Innovation in Sourcing

Industry experts share perspectives on value creation in sourcing, procurement, and external development and manufacturing.
Jun 02, 2011

As the pharmaceutical industry faces increasing cost pressures, the need to accelerate time to market, and a more competitive environment, companies face the task of how to reduce costs and extract greater value from their operations. The pharmaceutical supply chain, from the sourcing of raw materials to the manufacture of an active pharmaceutical ingredient (API), is a potential source of that value creation.

“Supply-chain innovation involves not only a bottom-line focus and looking at ways to reduce costs, but more importantly it has a top-line focus aimed at value creation,” says Christopher McKenna, partner at Accenture. McKenna will be a speaker at an upcoming educational program, the DCAT/ISM Sourcing Summit’ 11: Innovative Sourcing, which will be held July 13 and 14 at the Sheraton Newark Airport Hotel in Newark, New Jersey. The program is organized by the Drug, Chemical and Associated Technologies Association (DCAT), and its partner, the Pharma Forum and Chemical Group of the Institute of Supply Management (ISM). McKenna points out that in overall supply-chain relations, there are three potential areas for innovation: products/services, process, and operating/business models. These components of innovation also may be applied to the relationship between a pharmaceutical customer and its suppliers, including contract manufacturers.

In examining ways to achieve innovation in the pharmaceutical supply chain, it is helpful to look at approaches from other industries and companies. McKenna points to Procter & Gamble’s (P&G) “open-innovation” approach and its success in using that model to develop a strong innovation culture. “The open-innovation model involves gaining feedback from external sources, such as suppliers and customers, as a way to drive innovation,” he says. In the case of P&G, approximately 50–60% of its product initiatives involve collaboration with outside innovators. The company uses its Connect + Develop platform, an online innovation engine that allows outside parties to connect with the company and offer an idea. According to P&G, this approach has resulted in more than 1000 agreements with innovation partners.

Although consumer-product industries operate differently than the highly regulated pharmaceutical industry, there is opportunity to apply these models in the pharmaceutical industry, notes McKenna. “An innovation model can be applied on the process side as well,” he says. “It involves two major steps: ideation and implementation. Once a company has an idea, it can design the process, which can include its activities with outside suppliers and contract manufacturers, to implement that idea.” Facilitating ideation is an important task until itself. “Part of the barrier in innovation in supply chain or procurement is that the focus for innovation can be narrowed to existing orthodoxies or ways of thinking,” says McKenna. “Suppliers and customers have to look beyond traditional ways of doing things and see the opportunity for value creation.”

A CMO perspective
Paul Sidhu, vice-president of marketing and strategy at DSM Pharmaceutical Products, who also will be speaking at the DCAT/ISM Sourcing Summit, offers a perspective from a contract manufacturing organization (CMO) on ways in which value can be created in the customer–supplier relationship. In the case of DSM, he points to two different models. “In one example, a pharmaceutical company is rationalizing its manufacturing network and is outsourcing its manufacturing activities. In essence, we have become its manufacturing operations.” He points out that the foundation for this strategic external manufacturing arrangement was based on past relations of mutual trust, collaboration, and performance.

In a second example, Sidhu points to taking a “portfolio view” in terms of pricing and service models. “A portfolio view is based on a comprehensive partnership,” he says. In this approach, the CMO considers various pricing and service schemes based on the position of the product in the pharmaceutical company’s product life cycle. “For example, a mature pharmaceutical product that is nearing the end of its life cycle is in a more competitive market environment and has different margins than a new or innovative product early its life cycle,” says Sidhu. “For our pricing proposals, e take into consideration where the product is positioned in the customer’s product portfolio.” In this approach, the partnership between the CMO and pharmaceutical companies is based on a holistic portfolio view that accommodates the various products and project types.

That customer-focused and collaborative approach in outsourcing for value creation also can be realized through technology enhancements. CMOs, for example, invest in technologies that can be used to improve process efficiency and cost structures. In the case of DSM, Sidhu points to the company’s longstanding investment in biocatalysis and microreactor technology as ways to improve manufacturing process efficiency and reduce costs. “These technologies also contribute to a pharmaceutical company’s goals in sustainability,” he says. For example, biocatalysis can be used in asymmetric synthesis to achieve a desired stereoselectivity and potentially can yield more efficient chemical transformations in a given synthesis for a pharmaceutical intermediate or API. Microreactor technology enables more efficient heat transfer and can improve reaction conditions such as by lowering temperature and pressure. The green-manufacturing approaches of biocatalysis and microreactor technology, through reduced waste or byproducts (as a result of more efficient chemical transformations) or lower energy requirements (through improved process efficiency and operating conditions), provide additional value to a given project.

Sidhu offers another example of applying innovative process technology to create value by a CMO for its customer. DSM is a contract manufacturer of biologic drug substances. It applies its proprietary technologies to all cell lines, including standard Chinese hamster ovary (CHO) systems, to lower costs and reduce processing time. DSM’s proprietary XD process achieves 5 to 10 times the upstream output, regardless of product or cell line, he notes.

On the downstream side, DSM acquired the Rhobust technology, an expanded bed-adsorption system. It enables dense, high-yield crude harvest to pass freely through the column system while the adsorbent captures target molecules without clogging the system due to high-density resin balls. The cell suspension passes through the column, and the product is adsorbed on the beads through different tailored ligands, such as Protein A, mixed mode, DEAE, and IMAC. This direct capture leads to less handling and shorter process time. The combination of high-density beads with equal flow distribution in the column also leads to stable expanded beds and consistent performance. Sidhu explains, “the Rhobust technology is an important consideration to prevent the downstream bottlenecks that may occur as upstream processing yields improve.”

Sidhu comments that the higher upstream yields and downstream efficiencies provide a step-change in biopharmaceutical production by using disposable equipment with lower costs and smaller footprints to enable a small, yet highly productive, facility with only a small fraction of the capital requirement. As a case in point, DSM is building a new mammalian-cell biologics manufacturing facility in Brisbane, Australia. This facility is scheduled to come on line in 2013 and will offer the XD and Rhobust technologies. In 2010, DSM formed a partnership with the Australian governments (Queensland state government and the Commonwealth of Australia) to design, build, and operate the facility with 100% government funding.

The mechanisms for implementing various approaches in sourcing and procurement as a tool of value creation will be discussed further at the DCAT/ISM Sourcing Summit’ 11: Innovative Sourcing. Details of the summit may be found here.