Outsourcing Options

Outsourcing of pharmaceutical development and manufacturing processes has been a constantly growing business segment for a couple of years now, in the area of investigational product supply as well as in commercial production. While the pharmaceutical industry faces a decline in their product pipelines and expiring patents, it has started to concentrate on marketing and sales alongside research and development activities, and has begun to intensify outsourcing of all other processes. With tactical or short-term outsourcing still the predominant tendency, sponsor companies mainly gain only from short-term benefits. As speed to market is one of the crucial factors for the future prospects of pharmaceutical companies, a combination of strategic and tactical outsourcing provides the means to overcome existing challenges.

Subcontracting a process, such as product design or manufacturing, to a third-party company has been observed since the 1960s, when technologically simple manufacturing processes such as production of clothes were transferred to contract manufacturers in Asia. Outsourcing became part of the business lexicon during the 1980s, when companies like General Motors or Eastman Kodak started outsourcing their IT processes and structures (1). Often driven by cost restrictions, outsourcing was publicly linked to job transfer and job destruction, thus superseding efforts to make better use of time and energy costs, or to make more efficient use of labour, capital, (information) technology and resources.

Outsourcing may seem difficult, especially for more complex processes, such as those in the pharmaceutical supply chain. Looking at the inherent conflict of interest in any outsourcing arrangement, getting better service at lower costs versus the vendor’s target to make profit, a successful outcome for both client and vendor strongly depends on the management and co-operation abilities of both parties.

This paper will therefore focus on the conditions that pharmaceutical companies are facing today, and when and how outsourcing could be a useful tool to respond to current and future challenges.