Supply chain design is inherently cross-functional, and highly dependent on decisions made in other areas. For example, product
or process development may have designed a requirement for a proprietary manufacturing method or unique component. Sometimes,
there may be only one single supplier for such a capability. As a result, the selection of the manufacturing partner has most
likely already been made.
While due diligence should be conducted to ensure that development-stage partners are capable of supporting commercial production,
these early stage decisions are likely to constrain the design of the supply chain. Marketing has also more than likely already
established preliminary demand requirements or projections. Demand characteristics such as seasonality for drugs such as vaccines,
or geographic expansion are important drivers of both manufacturing capacity and distribution capabilities.
Often the original sourcing of materials is performed by development or research personnel, and does not consider the critical
nature of the component to the manufacturing process. In this regulated industry, any single-sourced component can become
critical to the manufacturing process. As products mature through the life cycle, their demand typically increases, as do
production requirements. The stability of the critical component supplier and its capacity become increasingly important.
Although not usually required or feasible before launch, second sourcing of critical raw materials shortly afterwards is advisable
to secure the supply chain.
FLEXIBILITY FOR CHANGING CONDITIONS
Design priorities for a supply chain change throughout a product's lifecycle. While more mature supply networks are fine-tuned
with the intent of squeezing out inefficiencies and leveraging economies of scale, during product launch the focus is on ensuring
that product can be shipped on approval and that supply can be maintained.
In preparation for launch, it is critical that the supply chain design enable enough product to be made so there are no shortages.
The cost of the product compared with the margin and opportunity cost of a shortage, typically outweighs the cost of producing
These changes over time should be taken into account as supply partnerships and contracts are developed. If the correct amount
of effort is put into the planning and design of the supply chain, building it should primarily be about execution.
A RISK MANAGEMENT TOOL
Whether building internal capabilities and facilities, or establishing a "virtual" chain, developing a commercial supply chain
is a huge investment for most life sciences companies. By anticipating changing conditions and managing the uncertainties
explicitly, the supply chain can be used as a tool for managing not only product supply risks, but also overall business risk
Building out the commercial supply chain typically includes establishing relationships with partners for all external capabilities,
increasing productive capacity both internally and externally, designing the internal business processes and organization
for managing supply, and implementing information technology solutions. Each of these activities will bring its own challenges.
Partnerships can play a key role in building the supply chain. While there are many reasons for outsourcing capabilities,
emerging life sciences companies often partner with other organizations to secure major elements of their supply chain. This
is due to a lack of sufficient expertise in a particular area, and constrained resources for investing in building the capability.
Outsourcing can pose several challenges simply in understanding the appropriate requirements for making an outsourcing selection,
and in defining the correct terms and expectations for the relationship.
Particularly when negotiating long-term, multiyear contracts with contract manufacturing organizations (CMOs), it is crucial
that terms be drawn with an awareness of future market plans and requirements, with opportunity for upside, but protection
Lead times for technology transfer and validation will push capacity start-up activities high on the priority list, when demand,
clinical, regulatory, and manufacturing process uncertainties are greater. Because of these risks, some companies can be left
with severely underutilized capacity (>50%), or significant shortages of supply capacity. Effectively managing the inherent
risks in capacity investments and commitments drives some companies to develop staged or risk-based approaches to bringing
up capacity, or exploring risk-sharing strategies for significant investments.
At one company, for instance, initial demand projections 30 months before launch showed a substantial growth curve in the
first five years of commercialization. However, uncertainties in the outcome of clinical data, FDA labeling requirements,
and timing of approval led to an appreciation of the downside possibilities.
A capacity build-out plan was implemented that included smaller sizing and staged startup of production lines so that incremental
capacity could be delayed or abandoned if projections decreased. As a result, when the forecast was reduced 40% by marketing,
startup plans could be delayed accordingly. By securing manufacturing capacity incrementally the company has the option of
accelerating or delaying investment.
The development and build-out of an effective commercial supply chain is a complex and multi-faceted initiative. It must begin
early in the product development stages with strategy and planning, and its implications last well into commercial production.
If some basic tenets are followed as an integrated part of product development and launch planning, the resulting supply chain
should be well suited to meet not only near-term launch requirements, but also longer-term strategic business objectives.
Todd Applebaum is vice president, Strategy/Operations practice, Maxiom Group, Waltham, MA 02451, 781.250.4900, email@example.com