Outsourcing is a common practice in both private and public organisations and is a major element in business strategy. Contract manufacturing is a type of outsourcing which means that a company agrees upon making a contract with another company in order to carry out various business operations. It is more likely performed in the industries like pharmaceuticals, food manufacturing, computer components, electronic contract manufacturing, personal care and hygiene products, automotive parts and medical supplies. Contract manufacturing is used as a popular business strategy for ensuring growth and survival in the market.
Nowadays there is a trend of handing over or delivering business processes to third parties as companies become increasingly interdependent. Companies can avail of the benefits of higher profits and reduced costs. According to research carried out by Deloitte Consulting Outsourcing Study (2005), the majority of the respondents claimed that cost saving is the most crucial consideration in outsourcing decisions. Pharmaceutical companies have reached the conclusion that contract manufacturing is essential as they are unable to perform all operations in-house.
Contract manufacturing is also a powerful strategy for companies striving for competitive advantage. The United States has been the world’s largest pharmaceutical contract manufacturing market but now there is an increasing demand for contract services in Asia. China, India and Singapore have shown a significant growth rate in pharmaceutical contract manufacturing as they offer high cost-saving and revenue growth opportunities.
In order to flourish and survive in today’s competitive global marketplace, firms are increasingly focusing on their core competencies and outsourcing functions in which they possess no expertise. This helps to maintain effective cost structures and to improve profitability.
However, a major risk in contract manufacturing is the lack of control as companies increasingly hand over core processes to outsourcing companies. In short, these companies surrender control over production process which can lead to quality problems.
