Smart Outsourcing: Strategic Alignment, Risk Management, and New Relationships

Outsourcing decisions should be made to foster potential long-term strategic partnerships.
Mar 02, 2012

Outsourcing in the pharmaceutical industry, until recently, has been largely confined to commercial manufacturing, packaging, and support for clinical trials. The industry is rapidly changing; companies are facing rising costs, a fast evolving global market, and weak pipelines. Many companies are outsourcing activities that have historically been kept in house, freeing themselves to concentrate on their core competencies and become more agile in responding to changing conditions. These new outsourcing models include discovery and R&D, regulatory, chemistry and manufacturing controls (CMC) support, and back office sales and marketing activities—virtually no activity is out of bounds. Instead of building or acquiring specialized technologies and facilities, many companies are seeking access to them elsewhere.

Smart outsourcing provides the following operational and business benefits:

  • Reduced operating costs and greater return on investment (ROI)
  • Shorter time to market through faster accesses to increased capacity, new technologies, specialized facilities, intellectual property (IP), and expertise
  • More efficient use of critical internal resources (e.g., human and facilities)
  • Avoidance of large expenditures to bring new or expanded capabilities in house as well as the cost of staffing those capabilities
  • Increased velocity and flexibility in responding to rapidly changing global markets.

To reap the full rewards of outsourcing over the long term and significantly enhance shareholder value, however, companies need to take a comprehensive approach. Companies that adopt a smart outsourcing strategy include:

  • Pursuing outsourcing in the context of an end-to-end, global supply chain strategy that is directly aligned with the company's strategic business goals
  • Managing outsourcing as part of a continuing, mutually beneficial, long-term strategic partnership
  • Assessing and effectively managing the increased risk that comes with more extensive and diverse outsourcing.

Companies can use outside expertise to help carry out such an approach. This article outlines the benefits of using a third party in strategic outsourcing.

Leveraging external expertise

Effective use of outside experts who have the requisite industry-specific technical, quality and compliance, operational, and business experience can provide an invaluable, independent source of perspective, methodologies, and tools to help ensure the best decisions are made each step of the way. Experts can help to tightly align outsourcing strategies with a company's strategic business and supply chain plans, re-affirm core competencies, and make informed recommendations regarding which current outsourcing needs represent the highest ROIs and competitive advantages going forward.

The right consulting partner can give advice on how best to support these strategies with ongoing operational excellence and risk-management programs, as well as develop and maintain highly effective and mutually beneficial strategic relationships with prospective outsource providers. But whether a company engages external advisors or not, the company will need to be able to skillfully blend strategy, risk management, and a new mindset and approach to outsourcing partnerships to remain competitive in today's, and tomorrow's, rapidly changing and increasingly challenging global markets.

A new kind of partnership

The effective selection, qualification, and management of outsource partners begins with the way one thinks about those partners, no matter what the nature of the partnership (e.g., innovatorCMO or innovator-to-innovator). Short-term thinking about outsourcing as a stopgap measure or commodity solution to operational needs based largely on cost or capacity must be replaced by thoughtful and robust evaluations of both the current and future benefits of developing long-range strategic partnerships that deliver flexibility and value to both parties involved.

Consider not only what outsource partners can provide in the near term, but also what they may be able to do as the relationship grows. Long-term strategic partnerships can have substantial benefits to each of the outsource partners in revenue, capacity planning, and potential access to new technologies and markets.

For example, consider that two large pharmaceutical companies enter into mutually beneficial, long-term (>10 years) strategic relationships. These are innovator-to-innovator partnerships that are based on a progressive schedule of mutual exploration and cooperation. Among their short- and long-term goals are the use of each other's available capacity and specialized facilities, technical and scientific information-sharing, and potentially, the codevelopment of future products and technologies.

Maintaining such long-term, strategic partnerships requires a significant shift in thinking and organizational culture on both sides—from a purely transactional relationship to one of shared planning, shared risk, and collaboration.

This shift requires developing and nurturing a highly cooperative working relationship that incorporates trust, a shared vision, open communication, and a dedication to quality, timeliness, compliance, and continuous improvement.

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