The full version of this outsourcing feature can be read in the September issue of our digital magazine: http://www.pharmtech.com/ptedigital0910
Service provision is about people — not a glossy brochure or website. Clients still prefer to approach a provider that is in some way validated by others' experience, but second to this is the internet. It's old news, but nothing is easier than typing a few words into Google and getting a list of potential providers, case studies and experiences — this is one of the first things a potential client will check after being referred to a specific company. Finally, conferences, exhibitions and other events where a huge amount of networking takes place can help outsourcing providers to keep their brand in profile and ensure that their name is already familiar when a referral is made.What's changed?
Ten years ago, the outsourcing market was far more transactional in nature and, as such, projects were more likely to be non-core, lower technology, lower risk and high volume. Today, companies are looking for providers to become longterm partners, and to provide expertise and share risks. Clients are also looking for providers who can deliver as many services as possible because managing too many relationships is costly. In this respect, I have personally noted the trend amongst new clients awarding us "over-arching" manufacturing agreements rather than product specific contracts. Track record, and financial and quality stability is also now vital in a provider; previously, clients had their own back-up facilities and capabilities inhouse, but this is becoming less and less the case with the industry increasingly reducing its fixed cost base. Lowest price has been replaced by value and risk analysis.
Should the CMO be selective?
In an ideal world, CMOs should assess the client's suitability for them but not everyone does. It depends on the key cost drivers in the underlying business and the technically competitive offering that the CMO has. A significant amount of growth seen in CMOs has been driven by the acquisition of large pharma sites. Although this is great for reducing the fixed cost base of the pharma companies, the truth is that this just moves the problem to the CMOs, which are then driven to fill capacity, squeezing margins and reducing overall market pricing. A 2009 report from Business Insights (The CMO Market Outlook) has shown that in 2009 freeze dried capacity was 4 times market demand and syringe filling was 2.5 times demand compared with 2008.
A new generation of CMOs is, however, differentiating on the basis of technical niche offerings, with flexible capacity and a full range of support services. Trying to be everything to everyone dilutes capabilities and does not fit with the trends in the market where clients are looking for long-term relationships with expert providers. Our attitude is that if it's not a good fit then we would rather support the client by referring them to a provider who would be better placed to support them than to provide a second-rate quality of service that hurts both us and the client. This approach actually better protects the relationship in the longterm.
The changing CMO business model
Today, CMOs are expanding their offerings to reflect the growing virtualisation of big pharma and to meet the needs of small pharma companies. There have been significant mergers and acquisitions that are increasingly focused on expansion — both up and down the value chain — rather than just on expanding current capabilities in an attempt to create one-stop shops.
So what does a CMO have to do to maintain long-term relationships and secure repeat business? Service, service and service. It is that simple and that complex. Working with the client, understanding their needs, being open and honest and remembering that you will be judged on the relationship delivery, not the number of ampoules. There will always be issues; the question isn't whether you have any but how you resolve them. The high switching costs and the time invested in bringing a partner onboard means clients will be focused on needing reasons to leave, not reasons to stay. Therefore the answer is, don't give them any!