by Erin Warner Guill on Oct 21, 2024 2:39:59 PM
Why is it so hard to manage work orders and change orders supporting CMC spend? (05:40)
Tyler: CMC work orders are drastically more in number than clinical spend. This is because CMC spans preclinical to commercial, consistently creating new work orders as you progress through trials.
If you have multiple assets, that means even more work orders. The quantity creates larger Excel workbooks and challenges getting vendor estimates or internal estimates from tech ops. It’s harder to manage when the quantity is larger than other accrual areas.
Erin: Since you've built these Excel workbooks, how do you think about workbook configuration for managing work orders? How do you ensure completeness around the latest work order across vendors?
Tyler: Great question. I first gather all original contracts and vendors on the CMC side, create separate tabs for each, and parse budgets per the work order into Excel. From there, it's about managing and maintaining budgets in Excel, which brings us to change orders.
The number of work orders and change orders per work order makes managing them cumbersome. When you have 20+ tabs in an Excel file during a close window, accuracy and completeness become a challenge.
Erin: One thing we've seen—I'm not sure if you've seen it—is tech ops or procurement receiving change orders. Have you seen accounting and finance struggle with even knowing a change order exists, and how do they confirm it for one of hundreds of work orders?
Tyler: Absolutely. One of the biggest challenges is department communication regarding change orders. Tech ops teams manage manufacturing, stability time points, etc. Getting those change orders in a timely manner is a real challenge, and one of the biggest hassles in maintaining Excel workbooks is knowing whether you need to update, getting the change orders, and doing that timely.
Erin: How do you decide internally to incorporate a change order based on your close window or access to information?
Tyler: Great question. Many companies I've worked with have set thresholds for including change orders. For instance, if a change order is below $5,000 or $10,000, it may not be added to save time during the close. The challenge is reconciling data later in a trial or CMC contract. As you rush, you may not document every change order included or not. When reconciling at the end, discrepancies may arise. I've always found it best to include everything. However, it may not make sense for a $1,500 change order when there’s $60 million of CMC spend. That’s the challenge with the quantity of change orders.
What are the pros and cons of having either 1 or many GL account codes? (11:22)
Tyler: Going back to the variability in tracking CMC spend, we see instances where companies use one CMC expense account. A single account simplifies the AP process and creates simpler accrual journal entries. However, you lose detail on budget and expense tracking—can’t understand drug substance development versus stability, materials versus manufacturing. Multiple GL codes give more insight into where your money is being spent. That in turn helps you forecast at a more granular level as well as, more insight when it comes time to doing your budget.
It's not uncommon to see invoices with hundreds of different lines related to CMC spend, and those activities have to be categorized into the different GL account codes by an AP team, which can be manual time consuming and create risk for, having expenses categorized into incorrect accounts. Additionally, it takes longer to create journal entries during month-end due to the multiple expense accounts involved.
Erin: As COO, I added a con to single GL codes—potentially hampering auditability and traceability. This led to a debate, and I’ll defer to Tyler.
Tyler: Yeah. When I think about auditability and traceability, having worked with various customers with audit readiness work, IPO readiness work, it all came down to cleanliness of bookkeeping, documentation, and reconciliation around material balance sheet accounts and adequate support for the P&L. So thinking about a single GL code, to me, as long as there was clean bookkeeping, clean account reconciliations, it was never a problem. However, it became a problem if there was messy bookkeeping.
That in turn made it easier to dig into those variances and discover why items weren't reconciling when you had multiple GL account codes. However, with the multiple GL account codes, I found there was greater risk involved for messy bookkeeping because of everything we talked about where it complicates the AP process, invoice categorization, etc.
So I see the argument for both from an auditability and traceability standpoint, but ultimately, it goes down to what makes the most sense for a company and how are they going to have clean and accurate books.
Erin: From our perspective, we see a spectrum—from single GL codes to 20+. There’s a lot of variability in the industry. Auxilius doesn’t tell you which to use but surfaces insights from the broader landscape.
