Are Pharma’s Lean Projects Having ANY Bottom-Line Impact Yet?

Sept. 27, 2006
We just did some research for a capital spending report that will be published in October's issue of our magazine.  Since we had to dig through annual report data, we thought we'd do a bit of "additional" research on efficiency, to see whether pharma's lean programs are having any impact on the bottom line. We took "cost of goods sold" data for each of the world's leading pharma companies and divided that by average inventories to get "inventory turns," the figure that automotive and other companies use to figure out how efficient they are. We then averaged them to determine how lean the industry's becoming. Admittedly, this was kind of "back of the "excel" envelope" and not a scientific process (we will be cleaning this up and refining it) but the results were  surprising.  Big pharma's collective inventory turns average 2....a fraction of what they are in other industries. We looked at numbers from Pfizer, J&J, GSK, Novartis, Sanofi-Aentis, AstraZeneca, Abbott, Merck, Wyeth, Lilly, Amgen, Schering-Plough and Genentech.  Surprisingly, Abbott Labs, which has been the most "low key" about its Lean programs, scored the highest for 2002, 2005 and 2006.  J&J was the winner for 2003 and 2004. Here are the rough numbers: 

bIG pHARMAS iNVENTORY tURNS

2000-2006
2006 (BASED on 6 months) 1.94
2005 2.32
2004 2.03
2003 1.82
2002 2.03
2001 2.33
2000 2.07
I couldn't believe this figure, so I checked Industry Week's two-year-old results.  They showed a value of 4, but their data includes medical device manufacturers' data, and those companies are ahead of the Lean curve (after all, they've won Shingos, Baldriges etc). Data from Tunnell dating from 2004 indicated that two is Big Pharma's  magic number, after all. I've visited, first hand, some drug manufacturing facilities owned by quite a few  of these companies.  They've made huge progress with Lean, and their efficiency levels approach those of lean plants in other manufacturing sector facilities.  Are each of their operating  companies' other plants  so inefficient that they obliterate  the impact? Stay tuned for more on this.  We'll need to get data from more companies and we'll do some 'quality control' on the data. Perhaps it's too soon to expect an impact from pharma's Lean projects, since some of these programs are only a few years old.  But we'll be monitoring this closely and posting a "real" index, quarterly.  -AMS
We just did some research for a capital spending report that will be published in October's issue of our magazine.  Since we had to dig through annual report data, we thought we'd do a bit of "additional" research on efficiency, to see whether pharma's lean programs are having any impact on the bottom line. We took "cost of goods sold" data for each of the world's leading pharma companies and divided that by average inventories to get "inventory turns," the figure that automotive and other companies use to figure out how efficient they are. We then averaged them to determine how lean the industry's becoming. Admittedly, this was kind of "back of the "excel" envelope" and not a scientific process (we will be cleaning this up and refining it) but the results were  surprising.  Big pharma's collective inventory turns average 2....a fraction of what they are in other industries. We looked at numbers from Pfizer, J&J, GSK, Novartis, Sanofi-Aentis, AstraZeneca, Abbott, Merck, Wyeth, Lilly, Amgen, Schering-Plough and Genentech.  Surprisingly, Abbott Labs, which has been the most "low key" about its Lean programs, scored the highest for 2002, 2005 and 2006.  J&J was the winner for 2003 and 2004. Here are the rough numbers: 

bIG pHARMAS iNVENTORY tURNS

2000-2006
2006 (BASED on 6 months) 1.94
2005 2.32
2004 2.03
2003 1.82
2002 2.03
2001 2.33
2000 2.07
I couldn't believe this figure, so I checked Industry Week's two-year-old results.  They showed a value of 4, but their data includes medical device manufacturers' data, and those companies are ahead of the Lean curve (after all, they've won Shingos, Baldriges etc). Data from Tunnell dating from 2004 indicated that two is Big Pharma's  magic number, after all. I've visited, first hand, some drug manufacturing facilities owned by quite a few  of these companies.  They've made huge progress with Lean, and their efficiency levels approach those of lean plants in other manufacturing sector facilities.  Are each of their operating  companies' other plants  so inefficient that they obliterate  the impact? Stay tuned for more on this.  We'll need to get data from more companies and we'll do some 'quality control' on the data. Perhaps it's too soon to expect an impact from pharma's Lean projects, since some of these programs are only a few years old.  But we'll be monitoring this closely and posting a "real" index, quarterly.  -AMS
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