Lean and Mean?

Posing a question to members of our Editorial Advisory Board

How will Merck’s ‘lean manufacturing’ plan affect the Contract Services industry?

It all depends upon the real execution of Merck’s strategy for manufacturing going forward. If Merck heavily tends to depend on ‘Outsourcing’ of its manufacturing principles, it would be quite beneficial to both the U.S. and non-U.S. CMO industry, which could offer substantial cost benefits to Merck.

I am sure the trend would be followed by other Pharma as well, as every U.S. Pharma is trying to save money for its P&L bottom line, for the Wall Street watchers. It is noteworthy that $4 billion is not a small number and the impact of Merck’s strategy is expected to be real. It remains to be seen as to how the strategy plays out in a long run for offshore (Low Cost Countries) contractors.”

—name withheld by request


I think Merck’s manufacturing strategy will have a significant impact on the outsourcing landscape, as they will need to replace their internal network with an array of services from outside companies. Therefore, I expect that certain companies will benefit as Merck outsources more services then they ever have in the past. If they go the way that other large pharmaceutical companies have gone, they will strive to consolidate the number of suppliers they deal with giving the advantage to those companies that can provide a breadth of service offerings.

—Terry Novak
DSM Pharmaceuticals


Merck is bureaucratic as all heck, hardly different from GM or any large successful company. Putting excess headcount in place when you are successful is apparently an inevitable consequence of being successful. This then opens opportunities for others to take full advantage of the obvious vulnerability. On the other hand, Merck’s earnings have been fabulous compared to the vast majority of all worldwide manufacturing companies.

This is a company that for many years was described by Fortune magazine as the most admired company in America. I still admire their science, but they have been reluctant to acknowledge that others have good ideas too. For example, they have been relatively slow to use R/D outsourcing effectively. They’ve even attempted to build things in house that they could more easily buy (from me).

I still believe Merck has fabulous ideas for therapy and they have pursued very innovative science. Doing so brings risks. Wall Street punishes them, providing an excuse to make some changes management couldn’t make without some outside stimulus. As with the War in Iraq, the negative news overwhelms what is really very good about this company.  

I bet they will fix some things and come roaring back. The talking head TV stock analysts should be ignored, but that’s too hard to do. Pundits are everywhere. Darn, in rereading what I have just written, I suppose I’ve just applied to join the group.

—Peter Kissinger, Ph.D.
Bioanalytical Systems, Inc.


While the specific question deals with Merck’s announcement, there are implications for the CRO industry anytime major shifts in facilities/personnel come into play.

One immediate impact should be the availability of a number of experienced scientists and technicians who may now find their way into the outsourcing community—one that is continuing to grow as the pharmaceutical industry relies more heavily on CRO’s to advance their drug pipelines. Flexible individuals with practical experience in pharmaceutical R&D and manufacturing are often difficult to find, but in a climate of aggressive cutbacks and reductions—in human as well as facility resources—this could prove to be beneficial for CRO’s on the lookout for capable staff with experience in a number of allied pharma disciplines.

Familiarity with, and adherence to, regulatory requirements is appreciated by those in the manufacturing, GCP and GLP sectors. Whether Individual corporate decisions to implement dramatic reductions in facilities and staffing will necessarily increase efficiency, and the bottom line, is less clear and may ultimately depend upon net outsourcing needs. Reliance upon CRO partners, with well-recognized reputations for responsiveness and quality work product, will take center stage.

—Neil J. Lewis, Ph.D.
XenoBiotic Laboratories


The impact of a leaner work force on outsourcing is to increase the need for outsourcing, since there will be fewer people to do the many functions necessary for drug development. Outsourcing is cost-effective, although it may not be seen as such by scientists who do not know the internal costs for their operations.

We all know that the important factor in drug development is time to market, and the clock on patent life begins to tick when the patent issues. Delays cannot be tolerated with a leaner work force; lost time to market cannot be made up.

I see an increased need for outsourcing when Pharma companies go to leaner operations.

—Martin Steinman
Schering-Plough (ret.)


Merck’s plan calls for achieving substantial efficiency gains and cost savings through its supply chain set up. Such plans are nothing new in the pharmaceutical industry in general, nor more specifically Merck, which had already embarked in the ‘90s in a restructuring of its supply chain and industrial footprint. These have most often yielded incremental savings, some obtained by pressing vendors into pricing concessions.

A new factor in the latest Merck plan is represented by the much more intensive pressures to achieve truly transformational results, as more than EPS (earnings per share) growth targets are at stake. The company is concerned for its very survival.

This may push Merck to undertake actions that would have been unthinkable in a recent past, such as drastically streamlining the industrial footprint and delegating to selected third party vendors substantial chunks of the supply chain, following the path of other industries such as automotive or electronic consumer goods. In such a scenario Merck would go well beyond the traditional incremental steps that often spell only misery for vendors, instead entering into lasting, genuine partnerships and symbiosis with selected suppliers.

—name withheld by request