How Contract Manufacturing work

How does Contract Manufacturing work?

As part of contract manufacturing companies in Mexico, the customer provides the contractor with all the technical conditions and the materials necessary for the production process (if necessary). The contract specifies the requirements for product quality, certification, quantity, conditions, and delivery dates, which the contractor must fulfill. The contract also contains instructions for conducting inspections and testing products approved by the customer who hires this contractor.
Because the process is primarily outsourced to a partner in a foreign market who privately trademarks the finished product, many companies and industries are interested in such contracts.
We will discuss the critical details that need to be considered in contract manufacturing. Particular attention will be paid to an aspect rarely covered in numerous articles published on this topic. The aspect of interest to us is related to the management of changes in any production process, the control of testing, and the overall management carried out by both parties in contract manufacturing.

Contract Manufacturing Agreement

To minimize the risks associated with contract manufacturing, it is recommended to conclude a contract manufacturing contract. The terms and conditions of such an agreement depend on the specific country; they consider the norms of local legislation governing the conclusion of standard contract manufacturing agreements. In fact, the legislation will not be the same if you contract manufacturing companies in Mexico or in China.Contract Manufacturing Agreement

Based on a contract manufacturing agreement, the contractor is reimbursed for the cost of full-load production, plus profit is paid (determined in each specific case separately). The contract assumes that in the relationship between the parties, the guarantor has all the rights to intellectual property related to the product and the production process.

This standard document includes a distribution of risks between the parties, which corresponds to the distribution of risks in a typical contract manufacturing relationship, as well as an obligation of the client to indemnify the contractor from liability and indemnify him for any loss and damage in connection with the implementation of the production activity.

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Content of the contract manufacturing contract

The contract manufacturing agreement should include the following sections:

  • purpose and essential information;
  • products to be produced and special requirements for the production process;
  • budgeting conditions, payment mechanisms, and reconciliation of settlements;
  • territory;
  • buying the production materials;
  • assistance in termination of the contract;
  • conclusion of subcontracts and assignment of rights;
  • provisions relating to the notification of the parties;
  • dispute resolution, jurisdiction, and arbitration;
  • other provisions (for example, confidentiality, force majeure circumstances).

Key Elements Of Contract Manufacturing

Key Elements Of Contract ManufacturingIn addition to the general business requirements that need to be taken into account in the relationship between the customer and the contractor and which were given in the previous section, compliance with the current rules for the organization of production and quality control of medicines is an additional and necessary condition for the implementation of contract manufacturing activities of medicines. “Types of activities outsourced” of the EU Rules for the organization of production and quality control of medicinal products. To obtain a registration certificate and sell their products, the customer and contractor must comply with the current rules for organizing medicines' production and quality control.
Selecting a contractor that properly complies with current drug manufacturing and quality control regulations is the right decision to avoid the adverse effects.

Among other things, the following aspects should be considered critical elements related to contract to manufacture:

  • quality agreement;
  • compliance with the rules of the production process;
  • supplier audit;
  • release of manufactured products;
  • documentation and records;
  • cleaning validation ;
  • change management.

These fundamental elements must be clearly defined, agreed upon, and controlled to avoid misunderstandings that can lead to substandard products. Below is a more detailed description of these critical elements.

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Quality agreement

quality-control agreementThe quality agreement(Aerospace Quality Engineering) specifies the minimum requirements for the partner's quality management system. It defines the rights and obligations regarding the quality assurance of any product to be supplied.
The quality agreement should clearly state who performs each step of the outsourced activity: knowledge management, technology transfer, supply chain, subcontracting, quality assurance and material procurement, material inspection and release, production execution, and quality control (including process control, sampling, and analysis).

