Supply Chain & Manufacturing

Driving pharma supply chain innovation with CMOs

By Pragati Lodha, Manoj Porwal , and Natasha Agarwal

June 20, 2024 | Article | 4-minute read

Driving pharma supply chain innovation with CMOs

As pharmaceutical companies consider variables like anticipated growth in their product portfolios and evolving manufacturing requirements, they’re increasingly relying on contract manufacturing organizations (CMOs) to help maintain and boost productivity. The pharma contract development and manufacturing market is expected to grow to $332 billion by 2029, up from $243 billion in 2024.

Supply chains should no longer cast CMOs solely as vendors. With modalities being increasingly complex, pharma needs CMOs that aren’t just service providers but strategic partners that can co-innovate on products and processes. Many companies are struggling to innovate internally at the required pace, but innovating in collaboration with a CMO is often an unchartered territory. Our conversations with industry leaders reveal that successfully innovating with a CMO hinges on two factors:

  • Establishing strategic partnerships with the CMOs that possess a well-defined innovation vision
  • Identifying the appropriate internal enablers to facilitate seamless execution

An assessment for choosing the right CMO for innovation

Innovation in pharma can take the form of incremental enhancements or disruptive transformations focusing on accelerating speed to market, enhancing performance and improving sustainability.

When evaluating CMOs, it’s critical to establish criteria based on your innovation vision and priorities. This innovation assessment (see Figure) includes critical dimensions you should consider as you aim to identify and prioritize the CMOs that can help you revolutionize your supply chain and manufacturing.

Pharma supply chain and manufacturing have been on an innovation journey as business and portfolio needs have evolved. Based on industry maturity, most speed-to-market criteria are quite mature, but there’s room for improvement in the industry 4.0 and 5.0 space. Enhanced performance dimensions, however, span across medium to advanced maturity and the range of maturity is varied when it comes to sustainability.

Overcoming innovation challenges in the pharma supply chain

While sponsors and CMOs must collaborate on innovation priorities to ensure strong execution and pull through, sponsors face multiple barriers, including limited incentives for CMOs to innovate, a lack of trust with CMOs, limited CMO capability and pressures around time to market and regulatory hurdles. Thankfully, there are enablers that can help companies to drive innovation in partnership with CMOs:

Operating model: Once you assess a CMO’s expertise, capability, culture and prior relationship with your company, you can collaborate with them to establish an operating model. It’s important for the sponsor organization to define the partnership structure that works for it—these could include core, strategic or enterprise partnerships.

The innovation priorities and roadmap are driven by the partnership structure with the CMO. Usually 10%-30% of a pharma company’s CMO network is made up of strategic partnerships. These partnerships support about 70%-80% of product volume and focus on long-term investments. Strategic partnerships are critical and are often the focus of most innovation initiatives. In contrast, core CMOs contribute approximately 70%-90% of the CMO network and manage regular transactions as per supply needs. They also often focus on selected innovation initiatives.

The right incentives and pricing model: It’s vital to establish the right incentive system—using both financial and nonfinancial rewards—to drive a co-creation and co-innovation mindset. Implementing the right pricing model and value-based incentives will motivate CMOs.

Organizational structure: CMOs may not always have the resources to drive innovation, making it critical for sponsors to appoint an innovation team that is dedicated to proactive co-innovation. We recommend establishing innovation teams with the right experts from both firms and setting up open forums to share ideas. Sponsors can also establish “insurgent” innovation teams for speeding up the execution and pull-through of priority innovations.

Digital and analytics capabilities: CMOs may be reluctant to share data due to a lack of robust infrastructure and trusted partnerships. This leads to an increased focus on defining the right data requirements and architecture for both performance management and predictive and prescriptive analytics. Establishing a strong base of data sharing and technology platforms between sponsor organizations and CMOs is important for enabling end to end connectivity and visibility, which ultimately helps supply chains become more resilient.

Governance: A strong governance structure empowers effective performance management, fosters continuous exploration of innovation opportunities and facilitates the definition of critical success factors and measurable KPIs, such as overall savings and yield impact. These metrics are helpful for assessing the achievement and alignment of innovation initiatives.

Finding reliable partners for innovation

By using consistent factors to assess CMOs, pharma companies can determine which partners can help them transform their supply chains. This innovation journey involves a unique set of objectives, constraints and hurdles, but it’s critical to build strong partnerships with shared innovation goals. Partnering with CMOs to innovate is worth the effort, as it can be a significant competitive advantage for pharma companies and their supply chains.

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