Outsourcing: Procurement Pros Shrink Supplier Base - Buyers of pharmaceutical services are changing their behavior—and service providers need to change theirs, too - BioPharm International

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Outsourcing: Procurement Pros Shrink Supplier Base
Buyers of pharmaceutical services are changing their behavior—and service providers need to change theirs, too


BioPharm International
Volume 19, Issue 10

In this year's survey, 20% of buy-side respondents report that they are actively sourcing now from suppliers in India and China, versus 16% in 2005. However, a quarter of biopharmaceutical company respondents expect 5–10% of their external spend to be with Asian suppliers in two years, a big jump from the 15% reported in the 2005 survey.

Western contract service providers are not panicking over Asian competitors yet, but most know that they will feel an impact sooner rather than later. In this year's survey, 27% of contractors say they expect to feel a "considerable" impact from Indian and Chinese competitors within two years. That is up from just 15% of respondents in last year's survey.

IS "SATISFACTORY" GOOD ENOUGH?

In the 2006 edition of our survey, 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 report their contractors' performance as "satisfactory," and 18% rate it as "excellent." For customer service performance, the numbers are nearly the same: 75% rate contractor performance as "satisfactory" and 19% said it is "excellent."

We don't think contractors should be pleased with that performance. While very few clients appear to be having a really bad experience with their service providers, relatively few are having an exceptional experience, one that will encourage the client to remain loyal over multiple projects and years.

The gap between a company's view of its 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, http://www.bain.com/) found that while 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 biopharmaceutical contract services industry. As clients go about winnowing their supply bases down to a few preferred providers, CROs and CMOs that have established good performance track records are going to the top of the list.

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. Our survey found that 87% are actively looking for new vendors for one of these reasons. There is a 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.

Jim Miller is president of PharmSource Information Services, 703.383.4903;


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