Outsourcing is the act of reassigning some of the business activities and decision-making abilities to another firm who specializes in performing those respective activities (Chase et al., 2004). Outsourcing is a phenomenon which is catching up really fast across the globe primarily because of the advantages it is bound to offer.
Focusing on core competencies helps businesses to grow
Outsourcing services are evolving as an industry in itself and it encompasses possibilities. The primary compelling factors that motivate the firms to outsource is the attainability of economic trade-off and ability to focus on core competencies. Prahlad and Hamel, (1990) opined that focus on core competencies is a significant factor for long-term sustainability and profitability. However, on the contrary, Momme (2002) analysed outsourcing from the managerial implications and took lack of control on the outsourced activities as a major concern for the business.
Indian pharmaceutical industry
Indian Pharmaceutical industry is a booming sector. With the global players outsourcing their business functions like research and development and production to Indian companies, logistics has evolved as an essential element in this industry. With Indian pharmaceutical industry growing both domestically and globally, companies are looking at optimizing the logistic function in terms of productivity and cost. 3PL services offer a wide variety of innovative solutions especially customized to meet the demands of the pharmaceutical industry (Rakesh Rao, 2008). The major factors that motivate pharmaceutical companies to outsource are:
- Overall cost savings.
- Flexible/variable pricing (not fixed/dedicated resources).
- Access to a broad pool of competent, trained personnel.
- Continued and early access to state-of-the-art technologies and processes.
- Rapid standardization or globalization (www.morganlewis.com).
3PL outsourcing is in its primitive stage in India and is developing with a great momentum. According to CRISIL, a leading and independent research organization of India, the revenues of 3PL services in India are expected to grow at a compounded annual growth rate (CAGR) of 27% to Rs.190-195 billion in 2014-2015 from Rs.57 – 60 billion in 2009-2010 (www.crisil.com).
In dynamically changing business scenario and intensifying globalization, the companies are enjoying long-term sustainability, profitability and better focus on core competent business practices and shed the burden of secondary and even critical activities to subsidiaries or other firms who specialize in those activities by way of business process outsourcing. Hence, the alliance between 3PL firms and pharmaceutical firms has tremendous potential and will surely sustain for a very long time.
- Chase, R.B., Jacobs, F.R., and Aquilano, N.J. (2004). Operations Management for Competitive Advantage. 10th Ed. Boston: Mcgrow- Hill.
- CRISIL, India [online] Available at: http://www.crisil.com/pdf/research/CRISIL-Research-cust-bulletin_dec10.pdf [Accessed 30 December 2011]
- Momme, J. (2002).Framework for outsourcing manufacturing: Strategic and Operational implications. Computers in Industry. 49, Pp 59-75.
- Morgan Lewis, n.d. Emerging Life sciences Companies [pdf] Available at: http://www.morganlewis.com/documents/erh/ERH_OutsourcingInThePharmaceuticalIndustry_ELSCDeskbook.pdf [Accessed 30 December 2011]
- Prahalad, C.K., and Hamel, G., (1990). The Core Competence of the Corporation. Harvard Business Review. 68 (3). Pp. 79-92.
- Rao, R. (2008) “Logistic en route; What’s your next move?” [online] Available at: http://www.blumberg-advisor.com/Portals/60526/pdf/cover_story-mph_april-may_08.pdf [Accessed 30 December 2011]