Is "Satisfactory" Contractor Performance Good Enough?...

Aug 02, 2006

Jim Miller
In the 2006 edition of the PharmSource–Pharmaceutical Technology outsourcing survey (the results of which are discussed in the Outsourcing Resources supplement to this month's issue), we asked buyers of contract services about their level of satisfaction with the performance of their service providers. For technical and operational performance, 80% of respondents reported their contractors' performance as "satisfactory" and 18% rated it as "excellent." For customer service performance, the numbers are nearly the same: 75% rated contractor performance as "satisfactory" and 19% said it is "excellent" (see sidebar, "How would you rate the performance of your contract service providers?").

Should contractors be pleased with this performance? I don't think so. Although very few clients appear to be having a really bad experience with their service providers, it can also be said that relatively few are having an exceptional experience, one that will encourage the client to remain loyal over multiple projects and years.

How would you rate the performance of your contract service providers?
The gap between a company's view of its own performance and its customers' perception of its performance can be huge, and the consequences of that gap can be substantial. According to a recent article in Fortune magazine ("The New Rules," July 24, 2006), a study by consulting company Bain & Co. (Boston, MA, found that though 80% of corporate executives think they are doing an excellent job for their customers, only 8% of those executives' customers view their performance as excellent. According to that same Bain study, the average company loses more than half of its customers every four years.

A focus on customer retention has never been more important for the bio/pharmaceutical contract services industry. Major and mid-sized bio/pharmaceutical companies are pursuing new sourcing strategies designed to achieve cost savings by reducing the number of vendors they work with. Although consolidation is meant to give the pharmaceutical companies opportunities to negotiate better pricing, it is also aimed at reducing vendor management costs and creating improved opportunities to work cooperatively. As clients go through the process of winnowing their supply bases down to a few preferred providers, CROs and CMOs that have established good performance track records will top the list.

Contract service providers often count on the fact that the costs of changing vendors—including the search and qualification process and the possible need to go through site transfer and revalidation—will keep a client captive. Nonetheless, service providers can't afford to be overconfident that their clients are locked in, especially clients for clinical trial services.

The fact is that clients are always looking for new vendors, whether it is to find special capabilities, replace underperformers, or just add to the roster of possibilities. The 2006 PharmSource–Pharmaceutical Technology outsourcing survey found that 87% are actively looking for new vendors for one of these reasons. There is a very high risk that the very act of searching for a vendor—for whatever reason—will turn up a new service provider that the client will try simply because the client is merely "satisfied" with its current vendors.

It's also important for CROs and CMOs to remember that companies that are not currently competitors can quickly become competitors by expanding their service offerings. For instance, we currently are seeing several contract formulators and manufacturers that specialize in standard dose manufacturing (e.g., solids, liquids, semisolids) adding sterile injectable capabilities. Bio/pharmaceutical companies that have enjoyed successful relationships with those companies may be tempted to try their new services, even though they don't yet have the depth of technical expertise and manufacturing experience in the new service area.

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