How would you agree your workbook-to-work orders change orders if you leave out many small change orders from your workbook? (18:23)
Tyler: That was one of the biggest challenges when it came to reconciling at the end was, for the sake of saving time, there was a threshold whether or not they would be included in the workbook. So exactly as Erin alluded to, it was that trade off of, do we wanna add the $1,000 change order, spend the time to update the workbook, add it in for the accrual estimate purposes, or do we exclude it and save whatever amount of time that saved for each of those change orders.
In the moment, it makes life a lot easier to not include that from a materiality and a time-saving standpoint, but completely agree when it comes time to reconcile the total against purchase orders later on in the lifespan of a CMC contract, it's extremely challenging to do so.
I don't recommend it. I think it's best practice to include everything, but I do understand the argument for having thresholds and excluding if you're trying to complete a close in a small time window.
Erin: And then maybe, Tyler, you mentioned end-of-project program reconciliation as one of the places where you can agree the workbook. But I'm assuming in some cases, maybe it's a quarterly true-up where change orders are integrated in that case where you're talking about in the closed window only including change orders to a certain threshold. Is that fair?
Tyler: Absolutely.
Erin: From my experience on the CMC side, I've heard from many customers and potential customers that they struggle to get vendor estimates—not just due to timing but because vendors sometimes refuse to provide confirmation.
We've seen this with some of the larger CMC vendors. One thing I want to share is that, while I won't mention the vendor by name, I can confidently say many companies work with them. They've told different companies different things about providing vendor confirmation files.
We like to share this information with our customers on a vendor-by-vendor basis. We've seen that this information is available, tracked internally, and shared. I believe this will help the industry by promoting vendor accountability and transparency through sharing what we consistently receive from vendors.
Tyler, any thoughts? What are some, you know, pitfalls or opportunities with either or both of the sources.
Tyler: Yeah. I agree with everything said. Starting first with vendor confirmations, I found that with CMC compared to clinical, I think everyone knows the challenges of getting the clinical vendor estimates timely for a close. CMC was oftentimes a greater challenge, either not receiving a response or not getting it in the appropriate time window.
So in turn, we would rely on that internal estimate. However, when you're using both, I completely agree with the comment that it is a lot of work to reconcile the two datasets. It requires collaboration between accounting and tech ops teams.
And oftentimes, it can be challenging to find schedules that work during that closed window in order to reconcile the two datasets. On the flip side with the internal estimates, one of the challenges that I found was just the hassle of having to constantly true up for a change in prior period estimates. For example, something that I was constantly dealing with was, okay, there's a manufacturing batch, and we're gonna say it's fifty percent complete as of September 30.
And then come time to do it again for the October close, and the tech ops team would inform me that it was thirty percent complete. And it's like, hold on. Last month, we said fifty percent, and so it was constantly having to then add in a true-up because we had better data now. And so it's not that it was just wrong. It was we now have better information to back the support behind that estimate, which would create more work from a true-up standpoint for material items such as manufacturing spend, materials cost, etc.
About Auxilius (25:05)
Auxilius is an R&D finance and accounting platform that complements biopharmas's existing ERP and clinical toolsets to manage the complexities of R&D spend. Our end-to-end platform includes dynamic forecasting based on clinical data, a full translation layer for investigator spend, and financial close automation for complete and accurate accruals. The platform ingests data from various sources to streamline expense estimates and journal entries.
Auxilius now supports over 60 customers, with more than 80% being publicly traded biotechs and biopharma. We’re proud to be SOC 1 Type 2 and SOC 2 Type 2 compliant.
While Auxilius's core product focuses on clinical trials and clinical accruals, we have also expanded platform to address the same needs around CMC accounting. We also have an investigator invoice reconciliation service launching soon.
Regarding CMC, Auxilius is developing an enhanced workflow that simplifies work order and change order management, providing a single source of truth for finance and operations and improving cross-functional collaboration.
If you are new to Auxilius and facing challenges in managing clinical or CMC spend, we'd be happy to connect and share more about how our platform can help.