To Outsource, or Not to Outsource?

Like any other business, laboratories and the organizations they are affiliated with continually struggle with cycling budgets, staff, and capabilities. As such, a decision that lab directors and managers must periodically make is determining what portion of the lab’s tasks and support functions to keep in-house and what portion of the work to outsource.

The answer is not always simple. Not only do internal considerations account for the decision, but also the potential and existing clientele, though indirectly, are a factor. “People expect you to provide a full slate of services, and if there’s something missing from your catalog, they might think that you’re not the one-stop shop that they’re looking for, and so you have to be careful in determining what you think is vital for your core clientele versus what you can afford to outsource,” says Jerry Torrison, director of the Veterinary Diagnostic Lab at the University of Minnesota in St. Paul.

Torrison’s lab, accredited by the American Association of Veterinary Laboratory Diagnosticians (AAVLD), is heavily involved with testing livestock and poultry for infectious diseases. Although the lab provides a broad set of tests for, and works with, wildlife and traditional pets like cats and dogs, the bulk of the lab’s analyses involve PCR testing, virology, and bacteriology, essentially looking for infectious diseases or evidence of prior infection antibodies in livestock. Each year, his lab runs approximately 55,000 cases and conducts 124 million procedures.

In the numbers

In order to decide which of the millions of procedures to keep in-house and which ones to outsource, Torrison has to periodically consider several factors, including the status of the lab. Sometimes a change is brought on by, for example, a faculty member or a key technician retiring or the need to upgrade equipment because there’s been a change in that particular field that might require a massive investment.

“The most important thing is how critical it is that you have that service available at your own facility based on things such as turnaround time and cost,” Torrison says. “So cost is certainly a big driver of it. Can you find it somewhere else at an acceptable cost and level of service? Then, that’s rolled up against the cost to upgrade or initiate that service and the numbers usually figure themselves out.”

The volume of work is a big determinant of those numbers. In many cases, when a lab offers a service at a low-volume, high-specialty rate, it makes sense to outsource the related procedures and tests. That’s because it’s hard to justify maintaining equipment and full-time employment for a procedure that’s only performed every so often. Furthermore, tests will likely produce more accurate results when a person is repeatedly performing them.

For example, “If you took something like Lasik surgery, you want to go to someone who does it often, not someone who does it once in a blue moon,” says Miguel Ilzarbe, director for operations and research administrator at The Jackson Laboratory for Genomic Medicine in Farmington, Connecticut.

“So, typically in lab services, as a strategy for an organization, you outsource it when it’s low volume for your organization. Then, as there’s more demand on the inside, that’s when you kind of want to refresh and look and say, ‘Okay let’s do a cost-benefit analysis. Can we cover enough of a full-time employee plus equipment and whatever else to do that test or that service?’” Ilzarbe says.

Although The Jackson Labs as a whole is well-known for making mice, at The Jackson Laboratory for Genomic Medicine, where Ilzarbe runs the operations, the focus is on the treatment and understanding of common diseases—which means that branch of the organization focuses on what is found in the mouse model system and tries to translate the results for humans. The genomics lab is well equipped, so his team is capable of conducting most of the work for studies that they need conducted in-house. However, Ilzarbe’s lab still outsources some of the clinical tests, such as those in oncology—like cancer panels, where specific mutations of individuals are looked at. As their circumstances continue to change, however, they are now considering offering that service in-house. “This department is getting the ability, people, and the expertise to do it,” says Ilzarbe.

In addition to bench tasks, lab managers need to consider either keeping or outsourcing support function tasks, such as cafeteria management and grounds- and housekeeping. Many opt to outsource these, as it allows the lab staff to focus more on scientific endeavors.

The Veterinary Diagnostic Lab, for example, has two facilities, one in its main university campus and one outpost in and of itself. At the main campus facility, the lab has very much been supported by the essential university services. Therefore, maintenance and power and such have almost been entirely managed through the university.

Related Article: Outsourcing Options

“That’s changing somewhat, so we’re having more outsourcing of that—for example, equipment monitoring and some of those things we’re finding the university’s stepping away from,” Torrison says. “So we need to find our own vendors for those tasks. For the outpost facility, much of grounds-keeping, building maintenance, and the like is outsourced to private and commercial vendors.”

In addition to outsourcing support function tasks, the Veterinary Diagnostic Lab also sends out toxicology tests. “We no longer maintain a toxicology service because not every lab can do it, and some decided to keep it and others not,” Torrison says.

Finding outsourcing partners

To ensure that the outsourcing partner is reliable and meets the standards of their own work, Torrison and his team ensure that anyone they send samples to meets the same strict standards as their own lab. “We look at the availability of an alternative provider that we trust, so we rely on other AAVLD-accredited laboratories to provide services,” he says.

Another approach to ensure quality of tests that come from outsource partners is to look at their results. For this, Ilzarbe typically relies on reference samples.

“I know when I run a sample, I get some type of measured accuracy— some parameters—to it,” he says. “So [you] could every so often send a known sample out to whatever service you’re using just to see what quality sample data you receive back.”

All who consider outsourcing services should also factor in turnaround time—will the subcontracted lab or vendor meet your standards when it comes to deadlines?

“If you were to outsource it to a for-profit company, which does that [task] all the time, turnaround time will be less, and quality could be the same or better, but then you [could] have customer service issues, right?” Ilzarbe says. “Also, you become a client as opposed to a collaborator.”

Organization mission

Despite the downside of becoming a customer to a vendor and losing some control over the work, outsourcing can take some load off of an organization and free up time or resources for the lab to perform other services, essentially making tasks that require a partner more sustainable.

An example of this is tests related to toxicology for the Veterinary Diagnostic Lab at the University of Minnesota. “We don’t just use a single provider at the toxicology services because even that has a broad spectrum of services that can be needed. So we primarily use one lab. And there are other tests that are available at different labs that, on occasion, are needed for specific cases,” Torrison says.

“So even if we had our own toxicology lab, we would still need to be sending some things out because no one place can do everything,” he says. “It’s really more about having a broader set of options.”

Furthermore, these decisions are not static and tend to change as technology, capabilities, and tools advance. For example, some years back, DNA sequencing was a highly specialized task that was performed by elite scientists such as Nobel laureates. Now, with the correct tools, high school students can perform such tests.

“You can do some of those tests just because over time people have perfected the steps and the methodology, and it’s just been reproduced so many times,” Ilzarbe says. “So some of the reasons we bring this stuff in-house are because volume increases and technical difficulty decreases.”

In the end, the decision to outsource or insource tasks has to align with the mission or the priorities of the organization. So if the priority is to allow researchers access to a service or results of a test at the drop of a hat, then that could persuade managers to keep the related tasks in-house.

“If you’re okay potentially going into a queue of an outside service provider, and if turnaround time isn’t the most important thing for the organization, then it’s okay to outsource,” Ilzarbe says. “So besides tactical things of cost and turnaround time, I think there’s a strategic view of whether to outsource or insource based on [the overall] organization mission or organization strategy.” The key is to understand that the idea and capability of outsourcing can only work to enhance an organization and the related laboratory services.

“Each lab is unique and has to understand its customer base and development strategy in order to deliver the best service tailored to that customer base,” Torrison says. “And because of the cost of equipment and the degree of training required in specialized areas, outsourcing continues to be an important part of providing a complete set of services.”