Rising costs vs. maintaining competitive pricing in the Pharmaceuticals industry

on December 30 | in Pharmaceuticals | by | with No Comments

The pharmaceutical industry is in some regards not unique from other industries. Pharmaceutical companies design and manufacture commodities that must be sold for a profit in order for the company to survive and grow. Competitive pricing is a key component toward accomplishing this. However, the rising costs incurred by drug companies due to regulation and procurement have made it increasingly difficult to maintain competitive pricing without a detriment in terms of quality of product. Steps can be taken though to combat rising costs; the optimization of production operations and the acquisition of more affordable resources will prove vital toward companies operating at a competitive and profitable level.

A key cost that affects pharmaceutical firms significantly is in labor overhead costs. The payment of salaries and the maintenance of a large workforce lead to greater expenditures as well as inefficiency. These factors will inevitably be reflected in the organization’s pricing of goods; more precisely, this will be reflected in soaring price hikes. Streamlining the manufacturing process should be advised as an appropriate measure to nullify these effects. Lean management structures are great means to reorganize labor roles that do not directly impact productivity. A lean management structuring will enhance an organization’s ability to oversee facility operations, processes, shifts and production departments. It will also lead to increased accountability and cross-functional sharing of ideas.

Pragmatism should also be followed in staffing policies. Staffing should be marginalized to levels which are considered essential to operations. Managers and executives may even consider staffing slightly below the expected demand. This strategy can be augmented with the utilization of part-time or temporary employees to optimize staffing levels during periods of fluctuating demand.   By reducing the size of the workforce industries can capitalize on improvements in efficiency and decision-making, as there is less management level to interact with and less personnel to oversee. This will further result in diminished overhead costs that must be counteracted with essential price increases.

Quality is not wholly guaranteed by greater costs. Reasonably priced goods can perform just as adequately as their more expensive counterparts. The ability to identify and procure raw materials and sources for manufacturing will be another key area of consideration for maintaining competitive pricing. Reducing the costs of sources will add the dual benefit of diminishing overall manufacturing costs while also increasing the viability of product profitability; customer pricing can be reduced while also increasing profit margins.

Pharmaceutical businesses can also use leverage to reduce acquisition costs. It is likely that many of the materials required for manufacturing can be purchased from more than one supplier. With a little bit of market research, firms can identity alternative suppliers of similar products available for sale. Pharmaceutical companies can use this knowledge to either negotiate better terms with their present supplier, or to turn to the new supplier entirely. Firms must determine whether there are any different features between suppliers and whether these differentiating features benefit the organization or the customers. Is it also worthwhile to take into account if one supplier has a faster delivery time or favorable financing at a slightly higher price. If not, purchase from the supplier offering the product at the lowest cost.

There is stiff competition in the drug industry. There are many products and many developments entering onto the market. It is the upmost importance that businesses stay relevant through reasonable pricing, while still maintaining healthy profit margins. This is a delicate balance to discover, must less maintain. It becomes increasingly more difficult due to the constantly changing dynamics of global business, where rising costs are ever-present. However, through careful planning and shrewdness, pharmaceutical companies can maximize efficiency, physically and fiscally.

 

 

 

 

 

 

 

 

 

 

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