Analytical Services Dilemma--Internal or Outsource?

Analytical Services Dilemma--Internal or Outsource?
by Libby Harvey

Balancing available resources with goals of quality, efficiency and profit margins isthe challenge of every dietary supplement company management team. With increasingcompetition in both domestic and international markets, companies are scrambling tofine-tune internal competencies that are critical to financial success. One key questionin achieving this success is the laboratory analytical services dilemma, Can we build andmaintain an in-house laboratory? Or should we rely on outsourcing this work to a contractlaboratory? The dietary supplement industry is beginning to learn from the pharmaceuticalindustry that outsourcing can be a planned competitive strategy.

5 Easy Steps to Assess Critical Laboratory Issues

Supplement manufacturers and ingredient suppliers have the opportunity to translategood science into good business by following GMP (Good Manufacturing Practices)guidelines. These GMPs include critical laboratory issues of raw material identification,confirmation of active ingredients and marker compounds that will be listed oncertificates of analysis or finished product labels, and stability studies for expirationdating.

Here is a five-step checklist to decide "do we want to commit financial and staffresources to include internal laboratory capabilities as one of our core businessactivities?"

1. Prioritize Lab Services Menu

Which of the following laboratory capabilities are critical for the core business?: (a)microscopy; (b) microbiology; (c) physical testing; (d) chemical testing; (e) biologicaltesting; (f) research & development; (g) expert interpretation and consultation. Arethese services required in different locations for product research and development, rawmaterials purchasing and receiving, methods development and validation, process qualitycontrol, or quality assurance of finished products?

2. Prioritize Lab Service Objectives

What is most important to reach the analytical testing goals of your company? It isoften difficult to balance these objectives. Prioritization, focused on companyphilosophy, is therefore necessary for financial evaluation. Common objectives include:Quality; Turnaround time; Price; Scientific interpretation and expertise; Innovativescience.

3. Financial Assessment

What are short-range and long-term cost projections for internal analytical servicescapabilities? Consider expenses for the following: lab facility buildout; instrumentationand equipment investment; hiring, training and keeping qualified scientific staff;operations overhead for utilities, supplies, hazardous waste disposal, maintenance,repairs and upgrades. Once these estimates are in place, you can compare annualprojections to contract laboratory fees.

4. Philosophical Assessment

Company philosophy, mission and goals must be considered when determining what the corebusiness objectives are. What activities are critical for in-house competency andcompetitive advantages? What is the inherent value and the marketing value of independentthird party testing from an outsource laboratory? Does the company want to focus onshort-term needs or long-term solutions for a business partnership with a contractlaboratory?

5. Laboratory Qualifications Assessment

For comparison of internal resources, scrutinize the outsource laboratory'squalifications. What level of experience and stability is required to qualify? How manyyears have they been in business? What is their corporate structure? Do they have a stableclient base in the United States and worldwide? What are the scientific and regulatoryqualifications of facility, instrumentation, staff? Is the quality assurance programviable and successful? Is the client services team caring, responsive and focused on theneeds of your company?

With answers and data from those steps, we can now roll up our sleeves and dig into thefinal Cost-Benefit analysis to determine the best combination of internal vs. outsourcelaboratory analytical services.

Benefits of Outsourcing

Potential scientific and financial benefits of analytical laboratory servicesoutsourcing are numerous. Outsourcing can significantly reduce overhead costs of physicalspace and internal management time. By focusing on core business activities and shiftinglab services to outside experts, a company can normally reduce the in-house staff to onemanager who coordinates this technical interface. Cost reductions for product liabilityinsurance rates are also possible with a diligent QA program linked to an independentlaboratory.

The outsource laboratory serves as an integral scientific partner by providingexpertise from its only core competency: independent analytical services. Lab managementis completely focused on technical expertise and leadership in dietary supplement methods,state-of-the-art instrumentation, and top-notch experienced analysts. Your company canchoose from the best of the best. These independent third-party testing services areadvantageous for both quality assurance requirements and for marketing vantage points.Science-based marketing is a winner with consumers and contract labs are capable ofproviding a broad range of scientific methods and technologies to characterize differentproducts and impurities.

Risks of Outsourcing

What are the risks of losing in-house analytical expertise? In balancing the assessmentof benefits and risks in using outsource lab services, an important consideration isstability of the contract laboratory. Careful review and inspection of the physicalfacility, standard operating procedures, staff qualifications and industry reputation area few of the must-do checks before choosing a laboratory services partner. Does the labhave full-time permanent employees? Beware of lab operations that use only universitystudents and have no QA officer. In addition, are the laboratory resources large enough tobe flexible and to provide results faster than the competition?

Outsourcing Success:
Minimizing Risk and Maximizing Gain

A basic three-tiered foundation for achieving success with any contract laboratorypartner includes: (1) good communication from both sides about objectives, costs, problemsand solutions; (2) trust and respect; (3) mutual cooperation. Client service ethics andattention to customer care are often the pivotal deciding factors, following qualificationof a contract organization from the scientific perspective.

For successful outsourcing, the process of due diligence and planning with the aboveguidelines will help to transform a dilemma into a positive solution that works for you.Partial or full outsourcing of laboratory analytical services can allow a company to focuson its core activities and achieve a competitive advantage.

Libby Harvey is co-founder and president of the Petaluma, Calif.-based AlphaLaboratories Division of Eurofins Scientific Inc. Harvey is also the organizer of anaward-winning national educational seminar series, "Botanicals--Let's TalkScience."