The terminologies of ‘contract manufacturing’ and ‘third party manufacturing’, in the realm of the pharmaceutical industry; are almost synonymous with a very marginal difference.
Both happen to be ways of getting a particular company’s own product made without being much involved in the manufacturing process. A slight variation in this manufacturing technicality brings the difference between ‘contract manufacturing’ and ‘third party manufacturing’.
The product owing company is however fully responsible for the marketing, distribution, and any other crucial factors other than manufacturing, in both cases. Most small companies prefer to work with a third-party pharmaceutical manufacturer in India whereas medium size and big companies work on a contract manufacturing basis.
What is third-party manufacturing?
When a company orders a certain quantity of products to be made by a third-party manufacturing company, with the former’s brand name; the manufacturing company delivers the manufacturing with the resources available at its own manufacturing unit, concerning raw materials, packaging, and so on.
This kind of manufacturing is called ‘third-party manufacturing’ where all the materials and end products are being taken care of by the manufacturing company, while the end product is sold at the name of the company giving out the order or consignment; which is commonly referred as the marketing company.
What is contract manufacturing?
When a marketing company gives out a consignment that needs to be manufactured with its own brand name but based on certain terms and conditions or specifications, which includes its role in providing all the requirements for the manufacturing, such as the raw materials, packaging materials, excipients, etc.; it becomes contract manufacturing.
Hence the pharma contract manufacturing in India, does only the job of creating the requirements provided by the ingredients or facilities by the product owning or marketing company, and as per the latter’s terms and conditions.
Points of differentiation between ‘contract manufacturing’ and ‘third party manufacturing’
- Third-party manufacturing lacks time-bound compulsion to deliver the goods whereas contract manufacturing does come with this compulsion.
- It becomes difficult for small or medium size pharma manufacturing company to scale various pharmaceutical products with limited resources at hand. The contract manufacturers have significantly more resources, hence they are more capable of adding value to such companies.
Advantages of availing third-party manufacturing:
- No need for heavy investment for production, infrastructure, and various other facilities.
- No need for a business set-up or land.
- Not much of human resources is required.
- Changing the product portfolio is easier.
Advantages of contract manufacturing:
- Contract manufacturing minimizes work for the parent company by taking care of the manufacturing just as per their requirements using the materials provided by the latter.
- The parent company can focus on other functional areas pertaining to marketing, finance, etc.
- It gives the pharma company with technical insight.
- Work becomes manageable for a parent company with fewer resources and capital. If the company is new to the business or owns a small pharma company then it might be facing many hurdles due to the limited resources. Contract manufacturers have lots of resources that will help to add value to your product.
Opting between either of the contract manufacturing and third-party manufacturing service should be purely based on the need or preferences, or convenience of the parent company, as both come up with quite a good variety of advantages and are almost alike.