From a practical standpoint, the theoretical
payoff is usually not compatible with existing financial and timing constraints.
A company may choose to partner with
one specific vendor for certain aspects of
product manufacture. Usually, this is a contractual relationship, and the risk is shared
so that outcome is equally important to
both parties. The vendor who participates
in this type of business relationship has a
keen interest in seeing the project through
to a successful conclusion, and payment is
at least partially contingent on a successful
outcome. While this strategy can be very
successful, it is severely limiting in terms of
scope, capabilities, and frequently, capacity.
Ideal partners for one stage of the product
development process may not be optimal
for later stages of the outsourcing process.
Furthermore, external factors affecting one
of the partners in a negative manner will often affect the partnership as a whole.
PRINCIPAL VENDOR MODEL
The company uses one principal outsourcing vendor with the understanding
that vendor will be further outsourcing
parts of the project to others. The principal
vendor is still the supplier of record and
is the responsible party for due diligence
and compliance with regulations. This is
a somewhat complex arrangement, and it
effectively places all outsourcing requirements (contracted and sub-contracted) into
the hands of personnel who may be inexperienced with project management arrangements involving third parties. Significant
attention is allotted to the principal contract work and sub-contracted efforts may
suffer due to a lack of experience and/or an
absence of long-term client-vendor relationships.
PROJECT MANAGEMENT MODEL
In this model, a firm hires a company to
provide project management services for
the project being outsourced. The Project
Manager (PM) does not conduct the actual
physical manufacturing within their own
facilities. Instead, the PM provides access
to a specialized network of suppliers with
whom it maintains established relation-
VENDOR COMPETITOR MODEL
In this model, multiple vendors with
similar capabilities compete for business.
Vendor selection is generally based on time
and cost, although cost is frequently the
overriding factor. Many start ups think multiple vendors will drive costs down. Usually
the opposite applies. Many potentially good
vendors drop out of bid requests that have
too many participants. When they perceive
poor odds of winning the bid, they do not
want to waste time and money preparing
one. Even the successful bidder may not be
the best choice if their low cost comes with
inadequate support and incentive to properly support the project.
PRE-QUALIFIED VENDOR SELECTION
Many companies maintain extensive data
on past and present suppliers, with details
of capabilities and performance levels.
Companies may use an outsourcing department to assure an appropriate match for a
particular project can be made with regard
to a potential supplier’s capabilities, past
performance, and business model. If not on
record, this information can also be generated on a case by case basis for evaluation
purposes. Most pharmaceutical companies
pre-qualify potential suppliers and set up
preferred provider relationships, pre-de-fining outsourcing strategies for particular
areas within the company. This model typically works well, but it is costly in terms
of manpower and economic expenditures.
surements for confirmation of substantive
differences/similarities of target compounds,
or identify trace contaminants and elucidate
impurity profiles. A start-up needs this work
performed expeditiously to maximize future
income within their limited patent life.
The objective of any start-up is to commercialize its technology in the shortest
amount of time and as cost-effectively as
possible. Any lost time is irreplaceable as a
start-up risks burning through existing funds.
Even if successful, the time to profit under
patent protection increases with each minute
the technology remains non-commercial. As
mentioned, researchers and investors typically have little experience in effectively or
efficiently identifying, vetting and managing
production facilities (national/international);
sourcing raw materials; or locating specialized equipment and instrumentation. More
importantly, this is not their core competency, and they usually lack the in-house resources to do all of this. Since time is of the
essence, a hit or miss approach is not strategic. Instead, the optimal approach may be to
outsource commercialization requirements
to experienced specialists.
The most strategic reasons to outsource
are cost and time. Most companies would
not outsource if it were more expensive than
doing the same work in house. The key drivers for this cost differential, which can be
regarded as the underlying reasons for outsourcing, are access to production capacity
and facilities, access to expertise (regulatory,
scale-up, etc), reduced investment in capital
assets and fixed costs, access to reasonably
priced raw material supplies, and the ability
to stay focused on core competencies.
The advantages to outsourcing far outweigh any perceived disadvantages. In order to mitigate any loss of control over functions, it is important to ensure corporate
cultures mesh, processes are transparent,
communication is open, and performance
objectives are closely monitored.
There are various outsourcing models
which can be utilized depending on specific
need, company philosophy, and/or time and
financial constraints. We review several major ones below.
The objective of any
start-up is to commercialize
its technology in the
shortest amount of time
and as cost-effectively
as possible. Any lost time
is irreplaceable as a
start-up risks burning
through existing funds.