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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 is the challenge of every dietary supplement company management team. With increasing competition in both domestic and international markets, companies are scrambling to fine-tune internal competencies that are critical to financial success. One key question in achieving this success is the laboratory analytical services dilemma, Can we build and maintain an in-house laboratory? Or should we rely on outsourcing this work to a contract laboratory? The dietary supplement industry is beginning to learn from the pharmaceutical industry 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 translate good 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 on certificates of analysis or finished product labels, and stability studies for expiration dating.

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

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) biological testing; (f) research & development; (g) expert interpretation and consultation. Are these services required in different locations for product research and development, raw materials purchasing and receiving, methods development and validation, process quality control, 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 is often difficult to balance these objectives. Prioritization, focused on company philosophy, is therefore necessary for financial evaluation. Common objectives include: Quality; Turnaround time; Price; Scientific interpretation and expertise; Innovative science.

3. Financial Assessment

What are short-range and long-term cost projections for internal analytical services capabilities? Consider expenses for the following: lab facility buildout; instrumentation and 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 annual projections to contract laboratory fees.

4. Philosophical Assessment

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

5. Laboratory Qualifications Assessment

For comparison of internal resources, scrutinize the outsource laboratory's qualifications. What level of experience and stability is required to qualify? How many years have they been in business? What is their corporate structure? Do they have a stable client base in the United States and worldwide? What are the scientific and regulatory qualifications of facility, instrumentation, staff? Is the quality assurance program viable and successful? Is the client services team caring, responsive and focused on the needs of your company?

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

Benefits of Outsourcing

Potential scientific and financial benefits of analytical laboratory services outsourcing are numerous. Outsourcing can significantly reduce overhead costs of physical space and internal management time. By focusing on core business activities and shifting lab services to outside experts, a company can normally reduce the in-house staff to one manager who coordinates this technical interface. Cost reductions for product liability insurance rates are also possible with a diligent QA program linked to an independent laboratory.

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

Risks of Outsourcing

What are the risks of losing in-house analytical expertise? In balancing the assessment of benefits and risks in using outsource lab services, an important consideration is stability of the contract laboratory. Careful review and inspection of the physical facility, standard operating procedures, staff qualifications and industry reputation are a few of the must-do checks before choosing a laboratory services partner. Does the lab have full-time permanent employees? Beware of lab operations that use only university students and have no QA officer. In addition, are the laboratory resources large enough to be 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 laboratory partner includes: (1) good communication from both sides about objectives, costs, problems and solutions; (2) trust and respect; (3) mutual cooperation. Client service ethics and attention to customer care are often the pivotal deciding factors, following qualification of a contract organization from the scientific perspective.

For successful outsourcing, the process of due diligence and planning with the above guidelines 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 focus on its core activities and achieve a competitive advantage.

Libby Harvey is co-founder and president of the Petaluma, Calif.-based Alpha Laboratories Division of Eurofins Scientific Inc. Harvey is also the organizer of an award-winning national educational seminar series, "Botanicals--Let's Talk Science."

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