Offshore manufacturing - not always the best option

By Kirsty Barnes

- Last updated on GMT

Related tags: Contract manufacturing, Pharmacology, Glaxosmithkline

Offshoring contract manufacturing is not the only option for large
pharma firms looking to drive productivity and efficiency gains in
drug manufacturing, warns a new report from independent market
analyst Datamonitor.

Once limited to basic active pharmaceutical ingredient (API) and intermediate production, the practice of contract manufacturing within the pharmaceutical industry is continuing to expand and globalise to low cost offshore destinations, as companies strive for more and more cost savings across the entire drug manufacturing spectrum.

India and China are already particularly popular offshore locations for outsourcing basic manufacturing functions, and as intellectual property protection and the operating environment in these countries improves over the next five to ten years, more complex and sensitive manufacturing requirements, such as on-patent API manufacturing, are expected to be moved to the region.

However, while offshoring entire manufacturing processes is an attractive cost-saving option, it is not always the best option and "companies should not overlook the other ways to extract the full value that contract manufacturing offers,"​ said the report, titled "Pharmaceutical Outsourcing Part 1: An Introduction to Contract Manufacturing Strategies."

Importantly, pharma firms should make sure they have in place a well-designed manufacturing strategy that complements the circumstances and requirements of the company as well as the nature of the project concerned.

"In particular, major pharma companies should look to use contract manufacturing strategically whenever possible - traditionally, contract manufacturing has been used tactically, but using it strategically offers more benefits,"​ the report said.

Tangible benefits would include time and cost savings and reduced upfront capital outlay.

Firms could achieve such benefits by streamlining their in-house manufacturing capabilities, while supplementing them with strategic contract manufacturing to drive additional efficiencies where needed, said the report.

"Furthermore, intangible benefits, such as financial and operational flexibility, access to expertise and an increased ability to focus on core competencies are usually fully extracted when contract manufacturing is used strategically."

At the same time, the risks associated with offshoring, such as loss of control and management over the project, confidentiality breaches and reduced opportunity to develop in-house expertise, are minimised, the report said.

Pharma giant GlaxoSmithKline (GSK) has already begun to follow such a strategy. Andrew Witty, director of Asia-Pacific Operations, GSK, was quoted back in 2002 saying: "The future of pharmaceutical manufacturing for us is a much smaller core network of factories than we have today."

"In the future we will have our own core network of fewer than a number of 120 factories and that will be supported by contract manufacturing."

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