Implementation findings

Implementation observations can be classified into two broad areas: implementation of the RFP sourcing process and implementation of the signed contract.

Implementation of the RFP process. In the RFP process, there are several complex challenges that need to be addressed. The decentralized plant environment makes it particularly challenging to achieve an RFP scope with minimal unexplained variance. Disparate, inconsistent scope across plants can be a barrier to realizing scale in outsourcing efforts. Secondly, given the intimacy of some services (i.e., water for injection [WFI], instrument calibrations) with manufacturing or science, the sourcing process itself needs to be business interest led. Initiatives that were primarily purchasing led with inadequate business participation required greater process intervention and longer implementation schedules. Determining the scope of the RFP is a complex decision that many businesses found hard to frame consistently as a business case. Finally, the sourcing strategy itself, from the commercial model to scope options, was subject to debate across a wide divergent of opinions across procurement, technical operations, the finance department, and facilities-management groups. Divergence of opinion without effective frameworks and processes for decision-making riskscompromised decisions may undermine the attainment of efficient bids or result in ineffective commercial models that actually increase friction between supplier motives and client-performance objectives.

Successful initiatives were business-led, where purchasing was a key executive sponsor, advocate, and stakeholder. Initiatives with the right executive governance, project teams with prior outsourcing experience, and cross-functional representation were able to more effectively navigate decisions, manage cultural resistance, and stick to milestones. Teams with limited prior experience in outsourcing implementation of similar scale and complexity were not effective in leading such large-scale initiatives.

In cGMP environments, site heads and their operational staff have particular concerns around how outsourcing will affect their ability to use shared staff. They are concerned whether a central contract structure will impede local operational decision-making, cause a loss of critical operational skills, and about how the contract will work post signature.These questions have to be addressed head on at the beginning of contract design to build buy-in and alignment.

Implementation of the signed contract. The implementation of a facilities-management outsourcing contract requires considerable engagement of cross-functional resources, coordination, and creation of governance processes. In outsourcing, the primary considerations have to do with the human resources terms for the transfer of employees. When the right human resources terms were used (i.e., terms that promoted continuity of employment and limited turnover), transitions and implementations went smoothly. The supplier market has done well in retaining and deploying transferred pharmaceutical staff. In the rare instances where human resources terms were not conducive to employee transfer, turnover was high as was employee anxiety. Another major observation during implementation was that some clients found themselves in protracted baseline disputes and issues with the outsourced provider.

First-generation outsourcing issues stand in contrast to those found in third-generation outsourcing. In third-generation outsourcing, the primary considerations have to do with engaging market interest, tapping into supplier innovation, and making supplier-switching decisions. Experience in third-generation outsourcing indicates that suppliers that did not innovate and bring new, fresh thinking to ageing accounts faced the highest level of risk of sponsor companies switching outsourcing providers.

In some cases, clients switched out long-standing facilities management suppliers in the third-generation RFP. What's reassuring is that these transitions were well executed with fairly good cooperation from the incumbents. The pharmaceutical industry has demonstrated that it can enter into complex facilities-management outsourcing contracts when necessary, and also exit incumbent contracts without operational disruption when required.

The pharmaceutical industry and facility-management suppliers have effectively managed the transfer of thousands of employees from pharmaceutical facility management to supplier facility management organizations using effective human resources terms. Baseline development mechanisms (such as classifying total internal and external costs according to a common set of service definitions, and disaggregating on-time costs from on-going costs) are still maturing, and strong financial and contractual controls are needed to avoid protracted issues. Finally, continued supplier innovation and contribution (e.g., new practices from other accounts, well planned execution of business pressing initiatives, and anticipatory relationship posture) in outer contract years are key predictors for full retention of third-generation accounts.

Conclusion

Facilities-management outsourcing has become a key efficiency lever for the pharmaceutical industry, and initiatives are expanding geographically and functionally.

Successful outsourcing initiatives are business led and require strong executive governance and project teams with prior outsourcing experience and cross-functional representation.

Baseline-development mechanisms are still maturing and strong financial and contractual controls are needed for effective supplier management. Continued supplier innovation in the outer years is a key predictor of account retention. In large part, suppliers continue to perform operationally well across most services. Cost and effectiveness are the two primary objectives for outsourcing.

The two key areas of development for the industry, however, are in institutionalization of governance structures and processes, and improvements in financial and contractual controls. The former is required to effectively transition culturally from legacy operational models to supplier-relationship management models. Without effective executive oversight, such change is unlikely to be accomplished on a sustainable basis. And secondly, the market continues to show opportunity to advance in the areas of financial controls and contractual mechanisms for flexibility and change. Companies that take steps to institutionalize governance and build strong financial controls are able to avoid some of the pitfalls mentioned. Finally, suppliers and clients who jointly focus on third-generation innovation are also able to continue to find new sources of improvement as they enter into the third generation of relationships.

Rakesh Kishan* is managing director of UMS Advisory. rkishan@umsadvisory.com
. Andrew Cieslak is a managing director at UMS Advisory. *To whom all correspondence should be addressed.

Reference

1. R. Kishan and M. Marcum, Global Trends and Activity in the Real Estate and Facilities Management Outsourcing Market, (UMS Advisory, Arlington, 2010).