Contract manufacturing and contract packaging strategic considerations

It’s become a fact of life that the North American pharmaceutical industry, while still firmly rooted in manufacturing of its own products, also makes heavy use of outsourcing to contract manufacturing/contract packaging organizations.

When it comes to serialization, however, pharma companies cannot simply drop the ball in CMO/CPO’s laps and simply say, “Do it.”  There are a few reasons for this.

First, under most regulations, the brand owner (CMO’s client) is ultimately responsible for serialized packages coming off the CMO/CPO’s packaging lines. As such, the client company will want a firm hand in how that serialization happens, even if it’s on someone else’s packaging lines.

The second factor has to do with how CMO/CPOs are staffed. Over the years, CMO/CPOs are able to remain cost competitive by keeping extremely lean staffs. That becomes an obstacle when it comes to implementing serialization. While some CMO/CPOs may have the engineering resources to adapt their lines, many lack the resources to handle the IT side of things. Indeed, it’s not unusual for some CMO/CPOs to outsource their entire IT function. The pharma client company may need to be involved at some level in order to support this transition.

Third, the business process connections between CMO/CPOs and client companies today are largely manual—e-mail, spreadsheets, and fax. Going from largely zero real-time visibility today to the complicated data interconnections required to exchange serialization information is a quantum leap that will require a lot of back-and-forth discussions, meetings, and time. The process of onboarding new CMO/CPOs, again a largely manual process today, will need to be completely rethought from the ground up for pharma client companies.

CMO/CPOs slow to act
If the pharmaceutical industry has been reluctant to move into serialization, then the CMO/CPO industry has been even slower to act. There are two factors that are responsible for what might be described as paralysis in the CMO/CPO sector when it comes to serialization.

One is the fact that pharma client companies tend to focus on serializing their internal packaging lines first, a pre-occupation that seems to come at the expense of pushing their CMO/CPOs into serialization. This can be reflected in the finding by Healthcare Packaging’s survey, conducted in October 2012, that reveals that about a third of respondents have even surveyed their trading partners for serialization readiness, with another third not even knowing whether their companies had even surveyed trading partners! Anecdotal conversations with industry experts reveal while many pharma companies are engaging in pilot tests, only a small fraction of them involve CMO/CPOs.

The second, and likely larger, reason for the delay is the sheer complexity of the connectivity involved. In addition to the work required to serialize their packaging lines, CMO/CPOs must work out IT connections to each of their clients, for products destined for various markets around the globe, all with different regulatory environments. 

The engineering and IT jujitsu involved to pull off such a feat—let alone the time—is enough to overwhelm even the most seasoned professional. It’s not surprising that we see answers all across the board when we asked what it would take to establish, test, and validate an electronic data connection with a single external trading partner. One thing’s for certain—that time frame will almost certainly be measured in months, not weeks.

In addition to the connectivity, CMO/CPOs have to figure out how to layer serialization on top of the client company’s business processes (plan/procure/receive/stock/ship), as well as the CMO/CPO’s own internal business processes (plan/make/stock/ship). At the heart of this is determining the sort of site-level repository of serialization numbers and event data that will connect multiple lines to multiple customers. It also involves the technique to be used to share the serialization information. Not a cakewalk.

Finally there is the question of cost: Who pays? Neither party wants to, yet it must get done. No wonder things are moving along at a glacial pace.

However, there is a bigger threat to CMO/CPOs than noncompliance. It is the threat of letting 100 different pharma company clients dictate 100 different ways of handling serialization interfacing. While it’s true that the industry is coalescing toward GS1 standards for the standardized exchange of EPCIS event data, there are still many potential speed bumps inherent in any given implementation, due to the flexibility built into the EPCIS standard. In addition, a number of exceptions simply aren’t addressed yet by EPCIS. Many CMO/CPOs are already sharing shipment information using Electronic Data Interchange (EDI) with trading partners and have expressed a desire to leverage Advanced Shipping Notices (ASN) with Hierarchical Level (HL) to communicate serial numbers and aggregation. In short, there are many ways to skin the serialization cat.

(Pharma companies may be tempted to insist that their CMO/CPO partners adopt the same serialization vendor they use. While that may seem logical on its surface, it’s a sure recipe for confusion for CMO/CPOs, which will have multiple clients that use multiple serialization solution providers. Better to simply write serialization governance on how numbers get allocated, coded onto packages, transmitted, etc.)

The main reason for CMO/CPOs to act now—versus remain on the sidelines—is to be the one to standardize on one way (or a small handful of ways) that pharma company clients can connect. In other words, instead of waiting for clients to issue their blueprint for connectivity, the CMO/CPOs should preempt by issuing their own.

Unless the CMO/CPO tries to impose some level of standardization to the approach it takes with integrating with each customer, it can make integration a never-ending nightmare. The CMO/CPO’s standardized approach may inevitably be subject to massage by each client. But by shaping that conversation up front, at least it gives CMO/CPOs a fighting chance to stay on top of the integration burden that lies ahead. The window on exerting influence on pharma client company requirements has not yet closed.

That’s not to say that CMO/CPOs should dictate to their client companies any more than the client companies should dictate to the CMO/CPOs. The main takeaway is that CMO/CPOs should not be making serialization decisions in a vacuum. CMO/CPOs should initiate three-way discussions between themselves, their serialization vendors, and their pharma client companies.
As expensive as serialization is, “Wait and see” is an approach that will only end up costing CMO/CPOs more down the road.

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