ability for drug-owners to bring production back within a state of control, maximizing capacity utilization, and eliminating the remote support that’s required through consultants or at those sites, creates a balance sheet indicating your internal resources can be more efficient and cost effective.”

Initiating Internal Innovation?

Kentrup recalls his years in consumer goods as an example of how industry can reclaim more internal initiative, including for example the implementing of continuous manufacturing to maximize facility utilization. He now sees some of this within our industry, with concepts of quality-by-design and our own continuous-manufacturing initiatives.

“When you start to make those innovations,” explains Kentrup, “the reliance on sustainable supply from your supply chain becomes a whole different calculus. A better strategy becomes enabling flexibility and productivity in your own manufacturing network.” He points to 3D printing of tablets and dosage forms, “the kind of technological advancement that really takes away warehousing,” as an example, along with single-use and continuous technologies.

Of course some in our industry will push back on returning to an “everything under our roof” philosophy, and question whether, for example, Big Pharma can even compete in so many different technological areas. Nonetheless, it’s hard to disagree that in the case of Big Pharma at least, if there is an imbalance in drug development and manufacturing today, it might very well be the tilt towards so much out-of-house development and production.

Perhaps the new balance between quality and procurement will take us in unexpected directions ... even a new era.

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William A. (Al) Kentrup, VP Global Quality Compliance and Systems, Takeda Pharmaceutical Company, spoke with me just prior to his attendance the FDA/Xavier Health PharmaLink conference.