The world of outsourcing in the pharmaceutical and health technology sector is at a crossroads. Supply chain specialist and Lime Associates Client Director, James Cooper, outlines how things are changing and takes a look at why outsourcing to UK manufacturers is starting to look more and more appealing
During the past few decades, British manufacturing has endured an extended period of decline, and the pharmaceutical and health technology sector is no exception. Trading conditions have been tough. Underinvestment, ageing plants, the strength of sterling and the inability to compete with overseas manufacturers on price have seen inevitable plant closures and job losses. Those who haven’t faced up to the challenges have either folded or have seen manufacturing relocated to other sites in different countries.
The result of the decline in UK manufacturing is that, currently, when businesses in the pharma and health technology sector look to outsource, the vast majority turn to Europe, America and the Far East, driven by a desire to maximise cost savings. We’re now at a turning point, and with big political changes in Europe currently under way, the industry has the opportunity to become a real centre for manufacturing and outsourcing once again.
In 15 years spent as a buyer, I’ve visited hundreds of pharma manufacturing facilities around the world, ranging massively in terms of quality, age, facilities and conditions. Until recently, one of my recurring observations has been the relative age of manufacturing facilities in the UK, especially when compared with those in mainland Europe. Invariably, this has had a big knock-on impact on their ability to compete in the marketplace.
During the past few years, this seems to have changed. We’re seeing huge improvements in the quality and capability of UK manufacturing facilities, with firms making real efforts to drive efficiency through investment in personnel, technology and facilities. For example, this year, our firm was helping a client to source medical-grade primary packaging and circuit boards for a new medical device. Having visited prospective plants across the UK, North America and Europe, it was refreshing to see the technological improvements made by all the UK companies. As a result, these UK firms were able to compete directly with European companies, including those in low-cost regions such as Eastern Europe.
Outsourcing to any business, either domestically or overseas, comes with inherent risks. The moment any business chooses to outsource, it immediately hands over some element of control of the manufacturing process to another business — as well as the quality, safety and long-term viability of its products.
Although there are plenty of horror stories relating to low-cost overseas outsourcing programmes, they paint an unnecessarily bleak picture. With the right due diligence and careful selection of partners, there’s no reason why an overseas outsourcing programme shouldn’t be successful. However, the fact remains that there are several practical benefits to outsourcing to domestic manufacturers, and choosing to maintain operations in the UK can help to reduce the risk of things going wrong.
One key benefit of outsourcing to a domestic partner is the improved communication. With no language barrier or different time zones to worry about, working together is made much easier, with a reduced chance of unnecessary errors. Having a partner in close proximity makes it much easier to retain an element of control over the manufacturing company, and to keep a watchful eye on purchasing processes, suppliers and systems. When problems or questions do arise, the ability to speak with contacts in real-time can be invaluable. Following on from this, the ability to jump in a car and visit an outsourcing manufacturer at any time is equally useful.
James Cooper, Client Director, Lime Associates
Another benefit to choosing a domestic partner is that both parties are working under the same regulations, working conditions, industry standards, culture and business practices. This helps to reduce the chance of quality, safety and ethical problems arising.
More practical benefits include reduced lead times and the ability to receive smaller, more frequent deliveries of product. Of course, these advantages are nothing new. There have always been benefits to keeping an outsourcing programme close to home; but, in reality, the majority of outsourcing programmes are primarily driven by cost.
Cost will always be a key factor when choosing an outsourcing partner. In the competitive world of pharma and health technology, purchasing teams are judged by their ability to deliver headline savings and cheaper costs — sometimes without considering the impact on development costs, future quality issues and traceability.
Up until recently, UK companies struggled to compete financially, which has been a primary factor in the growth of overseas outsourcing. However, we’re now reaching a point where an increasing number of UK manufacturers are in a position to compete financially on unit price. This has been driven by a number of factors, including significant investment into manufacturing facilities and technology, alongside improvements to personnel training and development. Becoming more competitive on price is the single most important bargaining chip — making UK manufacturers significantly more attractive when bidding against competitors in Europe, North America and even many low-cost regions.
A current purchasing example from our business demonstrates the value of working with domestic partners, and something that many businesses working with overseas suppliers and outsourcing partners will be able to relate to. We have been helping a UK client to purchase electronic components from a new source in Eastern Europe for a new medical device. The project is time-sensitive and the product launch deadline is approaching fast. On paper, the Eastern European company looks good — they are competent and hold various accreditations for similar product developments.
After positive discussions with the company, we provided a specification and a purchase order for samples, but didn’t receive them. During phone calls with the company, the representatives seemed bright and enthusiastic, but the deadlines passed, and we only found out about issues behind the delays at milestone meetings. With this in mind, we decided to present an opportunity to a local (UK-based) supplier of these parts. They were given the design brief, a lead time and the instructions to let us know if they required our input. On a 3-month lead time for parts, they were able to turn samples around in 6 weeks.
The brief included our own expected lead times, stock holding and unit price expectations. As the process requires very little human intervention, they were able to provide us with lower quotes than the suppliers based in Eastern Europe. In addition to this, they have kept us informed at every step about what was happening and have been very proactive in arranging group reviews and site visits. As a result, we’re now on track to hit the product launch deadline.
During the next decade, the development of new manufacturing technology and increased process automation looks likely to have a further positive impact on UK manufacturers’ prospects in the global market. Increased personnel costs and higher wages in the UK have always had an impact on manufacturers’ ability to compete on price — especially when compared with low-cost regions such as Eastern Europe and Asia.
As the pharma manufacturing process becomes increasingly automated, and the amount of human intervention is reduced, the cost of manufacturing in the UK will fall even further compared with lower wage regions. This should make the UK significantly more competitive, and therefore more attractive to pharma companies looking to outsource.
At this stage, it isn’t possible to make any firm predictions about the impact of Brexit — but there is a strong possibility that it could provide a boost for UK pharma and health technology manufacturers in the medium-term. Sterling has weakened against the dollar and the Euro, which is good news for UK manufacturers looking to export. Should sterling continue to fall, or remain low against other major global currencies, then UK manufacturers will become more competitive on price … and more attractive to outsourcers.
The uncertainty surrounding Britain’s relationship with Europe and other trading partners is also likely to have an impact. We’re already seeing evidence of UK pharma businesses looking to ‘play it safe’ by choosing to outsource to domestic partners, rather than risking the potential impact of changing regulations and trade agreements by moving overseas.
The UK pharma manufacturing industry is in a stronger position than at any time in recent memory to become a hub for outsourcing, both domestically, and for overseas investment. Although times remain difficult for many, the opportunities are there, and future developments in technology and changes in the global political and business environment could deliver a bright future for the industry.