Stall Out in R&D Outsourcing - Pharmaceutical Technology

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Stall Out in R&D Outsourcing
An industry survey finds that pharma's outsourcing practices keep the industry from reaping the full benefits of outsourcing.

Pharmaceutical Technology

Indeed, while the expenditures on contract services by major pharmaceutical companies continue to grow, companies have been slow to develop the infrastructure to support effective external sourcing. I was talking recently with a strategic sourcing director at a major pharmaceutical company. The role of his team is to support the sourcing activities in the company with "big-picture" analysis of issues like supply-and-demand conditions, development of the supplier base, and risk scenarios. He complained that the sourcing teams are very focused on managing transactions with existing suppliers and spend little time thinking about long-term strategic issues that could lead to more effective results from sourcing practices.

Pharmaceutical companies seem to be moving in the right direction, but it will take more time. True outsourcing, the relinquishing of control, as Hintze defines it, is most often embraced only as part of a desperate effort to turn around a company's performance. This was true in the automotive industry, and it is evident in the efforts of some major pharmaceutical companies to respond to major pipeline and market reversals. Executives at Pfizer (New York) and Merck (Whitehouse Station, NJ), for instance, have made public commitments to outsource more of their basic activities, and their efforts to flatten their organizations by culling out layers of management will lessen the resistance to developing effective outsourcing relationships. We also are seeing pharmaceutical companies and CROs experiment with models that incorporate more performance-based incentives, especially as more functional outsourcing relationships are developed (i.e., arrangements whereby companies outsource an entire functional process such as data management to an external service provider).

It's taking some time, but pharmaceutical companies are beginning to appreciate that giving up some control can lead to much better outcomes.

Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905,


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