Capitalize on your merger/acquisition: 4 tips to consolidate your CMO network
New drugs acquired via mergers, acquisitions or licensing agreements often come with an entourage of contract manufacturers. After several such transactions, you can find yourself surrounded by a tangle of CMOs. That’s problematic. Complex CMO networks are expensive and require many resources to manage. Plus, they prevent purchasing and operating at scale. Yet, the process of consolidating CMOs is daunting. Where do you begin?
Is consolidation really necessary?
With today’s increased visibility on cost of healthcare and drug supply, it is becoming mandatory to consolidate networks to improve supply chain efficiency, ensure inventories are located in the right place at the right time, and ultimately lower costs. Furthermore, consolidation reduces the internal manpower needed to manage sourcing and contracting processes, order-to-pay cycles, and logistics.
Consolidation also benefits your CMOs. Most CMOs prefer to work with fewer partners on multiple drugs. Fewer, high-volume partnerships reduce service complexity and drive efficiencies for both parties. Subsequently, sponsor firms and CMOs are looking to form more comprehensive partnerships.
When simplifying your supply network, it’s important to understand the costs as well as the benefits of the consolidation process. For example, tech transfers, including required regulatory submissions to move drugs between sites, are expensive and may take years, which may interrupt available drug supply. Building such calculations into your total consolidation project plan is important to managing your bottom line.
Important considerations for CMO consolidation
Network consolidation is not an easy process. But, defining the process upfront will provide a roadmap to keep you on track to meet your goals. Here are four tips to get you started:
1. Establish clear and measureable objectives
Communicate to your organization the purpose of CMO consolidation and set specific goals, for example:
- Reduce your number of CMOs by 10% this year, to achieve a stated reduction in administrative burden.
- Select 10 preferred CMO partners that can cover a broad range of your drug products and geographic markets, to fit your manufacturing network strategy and leverage your full outsourced volume for better overall pricing and supply-chain stability. Keep employees and key stakeholders engaged with regular updates on progress to maintain your organization’s focus on achieving your goals.
2. Set criteria for CMO performance evaluation and selection
Identifying which current – or new – CMOs you wish to retain requires evaluating them first. Here are a few ideas:
- Keep a running performance scorecard for each of your CMOs, including lead time from order, compliance with quality standards, contract adherence, service, engagement (do they go the extra mile for you?), and response rate. Create an objective tool for evaluating and comparing your CMO partners.
- Determine your CMOs’ current capabilities: not just what they do for you today, but what they can do. If you detect a gap between what they provide and your needs, explore potential new partners, as well. Follow up with requests for information (RFIs) to CMOs of interest to yield additional detail.
- Use conferences and association meetings to gain intelligence on potential partners, and reach out to your network of contacts for candid feedback on their own CMOs.
Finally, match your needs with the CMOs whose capabilities achieve the best fit with your organization’s long-term needs.
3. Set geographic requirements
Where do your CMOs need to be located to meet your business’s regulatory and transportation requirements? Proximity to shipping hubs, cold-chain requirements, and regulatory constraints are all relevant considerations.
4. Rationalize your portfolio
Look holistically for opportunities to reduce same-formulation SKUs where possible, for example, combining dosage forms and packaging. Also, evaluate low-volume products for discontinuation. Then, take a fresh look at how to blend your portfolio of CMOs to leverage purchasing and operating synergies.
When should you get started? The sooner you streamline your network, the sooner your company will eliminate wasteful costs, free up your staff, and glean the benefit of greater purchasing power.