Business Environment in Contract Manufacturing

Be Prepared !

07.12.2006 Even if business is going well: It is a cardinal mistake to rely on it staying that way in all eternity. The world is in a constant state of flux – even the world of a contract manufacturer. Constant awareness of developments and trends is essential. P+F asked contract manufacturers in the pharmaceutical, food, and cosmetics industries about their views on a number of important aspects – present and future.

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Generalist in a Niche

Most contract manufacturers view themselves as generalists who offer their customers a broad range of services, from product development via the actual manufacturing all the way to distribution. One of the basic requirements for successful contract manufacturing is maintenance of the price level dictated by the market, which in turn is directly dependent upon the technology employed. Another requirement is a convincing quality assurance concept. Flexibility is the name of the game for a contract manufacturer, even in the case of small lots. Even if a job comes at an inconvenient time, one will be reluctant to turn it down. After all, the new customer could become a regular because he was promptly served.

Matters are decided not only by the available technology and range of services tested in a trial production run at the start of a business relationship. The service provider should always show some degree of willingness to take a risk. According to Dr. Ulrich Nütz, Assistant Pharmaceutical Division Head at Impfstoffwerk Dessau-Tornau (IDT): “Not only flexibility in development and production are required, but also quick decisions in the case of necessary investment.” As a rule, this will pay off for the service provider if the customer is prepared to shoulder part of the risk. Various possibilities of refinancing are conceivable: for example, participation in the investment, the product price, or long-term contracts – at the end there is a valuable prize in the form of a satisfied long-term customer. Patrick de Vries, Head of Sales at BB med. product, knows from experience that a certain risk-taking mentality pays dividends: “A year ago, one of our customers was experiencing delivery problems with another manufacturer. We assured the customer that we could deliver the existing product within a few weeks although we did not have the necessary machinery. We were able to keep our promise.” In recognition, the level of business from that customer increased several-fold because additional contracts followed..
Peter Vollstedt, Head of Customer Centre at Systemkosmetik, sees a further important aspect: “The customer wishes to be served fast and flexibly. This already starts during business initiation – inquiries should be processed fast, and alternative approaches presented.” Regardless of the sector in which the contract manufacturer operates, his customer expects more than a mere customer-service provider relationship. If one aims to establish a kind of partnership, the chances of success are greater than if only the technical aspects are considered. This factor becomes particularly important in connection with the necessary documentation, and the larger the customer company is the more important it becomes. In matters of documentation the pharma and non-pharma sectors are getting closer and closer, quality standards are becoming more and more similar.
Many customers are insufficiently aware of constantly new and changing legislation and rely on the support of the contract manufacturer. “Total compliance with all legal requirements is extremely important in order that the customer can feel that he is in good hands”, according to de Vries.

Salvation in Niche Markets

Ernst Ehret, Managing Director of Breisgaumilch, parent company of Schwarzwaldmilch, summarises the situation: “Contract manufacturers set out to distinguish themselves through their flexibility, know-how, and variability of their plant, at a reasonable price-performance ratio.” Yet the price is one of those things; it is strongly dependent on the nature of the product and the lot size. Price wars are generally much more cut-throat in the case of large batches than for small ones. This is the reason why many contract manufacturers seek their salvation in niche markets, because the product price become less important in the case of specialisation – whether in the product or in technical expertise –because there are fewer possible competitors. Once the hurdle of price negotiations has been overcome, it is performance that counts.

In order to make the future safer, work continues on enhancing competence and extending niche areas. The contract manufacturer views himself as a “flexible problem solver”, who reacts quickly to customer demands. “We contract manufacturers have to cater even better for the wishes of our customers and accelerate business processes to ensure a good match with regard to product, service, and deadline”, according to Vollstedt. Suppliers must also be involved in this process optimisation. Suppliers who also participate in the process organisation of their customer can make a significant contribution to enhancing the efficiency of the entire process chain. This also concerns service and quality. In the future Vollstedt sees increasing pressure to optimise the supply chain in contract manufacturing – this is the only way to prepare for the future.

Germany as Industrial Location –A Lost Cause?

Being well prepared for the future is particularly important in view of the challenge from foreign competition. Opinions differ as to the gravity of this threat. While de Vries has no serious misgivings about Asian competition, at least in the case of special product lines and small production runs in the cosmetics sector, Vollstedt sees it as a very serious topic. The danger increases essentially with lot size for only there can the freight cost factor be neglected. One can also rely on quality, provided one goes to the necessary lengths – for example a binding quality management system and a consultant on-site who can also monitor production. And the Eastern European market should also be carefully observed because it is becoming increasingly important and the quality is usually respectable. Vaccine manufacturer Nütz knows of serious efforts of foreign competitors to invest not only in technology but also in quality: “Although such quality aspirations are still in their infancy, they should nevertheless be taken seriously.”

Patrick de Vries regards the increasing documentation and the demands emanating from Brussels more and more as an obligatory exercise than as a useful instrument. Products are repeatedly found on the market which do not comply with obligatory declaration requirements. Patrick de Vries knows that most customers value reliable documentation; however, the cost involved is often not regarded as a service by the customer. Be that as it may: Documentation is required by law and whoever fails to comply risks his future. On the whole, however, German-speaking countries have a good reputation. German products are known for their high quality, and Germany benefits from its favourable central position in Europe. “For many customers, geographical proximity remains an invaluable advantage, particularly in the case of development projects”, says Ernst Ehret. Further important assets are fast and problem-free communication, particularly when working against the clock, and flexible adaptation to changing production volumes.

Competition compels companies to internationalise, while globalisation increases price pressure. Companies that are not internationally oriented have only limited chances of success. Quality and appropriate high-performance plant used in optimised production processes are the key to survival in this market.

It is not only technology that is important; establishment of a partnership between customer and service provider is desirable

Heftausgabe: Compendium Customer Manufacturing 2006
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About the author

Birgit Lind , EditorLet us know your opinion!Mail: redaktion@pharma-food.de
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