Operational Excellence: Pharma’s Missed Opportunities

Few managers of pharmaceutical companies see manufacturing as a competitive advantage today. Increasing cost pressures in the Industry have led more and more of them to take advantage of the global low cost sources for the production of goods while reducing their own production capacities.

Although, on surface this makes sense, this strategy could ultimately harm the competitiveness of pharmaceutical companies in the long term. In most cases the outsourcing decisions are based on a simple comparison between the costs to make a product at one’s own location and the costs in the target country!

Besides the issues that are going to be discussed below, separation of manufacturing from R&D has long-term consequences on the research and development process. Manufacturing input is essential for high quality product development and there is a need for constant dialogue between the manufacturing site and the researchers who are focused on just developing a laboratory process.

The Europe-wide benchmarking study conducted by the University of St. Gallen, Switzerland, and the International Association for Pharmaceutical Technology (APV), reveals that an average pharmaceutical plant could save up to € 6.5 million per year by achieving the degree of operational excellence equivalent to that achieved by the top 10% of the sample. About 100 pharmaceutical manufacturing locations all over Europe were analyzed in this study. Nevertheless, the challenges in grasping this potential are many fold, and many companies struggle to achieve a sustainable success. Through an analysis of the data from this study and from experiences gained through site visits in the European plants of a big research driven company one can derive the main success factors for the sustainable implementation of operational excellence. 

Effectiveness Before Efficiency

Our data provides evidence that if an operational excellence initiative first tackles effectiveness issues and only thereafter shifts its efforts to increase efficiency; the program is much more likely to succeed than if it’s done in the reverse order. Unfortunately, this does not always reflect the interests of Senior Management in every company. As the big savings come with the efficiency driven parts of the programs, such as Lean Manufacturing, some of them are focusing on efficiency right from the beginning.

These programs are likely to fail in the long run, since at the end of the day, no sustainable success beyond some initial gains will be achievable.
To achieve a high JIT Performance, a stable underlying system comprising the equipment and the processes in place is first required! A closer look at a sample revealed that the best performing companies in the Just-in-Time category (this category comprises KPI’s like inventory turnovers, throughput time, set-up time, etc.)  have at the same time a significantly higher performance concerning Total Productive Maintenance (TPM) and Total Quality management (TQM) than the rest of the sample (Figure 1).

However this does not work in the reverse order. Being a TPM Performer does e.g. not help to predict a high JIT performance. Therefore a sustainable initiative must start with actions related to reduce the variability of the core manufacturing processes. For example, reducing the percentage of unplanned maintenance by doing more preventive maintenance could stabilize operation of the equipment as a first step. Learning more about the process and reducing variances (e.g. by applying Six Sigma) will help to increase the quality of the manufacturing processes. As soon as pharmaceutical manufacturing plants can ensure stable running equipment, stable running  manufacturing processes and reliable and integrated suppliers, a JIT-program can help to reduce buffer stocks and increase the flexibility. An effective management system has to support the implementation of these steps in the right order:

Success Factors in Striving for Operational Excellence

However the biggest challenge in improving Operational Excellence is to manage a paradigm change at the sites convincing people that they start to think in continuous improvement. This challenge is never really over. Therefore, Operational Excellence is a continuously ongoing journey that requires management attention on each level!
In the visits to plants all over Europe we could derive the following success factor supporting the  sustainable implementation of Operational Excellence!

Show Corporate Commitment

There have been too many poorly designed restructuring programs in the past. So employees are not always sure how seriously a new program should be taken. Sometimes, their attitude is just to wait until it’s over again! Therefore there must be a noticeable commitment of corporate management to the excellence program. Too many companies have tried to manage their corporate excellence programs from behind the desk! What is needed is physical presence of responsible managers at the sites, where change has to happen. The responsible managers for operational excellence on the corporate level will have to be senior managers (often having managed a site by their own before) so that they can talk to the site managers face to face.  Next building up operational excellence needs dedicated people dealing with this. Fostering Operational Excellence is not a part-time job. Corporate budgets will be mandatory for the implementation.