Openings for Outsourcing

Where does the pharmaceutical industry stand in the shift toward outsourcing of manufacturing? Why is there such debate about using contract manufacturers and bulk supply?

The share of outsourcing has been traditionally modest in the pharmaceutical industry, generally comprising between 20 and 40% of cost-of-goods-sold (COGS). This figure is dwarfed by those observed in other industries (see Fig. 1), such as automotive and aerospace and consumer electronics. In the toys and sporting goods category, the share of outsourcing can approach the 100% threshold. Major companies such as Adidas, Puma or Reebok operate a de facto virtual manufacturing model, entirely outsourcing their production so they can focus on product design and marketing.

The same virtual model has been adopted by fast-moving consumer goods companies such as Sara Lee, which has divested its manufacturing network. So why is there such a gap between the share of outsourcing noted amongst pharmaceutical companies and most other industries?