Outsourcing: Managing Your Contractor Relationship—A Smart Investment - Outsourcing operations can help preserve capital, focus resources, and manage business risk. - BioPharm International


Outsourcing: Managing Your Contractor Relationship—A Smart Investment
Outsourcing operations can help preserve capital, focus resources, and manage business risk.

BioPharm International
Volume 20, Issue 8

For some companies, launching a new product is an even larger issue, as budget expectations were set in advance for the entire product launch. After the requirements are understood and defined it can be difficult to revisit and redefine the level of resources required to manage an outsourced model. Some companies have a set amount of funds allocated to a product. so in order to increase the resources allocated to managing the outsourced model, another area will need to decrease their resources.


Life sciences companies often place a much higher value on mitigating risk than on avoiding cost. With many products offering dramatic and even life-saving treatment, patient impact in terms of either poor product quality or inability to supply the market has a much larger consequence than most cost saving activities.

Companies need to avoid operating in a manner inconsistent with the priorities established in the strategic sourcing decision. If the objective is to manage cost through outsourcing, the organization should allocate enough resources to be able to effectively track and manage the costs generated by outsourcing. On the other hand, if the objective is trying to manage risk of execution by outsourcing, resources should be planned and allocated to help ensure that the risk is mitigated.


Early recognition of management requirements and proper investment in supply capabilities are needed to prevent problems with supply chain management. If a company is producing its first commercial product, it should assign the necessary experts and supply chain managers early in the process. For example, a strategic sourcing manager should be in place before major sourcing decisions are made. And an experienced CMO manager should be appointed before selecting the commercial CMO(s), negotiating contracts for commercial production, and possibly even before beginning clinical trial production.

For larger companies, transitioning operations outside of the organization does not mean that all of the manufacturing jobs should disappear. A number of individuals should remain as technical experts and as relationship managers. It is often helpful to think of managing your partner in terms of key performance indicators, and to ensure that the company retains the talent required to assess the outsourced company on these metrics. As the outsourcing model will be specific to each company and product situation, the level of management required will vary as well, and a careful examination of situational factors will be necessary. For instance, the management level for a long manufacturing lead time, expensive, unstable API will be much greater than it will be for a common, readily available API, even though both may be produced with the same outsourced partner, or by using a similar supply chain model. For example, the first API may require process specialists that can work through quality issues, such as causes and solutions; the second API may require only a business resource that monitors supplier performance on a quarterly basis.

Experience in what it takes to manage an outsourced manufacturing capability is important for establishing the resource level, tools, and business processes that will be required. Based on this experience, an understanding of how the outsourced model operates day-to-day is important.

  • Will there be a frequent need to manage the supply chain schedule?
  • Is there a complex relationship between the capacities of the different stages of the supply chain?
  • How will the different pieces of the supply chain relate to each other?
  • Where is the most risk to the product within the supply chain?

After answering these types of questions, one can start to develop a plan for when and which resources should be hired, as well as defining the appropriate business processes and required tools, such as planning or purchasing software.

For example, after manufacturing internally for some time, a company's facilities are nearing capacity. As new products move through development, the company is considering outsourcing the manufacture of its existing commercial product to make room for the internal manufacturing of a the pipeline drug. In this way, it is making a deliberate decision to focus its resources on managing the highly uncertain scale-up and launch of its products, and working out the manufacturing issues. It will be able to make a clean technical transfer to its outsourced manufacturing partner, and then be able to keep its next drug close by. This is attractive for this particular company, since it already has the technical expertise in-house for working through manufacturing development issues.

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