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By Kate Hammeke, research manager, Nice Insight

Between the 1970s and 1980s, the American automobile industry learned a lesson from the Japanese in the form of a leaner manufacturing model. Rather than follow Henry Ford's concept of a vertically integrated production facility where raw materials from company-owned mines and plantations were transformed into cars, their idea was to focus on the core competency of building cars and buy the steel from someone else. The structure of the Japanese plant ultimately contributed to Japan's ability to produce cheaper, better cars.

In the past decade, the pharmaceutical industry has looked to supply chain inefficiencies in order to improve operations and streamline costs. Much like the American car manufacturers realized they could reduce expenses and increase production by not doing everything from scratch, pharmaceutical companies have learned that partnering with third parties — contract research and contract manufacturing organizations — for certain services increases efficiency and flexibility. Outsourcing specific steps in the manufacturing process has become so commonplace that approximately 80% of drug substances are now manufactured outside the United States.

Used with permission from Life Science Leader magazine.