Reasons for facilities-management outsourcing
The observations in this article are based on the authors' experience with the client assignments listed in Table II. Some companies in Table II are now in their second- or third-generation facility management outsourcing initiatives. These
pharmaceutical companies are US- and EU-based companies, and outsourcing initiatives are within the pharmaceutical industry,
and more specifically within plant manufacturing environments.
Table II: Example client assignments in facilities-management outsourcing.
A facility-management outsourcing strategy typically starts with a US initiative, quickly followed by a second wave of implementation
targeting manufacturing sites (if not in the first wave) or new geographies (e.g., EU or Asia). The first key finding is that
pharmaceutical companies are expanding facility management outsourcing initiatives both geographically and functionally across
divisions, indicating an increasing rate of adoption of the outsourced facility-management model.
The companies represented in Table II pursued the facility-management initiative for serveral key reasons:
- Facility management services are noncore services, which are business critical nonetheless, especially within the plant environment.
- Most of these services are managed locally under prescriptive, task-based contracts that lack modern day contractual provisions
for continuous productivity, scalability, and performance guarantees.
- The number of contracts can be in the thousands, thereby impeding scale, efficiency, and market leverage.
- Suppliers are delivering savings by bringing a new operating model to pharmaceuticals; savings are increasing due to market
maturity and scale.
- Process inconsistency and variance in practices across sites result in disparate financial and operational performance that
outsourcing can address.
- Aging workforce demographics and headcount constraints make outsourcing an attractive option.
Consideration of these factors has prompted large pharmaceutical companies to launch initiatives in this area. Companies such
as Pfizer, Merck, Amgen, J&J, Novartis, Eli Lilly, and others have pursued leveraged facilities-managment outsourcing. RFP
results show the economic benefits of outsourcing where savings across five-year contract terms are averaging between 15%-19%.
In addition, these results are consistently strong across North America, Europe, and Asia. Even companies in the third generation
of facility-management contracts continue to see efficiencies. Financial gains across generations of contracts are in large
part due to the maturing of the supplier market, cultural adoption of outsourcing, and stronger governance structure and processes;
these factors further enhance the leveraged outsourced model. For example, in a third-generation contract case, a client added
significant cGMP vessel maintenance work to scope. Another third-generation customer added laboratory support services to
scope where they found new sources of efficiencies. The latter resulted in a shift of work from a scientific-services provider
to a facilities-management provider.
The six pharmaceutical companies profiled in this article represent a five-year total contract value of more than $6.5 billion.
Efficiency gains resulted in net present value (NPV) calculations of several hundred million dollars for these companies.
Based on savings and NPV impact, the second key finding is that facilities management outsourcing has become a key efficiency
lever. This lever, when applied across the network of manufacturing plants, and research and office campuses and sites can
present a compelling value proposition. While the portfolio level savings are consistently high, plant-specific business cases
can vary considerably. The observed variance in site-specific business cases suggests that the operating model is scale-dependent
in terms of reliably predicting an efficient outcome from the effort: a small, localized pilot effort across a handful of
sites is unlikely to consistently match the effort produced by broader-scale outsourcing initiatives. Savings come from several
sources for pharmaceutical clients: standardized processes, leveraged contracts, application of technology, cross-functional
deployment of labor, management, and overhead scale efficiencies.