Making the most of outsourcing and offshoring
pharmafile | October 12, 2010 | Feature | Manufacturing and Production, Research and Development |Â Â Kinapse, outsourcingÂ
As the budgets of pharma companies face continued downward pressure, the objective of outsourcing is not only to find effective ways of reducing costs, but also to maximise the productivity per unit spend in the organisation.
This is contingent on outsourcing the most appropriate activities or trials, and ensuring that they are outsourced in an effective and efficient manner to a provider that can produce quality outputs at a competitive price; without requiring unnecessary effort at the interface.
Getting the best from outsourcing
In our experience, two key issues which determine whether an organisation achieves the potential benefits of outsourcing are the ability to plan well in advance, and the development of an effective interface with service providers.
Internal planning
Poor internal planning leads to reactive decision making and late requests to service providers. In addition to higher prices, service providers are then only able to allocate resources at short notice, unable to leverage relationships effectively, and unable to provide the quality of service that they are capable of delivering. Effective internal planning requires an agreed and aligned internal position on the types of activity /trial to be outsourced, as well as an effective mechanism for the approval of outsourcing decisions. The latter in particular is supported by an agreed list of providers with additional suppliers suggested for more specialised activities.
Given alignment over what activities and trials are outsourced, the majority of ad hoc outsourcing decisions are likely to be driven by capacity issues. Without fit for purpose portfolio, project and resource management systems in place, workload peaks will be difficult to manage without using outsourcing on an ad hoc basis.
Interface with the service provider
Too often, suboptimal management and governance hampers outsourced activities or trials. From an operational perspective this can entail inadequate surveillance, or demand considerable internal effort in managing and ‘shadowing’ the service provider.
Management of providers
The desired outcome is to achieve an appropriate level of sponsor involvement which is not effort intensive, but where the sponsor clearly maintains ownership of a trial. Too much interference often impedes the service provider, and undermines and complicates the responsibilities that the provider should have. Excessive micro-management is also resource intensive and negates the cost and resource benefits that outsourcing provides. Too little oversight results in lack of control and often a significant misalignment and conflict when a trial is not progressing smoothly. The management of providers is made easier where there is a robust governance structure in place, and where (as far as possible) incentives are aligned.
Governance of providers
Governance outlines the relationships between all internal and external groups involved in the activity or trial, and describes the systematic flow of information to all stakeholders.
A governance structure which clearly allocates responsibilities should ensure the service provider is able to work unimpeded, but at the same time provide a framework against which performance can be objectively managed and assessed. The metrics around performance should not only address the execution of activities and the management of the contract, but also some of the potential issues associated with outsourcing e.g. percentage of outputs requiring rework, trials negatively impacted by provider staff turnover, issues resolved in agreed time, knowledge management and development of internal staff, etc.
A balanced set of metrics will give a more realistic view of the actual cost savings and productivity gains achieved.
Whilst the principles of governance are fairly obvious for an individual case, the internal challenge is to implement an approach to governance which is applicable across all outsourcing engagements. One of the first steps is to recognise the various levels of governance required, and to establish what level is applicable to each outsourcing engagement. The value of the service and its strategic importance will ultimately determine the level of governance required to manage and mitigate the risk of outsourcing.
Partnering with service providers
‘Partnering’ is a term that is increasingly applied to business-to-business relationships, but it is important to be specific about the benefits expected of a partnership, and to understand what will be required in order to realise these benefits. At a simplistic level, the emphasis should be on reducing the cost of conducting the activity for both organisations, while continuing to create the same (or greater) value. The service provider will benefit from an assured pipeline of work, with ample time to plan resourcing. In addition, they will benefit from a more effective interface, where they are relieved of a significant proportion of non-value adding tasks, particularly around procurement e.g. competitive bidding for each piece of work.
The sponsor organisation should focus not only on direct savings from discounted pricing, but perhaps more importantly, on improving quality and timeliness of completing trials. In addition, better quality reduces the amount of re-work, modification and data cleaning that is necessary in-house, thereby improving productivity for a given budget.
Furthermore, where the sponsor develops a genuine partnership with a service provider, there may be scope to better align objectives through incentives around broader measures i.e. weighting of payments to successful completion of all trials related to a compound or a therapeutic area etc. This provides the sponsor with some assurance that the vendor will take responsibility for success. There is also the opportunity to share risk with regard to strategic issues e.g. developing relationships at new sites.
Outsourced offshoring
Offshoring is another way to reduce direct costs for both organisations. In many cases, sponsors have not realised the true benefits from offshoring, as they have either had to manage a more complex or remote interface, or the cost savings have not been adequately passed on from the providers. Ideally, a provider that uses the offshore model should assist the client in managing the interface, and should pass on some of the cost savings. Kinapse has successfully managed to do both of these through its blended onshore/offshore delivery model which enables the client to interact with onshore project managers, who manage the offshore interface, and also review and provide quality control on any deliverables before they are presented to the client.
Summary
Reducing cost is a key part of outsourcing, but quality and timeliness are key factors in maximising the return on outsourcing spend. To optimise all of these factors in parallel, a philosophy of partnership is necessary, but both parties need to be clear as to how they will actually benefit from a partner relationship. In addition, where a partnership is in place, offshoring provides potential to further reduce costs for both parties.
Matthew McLoughlin is a senior manager at Kinapse. Email: matthew.mcloughlin@kinapse.com Website: www.kinapse.co.uk
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