There are several pros and cons of contract manufacturing for pharmaceutical companies. This article will review the benefits and drawbacks of contract manufacturing.
While discussing the pros and cons of contract manufacturing, the benefits or pros are discussed below:
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Benefits of Contract Manufacturing
Reduction of costs
Reduction of the costs is the main factor for which a pharmaceutical companies take contract manufacturing decision. As the products in most cases are very sophisticated and high tech, it needs research and development.
Therefore, pharmaceutical companies find it easy to outsource the manufacturing facilities to other low cost countries. Because the manufacturing facilities to foreign countries are very much efficient. If the company produce the products to those countries, production costs will reduce substantially. Therefore, every stakeholders will be benefited.
Helps to extensively conduct research and development
The second most important reason for outsourcing the manufacturing facility is for a specific focus. Research and development activities very much important in a pharmaceutical company because it takes years to develop a product. Therefore, if the manufacturing facilitates are sourced in other countries, the home company will get enough space to utilize all the concentration and time for research and product development.
Fast speed of manufacturing
Speed is another benefit of contract manufacturing for pharmaceutical companies. A dedicated manufacturing plant can deliver products more speedily than one which is not specialized in manufacturing and productions. Therefore, the lead time in the supply chain reduces.
Mutual benefit
Mutual benefit is another benefits of contract manufacturing. When the host company is given the deal to produce a specific consignment, then there will be job creation at the host country. On the other hand the company and the consumers both will be benefited by this contract.
Transfer of skills
Transfer of skills and technologies is another advantages of the contract manufacturing for the pharmaceutical companies. If the host country is given the contract to produce the products, then expert people, technologies. Skills are also transferred to the host countries. This improves the efficiency of the host countries. As a result, the whole community is benefited.
Economies of scale
There will be economies of scale in two places, one in the pharmaceuticals company. Another in the production process of the host country. There will be efficiency in the R&D because of the efficiency gained from repeating the same types of job. On the other hand, there will be efficiency in the manufacturing plant because of the bulk amount of production.
Problems with Contracts Manufacturing
While discussing the pros and cons of contract manufacturing, the drawbacks or cons are discussed below:
Loss of control
The most potential risks related with contract manufacturing for pharmaceuticals industry is that they may lose some level of control over the production operation. The manufacturing activities are conducted at the host countries. Thus, the home company may have some sorts of control over the production facilities. The control is not enough to make changes in the production facilities.
Concerns for quality
Concerns of quality is another issue that the pharmaceuticals companies should care for. As the manufacturing facilities are outsourced to other companies, they may hinder the quality of the products. Thus the home companies should take care of the issues so that there is no quality deterioration.
Violation of intellectual property
Violation of intellectual property rights by the contract manufacturers can be another vital risks for the company. As the formula and ways for production are given to the contract manufacturer. Thus, they may sell the formula to the other competitors which can dangerously affect the company. Moreover, the contract manufacturer may itself adopt the formula and technology and start the manufacturing and becomes a viable competitors of the home company.
Challenge with new culture
To cope up with the new culture can be difficult for employees from the home company. Pharmaceuticals Company sends employees to the host country for assistance to the contract manufacturers. But this can be a vital problem for the employee with the new culture, language and new environment.
Lack of flexibility and responsiveness
As the contract manufacturers are given contract, there is lack of responsiveness and flexibility over the production facility. Therefore, if there is a simple change in the production process, the company can’t make that change. The reason is that it doesn’t have control over the production facilities.