Smith's radical perspective on remaking the pharma supply chain no doubt reflects his experience outside the pharmaceutical industry. After starting his career at Wellcome Foundation (a predecessor company to GlaxoSmithKline), Smith held positions at consumer products companies, including Estee Lauder and Timberland. Those hyper-competitive industries depend on complex global supply chains incorporating far-flung contract manufacturing operations.
Basic supply considerations. Unit cost of goods, dependability of supply, and intellectual property protection are the most basic factors in making supply chain decisions. Costs are heavily impacted by the fixed cost nature of pharmaceutical manufacturing: the overhead of maintaining a facility's compliance with good manufacturing practices is largely the same regardless of the volume that runs through it. Unless a facility is to be closed or divested altogether, there is considerable pressure to put more products into it to absorb those fixed costs.
Financial considerations. A number of financial factors beyond direct manufacturing costs impact the supply decision. Corporate cash flow can be enhanced by shifting manufacturing to tax-advantaged locations or accepting the operating and capital investment subsidies offered in countries such as Ireland and Singapore. Exchange rate movements such as the current depreciation of the US dollar against the euro and other currencies, can shift cost advantage between manufacturing locations.
Regulatory considerations. Having a manufacturing or R&D operation in a particular country can ease regulatory approvals in that country, despite treaties establishing unified markets such as the European Union. Labor laws in many countries hinder the shutdown of noneconomic manufacturing facilities, causing companies to use in-house manufacturing assets that should really be shuttered.
Restructuring considerations. "Cost flexibility" is the new mantra of pharmaceutical executives, which usually translates into operations with fewer fixed costs. That development should favor contract manufacturers, but they often offset that advantage by insisting on "take-or-pay" agreements that limit their own downside.