Lessons For Outsourcing: Can You Pass The Test?
By Louis Garguilo, Chief Editor, Outsourced Pharma
Back to class.
Time to cover the final five of the 10 modules in the Outsourcing Master Class, created by Darren Dasburg. (The first five modules are here.)
If you want to outsource better, sit up straight, and focus.
Ten Modules Of Outsourcing (6 ~ 10)
6. Provider Selection
“The relationship management nature of what I continually preach is: ‘Do not choose your partner based on low bid. Do it for a thousand other reasons that may be in your mix, but never make this the primary reason.”
Dasburg created these modules in 2006, but he says he wouldn’t change a word here.
“From the beginning, we stressed that forming a relationship with people is the basis for getting the right provider, in every industry.”
In our industry, he believes in the need to obtain an understanding of “what these people at your CDMO do for a living, how they got to be good at it, and how little you as a client know about their critical performance characteristics.”
He says many procurement professionals attended when he taught the class in the mid-2000s. “It was particularly interesting to go through this module with the CPOs [chief procurement officers] in the class,” recalls Dasburg. “They’re response was, “No, it is all about the low bid – three best bids and select the lowest. We gotta have that.’”
“I always replied, ‘I'm telling you, you're not going to be ultimately successful over multiple installations of that strategy.’” It's best, Dasburg says, to select by considerations of effective relationships, and the management of which.
7. Develop A Financial Analysis
The master class calls for companies to perform a “true financial analysis” of how you will judge the outsourcing activity you are considering embarking upon.
Echoing directly above, if for the most part you are focusing on outsourcing as a price tag, you are most likely still in the “infantile stages” of consideration, says Dasburg.
An example: Perhaps you are already performing internally the processing, development or manufacturing activity you are considering outsourcing.
Because it is still early, chances are you are not doing it optimally yet. You don’t have volume, scale or experience. Then you go to a CDMO that does it more productively because they do have those attributes. However, you could have gained that experience yourself over time, and saved the profit margin the provider placed on their work.
Long-term, then, which is actually most cost effective? The quality of the job is not judged by how much you spend. The cost at the CDMO may have reduced your costs on the surface, but you also have to include in your analysis the number of people on the inside managing and spending time on the CDMO relationship.
“You better count that because it's real cost,” says Dasburg. “That’s the true financial measure, and many organizations, lacking trust with the provider, imploy large internal groups to manage the partnerships.”
And finally, says Dasburg, when it’s all said and done, “No one ever told the FDA, ‘but I got a good price.’”
8. Negotiate Contracts
This was the one legal module, for which Dasburg usually brought in a lawyer to talk about “what goes right and wrong inside legal discussions.”
The focus was on “helping people understand that all legal relationships end, foreign thinking to many in the outsourcing organization."
“All relationships end,” Dasburg stresses. “It’s of natural causes, or from poor performance. It could come from outgrowing a partner, management changeovers and turnovers, M&A, changes of strategy. You must be prepared for these relationships to end.”
On the other hand (and back to picking on these professionals), “When the procurement group forces the contract to only be two years, when it should be ten, that changes the character of the relationship.”
It puts the CDMO in a more consistent selling mode, and considering other options – not to mention it can influence price and terms dramatically through the addition of risk calculations.
Thus: when it comes to negotiating contracts, a clear understanding of the intended and necessary longevity of the relationship is a key component.
9. Manage The Transition
The CDMO has been selected; the contract negotiated. Time to actualize the process.
Are you ready to go to the contractor and start working?
“You can't flip any ‘natural switch’ and just have everything happening over on some other shop floor, right?” says Dasburg.
“Your CDMO has an existing plant doing existing things. You've got interwoven supply-chain mechanisms through SAP systems and other considerations. You had preferred providers for what you did internally, they’ve got their own suppliers.”
Never mind, Dasburg seems to be saying, the “seamless transition” that CDMOs sell to sponsors.
Yes, they may be streamlined (and well-intentioned), but any transition to an external party and facility can be “a huge piece of work, and this is often screwed up quite badly.”
The need for a well-crafted and -understood plan on how you will manage the transition on your end, merged with one that has been clearly articulated at the CDMO, should not be taken lightly.
10. Governance
Now you have this relationship underway, how do you keep it healthy? How do you make sure it's doing what everybody intended it to do? How do you ensure natural turnover in your own organization doesn't change it for the negative? How long does the honeymoon last?
These questions point out risks both to you and the provider. You must create a relationship where there’s “governing personnel” providing confidence – and mitigation – to both sides. This includes what we might call “high governance” – the periodic executive committee overview – as well as the day-to-day project management. But Dasburg chooses to focus on the former.
“The reality is, down in the lower governance trenches, it's all about those failed batches, the QA problems arising, the regulatory interfaces, or simply the not-so-good process that you handed the CDMO,” he says.
These ground-level relationships should never be “buffered by hiding the challenges or outright bad news from higher management.”
“You can't say to a CDMO, ‘Take this. Do my mess for less,’ as we used to joke. Most of it'll come down to solid communications on both sides for success.
Next, we’ll focus on the modules in the Master Class that Dasburg says he would update for the outsourcing world we operate in today.