Outsourcing Virtually Everything: Making the Semi-Virtual Model Work - How an extreme outsourcing structure can continue to produce results over the long term - BioPharm International

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Outsourcing Virtually Everything: Making the Semi-Virtual Model Work
How an extreme outsourcing structure can continue to produce results over the long term


BioPharm International



Figure 1. In the virtual-company model every link on the value-added chain can be open to the outside world. Adapted from Dr. Gene Slowinskis book, Reinventing Corporate Growth, 2005.
In the model adopted by Endo, every link on the value-added chain can be open to the outside world (see Figure 1). The company determined early on that to be successful in the tough world of lower-cost marketing and sales programs in the smaller markets that are treated by narrow specialties of physicians, it would have to employ a full-time, dedicated sales force as a core capability. But in all other areas, Endo's employees would become project management specialists, managing the drug development, manufacturing, and distribution process through the use of multiple, specialized outsourcing service providers.

Building Your Own Specialized Outsource Partner

For distribution, Endo doesn't own a single warehouse or shipping pallet, or employ any customer service telephone representatives. It relies completely on UPS Supply Chain Solutions to distribute its new and existing products to market. Unfortunately for Endo, it wasn't able to just step into a smoothly running turnkey operation. In 1997, few specialized outsourcing service providers in the distribution area were equipped to grow the shipment volume of highly regulated opioid pain therapies that the company began operations with after its management buyout.

Daniel J. Carbery, an executive who came on board at Endo in its early days and who is now the senior VP of operations, stepped up to the challenge. He developed a supply chain that had incredible restrictions because of its special governmental requirements for close monitoring of narcotic drugs all along the supply chain. At the same time, Carbery had to figure out a way for Endo not to stray from its semi-virtual model. The new company needed a way to track orders, monitor outgoing shipments, and get paid for its products. It also needed real-time contact with its customers in the retail pharmacy, wholesaler, and physician market spaces. For some of its products, Endo needed a flexible storage and transportation system that could house and ship injectables in a cold chain environment. "We knew what we wanted, but there were no companies with both full-service systems and adequate flexibility available," says Carbery. "So, we worked with UPS Supply Chain Solutions to create a flexible, scalable, and highly integrated distribution system," recalls Carbery. "We couldn't afford to internalize or recreate such an operation on our own. And the reality is that we didn't want to."

Everything in a semi-virtual company is tied to flexibility—the ability to rapidly scale up and down in response to changing business circumstances. Endo's complex supply chain is designed to suit its need to retain maximum scalability in the event of serendipitous in-licensing deals, which can suddenly drop the company into new markets with new product introductions. Carbery describes his semi-fixed system arrangement with UPS that assures scalability, "You've heard of playing in the same sandbox as someone else? We rent our own 'sandbox' from UPS. It's a dedicated space where our product orders are fulfilled, products are picked, packed, and labeled, and all documents are recorded."

To make it all work, Carbery says he consciously has brought in a very different kind of operations employee group into Endo. He screened his hires to have an alliance-engaged mindset about making little differentiation between own-company employees (very few) and extended partner virtual employees (hundreds). His group speaks with UPS employees frequently and involves UPS in its preparations for new product introductions.


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