Are Preferred Provider Agreements the Best Model For Outsourced Manufacturing?
By Kate Hammeke, VP of Market Research, Industry Standard Research (ISR) @ISRreports
Whether it is rooted in nature or nurture, it’s part of our human condition: When we find something we like, we go back to it again and again. This could be a favorite city, restaurant, brand of vehicle, fit of jeans, toothpaste. Anything. When it comes to making business purchase decisions, the same human mannerisms underlie our decision-making process, and we tend to go back to what is familiar. While there is a cliché expressing the opposite (familiarity breeds contempt), there is scientific data supporting the notion that familiarity breeds comfort, or that people develop a preference for things simply because they are familiar to them. This concept is known as the mere-exposure effect or the familiarity principle.
There are benefits to this aspect of our human nature. It reduces risks associated with change and fosters stability as well as gives us an idea of what to expect. ISR data from our Contract Manufacturer Quality Benchmarking studies shows that one of the leading selection factors in choosing a CMO/CDMO is a prior positive experience with the service provider. Prior positive experience ranked between 4 and 7 (depending on manufacturing category) as the single most important selection attribute among 28 different supplier characteristics. Additionally, this attribute was identified as a Top 5 trait by roughly one-quarter of respondents across all manufacturing categories. This means that a prior positive experience outranks traits like scientific knowledge, experience level of staff, and among drug product manufacturers, available dosage forms.
WHY ARE PPAS SO POPULAR?
Another important benefit from repeat behavior that shouldn’t be overlooked is how it reduces decision- making time and keeps decision-making fatigue at bay. When it comes to choosing a contract manufacturer, reducing the amount of time it takes to select and qualify a supplier may save weeks or months as opposed to hours. Time reduction combined with the comfort of familiarity have paved the way for the preferred provider outsourcing model’s popularity— where a sponsor organization has a select group of prequalified service providers and those providers are given priority status for outsourced work over other vendors. Roughly three out of five respondents to the CMO Quality Benchmarking studies mentioned the company they work for has preferred provider agreements with an average of four to five CMOs, again depending on manufacturing category.
Results from ISR research show the majority of outsourcers use a combination of the three outsourcing models we inquire about — tactical or transactional outsourcing, preferred provider agreements, and strategic partnerships. At the same time, ISR has observed an increased use of preferred provider agreements as well as a greater proportion of manufacturing allocated to preferred providers over the past three years. Since PPAs are used by the majority of outsourcers that conduct the largest proportion of outsourced manufacturing, we thought it was worth investigating user satisfaction levels with the outsourcing model.
When asked “how does the performance of [outsourcing model used] meet your expectations?” respondents confirmed their liking for the preferred provider model. Only 13 percent of outsourcers of commercial manufacturing who use PPAs indicated the model somewhat missed their expectations, compared to 24 percent of respondents who use strategic partnerships and 36 percent of tactical outsourcers reporting missed expectations. Perhaps this outsourcing model is so popular because it addresses multiple needs by appealing to our most-human traits of finding comfort in the familiar, reducing risk, improving start-up time, and possibly the most important aspect is that the preferred provider approach meets or exceeds users’ expectations.
KATE HAMMEKE is vice president, market research, Industry Standard Research