GSK, bucking industry trend, turns to selective insourcing

GlaxoSmithKline ($GSK) is selectively bringing some manufacturing and other work back under its corporate roof, countering an industry trend that continues to focus on outsourcing vital elements of its supply chain to cut costs.

Both approaches, ironically, have the same goals: cutting costs and boosting efficiency.

In GSK's case, the company wants to gain more control over the whole development and manufacturing process, as well as better use the facilities it has. Outsourcing-Pharma.com reports on the phenomenon. The move reflects a desire to use existing plants more effectively and keep its greater supply chain working more efficiently, GSK CFO Simon Dingemans explains in the article. He cites an interesting example: GSK's $33 million investment in its Aranda, Spain, production facility. The facility makes respiratory products, and the investment will add capacity--and likely more employees--to manufacture the pain drug Panadol, which is sold in Europe.

"If you align the plant more closely with where you're actually selling it, you can reduce [costs] significantly," Dingemans says in the article. By better using existing square footage for regional markets and avoiding outsourcing, Dingemans said the process helps drive down the ultimate cost to consumers.

Of course, GSK has also bucked trends by refusing further widespread cuts of its R&D operation, choosing instead to reorganize them into small teams, like biotech startups, that compete for further funding every few years based on their progress. It's too early to tell if these new approaches will be financially and scientifically successful.

Other companies, like Eli Lilly ($LLY) are using insourcing more creatively by bringing 40 AMRI contract researchers in-house to use laboratory space left vacant by downsizing. The work was previously done in China. Why change course? So scientists communicate better in the same time zone and manage those projects more efficiently, AMRI CFO Mark Frost told the publication.

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