Pharmaceutical and Medical Device companies face the need to transform in order to win. Given the well-known market, regulatory, and competitive forces that place intensifying pressure on their bottom lines, these companies must find innovative ways to drive major operational efficiencies while meeting new market demands. Continuous improvement programs such as six sigma are helpful, but are insufficient to drive the level of transformation that is needed. We find that transformation is enabled by well-conceived changes to the operations strategies.
It is now possible for Pharma and Medical Device companies to determine innovative operations strategies quickly and confidently. Armed with insights from new scientific analytical models, executives can develop a revealing understanding of the key drivers of operational performance and how they interrelate. Once understood, these insights help to illuminate the appropriate strategies.
This approach has resulted in major competitive performance and cost advantages for companies across many industries.
The issues are complex and the industry is handling the challenges through a variety of strategies: consolidation through mergers, diversification into other business segments, market expansion into emerging markets, and R&D collaboration. To be successful in the new market environment, the industry must do more than rearrange the deck chairs. They must fundamentally rethink the management of resources, assess and manage risk, improve manufacturing processes and distribution practices, and restlessly manage product portfolios and businesses.
In our work with companies in this space, we have found that applying proprietary analytical models enables understanding of the key drivers of operational performance. The analysis helps determine the appropriate changes in operating strategies needed to achieve improvements in operational efficiencies. These companies typically have the goal of growing revenue. This is largely contingent on their robust ability to consistently introduce competitive and profitable products into the marketplace. The typical strategy is to refine existing products, develop new products and procedures and acquire new technologies outside the company core research and manufacturing capabilities.
We propose several solutions to transform an organization by reducing complexity and improving flexibility in the supply chain:
1. Simplify Product Offering by Consolidating Product Codes: Product lines are typically diverse with high finished goods inventory and high Product Code (SKU) complexity. The consequence of a diverse product line is an offering of highly variable and low/negative margin products best illustrated in a Long Tail.
Analyzing this long tail of variable products while rationalizing the product portfolio and even integrating this process into the product development process is critical to maintaining profitability. We typically suggest a delibrate reduction of SKUs in order to achieve significant results.
2. Improve Manufacturing Process through Inventory Reduction: The manufacturing and quality control processes are typically fragmented and the critical manufacturing process capabilities are not universally understood. There are no standardization or reintegration of best practices and the manufacturing process yields are low with high work in progress (WIP) inventories and unwarranted cycle times. High levels of WIP inventory is an indicator of inefficient manufacturing processes and improving these can lead to a transformation.
3. Improve Production Efficiencies through Yield improvements: Some companies experience low yields from their manufacturing processes leading to wasted material and scrap. These can be drastically improved through process innovation.
4. Create an Effective Product Development Process: We often find that companies’ legacy of transferring new products into production before basic Design for Manufacturing (DFM) criteria are met. Many projects emphasize budget/ schedule performance level while ignoring issues and feedback to the Core Development Team contributing to design. Overcoming a culture of doing things the way they have always been done poses a multitude of challenges, but once this is overcome it is possible to greatly improve performance.
5. Ensure the Right Level of Flexibility – as David Simchi-Levi notes in his book Operations Rules, a small level of flexibility can improve performance almost as much as full flexibility. This concept can be used in deciding where to produce, deciding how to train employees, and in making many other operations decisions.
Through analysis with the methods above, companies can achieve significant results across the Pharmaceutical and Medical Device sectors. It is important that executives approach this new pharmaceutical environment by reviewing not only their R&D assets and processes, but also their operational complexities to further develop implementable strategies focusing on the long-term improvement of the core processes.
To see a related case study on this process, click here.
Written by Dean Rock, an OPS Rules consultant.