Honing the Competitive Edge

Pharma continues its leaning efforts to cut waste and improve operations

By Steven E. Kuehn, Editor-in-Chief

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Stop me if you’ve heard this one: A Lean TPS guy, a Six Sigma Black Belt and an OpEx Consultant walk into a bar. The bartender looks up and says: “What is this, some kind of Jidoka?” Those familiar with the lexicon of Lean and Six-Sigma, might recognize the term from their Lean 101 primers — in its most Japanese of origins the word means “automation with a human touch.”

But all “jidoking” aside, soon after the Food and Drug Administration (FDA) introduced “Pharmaceutical cGMPs for the 21st Century: A Risk Based Approach,” in 2002, the pharmaceutical industry began to take the concepts of Lean and Six-Sigma more seriously. Sure, several majors implemented programs earlier than that, but over the course of the last 10 years, and in the face of tremendous market and cost/price pressures, the industry has increasingly been adapting to its principles, tentatively embracing the philosophy, and implementing (with varying degrees of understanding and success) the movement’s waste-eliminating, continuously improving principals — applying them to the enterprise in hopes of reducing manufacturing costs and boosting productivity. However, if you come from some other major industrial sector you might be thinking Pharma is a little late to the party — and if you do come from the pharma industry and think that’s true, you’re not alone.

The Japanese, Toyota Production System-led origins of the Lean movement are well established, as are its principles, methodologies and purported benefits. Similarly, Six-Sigma, Motorola’s home-grown statistically based continuous improvement ethic gained its own traction in U.S. industry, especially after Motorola’s Bill Smith coined the term in 1986 and its embrace, strategically, by General Electric’s chairman Jack Welch who, in the ’90s, institutionalized Six Sigma across the company’s global operations. The company unabashedly states that fact on its website: “Today’s competitive environment leaves no room for error. We must delight our customers and relentlessly look for new ways to exceed their expectations. This is why Six-Sigma Quality has become a part of our culture.”

By the turn of the 21st century, a broad swath of manufacturing, from automotive to utilities had, for better or worse, and in one form or another, integrated and institutionalized the combined philosophy’s overall efficiency and quality ethic into operations. While their journey may never be over, few can argue that for thousands of companies, Lean and Six-Sigma initiatives have supported their financial performance and competitive agility while containing production costs and sustaining profitable margins. Industrial output and productivity gains in the ’90s, and resiliency to economic downturns since 2001 point to the general success of the process excellence movement and its contribution to sustaining the economic viability of a broad range of businesses. Unfortunately, corresponding annual productivity increases in pharma, according to one analyst, were “rarely noticeable” and played a minor role as an indicator of operational health.

As mentioned, since approximately 2002 the pharmaceutical industry felt increasingly pressured by a number of new and relatively dramatic external and internal market forces (think patent cliff) and began to face up to its profligate spending sustaining inefficient drug development and manufacturing processes. With the cost of bringing a single blockbuster drug to market reaching some $1.3 billion and, according to Eli Lilly, the success rate of new chemical compounds falling from 12% a decade ago to 8% today, drug manufacturers indeed continue to have a tough fight ahead to remain competitive and sustain commercial success. As late as 2009, there was evidence that pharma’s operational and financial culture was nowhere near ready to embrace the philosophy or make it work to its best advantage. That year, the University of St. Gallen’s Thomas Friedli and his colleague NIPTE director Prabir Basu, announced the results of a 2008 benchmark study that surveyed 160 pharmaceutical manufacturing sites. In an article appearing in Pharmaceutical Manufacturing, Friedli and Basu opened with a startling assertion: “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 global low-cost sources for the production of goods while reducing their own production capacities.” They posited, among other things, that such a strategy, on the surface, made sense, but could ultimately harm the competitiveness of pharma companies in the long term.

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THE “KI” TO PROCESS EXCELLENCE
Although it is always dangerous to make sweeping generalizations, veteran pharma industry observers and internal and external experts do ascribe to a general consensus that while Lean Six-Sigma and operational excellence systems are the “Ki” (Japanese for energy or spirit) to produce world-class business outcomes for pharma — the industry still has some work to do before the philosophy and methodologies are truly integrated and institutionalized to produce broad, sustainable gains for the sector. Nigel Smart, principal at Smart Consulting Group and author of the just-released book, Lean Biomanufacturing, says, “For perhaps over a decade now, the pharmaceutical/life sciences industry has been attempting to apply Lean systems to its various process systems. Initially, there were attempts to apply the principles to manufacturing processes in an attempt to mimic the advantages seen in other industrial sectors, such as those in the auto industry. However, if one was to critically prepare a performance scorecard of the implementation of Lean throughout the industry, this analysis would at best give you a normalized score of perhaps 4/10.”

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