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February 2022 marked my completing 47 years of working in Pharma Industry. Allah be praised. I am still working. My journey of near half century is also the journey of Pharma Industry in Pakistan. Great changes have occurred in this time and a lot could be written about it. In my blogs, which were started about four and a half years ago, I have covered several topics related to Pakistan Pharma Industry. This multi-part series shall do and review the SWOT – Strengths, Weaknesses, Opportunities, Threats – of the Pharma Industry.
It is now time to strategize, as this was the purpose of this long exercise.
Strategies are made on these parameters:
- Strategies based on Strengths
- Strategies to mitigate Weaknesses
- Strategies to exploit Opportunities
- Strategies to avert Threats
We shall follow the same line of thinking. We have completed Strategy Recommendations based on Strengths and Weaknesses.
Strategies to Exploit Opportunities
- Contract Manufacturing – is still a largely unexploited area. It offers a lot of opportunity for secure business with minimal/ no risk and reasonable margins.
- Contract manufacturing and toll manufacturing are used interchangeably here. The commonality comes from DRAP ‘Contract Manufacturing Policy’ which is basically ‘Toll Manufacturing Policy’. DRAP allows toll manufacturing of certain medicines by one manufacturer for another manufacturer. There are certain conditions attached to it, however. With the revised policy, the process has been facilitated further but most manufacturers are still not interested. The reason is that every manufacturer somehow is severely suffering from owner syndrome and does not want to offer good customer service. I have experienced it with three different companies that the element of customer service is quite poor. The contract acceptor does not give due respect and consideration to contract giver, which keeps contract manufacturing under stress. Nevertheless, toll manufacturing is a big opportunity and with some effort, the manufacturers can generate good revenue from it.
- Another reason for manufacturers not taking interest in toll manufacturing is that it opens their systems and processes to the other party, and they do not want to do it. Most manufacturers do not follow the GMP guidelines entirely and try to cut corners in order to maximize profits. For this reason, they would like to maintain the shroud of secrecy.
- Contract manufacturing may not be seen in the scope of local business only. If the plant has a reasonable working and can qualify for inspection from another country, not certification, the contracts for clients from outside Pakistan can also be secured. DRAP policy does not cover this part, but it does not restrict it either.
- Contract manufacturing is such a lucrative opportunity that its benefits must be understood more clearly.
- Every manufacturing unit has a basic maintenance cost which will be incurred even if it stands idle. It is therefore important to have sustained volume of production so that the basic costs are covered.
- Factory overheads are directly added to product cost. If the overheads are RS. 10,000,000 per month and the units produced are 20,000, then each unit will incur Rs. 50 as overhead cost. This is very high figure for many products, particularly those which have low selling prices. The solution is to produce larger number of products which is possible through contract manufacturing.
- Marketing own products and building sustainable business around them is a time consuming and expensive process. It is good for the long term good of the corporate, but lot of companies are unable to manage this cost. Contract manufacturing can create a revenue stream which will help the corporate to sustain and invest in its own marketing.
- Landing a contract manufacturing contract with a fast-growing company is highly beneficial. They strive for their growth at their own cost and effort, while the contract manufacturer reaps the benefits through growing production and revenue.
- If contract manufacturing is focused upon and done properly, it can become a specialty in itself. As a manufacturer becomes reputed for good manufacturing practices, it can attract more and better clients. Referral helps everywhere but, in this business, it becomes quite critical.
- Every good client who wants to get products manufactured on contract inspects the plant, reviews processes, procedures, standards etc. from their requirements point of view. They would ask to amend or improve certain areas of work. With addition of every client, the manufacturing of contract acceptor becomes more robust and organized. This advantage shall stay with the manufacturer even if the client decided to move on.
- Technical people in production, quality control and quality assurance learn from exchange of ideas with clients. They would be upgraded in this process. The human resource improvement is another benefit which will come through contract manufacturing.
- Another big benefit is in the market. The contract acceptor sales teams can rightly claim to their customers that the quality of their products is already proven because so and so companies are getting their products manufactured at their plant. For well-known products and companies, this works quite effectively in building confidence of the customers.
- Our businessmen are very keen for calculating money in everything. If they put a rupee value on these benefits, they would be motivated to go for it.
- There are few negative connotations about doing manufacturing for others. These should be examined more clearly to see if these are well-founded or not. Contract manufacturing is not a second-grade activity. It is technically more challenging than manufacturing for own self. Not every manufacturer qualifies to do contract manufacturing. Another interesting excuse is that why should we keep running our machines and depreciate them for others? It is not others; it is your clients who bring revenue to you. Why should we listen to criticism and demand for improvement from clients? Well, this criticism is very beneficial for your plant and people upgradation, and it is free. Why should we invest in improving the facility for others? Well, the facility is yours for all times to come. Any improvement will benefit your own manufacturing also. Secondly, investment is always needed to get profit.
The sum up is that contract manufacturing is not clearly understood and appreciated so far, and its long-term importance and benefits are being overlooked for some short-term thinking. However, contract manufacturing presents a very good opportunity and must be taken advantage of.
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