What would you identify as some of the best-practice approaches that a contract service provider should take into account
when seeking to be a preferred provider? Can you offer some examples from the industry or within your company? How important
is innovation from the preferred provider to the sponsor company in evaluating the contract service provider's performance?
Scheftel (Merck & Co.)
In our experience, the contract-service providers who can differentiate themselves through greater customer focus, higher
levels of quality and supply performance, and lowest overall cost, are the best positioned to become preferred providers.
A best practice we have observed at Merck is exhibited by one of our most valued preferred providers. On a regular basis,
this supplier brings innovative cost-improvement ideas to Merck across the portfolio of products it produces for us. Many
of these ideas have been implemented over the last five years, with savings shared between Merck and the preferred provider.
As opposed to suppliers who regularly propose cost increases, this preferred provider has seen a steady stream of new projects
and an increase in revenues of greater than five times. Innovation is a key part of the success of this particular relationship.
The key word is "trust." The sponsor/strategic supplier relationship is a two-way street, and both parties must benefit in
order for it to succeed. Both parties must be willing to trust one another in order to develop and conduct the relationship
in such a way that supports and advances business goals on both sides of the equation. Address expectations, define responsibilities,
determine mutually agreeable criteria for defining "success" and create a dialogue around potential "pain points" (e.g., cost
and expectations around sponsor/supplier communication) at the front end. Reopen the dialogue at regular intervals as the
relationship progresses, assess progress, and adjust as needed before minor issues become stumbling blocks.
The simplest response from a supplier's perspective is that we really need to "walk the talk" when it comes to our value proposition
with our customers. When we do this, it becomes our best marketing tool for building more strategic relationships with customers.
For example, many customers inquire about how we view the future of our business. We routinely highlight to them the longer-term
contractual arrangements which we have in place with key customers to illustrate our commitment. This reassures them. As the
adage goes: It is not so much what you say that matters but what you do.
Innovation can be a tough thing to measure, and its importance can vary from one case to the next. When it comes to new ideas,
it always takes a bit a leap of faith by both parties to work together and be confident that good things will result.