While the challenges facing pharmaceutical manufacturers are many, perhaps there is no threat as serious as the potential for industry-wide disruption by tech companies. Armed with analytics and innovative ideas, these companies are entering the pharmaceutical arena with new offerings and ways to engage patients, consumers and partners.
In the past, pharmaceutical manufacturers have generally focused their efforts on increasing productivity during challenging times. Yet the industry is still behind when it comes to finding ways to reduce costs. In fact, a 2017 McKinsey study between 2011 and 2014 generics manufacturers were the only pharmaceutical subsector that was able to cut cost of goods sold, and midcap manufacturers were the only ones able to decrease selling, general and administrative costs.
According to McKinsey, “The main levers that companies have pulled over the past decade to increase productivity – reinvesting in R&D, reallocating resources to emerging markets, and improving COGS – will not be enough to deliver the scale of improvement that the industry needs to thrive in today’s challenging environment.”
With industry disruption in progress, and with traditional means of meeting challenges on the brink of being no longer sufficient, pharmaceutical manufacturers need to take a more holistic and systematic approach to increasing productivity.
To achieve this, McKinsey suggests embedding productivity into every change effort a pharmaceutical manufacturing company undertakes and also points out six specific situations that require broader, systematic change, thus opening the door for a productivity overhaul:
- Specific business function not up to par
- Under-performing unit within an otherwise healthy company
- Decision to pursue first-in-class status
- Event-driven change (such as a merger or acquisition in which synergies need to be captured)
- Need to streamline cost base and/or improve agility and customer experience
- Significant distress requiring company-wide turnaround
The task then becomes building productivity measures into the selected solutions for addressing these change scenarios at every juncture – from big picture planning to the minute details. In other words, every aspect of the change initiative will have productivity at its core.
But even without a major change initiative on the horizon, we’ve found that pharmaceutical manufactures can still significantly increase productivity in a systematic way by examining each component of their current operations and making incremental improvements.
In fact, incremental improvements not only improve quality and decrease costs immediately, but also better prepare pharmaceutical manufacturers for the more radical changes that will be required to compete in the future by providing better process understanding and technology experience on a smaller scale.
Our recommendations for finding hidden productivity gains include projects related to:
Leveraging the Value of Metrics: Looking for missed opportunities to use data to increase efficiency, including using analytics to understand drivers of unreliability and sources of risk and product variation, is key to undertaking any improvement project. When helping our pharmaceutical clients increase productivity, we always begin by seeking deeper knowledge of the current situation from all sources and this single step is the foundation for determining the most cost-effective plan for increasing productivity factory wide as well.
Moving from Batch to Integrated, End-to-End Continuous Production: Many of the inefficiencies in pharmaceutical manufacturing stem from the inefficiencies inherent in batch production. Moving to integrated continuous manufacturing significantly improves productivity and asset utilization, reduces inventories and reduces time to market and, while there’s much to be considered in terms of the capital investment, continuous products represents the future of the industry and is well worth considering, especially for new product lines.
Implementing an Operational-Equipment Effectiveness Program: OEE is a key metric for performance that measures current sellable product production against how much could have been made and sold under perfect operating conditions. OEE is ideal as an incremental productivity improvement solution because it can be applied to a single line or product, enabling a company to demonstrate results and ease of implementation prior to full-scale rollout. Of course, each application of OEE will require it’s own set of solutions to address any problems the data reveals and these are what ultimately lead to every increasing productivity gains as the OEE program is broadened.
Updating Aging Facilities: There’s no doubt that older equipment is more difficult to maintain and often unreliable, resulting in significant decreases in productivity. Add to this the fact that older equipment may not be up to current standards and modernizing a facility becomes the first choice for many pharmaceutical manufacturers seeking an immediate productivity gain. The key to taking on an upgrading project is approaching it one step at a step at a time. Even though you may only see a 10% increase in productivity with the first change, taking this step makes achieving subsequent gains with additional modernization much easier. Before determining where to start, we recommend conducting a careful analysis with the end-game in mind, as well as with consideration to potential interruptions in the supply chain, so that each upgrade builds on the last and ultimately results in the desired, fully compliant factory of the future.
Creating a More Flexible Supply Chain & Workforce: Pharmaceutical manufacturing requires a more flexible supply chain to increase or decrease volume to meet changing capacity needs. Rather than thinking about the supply chain as a way to ensure compliance or focusing on negotiating a better price with suppliers, create additional value by increasing supplier flexibility through segmentation, lean fulfillment practices and digitization. Additionally, consider introducing flexible shift systems and shared labor pools to further reduce risk due to demand fluctuations.
Clearly, for pharmaceutical manufacturers, gaining a competitive edge during disruptive times is paramount. While incremental solutions take time to implement, those who don’t take at least some action now are at much greater risk of falling too far behind and finding themselves in a situation where a much higher and “all at once” capital investment is needed to compete. By making a series of small changes, each building on the last, you can approach increasing productivity more wisely and ensure you’re ready for tumultuous road ahead.
Helping manufacturers determine the best path for increasing efficiency and productivity is our strength. If you’re a manufacturing company seeking a partner you can count on to help you address current and emerging challenges, as well as prepare for the future of the industry, contact Jim Solich at js*****@ji****.com