The 5 ‘C’s’ for CMO Relationships in Pharmaceutical Supply Chain

I recently attended the LogiPharma conference in Princeton, NJ to hear a number of speakers give their thoughts on the state of the pharmaceutical supply chain. Of particular interest was a session on Contract Manufacturing Operations (CMO) relationships with Michael Daly, Director of Supply Chain for Valeant Pharmaceuticals. He talked about the 5 C’s for a CMO relationship in pharma. There was agreement among many at the conference that pharma is a bit behind the high tech and automotive industries when it comes to supply chain efficiencies. To their credit, those same individuals acknowledged they were looking to other industries for best practices.

High tech and automotive have long realized they could drive efficiencies up and costs down by not doing everything from scratch. In many cases within high tech and automotive, the leaders in supplier relationships have developed interactive supplier engagements that allow for easy communication between customer and supplier. These improved supplier relationships have enabled the easy sharing of purchase order information, forecast requests and the ability to initiate collaborative reviews and adjustments. It’s become easier for the Original Equipment Manufacturer (OEM) to track supplier commitments and get alerts to gaps between request and commit dates, so action can be taken to avoid shortage conditions. The challenges Daly highlighted we’re actually similar to what the other industries have to deal with. This includes managing PO information, supply contracts, quality agreements, delivery measures windows for late or early deliveries, capacity, new product introductions, forecast change tracking and liability. He was able to provide focus to the challenges of managing the CMO relationship by capturing them inside his 5 C’s:

#1 – Commitment. Commitment from both parties on getting alignment on agreed dates and outcomes and committing to the quick exchange and response to information.

#2 – Cost. As part of the commitment to the relationship both parties don’t want any surprises when it comes to cost and both parties want to stay competitive and make money.

#3 – Compliance. For the pharma CMO relationship it was worth calling out compliance. It is critical to the OEM’s survival that there are good FDA relationships. Quality issues can certainly affect cost and delivery but compliance issues can create many more issues including the health of customers or in this case, patients.

#4 – Capability. As with the other industries it’s vital the product and manufacturing technologies are well supported and provide differentiators that drive cost, delivery and margin benefits.

#5 – Capacity. Daly observed, “capacity issues are like fog. It just rolls in, you don't know how it got there and you can't see your way out.”

Again, here is where the OEM doesn’t want any surprises in terms of shut downs, outages or long lead times that impact schedules. As part of the commitment, it’s also important for the OEM to plan within the limits of the CMO’s capability and capacity. I took Daly’s 5 C’s as a valuable guideline for anyone managing supplier relationships, regardless of industry and maturity. All CMO relationships will benefit from a mutual commitment to open and regular dialog. With so many issues to manage and the increasing challenges of globalization, supplier collaboration solutions will also require increased capabilities to seamlessly coordinate activities and respond cooperatively to changes and disruptions. It was appropriate for Daly to use a quote from the song Already Gone by the Eagles: “So often times it happens that we live our lives in chains and we never even know we have the key.” Well, we are living our lives in supply chains. And we’ll find the keys by continuing the search for excellence. I was also happy to hear the use of this quote because Don Felder, former guitarist for the Eagles will be playing at Kinexions, the Kinaxis annual user conference on October 12^th and participating in a Q&A on the morning of October 13^th. Let us know your thoughts on supplier collaboration, or better yet, hear it directly from others at Kinexions.