Compliance with the rules of the production process

The basic principle is to ensure the quality, efficacy, distinctiveness, and safety of products for the subsequent protection of both the customer and the manufacturer. Thus, adherence to the fundamental principles of the production process is essential to ensure the characteristics mentioned above and for the timely delivery of the finished product by the contractor to his customers. Compliance with the rules of the production process includes the following:

  • production time;
  • the number of materials produced;
  • loading of production capacities;
  • overall equipment efficiency;
  • production schedule;
  • system availability.

Supplier audit

As a subcontractor, the contractor is subject to audit by the customer. It checks if the contractor is producing products following quality standards.
One of the most common ways to conduct an audit is to check the sufficiency and compliance of processes with a checklist given by the customer.
Review past audits and pay attention to possible problem areas identified during the last audit (if any) to take appropriate corrective actions.
During the audit, it is necessary to consult the checklist and have a notebook with you to enter detailed records of the audit results.

For a thorough analysis, at least three product lots should be selected that are characterized by the following parameters:

  • Traceability of all components or materials used in such lots.
  • Document raw materials or components, technological processes, and inspections of finished products from these batches.
  • Storage and distribution records, as such records may be used for possible subsequent product recalls.

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Output of manufactured products

Batch release of manufactured products is a mandatory requirement to ensure the high quality of products intended for use, sale, supply, or export. Analytical expertise of product batches includes chemical, physical and biological testing.
The customer provides permission to release batches of products for commercial use. The customer's quality management system should clearly state how the quality of each batch of products will be confirmed by the appropriate authorized person and his responsibility.

Documentation and records

outsourcing manufacturingRecord keeping is critical in compliance with the rules of the production and quality control of medicines. It ensures the traceability of any activity related to development, production, and testing. Documentation allows auditors to evaluate the overall quality of operations carried out in the company, as well as the quality of the final product.
All records relating to outsourced activities, such as production, analysis, and distribution of products, as well as test samples, must be kept by the customer or be available to him at any time. Any records relating to the evaluation of product quality in the event of any claims or possible defects or in connection with the investigation of any case of suspected product counterfeiting must be available and indicated in the relevant procedures of the customer.

Cleaning validation

Cleaning is critical in contract manufacturing activities because they use multi-purpose manufacturing facilities and equipment. Cleaning validation can be particularly challenging for both the customer and implementing partners. In any case, the contractor should demonstrate cleaning performance, and a cleaning validation plan should be discussed and agreed upon. Such a document should mention the following activities:

  • assessment of equipment and products;
  • assessment of the impact of other production processes on the processes under the contract; if the processes under the contract have already been processed and validated within the grouping, then no further validation is required;
  • determination of suitable cleaning agents and methods of cleaning;
  • identification of residues (waste), including cleaning agents that need to be tested in terms of solubility, toxicity, etc., and documentation of an acceptable solution;
  • definition of acceptance criteria for residues (waste), including cleaning products;
  • development of sampling methods, such as plugging and washing, as well as methods for removing residues (waste);
  • development of analytical methods for determining the nature of residues (waste) resulting from plugging and washing, for example, methods of visible residues, total carbon concentration in organic compounds, HPLC;
  • drawing up and approval of the validation protocol;
  • conducting validation studies according to the protocol;
  • drawing up and approving a validation protocol containing a description of studies, conclusions, and recommendations.

Change management process

process-managementMany critical areas, as a rule, are covered to a full extent by the client company and manufacturing contractors.
When choosing a contractor, the client company focuses on various essential points identified in the previous sections. The contract between the client company and the contractor may be valid for several months or years. Risks that are little talked about in articles on contract manufacturing are those associated with making changes.
It makes sense to divide such changes into small and large ones and create a strategy for appropriately implementing such changes. For example, small changes can be implemented by giving the client appropriate notification, but significant changes must be pre-approved by the customer before they are implemented in practice.

Docshipper Tip: DocShipper has written for you another article to Help You Manage Supply Chain Risk effectively and choose the right strategy. If you have any questions about contract manufacturing, don’t hesitate to contact our experts.

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