Compliance vs. Operational Excellence

What should happen first? You can’t have one without the other

By Girish Malhotra, PE, EPCOT International

For every manufacturing operation in the world to be successful and profitable, it has to have “operational excellence” in their business environment. Unless there is an extreme anomaly, this is the law of economics and nature. To me, “operational excellence” means the companies have to produce consistent quality products and serve customer’s needs all the time. Any company believing that “regulation compliance” will give them “operational excellence” could be considered overestimating itself. Surely such companies can produce quality products, but only after a lot of effort and consternation. In a competitive environment their long-term existence could be in jeopardy. Companies focused on achieving “regulation compliance” as their first priority might be able to meet the minimum regulations. It is very likely that their inefficient technologies and methods will result in lack of process repeatability and occasional failures. They will have to be extra vigilant to comply with regulations. This effort would lead to higher costs. Companies achieving “operational excellence” might take a bit longer to commercialize their products, but compared to their “regulation centric” competitors, their overall costs will be lower.

With pharmaceuticals, no matter how we look at things patients will pay whatever it takes to extend life, whether they are part of a mutually subsidized system or pay from their own pockets. Brand Pharma have monopoly, thus can easily charge the highest price a patient will pay. For generic products there are too many players making the same product, and generally no one has economies of scale to have the best manufacturing technologies and operating practices. Not having the economic processes, companies try to get a competitive edge through pricing advantage. Shortcuts are taken at every step, including regulatory compliance. Lack of command of processes to assure quality demands expensive quality checks.

When every bit of “manufacturing technology innovation” is stifled by perceived difficulty of complying with regulations rather than by lack of application of fundamentals of science and engineering, we begin to see issues like faltering product quality and regulatory compliance, less than 50 percent asset utilization, low inventory turns (less than two), etc. We also begin to see higher product prices and/or companies cut corners to stay profitable. These are symptoms of an industry telling us or even begging us for help. Even though Pharma companies have done a wonderful job of helping billions over the years, the industry itself seems to need a curing dose to achieve “operational excellence.” This dose could be “manufacturing technologies innovation” that will produce quality products that can exceed regulatory expectations.

“Operational excellence” has to come from within and cannot be thrust upon any business or company. I believe the time has come for Pharma to take a re-look of the current model and operating practices (process development, manufacturing and supply chain, etc.). Since Pharma has not internalized “operational excellence,” it seems like regulatory bodies are creating guidances and directives trying to nudge companies to excellence. However, companies are putting additional effort trying to comply rather than putting effort in achieving excellence. This seems like a catch 22, and few are making much progress.

We need to review the current business model to see how and what all is needed for manufacturing innovation — rather than pontificate on “how difficult or complex” it is to comply with regulations. Regulations are an “after effect” of lack of continuous innovation. There are “creative destructionist” companies that are driving innovation on the diagnostic side of healthcare. Traditional diagnostic companies that are afraid to lose their current lucrative business are blocking innovations. We need similar innovators on the manufacturing technology side, as their efforts will lower drug costs and make drugs affordable.

I believe that if pharma companies follow basic fundamentals of chemical engineering, economics and chemistry, simplicity of economies of scale will lead them to embrace the best manufacturing technologies. This effort should direct them to a better business model. “Operational excellence” in drug discoveries will run at their pace, but it is possible that they could have a trickle down benefit of “manufacturing technology innovation.” It will be a win-win.

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