“The Horseshoe Nails” by James Baldwin (1924-1987)
For the want of a nail the shoe was lost;
For the want of a shoe the horse was lost;
For the want of a horse the battle was lost;
For the failure of battle the kingdom was lost;—
And all for the want of a horseshoe nail.
Throughout the last 30+ years, many pharma companies worked to outsource their low-value starting materials, many produced in-house in the US, to China and India. The rationale, at the time, was sound. Outsourcing provided opportunities for a lower cost raw material and a lower cost of goods (COGS) for the final product, either API or drug product.
This strategy also opened valuable manufacturing assets in the US for higher value intermediates and new development products. It also allowed the US to develop new cGMP partners in new markets expanding its manufacturing base.
That outsourcing strategy was successful for more than 30 years. The generic industry thrived, and branded products expanded opportunities for low-cost raw material feed. Ultimately, a critical lesson was forgotten. It was a rule of thumb on our teams, for both commercial and development products, to dual source as much as possible and as early as possible.
We strove to provide sound alternatives for all sourced materials so that our customers (both internal in the corporate world or external when dealing with contract clients) had a broad supply base as the products developed.
BUILDING A COMPLETE SUPPLIER PORTFOLIO FOR CLIENTS
We took the strategic position that as the product developed, the cream of the supplier crop would rise to the top of the chain, and we would have multiple options for manufacturing our end-product. Early on, this took time and expense. Multiple suppliers had to be evaluated on capabilities, price, quality and regulatory positions at a minimum. Many hours were invested as suppliers tried to meet our demands and our team tried to build a complete supplier portfolio for our clients. In the end, our goal to present at least two, high quality, cost compliant, dependable suppliers to our customer was met. In our eyes, this represented a robust, dependable supply chain as the target product moved through the process to being a commercial pharmaceutical product.
Inevitably, though, cost became an issue. For some products, there simply wasn’t a sufficient purchase volume to keep them interested in supplying. In other cases, negotiating commercial supply agreements or purchase orders often pitted one supplier against another. After too many periods of losing a bid, some suppliers dropped out, and the cost to our client of maintaining multiple suppliers in their systems became a burden. Eventually, there were goals to reduce the supplier base. Through a combination of these evolutionary lines, the supply chains slimmed down to one supplier per item: efficient and low-cost to manage, but not strategically sound.
FIGHT FOR DUAL SOURCING
COVID-19 has taught us that skinny supply chains are dangerous. Whether it’s a pandemic or natural disaster, it’s easy to fracture a skinny chain. We’re seeing pushes in the industry to analyze the development of US-domestic raw material manufacturers. That’s a significant challenge given that off-shoring those basic technologies severely depleted the ability to manufacture some types of compounds. The capacity simply isn’t there, and a large investment of money and time will be needed to bring it back.
We think it’s critical that product development managers sincerely fight for dual sourcing in their supply chains, not simply for critical items, but ALL items where possible. Utilizing partners in the US, Canada, Mexico, South America, Europe, as well as China and India, still allows for developing broad, stable supply chains for critical need products.
Dual sourcing simply needs to be a primary factor going forward. Supply chain specialists, product managers, marketing managers, and senior management need to remember the risks we’re seeing play out now and build the dual-sourcing cost into their products in order to assure adequate supply.