Evaluating outsourcing partners' capability: a case study from the pharmaceutical supply chain

Abstract

Purpose – Many pharmaceutical companies outsource their research and development and manufacturing operations to value chain partners. Effective evaluation of outsourcees' capabilities and relationship management are often central for outsourcers to secure sustainable competitive advantage. This study aims to investigate how to evaluate outsourcees and manage outsourcing relationships in the pharmaceutical industry based on the theory of dynamic capability (DC). Design/methodology/approach – The investigation used an exploratory multiple case study approach. The data collection, spanning a period of 12 months, entailed a multinational pharmaceutical company (PharmCo) with its headquarters in Europe, and four contract research and manufacturing organizations from China and India. Findings – The results show that PharmCo evaluates its outsourcing partners based on their dynamic capabilities, which include processes (project deliverables, communication, and accuracy of costs), positions (financial assets, number of scientists, spectrum of services, and geographical presence), and paths (past experiences). The findings indicate that a pharmaceutical company outsources to partners with high operational capabilities, whereas it builds fully integrated outsourcing relationships only with those that have high dynamic capabilities. Practical implications – Findings from this study provide guidelines for practitioners in manufacturing industries to efficiently and effectively evaluate and manage outsourcees to deal with the challenges and risks associated with strategic outsourcing. Originality/value – The paper contributes to the literature by providing empirical evidence on the role of DC in outsourcee evaluation and outsourcing relationship management in the pharmaceutical industry. Moreover, the paper illustrates how to conceptualize and measure the DC as a multi-dimensional construct. The analysis also indicates that partners' dynamic and operational capabilities play different roles in outsourcing relationship management.