From Boon to Bubble?

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Pharmaceutical Technology, Pharmaceutical Technology-08-01-2007, Volume 2007 Supplement, Issue 3

Infrastructure must be in place before jumping into outsourcing.

I was in business school for the peak of the Internet frenzy, so the effect of the Internet on business practices and the economy was a frequent topic for classroom discussion. At the time, every retailer on earth it seemed was scrambling to develop an online purchasing option. But it didn't take long for many of those early online retailing attempts to fail.

Michelle Hoffman

One of my professors suggested that retailers who were just slapping up online interface were neglecting to develop the sales and distribution infrastructure to support online retailing. So, while orders might have poured in over the Internet, retailers hadn't put in place the extra personnel required to fill the orders. Missing were the personnel to package and ship merchandise. Retailers had also failed to make the necessary arrangements with their shippers to accommodate all of the extra outgoing mail. The net effect was that orders arrived late (or were inaccurately filled, or both). This was particularly devastating during the Christmas holiday season, when holiday presents ordered over the Internet arrived at their destinations long after the holiday was over. Both consumers and sellers felt burned and retreated for a while from online retailing.

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Looking back, the lesson seems so obvious but apparently wasn't at the time, or more retailers would have planned appropriately.

This story may serve as a cautionary tale for the outsourcing industry. This year's survey indicates that drugmakers large and small expect to increase their use of contracted services—a substantial boon for contractors. About a quarter of service providers who responded expect their revenues to grow by 20% or more. But as Jim Miller notes in his cover story, this rapid growth may be straining contractors' resources.

"This is especially true for basic infrastructure capabilities like customer service and project management," writes Miller. Is this starting to sound familiar? Of particular (and particularly ominous) note for service providers, the survey uncovers a gap between customer and service provider definitions of service excellence," Miller notes.

So, sellers beware! All evidence indicates that the outsourcing industry will continue to grow—unless, of course, it gets trapped in a bubble.

Michelle Hoffman is editor-in-chief of Pharmaceutical Technology,