Pricing of L4/L5 serialization systems has been a roller coaster over the past decade+. The earliest adopters paid astronomically high fees (relatively speaking) only to see many vendors take on a 'race to the bottom' mentality during the height of system adoption ahead of DSCSA serialization and EU FMD milestones.
Unfortunately, a few factors persist which lead to wildly variable pricing- proving that L4/L5 serialization system pricing is still very much an art and not a science.
Pricing is once again a topic of discussion in the industry as many manufacturers are nearing the end of a contract term with their serialization vendor. As such, the intent of this post is to offer a 'baseline' pricing scenario which manufacturers can use to assess whether they are paying market rates.
A key disclaimer: Vendor fees is only one factor in the total cost of ownership of an L4/L5 serialization system. Manufacturers who find themselves paying relatively low fees may still have a high total cost of ownership if they require significant internal resourcing to support the system, rely heavily on external resources to support the system and/or rely heavily on expensive vendor support resources.
And to tease the topic of an upcoming post- While system fees, of course, directly contribute to long term total cost of ownership (TCO), arguably, equally important to long term TCO is risk. High risk with a serialization system increases the possibility of exceptions- and in the serialization world exceptions can mean product stops flowing and patients are at risk- in short- scenarios whose 'cost' can be business-altering. Many manufacturers have justified paying higher vendor fees in return for having the perceived lowest risk (and lowest total cost of ownership) solution. Unfortunately, in Jennason's experience, these manufacturers are in for a surprise when recognizing their higher cost vendor is, in fact, also the highest risk vendor. (Much more to come on this topic)
The driver, and again intent of this post, is my belief that A LOT of manufacturers are drastically overpaying for their L4/L5 serialization system relative to current market rates. The hope is more education will help manufacturers reevaluate and identify their best long term strategic partners or, at a minimum, give manufacturers leverage to renegotiate future contract terms.
A key challenge, historically, is that pricing has not been purely market-driven, but instead driven simply by what the customer was willing to pay. Additionally many manufacturers are not gathering insight into current market-rates. This, in turn, creates a 'perfect storm' scenario where manufacturers end up paying outrageously high fees.
Vendors love this 'perfect storm' because it means that on any given deal, if all the factors align, they can score a big sale.
In the industry's best interest, we need to change that....
Thus, in an attempt to define a 'baseline' pricing scenario for a pharma manufacturer we'll use the simplest serialization use case. Fortunately, many manufactures will fit into this exact use case (and are many of the manufacturers who we believe are drastically overpaying).
The baseline pharma manufacturer use case:
- 1 CMO partner
- 1 3PL Partner
- 1-10 downstream customers
- Compliance for 1 distribution market (US DSCSA for example)
- Standard data requirements
- Standard quality/validation requirements