Thinking Outside the Box: 7 Drivers Behind Life Sciences Outsourcing

Whether from medical devices, pharmaceutical manufacturing, or another life sciences subvertical, if you speak with an executive about his or her organization’s top challenges, there’s no doubt you’ll hear about supplier collaboration and outsourcing. Along with innovation, working with partners and suppliers is what’s giving many life sciences organizations a head up among competition.

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There’s just one thing about outsourced relationships, though—leveraging them in an effective and compliant way in 2014 is much easier said than done. Although this business model continues to pervade life sciences R&D and production environments, many have yet to make the right changes to leadership and culture, processes, technology, and performance metrics for assuring it’s done right.

In this post, we’ll look into some of the drivers behind why organizations are taking advantage of partnerships and outsourcing today, and then we’ll dive into what can be done to turn the effective management of these relationships into your organization’s differentiator.

Why Collaborate in 2014?

There’s generally no one particular reason why life sciences organizations are making use of upstream relationships today. Rather, there’s often a number of well-thought out and strategic drivers behind the decision to do so. Below, we’ll get into the main drivers for life sciences outsourcing and collaboration we’re hearing from executives:

1. Combating shrinking operating margins

As more entrants continue to come into the life sciences competitive market, operating margins have been shrinking accordingly. This means organizations are searching for any way possible to cut costs while maintaining quality and meeting compliance. Outsourcing is enabling companies to execute development or production activities externally, where it may be more cost-effective.

2. Focusing on core business

Life sciences companies are driven by innovation, and in many cases R&D is the central focus of the business. Consider a scenario where your competitive advantage may be in drug development. In this instance, it may be optimal to outsource manufacturing rather than building up your own robust production capabilities. The opposite may be true for an organization with a competitive advantage in pharmaceutical manufacturing.

3. Leveraging external expertise

Because there’s such a focus on innovation in life sciences, organizations are constantly working to develop new and better products but are often limited to the expertise available in-house. Outsourcing, along with modern collaboration technology, is helping to overcome this, transcending those constraints and facilitating the connection of experts around the globe.

4. Sharing risk with partners

Whether it’s moving into a new market or developing a new product, not every endeavor in the life sciences industry is a “sure thing.” Many organizations partner with or outsource to other organizations to mitigate and share risk for a particular business activity. This idea of risk-sharing may be motivated by regulations, new product introductions, or new market opportunities.

5. Attempting to improve time-to-market

While a lot of focus is on innovation and cost in life sciences, you’d be hard pressed to find an executive who isn’t interested in time-to-market. An organization may have the greatest product or improvement to an existing product on the planet, but it’s critical for it to be delivered in a timely manner. Outsourcing can help expedite time-to-market by bringing together external expertise, additional production capabilities, and so on.

6. Gaining access to new or emerging markets

With the rise of developing nations around the globe, although there’s often market opportunity it doesn’t always make sense to build an entire arm of your organization in that country or region. Outsourcing provides life sciences companies the opportunity to quickly expand into new or emerging markets.

7. Increasing production capacity

Greater demand for your product is a good thing, right? Sure, as long as you have the production capacity or a contingency plan for delivering on that demand. Outsourcing allows life sciences companies to take advantage of contract manufacturers or other resources in the instance that you outpace your own internal capacity.

Turning these Relationships into a Competitive Advantage

While it makes sense in many cases to outsource, the question remains whether or not organizations are ready to do so in a compliant and effective way in 2014. Our research has shown a number of changes which need to be made across key resources to make these relationships work now and into the future.

Tomorrow, LNS Research’s President & Principal Analyst, Matthew Littlefield, is participating in webinar on this very topic. At 11a.m. EST, Littlefield will be discussing these challenges more in depth, and how traditional strategies and capabilities are becoming less and less viable with the rise of the outsourced business model. More information can be found below.