5 MINUTES WITH: Joe Sutton, Eli Lilly and CompanyBy
DCAT Value Chain Insights’ “5 Minutes With,” part of the new DCAT Member Community section, features interviews with industry leaders on issues impacting the bio/pharmaceutical manufacturing value chain and other business leaders.
This “5 Minutes With” features Joe Sutton, Global Director of Global Sourcing for Eli Lilly and Company’s Development and Manufacturing Organizations.
Q: From an industry perspective, what would you identify as the three most significant issues impacting small-molecule API sourcing today?
Sutton (Lilly): 1. Capabilities Mismatch. Driven by cost pressures, supply chains have transitioned over the past decades to make China and India the source of many basic starting materials. While that may help financially, there is now a lack of technical resources and facilities in Western geographies. Companies that want political and geographic supply-chain diversification that are heavily dependent on China, for example, face growing risks as increasing Chinese regulations and tariffs eat away at financial gains while other regions are not offering suitable alternatives. Also, industry consolidation continues to favor larger corporations with scale while squeezing small companies that are often a better source of innovation. There seems to be cash available for investment that will hopefully find its way into Western geographies to alleviate some of the disparities.
2. Regulatory Requirements. Regulatory agencies continually increase their expectations about what a company knows about the technology and quality of its products. While this is a good thing for the industry and the public, in general, it creates growing demands to keep up with new expectations and to modernize production. Continuous flow processing, Quality by Design, and other initiatives are moving from concept to practice, which requires operational procedures that have not yet been standardized across the industry. Pressure to reduce cycle times and be the first- or best-in class make keeping up with changes more difficult, especially where companies rely on CMOs for implementation.
3. Emerging Technologies. As companies re-evaluate what technologies they will offer, it creates constraints as older technologies on which we are still reliant become less available and newer technologies that we will need going forward are net yet fully in place. Generally, there is insufficient capacity for newer emerging technologies (SiRNA, peptides, oligos, etc.) and part of that constraint is driven by lack of qualified labor in key areas.
Q: How is the industry addressing those issues? What are the greatest challenges and opportunities?
- Adding more suppliers is necessary to address the above issues, but in so doing, it requires greater resource-intensive oversight to manage more third parties. One solution is to increase the scope of existing supplier relationships through more creative contracts that include joint capital investment, guaranteed capacity reservations, and greater transparency in both the suppliers’ operations and the buyers’ expectations.
- Recruiting necessary technical and regulatory talent is also becoming more challenging as there is a general labor shortage and fewer STEM candidates available. Partnering with universities through internships and sponsoring more international talent with work visas offer a viable solution, but the gap is not yet closed.
- Asian suppliers are responding to the need for greater Western sources by expanding their reach into Europe and the US. Newly built or acquired facilities are being announced more often that follow that model. Again, those facilities will require capital investment and hard-to-find qualified labor.
Q. New digital tools, such as artificial intelligence (AI) and advanced analytics, are becoming increasingly important in the bio/pharmaceutical industry. What specific uses would be valuable for API sourcing now and in the future?
- Any AI that improves real-time access to process data and analytics will be welcome. Especially if it is available remotely. The inability to do in-person audits or CMO process monitoring was problematic during the pandemic. Better technology that can create a live window into a plant’s systems from anywhere in the world will create an advantage whether that comes from pharma’s own plants or their CMOs.
- Comprehensive supply-chain management tools are still lacking desired functionality. Finding current and accurate information on companies’ capabilities is inconsistent. Procurement tools in general still do not offer easy-to-use comprehensive ways to manage supply-chain genealogies, contracts, purchase orders, and invoices. What does exist requires a big investment of a company’s money and time to implement. Constant updates and integration problems make ongoing maintenance a burden. There is great opportunity in this space!
Q: How has the pandemic affected how procurement will need to manage their supply chains going forward?
Sutton (Lilly): Supply-chain interruptions are not new—there have always been temporary shortages or issues with a certain market segment or a specific geography due to natural disasters or plant failures. But nothing in the last century has been so broad in market scope, so global in reach, or so long in duration as to what we are experiencing now. While the pandemic caused many supply-chain issues as companies struggled to get labor and parts, it also exposed inefficiencies and poor performers. Below are some thoughts on how procurement will need to improve supply chains going forward:
- Data Within: While it seems obvious, having the right data to manage a supply chain is key to ensuring supply. Do you know who supplies your supplier and their supplier, and so on, back to basic commodity levels? The security of dual sourcing at the first supply level tier can quickly be undone if both suppliers rely on the same source for their starting materials. Finding out that information during a crisis is not the optimal time.
Do you know the logistics involved in getting your material from your supplier’s door to yours? Knowing the shipping routes, ports, carriers, forwarders, etc. provides better opportunities to expedite or otherwise manage shipments.
Do your own manufacturing plants have the data to share materials among themselves? Even within a single company, sometimes each manufacturing site manages their own supplier quality approval systems and their own supply-chain systems. Can your company send excess material from a supplier from Plant A to Plant B seamlessly in an emergency or will new approvals and systems changes be necessary for the goods to be properly received and used in a GMP environment?
- Data Between: In many cases, a supplier may know that it sends Part A to Customer B but not much else. That knowledge gap was exposed during the pandemic when the US government invoked the Defense Production Act, which granted priority of supply to companies making COVID-19-related products. That edict brought in the government as a third party to the negotiating table with suppliers and buyers. Suppliers had to prioritize selling their material to companies based on whether the pharma product was: (a) COVID-19-related; (b) life-saving, or (c) other. Buyers are often reluctant to share information on product usage with suppliers, but withholding such information dropped them on the priority list. Even sharing such information resulted in delays and reviews that slowed down supply.
Supply contracts have typically contained language on Force Majeure or perhaps penalties for late deliveries, but pandemics were typically not specifically included in the language, which made many supply agreements open to interpretation and dispute. New language will be required to manage such situations in the future by accounting for such situations.
- Impact: Procurement, in cooperation with their manufacturing, quality, and legal partners, will have to provide more data and processes to manage inter-company and third-party relationships. The complexities required to do this are beyond what most companies have in terms of systems and practices. Procurement, often the gate-keeper of such information, will have to champion the change.
Joe Sutton is Global Director of Global Sourcing for Eli Lilly and Company’s Development and Manufacturing Organizations and past President of the Drug, Chemical & Associated Technologies Association (DCAT). Mr. Sutton has been an active DCAT event participant since 2000 and joined DCAT’s Supply Management Committee in 2011. He was appointed chairperson of the Supply Management Committee for 2013-2014 and served on the Advisory Council of the Board of Directors from 2010-2013. He is Past President of DCAT, having served from 2017 to 2018. He currently serves as a member of DCAT’s Board of Directors.