Trust Builds Contract Packaging Partnerships
As pharmaceutical and medical device companies focus on their strengths, they are learning to trust contract packagers to add additional value to their products.
by Annie Lubinsky, Managing Editor
Industry experts agree that outsourcing as a whole is expanding and that the practice of using contract packagers is also on the rise. Changes in packaging machinery and in the relationships between contract packagers and their customers are creating a promising new way of doing business.
Last year's Customer Purchasing Plans Study, carried out by the Packaging Machinery Manufacturers Institute (PMMI; Arlington, VA), revealed that 36% of the companies surveyed planned to begin to use or to increase their use of contract packagers. This information led PMMI to debut the Outsourcing Resource Pavilion at the Pack Expo Las Vegas 99 show in October. The Pavilion, as well as other resources for contract packaging, will continue to grow as the need for contract packaging grows.
This year's study reveals that the trend toward using contract packagers is still strong. The PMMI Purchasing Plans Study says that in 1999, "53.4% of the sample's companies use one or more contract packagers for a portion of their packaging requirements. Although the proportion was down slightly from 55.6% recorded in 1998, the trend nevertheless appears to favor an increase in the near term." In addition, the study shows that 17.5% of the companies plan to increase the amount of packaging they contract out. Most of the respondents—73.5%—expect their use of contract packagers to remain about the same.
Photo courtesy of Packaging Coordinators Inc. (Philadelphia).
While these statistics show that contract packaging is already thriving, other sources say that the field is only at the beginning stages of tremendous growth. A report published by Arthur D. Little (Cambridge, MA) titled "Getting Ahead of the Outsourcing Curve" states: "Outsourcing remains grossly underdeveloped in the field of
Is outsourcing for packaging "grossly underdeveloped"? And is there a "perceived lack of credible suppliers"? If these assertions are true, the situation is changing rapidly for the better, according to experts.
"Underdeveloped? Absolutely," says Bill Pflaum, executive director of the Contract Packaging Association. "Pharmaceutical and medical packaging equipment has evolved to the point where it works so fast that it is not necessary for a pharmaceutical company to run the machines 365 days a year to achieve a year's supply of product. And if you don't have full utilization of the machines, it may be better to outsource. Furthermore, in the pharmaceutical industry, contract packagers have a full complement of the machinery and capabilities that a pharmaceutical company can expect in its own factory. As companies look to downsize and economize, they are also outsourcing. Contract packaging is no longer just a purchasing option for pharmaceutical and medical companies; now there are full-time personnel to handle contract packaging for these companies. The field of contract packaging is beginning a big change."
"The pharmaceutical industry in particular is in its infancy in outsourcing," says Jim Botkin, president of Sharp Corp. (Conshohocken, PA), a provider of contract packaging and related services. "But for contract services as a whole, times are good and getting better."
|Current Use of Contract Packagers and Expected 1999 Use|
|Status||Percent of Total Sample||Will Increase or Begin Use in 1999||Will Decrease or End Use in 1999.||Will Continue as Current in 1999||Total|
|*Percentages with asterisk in the "Total" row represent the average of the total sample's intentions in 1999. The percentages above the totals represent the intentions of either those currently using contract packagers or those not using them. For that reason, the percentages of the second, third, and fourth columns cannot be added.
Source: 1999 PMMI Purchasing Plans Study
As for the perceived lack of credible suppliers, Botkin says that as pharmaceutical and medical device companies grow to trust contract packagers, this "perceived lack" will diminish. "Our industry is based on trust," says Botkin. "Companies are beginning to focus on their core competencies. Pharmaceutical companies see themselves as very competent in research and in marketing. For anything in between—such as packaging—they are learning to rely on and trust other companies."
Dan Gerner, president of Packaging Coordinators Inc. (Philadelphia), agrees. "By outsourcing as their businesses grow, they can save their own resources and put them to better use in research and development of other products," he says.
Further evidence that contract packaging is on the rise is the evolution of the relationship between contract packagers and their customers: in the past, pharmaceutical companies used contract packagers as needed for short-term packaging projects; now, long-term relationships are being created as companies learn to rely on each other to produce the best possible product for the end-user. "As contract packagers enhance trust, the relationships evolve from a short-term supply mentality to long-term partnering," says Botkin. "Instead of providing only physician samples of a new product, the contract packager now becomes the sole source of that product in the market." In the last three years, Sharp has doubled the number of long-term partnerships it has arranged and has taken part in.
Pflaum agrees that partnerships are increasing. "The relationships have changed from corporations saying to contract packagers, 'We're going to get the most out of you for the lowest price possible' to 'We have a partnership in which we will work together to provide the best possible product to the customer.' Some contract packagers work so closely with their customers that they say they are everything but on the payroll," says Pflaum.
Another change is that pharmaceutical companies are looking not only at the quality of the product, but also at the quality of services offered by contract packagers. They are asking questions such as, "Can the contract packager produce a good product and offer help in compliance with regulations?" According to Botkin, a company expects a contract packager to have a high level of commitment to quality, to employ a competent and highly qualified staff, to keep up with innovations in technology, and to create an excellent product. These characteristics have become more important than price to many of their customers.
"Our goal is to be an extension of the customer's plant," says Gerner. "In order to accomplish this, we have to do what they need when they need it. You can always find someone to do the work at a lower price per thousand, but companies are now looking at the total cost." In the long run, they are finding that a contract packager that is committed to excellence and high-quality service creates a lower total cost than one that aims for low price only.
A growing sense of trust will continue to expand the role of the contract packager. Trust will eliminate the perception that there is a lack of qualified packagers; trust will build long-term partnerships between contract packagers and their customers; and trust will allow each company to focus on its strengths.