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Exploring Outsourcing—Challenges and Opportunities

By: Marie Alice Dibon, PharmD
Posted: June 5, 2009, from the June 2009 issue of GCI Magazine.

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Many times, there is simply a lack of due diligence.

Basic Considerations

Private label manufacturing is often less expensive than internal operations because internal manufacturing has high overhead. However, this doesn’t mean that you don’t have to pay a decent price for the service. In general, you get what you pay for. When it comes to costs, some companies will give a preliminary quote, others a firm contract. It is important to define what are the rules for operating. What exactly do you get for your money?

Quality is also something that can be defined. Auditing the private label manufacturer thoroughly is an essential step. Understanding its procedures, especially its quality system, will help you make a decision. And that is definitely linked to costs. If you don’t have the internal resources to conduct your own audit, hire someone. This step is not optional, it is paramount to the success of your dealings with this new partner. However, when it comes to quality, everyone needs to be reasonable.

“Often times, clients demand that you do things better than they do,” says McLarty. “They hold you to a higher standard than they hold their own people, but they want to pay less, trying to save money by outsourcing; that is impossible, unless they have very inefficient manufacturing.”

One thing to avoid, according to McLarty, is trying to save costs by outsourcing to companies that do not specifically manufacture beauty products. Manufacturers of household products, for example, do not have to meet standards expected for products intended for personal use, and work differently than cosmetic manufacturers—many of whom employ drug/pharma good manufacturing practices.

Agility: An Advantage If Understood

An additional advantage in outsourcing manufacturing is that these manufacturers are more agile than many in-house operations. They may not always be less expensive, but they will be faster.

Here again, discussing time frame very early on is a key point. Both sides need to know exactly what to expect. Understanding lead times and quality constraints will be a key to understanding delays.

Controls need to take place—it is in nobody’s best interest to ship things under quarantine, for example, to speed up the process. Working properly upstream and keeping a clean timeline throughout the entire process helps eliminate last minute, hurried decisions. Examples such as shipping product under quarantine seems far fetched, but it does, in fact, happen—but you’d be hard pressed in finding a manufacturer who has made this type of decision. As a word of caution, remember, if you are on the brand owner/buyer’s side and sign that order, the consequences, financial and legal, are yours. If the issues and responsibilities are understood, the creativity of outsourced R&D often holds a definite edge over in-house R&D. Therefore, finding good manufacturers with good in-house R&D is especially important.