Contract manufacturing in the global era

Juzer Pendi

Contract manufacturing or loan-license manufacturing has become increasingly popular since the early nineties. Surplus labour costs, labour union problems have led to the re-structuring and downsizing of many organisations and prompting many companies to adapt contract manufacturing as a basic mechanism for labour adjustment strategies in India and even developed economies.

If one surveys the history of contract manufacturing, it started in India as early as the sixties. Subsequently, many leading companies were turning to small-scale manufacturers to gain excise exemption and other benefits. Against this, the government started exercising restrictions on these practices and the organised manufacturers had to start building their own capacities. However, it was only in the seventies, when labour costs were escalating, that contract manufacturing was back in vogue and continued to gain popularity in the nineties and the new millennium. C Kaluskar who is General Manager (Operations) in Sandoz comments, "Contract manufacturing is a business decision for the purpose of cost-effectiveness, logistics, convenience and tax-benefits. However, one has to ensure that contract manufacturing is as competitive as the in-house facility of the manufacturer."

The pharmaceutical industry faces many challenges. They are at the crossroads of maintaining a traditional healthcare system and adapt itself to the fast changing environment. This means the industry has to strive to meet the norms of the countries for which they wish to they manufacture their products. They have to establish certain standards and the documentation requirements of that country to which they are exporting their products. Thus one has to comply with local FDA guidelines and also build one's own in-house specifications as per current cGMP guidelines so as to satisfy the audits carried out by international agencies. Kaluskar says, “Our organisation has got its own milestones, whenever we opt for contract manufacturing. As far as operations are concerned, we ensure that all operational procedures are well-defined with reference to audit functions with commercial aspects unconsidered and modus-operandi for all technical operations well understood."

When an organised manufacturer produces a standard product, he invests heavily in creating a brand name, stability and price. Once, the product meets his turnover, and he has to combat the mounting expenses, overheads, labour problems in his organisation. Because of certain government norms, he is unable to increase the price. At this stage, he thinks of passing on this product to the contract manufacturer. An organised manufacturer has to spend a considerable amount of time and send his own staff to refurbish their equipment, train their staff and go in to trial production until they are satisfied with the quality of the product. Companies stated that, they consider many factors before giving their product to a contract manufacturer. Kaluskar continues, "If we are unable to find a suitable contract manufacturer, we may even go to the extent of striking a partnership and do some vendor development for enrichment of understanding cGMP."

In spite of all the assurances, given by the multinational, a lot of scepticism has crept in to the views on contract manufacturing. Most of production personnel deputed in these plants have always commented that they have been unable to exercise the same controls as they could have in their own parent company. Obviously, one cannot feel at home while staying in a relative's house, no matter what the level of comfort provided by one's relative. While, most of these units are controlled by small-time manufacturers who are absolute miserly in their dealings, whether the purpose is for GMP or providing some benefit to their own staff. This is because, in the end the quality of the product, that enters the market affects the reputation of the company remains in the hands of the shop-floor staff/workers on the shop floor. If, one is unable to motivate them to give a certain quality and standard of products, then it is very likely that the quality is bound to suffer in the end. Many of these companies go to the extent of not paying regular salaries to their staff. In one such company, staff was played salary, once in two months. Unfortunately, in a country like India, a person has many liabilities and thus has to undergo harassment on account of his circumstances. In many of these units, a person has had to work for more than 24 hours at stretch because of lack of sufficient staff. The owner-directors are not ready to offer any compensation to motivate these personnel. Thus, most of the personnel acquire experience and look for better prospects abroad, which eventually cause the so-called brain drain. Year after year, thousands of pharmacy graduates leave the portals of college with high expectations of getting a job in a multinational company, but unfortunately, their dreams remain in the pipeline only. Very few of them are lucky enough to acquire a job in an MNC, but majority of them end up at the mercy of these minor ruthless contract manufacturers.

GMP has been the talk of the day in the modern era. Today most of the companies including the minor contract manufacturers have moved to the remote areas of Himachal Pradesh, Sikkim to gain certain tax benefits. The question is—do these units have the required infrastructure, facilities, work force availability as is present in the major cities such as Delhi and Bombay. Many of the blue chip companies have even got their products manufactured on contract from these companies based in these remote areas. For instance, if a company has its plant in an area such as Himachal Pradesh then, it may have to get some machine parts or sufficiently skilled personnel to attend to their machines from New Delhi. This obviously would create a production loss or may lead to poor quality of the product. This happens in spite of the fact that, many of the companies do a lot of additional stocking to prevent these unfortunate mishaps, but certain lacunae are still unavoidable.

Contract manufacturing has come to stay; hence, many of the multinational and blue chip companies would have to plan organised production from these units. Like some MNCs, it may be advisable for some of these blue-chip companies to strike a partnership with some of the small scale contract manufacturers and be committed to understanding the enrichment of GMP and technical aspects of discipline. As is prevalent, many of these organised manufacturers are concentrating on product development, innovation, un-earthling new molecules and clinical trials. Gradually, with proper government support one may find that the standard of the contract manufacturer also improves and people are no longer victims of circumstances.

(The author is a pharma professional)