The outsourcing of business processes is an unstoppable trend that is affecting all sectors of economic activity. It might be defined as follows: the performance by a third party of those business activities that are not part of their core business. By core activity we mean strategic activities that are a source of major competitive advantage for the company, which are the core of their business activity. Even if we can provide an accurate definition for strategic activities, each company defines differently what they consider likely to be outsourced. It depends largely on their corporate culture, whether it is a multinational or a family business, American, Japanese or European-based. Therefore, we find rivals competing in the same sector and with the same target customers, with a totally different level of outsourcing.
There is one or many reasons to outsource a business process:
– Improve costs (considering the overall cost structure of the process)
– Enhance control over the activity or process
– Simplify management (focusing on our strategic activities)
– Variabilize costs (fixed vs variable costs)
– Improve technologically
– Finance investments
– Flexibilize operation (responding to non-seasonality and peak sales)
– Increase the level of service (defining process indicators)
– Boost quality levels
Thus, outsourcing is an essential tool for growth, specialization, launch of new business units, or adaptation to technological change.
In addition to the reasons, it is important to define the level of outsourcing we intend to achieve. In this regard, we can define different levels of outsourcing depending on the objectives we pursue. In particular, we can define 3 levels of outsourcing with the following features:
1. Level 1 or low added value Outsourcing is the case where we subcontract peripheral tasks without added value for the company. We refer to ancillary activities such as cleaning, security, transport or courier services. Our aim is simply to avoid management problems and not get involved in an activity that does not bring us value. These are one-off contracts, very short-termed and without obligation of any kind.
2. Level 2 or average added value Outsourcing is the case where we subcontract activities and/or functions in order to improve the profitability of the activity. We will seek a reduction in the cost per unit and an improved service level. Here we no longer refer to peripheral activities, but to warehouse management, basic computer software, technical consulting, call centers and such. We will strive for a balance between the outsourcing contract cost and duration, within a time span of a year or longer.
3. Level 3 or high added value Outsourcing is the case where we externalize processes in order to reach full effectiveness and provide continuous added value for the subcontracting company, becoming a strategic tool for competitive advantage. In the outsourcing company we want to find an industrial partner to generate competitive advantage. In this case we talk about processes like dedicated warehouses, complete industrial processes, production and/or packaging lines, dedicated production plants and dedicated software among others. These are mid and long-term contracts with major investments.
The last important factor to define in outsourcing is where it is carried out, in premises outside the contracting company or in their facility. In many cases it may be more effective that the processes are outsourced on site, provided that the scope of the process is well-defined, as well as the ownership of the productive resources, stated with proper nouns, and other elements that need to be taken care of to make it a real outsourcing process.
Opportunities in the pharmaceutical sector
The pharmaceutical sector is an increasingly competitive sector, in which the cost and service pressure is growing. It is starting to experience the same scenario as other sectors, like the automotive, consumer electronics, and food industry. In these sectors outsourcing is a basic tool to endure market pressure. The challenge for laboratories and other companies in the industry is to manage their business processes like in these other more competitive sectors, applying their best business practices.
Outsourcing companies already working in other sectors can be a key tool for its accomplishment. In our case, at CTC Externalización SL we have extensive experience in business processes outsourcing in highly competitive sectors. Thus, we are using the models that operate in these functions in the pharmaceutical sector, where we now have several clients. Our current experience in the pharmaceutical industry includes outsourcing in the client premises (in-house projects) and also in our own facilities. Our modus operandi is similar in both cases. We apply a continuous improvement system in processes with management indicators, which results in an ongoing improvement of operations. This operating method allows for a continuous growth in the operations we manage, so that we get the most growth in our own clients, obtaining more and more business processes for them.
Other factors adding up to this approach to improving processes are our ISO certification in pharmaceutical warehouse management and an experienced qualified workforce in the sector.
In our view, outsourcing will be an important source of competitive advantage in the coming years for pharmaceutical companies who decide to use it, companies that understand its potential as an essential tool to generate competitive advantage over competitors, developing outsourcing processes with an increasingly high added value.