Evaluate and select contract manufacturers CDMO's

Important aspects in the supply chain are flexibility in orders and the lead time of products. 

For example, think about this:

• What requirements do you or your customers have?
• Are you often forced to shorten delivery times by air freight?
• Do you need a supplier who can also deliver small batches promptly?
• Do you tend to work in an area where sales volumes hardly vary over the year and production can, in principle, be planned well and reliably over several months?
• Does your product have a long and easy shelf life (e.g. without special climate control)?

You normally achieve flexibility and high delivery speed by sourcing geographically close. That means in this case it is better to produce in Europe than on another continent. Production in China or India is of course possible, but for this you need a relatively long planning horizon, stable demand and good and cheap storage facilities.

To explain this train of thought in a practical way, we will use an example from the fast fashion industry.

The fashion industry,the fast fashion segment impresses with a particularly sophisticated supply chain. No more than four weeks pass between the product idea and the first production at the top companies. The front-runner, which is based in Spain, does not produce in Bangladesh or China, but in Europe.

Fast production locations in this case are Spain (geographical proximity), Romania, Bulgaria and Italy. The pure production costs are somewhat higher in Europe, but the "time to market" is much shorter. This means that the investment pays off much faster.

Applied to the pharmaceutical industry, this means that if you have a product that is subject to relatively strong seasonal fluctuations in demand and for which you have to track stock levels in relatively tight grids, you need fast and reliable suppliers. Here, a supplier in the geographical vicinity is often the right solution.

If your product can be produced in large batches with constant demand throughout the year, you do not need geographical proximity. In this case, the Far East can be a good alternative to reduce costs.

Support by the contract manufacturer

Rarely are products transferred without adjustments. Usually, small adjustments in technology and analytics are required, as well as adjustments for new raw material sources and adaptations to the new production facilities.

We therefore advise you to always rely on contract manufacturers who can offer you quick and solid support. For this, you do not need to have a complete development department at your disposal. However, planned processes should always run in a regulated manner and be documented in detail in order to carry out such adjustments.

In our experience, adjustments to raw materials, manufacturing processes and analytics are always necessary. A fast partner is worth its weight in gold here!

If you do not have such a service, you block your own resources with the development of a product that is actually outsourced. In your cost accounting you see the favourable manufacturing costs, but the own resources that are blocked by this development service are lost in your general costs. In the worst case, this can lead to a completely wrong assessment of the manufacturing costs of your products.

The support costs and intensity of the contract manufacturer are also significant factors for the costs during the product life cycle.

Finance

Is your contract manufacturer the owner or tenant of the property or production facilities? Is there free (production) space?

Do you need to expand your production (in the future), perhaps requiring a new building? Then you should attach very high importance to this point, because if there is no more space, they may then face a move and the corresponding validation costs.

You should ask yourself the following question about the financial health of your potential contract manufacturer: Is your future manufacturer in the black, i.e. has he earned money in the last five years and also (visibly) invested some of it in the company?

To answer this question, it is extremely worthwhile to read the notices on the notice board during your tour of the company. Here you can find out everything about the latest strikes, failed wage negotiations, social programmes for redundant workers or quality calls for certain productions. All this gives you valuable information about what is happening on a day-to-day basis at your future contract manufacturer. Does this information match the picture you are given in the interviews?

It is also worthwhile to find out about the ownership of your CMO. Investment funds usually invest with a time horizon of a few years. After that, they sell and possibly reallocate.

In this case, you could find yourself in a relatively short time with a new owner who may not be interested in continuing your production at all. As a result, you would have to move again and face the considerable costs of doing so.

Try to look at the annual reports for the last five years to assess whether the contract manufacturer has enough resources for continuous investment. Does this data match the investments you see in the company itself or the information shown to them?

If you have any further questions, please do not hesitate to contact us. Please feel free to contact us!