Q: Why should pharmaceutical companies consider outsourcing laboratory services, particularly in today’s uncertain economic times?
A: Driving cost savings and achieving a competitive advantage are critical within the pharmaceutical industry, and even more so during a volatile economic climate. For many pharmaceutical companies, outsourcing laboratory services such as analytical chemistry, microbiology, stability, storage and testing is an attractive business strategy to reduce costs. . Also, outsourcing early stage discovery and drug development services is becoming more popular. These services typically entail evaluating the in vitro ADME-Tox properties of drug candidates or performing chemistry manufacturing and control (CMC), which includes pre-formulation and formulation services to characterize drug molecule physicochemical properties.
Also gaining ground is outsourcing as a competitive strategy rather than an excess-work/low-labor tactic. Fueling this philosophical shift is recognition that outsourcing of non-core activities can help companies maximize their internal resources, increasing the quality of products and services they offer. This change in focus – from non-core competencies to adopting best practices around the quality of their products and services –enables companies to leverage internal resources more effectively for maximum return and strengthen their competitive position.
Q: What are some of the quantitative benefits of outsourcing laboratory testing services?
A: Strategic outsourcing can deliver multiple benefits – both in terms of cost savings and expertise. Outsourcing enables companies to capitalize on the economies of scale developed by their supplier, whose volume of business translates to lower resources costs. With outsourcing, companies can convert fixed costs to variable ones and avoid continually investing in, maintaining and upgrading expensive test equipment. Overhead is often reduced as well, since organizations tend to underestimate the costs associated with ongoing management of internal headcount.
Q: Are there qualitative benefits that are not so easily measured?
A: Yes, it’s important to recognize that some opportunity costs do not translate directly into dollar savings, yet still positively contribute to the company’s bottom line. For example, outsourcing allows firms to focus energies on core competencies, resulting in better utilization of internal resources. . Outsourcing can also strengthen competitive position by enabling companies to take advantage of the best suppliers and their specialized expertise. The expanded technical expertise from an outsourcing partner allows companies to tap the deepest industry knowledge and experience. This is especially important for the life sciences industry, where companies must comply with stringent regulatory requirements, government approvals and compliance standards—all while striving to bring life-saving products to market quickly.
Q: Which factors must a pharmaceutical company weigh when making the decision to outsource – or not?
A: The process involves strategic and analytical decision making, based on several factors. First, companies must identify their core competencies - those activities or processes which enable them to provide unique value to their customers. Core competencies should never be outsourced because they comprise the foundation of an organization’s competitive advantage.
Second, internal reviews should focus on which activities and processes make the most sense to outsource. Activities that require the least supervision and design usually are prime candidates, as are outsourcing laboratory tests that fit the core competency of the supplier partner. Some firms will outsource work such as process or method development, since the outsource partner usually has a wider knowledge of methodologies.
When deciding to outsource, the third consideration is to evaluate external market conditions including efficiency, costs and competition. And last but not least, companies must conduct a thorough cost and opportunity analysis, comparing the expense of managing the outsourcing partnership with that of handling the task in-house.
Q: Calculating the financial ramifications of investing in incremental labor vs. the costs of outsourcing seems challenging. Are there tools that can simplify this time-consuming step?
A: In fact, there are. An analytical tool, such as the Celsis Workload Assessment Model, can help companies to evaluate alternate scenarios and make informed, timely decisions. Based on input – such as current in-house test capacity, anticipated test volumes, costs associated with incremental headcount and variable in-house test costs -- this model can identify when the volume or frequency of testing grows beyond in-house testing capacity. It can also compare the new hire cost-per-test to the outsourced cost-per-test, based on the cost of new employees and higher volume impact on the organization. In addition, it calculates annualized savings.
Q: What sort of information can companies glean from a workload assessment model?
A: A workload assessment model provides valuable and versatile information for managing costs related to outsourcing. It can help pharmaceutical companies:
- budget properly for labor requirements
- manage new project workload activity
- promote proactive management by performing volume-based “what if” scenarios
- identify cost savings available through outsourcing
- serve as a benchmark to justify headcount requirements
Q: What’s the next step for pharmaceutical companies that have made the decision to outsource laboratory services?
A: Once the decision has been made to outsource, the challenge then becomes who to select as the ideal partner. First and foremost, companies should look for a relationship, not simply a supplier. Even though specific requirements may vary by company, the ideal outsourcing partner provides high quality services, every time, along with superior customer service. In fact, the partner should not only have its own highly controlled quality system, but also welcome its customers’ quality assurance audit processes.
In addition, companies should seek out outsourcing partners that provide indepth technical and scientific proficiency, which is a result of performing the same testing services on a regular basis. This honed expertise enables testing staff to more quickly interpret results, leading to faster throughput, as compared to internal staff that may only encounter certain tests sporadically.
Q: In closing, what’s the key to a successful outsourcing strategy?
A: The true value in strategic outsourcing lies in the ability to cost-effectively expand resources for pharmaceutical companies seeking to manage a profusion of workload testing deadlines within budget constraints – and without sacrificing quality. Reaching this value depends greatly on determining which operations to outsource and identifying the best partner with whom to collaborate.
About the Author
Tina M. Sturgill is the Senior Director of Biological Sciences and Director of Site Operations for Celsis Analytical Services in St. Louis, Missouri. Experienced in microbiological testing procedures for pharmaceuticals and consumer products, Ms. Sturgill works closely with manufacturers and their contract service providers to develop and validate client methods for raw materials, inprocess and finished goods testing. Ms. Sturgill has spoken extensively on a range of microbiological issues including consumer safety, changes to the USP, and environmental monitoring.