Preferred provider–sponsor company relationships

PharmTech: From a contract-service provider perspective, how has supplier consolidation affected the pharmaceutical contract environment, including the expectations and nature of the outsourced relationship? When a contract service provider becomes a so-called preferred provider, how might its relationship with the sponsor change?

DeCuir (Albemarle): In this case, the service supplier has more opportunities, but occasionally this means that the sponsor's need is outside the supplier's core expertise. Frequent communication is key and must be combined with a positive working relationship, including among technical staff. It is important to stay abreast of future trends and products. Having a larger presence with a customer, however, can be a double-edged sword. On the one hand, your customer becomes more valuable to you, but on the other hand, your importance to the customer increases and that changes the balance of power somewhat in your favor.

What hasn't changed despite the trend is the fact that pharmaceutical companies still have clear commercialization objectives and are focused on results. Therefore, delivering on commitments—whether development milestones or commercial-scale manufacturing targets—is crucial for creating mutual reliability in such a collaborative relationship. We see pharmaceutical companies seeking more assurance that their projects will be managed diligently, and service providers providing support to maintain budgets, timelines, and quality. As the partnership evolves, it becomes increasingly synergistic and both parties realize increased benefits by periodically revisiting alignment of strategies and goals.

For the preferred-provider model to be successful, increased attention must be paid to metrics. New metrics may be needed to assess the effectiveness of the partnership and provide data that can be used to drive mutual continuous improvement.

Josephs (DPT): The practice has provided significant opportunity for a contract provider like DPT. The preferred-provider environment forces both the contract provider and the client to look at the relationship in a different paradigm. You go from looking tactically at one or two different opportunities, where you manage them in a specific way, to managing a relationship or partnership on a strategic level. There is more transparency on both sides with regards to future volumes and commitments. On the provider side, there's more transparency and commitment with regard to capacity, resources, and so forth.

In addition, a preferred provider tends to complement the customer rather than being a general supplier. This level of integration drives inefficiencies out of the system. Where it was once a transactional, buy–sell relationship, it becomes an integrated relationship with access and visibility in the customer supply chain.... For example, with an integrated supply chain, we have access and visibility into our customer's network and are working as a complement to our customer. From a development perspective, we also have dedicated resources proactively working on development projects for our customers, so we are not working on an opportunity-by-opportunity basis but actually have staff working on multiple projects for our partners.

Engels (DSM): One major impact on the industry from supplier consolidation is a more aggressive pricing structure. The governance structure between suppliers and sponsors also becomes more sophisticated (e.g., annual relationship, trend assessment meetings) and supply-chain planning becomes more integrated.

Kosko (PCS): When a supplier enters into a preferred-provider partnership, it is crucial that each party have a clear understanding of the arrangement. In our experience, having agreed-upon metrics to evaluate performance is key. In addition to developing metrics (e.g., delivery performance), the performance evaluation should contain a dialogue on the customer pipeline that addresses how both companies can increase the span of their relationship with new opportunities. In our more developed partnerships, for example, PCS regularly schedules sessions involving key executive leadership from both organizations.

Ananthanarayanan (Dr. Reddy's): In our experience, once a service provider has been invited into the fold of strategic suppliers, the relationship evolves rapidly. Access to senior management on both sides is much more evident, and the information flow between the parties is more free-flowing. This information goes beyond the technology needs, and by revealing more sensitive information, parties can align to ensure success on both sides. The desire for both parties to succeed tends to have a far greater priority than what we normally observe in a more tactical relationship. More objectives are set between the parties to define what success means as well. Even the language we use and the titles we assign to each other are different. For the very tactical projects, we could be referred to as a "vendor." For something bigger we are usually a "supplier." When we get involved on a strategic level, we become "outsourcing partners." Language says a lot in our experience. If you are being called a supplier, you probably are one.

Cassidy (SAFC): The expectations are high regardless of whether a strategic relationship is in place. However, most service providers desire a more strategic relationship with their key customers and an expectation that comes along with these relationships includes longer range planning, more transparent communication, preferred capacity utilization, and well-defined plans for escalating issues that affect product quality or team cohesion.