Evaluating outsourcing partners' capability: a case study from the pharmaceutical supply chain

Abstract

Purpose -Many pharmaceutical companies outsource their research and development and manufacturing operations to value chain partners. Effective evaluation of outsourcees' capabilities and relationship management are often central for outsourcers to secure sustainable competitive advantage. This study aims to investigate how to evaluate outsourcees and manage outsourcing relationships in the pharmaceutical industry based on the theory of dynamic capability (DC). Design/methodology/approach -The investigation used an exploratory multiple case study approach. The data collection, spanning a period of 12 months, entailed a multinational pharmaceutical company (PharmCo) with its headquarters in Europe, and four contract research and manufacturing organizations from China and India. Findings -The results show that PharmCo evaluates its outsourcing partners based on their dynamic capabilities, which include processes (project deliverables, communication, and accuracy of costs), positions (financial assets, number of scientists, spectrum of services, and geographical presence), and paths (past experiences). The findings indicate that a pharmaceutical company outsources to partners with high operational capabilities, whereas it builds fully integrated outsourcing relationships only with those that have high dynamic capabilities. Practical implications -Findings from this study provide guidelines for practitioners in manufacturing industries to efficiently and effectively evaluate and manage outsourcees to deal with the challenges and risks associated with strategic outsourcing. Originality/value -The paper contributes to the literature by providing empirical evidence on the role of DC in outsourcee evaluation and outsourcing relationship management in the pharmaceutical industry. Moreover, the paper illustrates how to conceptualize and measure the DC as a multi-dimensional construct. The analysis also indicates that partners' dynamic and operational capabilities play different roles in outsourcing relationship management.

Sourcing from China: A Literature Review of Motivations, Outcomes, Problems, and Solutions

“…An improvement in technology leads to knowledgeable suppliers in China, which might be even more specialized than Western countries in certain fields (Gonzalez et al, 2006;Jia et al, 2014;Stringer et al, 2011). Referring back to an offshore strategy, the lead-time to the domestic Chinese market can be decreased significantly, which presents another important motivation (Jia et al, 2014;Zhang et al, 2013).…”

“…Out of 49 articles, 30 mention cost savings as a motivation. These cost savings are further specified in lower production, raw material, overhead and labor costs, for instance by Kumar, Medina and Nelson (2009b), Bygballe et al (2012), Lemoine (2010), Kamann and van Nieulande (2010), and Zhang et al (2013). According to Jia et al (2014, p. 290), who carried out case studies with 14 companies in Europe and North America, cost reductions represent a common motivation for all case companies, "however, in only four cases this represented the sole or main driver".…”

“…In particular, knowledge can be gathered in cooperation with the suppliers that enabled the company to focus on its core competencies (Zhang et al, 2013;Salmi, 2006;Bunyaratavej et al, 2008), and access to a new market could also be developed (Drayse, 2008;Dierks et al, 2013). Only a few authors state that profitability can be enhanced, even though it represents a major motivation when sourcing from China (Kang et al, 2012;Lin & Ma, 2012;Ni et al, 2009).…”

“…The aspect of lead-time is mentioned only mentioned in 3 out of the 49 articles (i.e. Jia et al, 2014;Wang et al, 2011;Zhang et al, 2013).…”

“…Thus it is crucial to implement extensive and regular communication processes (Zhang et al, 2013), including the exchange of ideas, recommendations and requirements (Schönherr et al, 2008;Salmi, 2006). In order to track quality and collaboration, thorough control mechanisms have to be in place (Sethi et al, 2011), and illicit behavior can be reduced by the introduction of formal structures .…”