Standard Costing in Pharmaceutical Manufacturing Industry Challenges & SolutionsPosted by Xcel-Digital on January 22nd, 2020 At a Glance
Where Is the Pharmaceutical Industry Heading?Mid-market pharmaceutical companies based in the United States will only see a rise in opportunity in the coming years. The projected increase in the industry calls for more streamlined processes within Pharmaceutical Manufacturing and Contract Development and Manufacturing Organizations (CMOs & CDMOs).
 The global pharmaceutical market will reach nearly USD 1,430 billion by 2020. The United States share of the global market will increase from 40.3% in 2015 to 41% in 2020, while Europe’s share will fall from 13.5% in 2015 to 13.1% in 2020.
Rising R&D costs have been accompanied by more stringent testing requirements. The number of new chemical or biological entities (NCEs and NBEs) launched on the world market increased to 226 in the 2011-2015 period compared with 146 a decade earlier. (IFPMA facts).
R&D costs are on the rise due to stringent regulatory requirements. Tariffs and changing political climate has a huge impact on the dynamics of the pharmaceutical manufacturing industry.
If the pharmaceutical manufacturing companies need to adopt to these changing market dynamics, it is imperative to build sophistication in their methods of costing, profitability analysis and production variance calculation & reporting. Most companies are constantly watching their bottom line to measure profitability and production variance analysis.
This article lays the foundation for standard costing, best practices and its optimization within a Pharmaceutical Batch Manufacturing company. In the subsequent blogs, we will cover best practices within other aspects of costing - weighted average, ABC costing etc.
The Never-Ending Challenges of C-Level Reporting
So, what is my overall profitability for a Product?
This is a major concern for a C-Level executive when there are fast moving raw materials, labor, overheads and other indirect costs involved in identifying the actual cost of a batch in the pharmaceutical manufacturing industry.
As a pharmaceutical company, one of your prime objectives is to comply with the processes set forth in your Standard Operating Procedures (SOPs) to ensure compliance reporting with FDA. In many cases, the focus has been to stay compliant while losing sight of key indicators that drive profitability and organizational goals.
In continuous production and batch manufacturing processes, the multitude of activities involved brings about a need for costing that ties to each activity. There are always many moving parts in identifying the right cost breakdown structure. When there is a need to provide key analytics for stakeholder reporting, it is imperative to measure true costs.
 What matters to the CFO?
A CFO, however, is not just looking at this unilaterally. Instead, a broader view is what matters which includes the details in determining the actual cost and how the variance came about. In reality, the manufacturing process is heavily intertwined with product costing and therefore the need to highlight many different elements that aid in standard cost determination and variance reporting. Production variance reporting is however just a subset of the overall cost breakdown structure in bottom-line reporting.
Like it? Share it! More by this author |