Tom Knight, Founder & Chief Strategy Officer, Invistics

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Outsourcing, off-shore competition, eroding profit margins, and demanding customers force pharmaceutical companies to optimize manufacturing performance or prepare to expire. Many are grasping for leaner, demand-based strategies in light of recent research indicating that drug manufacturing currently wastes US $50 billion annually.1

Companies can no longer count on high margins and healthy product pipelines. To deliver the volume and variety of products to market and returns to investors, companies must seek manufacturing performance improvements. Producing a quality product no longer guarantees success. The ability to deliver exactly what customers want when they want it is the key, requiring manufacturers to achieve best in class in four areas:
• Throughput
• Cycle Time
• Customer Service
• Inventory Levels

For years, manufacturers have searched for ways to boost manufacturing performance. From the promise of enterprise resource planning (ERP) and advanced planning and scheduling systems (APS) to Traditional Lean Manufacturing and a plethora of tips, techniques and solutions du jour, pharmaceutical manufacturers have become experts at sizing up what works and, more importantly, what doesn’t.
Traditional Software Doesn’t Fit

After spending millions on ERP systems, many manufacturers are still chasing performance improvements at the plant level. This is according to the results of a survey of more than 1,500 pharmaceutical manufacturers conducted earlier this year by Invistics, a developer of manufacturing performance optimization solutions for complex, asset-intensive industries like pharmaceuticals. The survey indicated that only a little more than 33% of the respondents felt their ERP systems delivered the expected return on investment (ROI). Respondents cited lack of visibility, lack of support for Lean principles, and no awareness of variability as key issues.

While ERP solutions work well as corporate business information systems, critical gaps remain in their ability to improve manufacturing performance – even with an APS add-on (Less than 10% indicated that their APS solution had produced any performance improvements). Chief among these gaps is that traditional software designed for manufacturing in a ‘perfect world’ that does not exist for complex manufacturers awash in variability and constantly changing dynamics. This is a world where factories are characterized as highly complex - with hundreds or thousands of products, dozens of work centers, and significantly more process and demand variability.

For example, plants that employ a variety of manufacturing processes and shared equipment to manufacture a broad mix of products face fluctuations in customer demand, supplier lead times, and machine reliability. ERP software ignores this variability and tends to push products to market regardless of demand. Even with APS, ERP solutions do not take variability into account when planning inventory and capacity levels.

While ERP and APS have their challenges, inventory optimization and manufacturing execution systems (MES) were rated even lower. Less than 20% felt inventory optimization and MES solutions had delivered satisfactory results. Again, variability seems to be the biggest culprit. That makes sense when you consider that most technologies anticipate the future by looking back only at what happened and don’t consider the variability ahead. To effectively optimize in highly variable environments, manufacturers need simulation tools that can help them build “what-if” scenarios that take variability into account.

Of course, variability isn’t the only factor limiting performance optimization according to the survey. Manufacturers also blamed functional silos within the organization, limited skills and training in the workforce, limited visibility into plant performance and a lack of metrics to motivate change. That survey also pointed out an overwhelming concern about a lack of manufacturing agility - again, the inability to quickly adjust to changing customer demands creates significant performance problems.
Traditional Lean Doesn’t Fit
Historically, most successful Lean implementations have been in high-volume, low-mix manufacturing plants, which isn’t surprising given Lean’s roots in the automotive industry and its links to the Toyota Production System (TPS).

Pharmaceutical companies increasingly embrace these types of performance improvement techniques. Well over 50% surveyed implemented Lean, Six Sigma or Operational Excellence and results were somewhat better over time. But less than 50% said Lean initiatives produced satisfactory results, while around 33% felt Six Sigma or Operational Excellence helped. Based on these numbers, it is clear that pharmaceutical companies need to adapt traditional automotive approaches to Lean Manufacturing so they drive real improvements in their plants.
The Prescription to Accelerate Performance
Leading pharmaceutical manufacturers have adapted traditional Lean Manufacturing techniques for our industry using unique flow-based manufacturing methodologies and next generation software. What does this solution look like? #1 Why Pharmaceutical Manufacturing is Different The following chart compares how “Traditional Lean” practices have been adapted for our complex environments: #2 Flow Manufacturing Methodologies Flow path manufacturing methodologies break down organizational silos and increase agility while minimizing the impact of limited skills and training. Lean techniques like “pull” ensure product flows at the rate of customer sales. Decisions are made based on product flow through the factory, not departmental metrics. Employees have more control and KPIs, including capacity utilization, inventory and cycle times, improve almost immediately. #3 Next Generation Software ERP software collects the data, but it doesn’t support Lean. That is why new software has been developed that leverages the data in ERP to support Flow Manufacturing Methodologies. The software measures past performance, optimizes inventory and capacity levels, and then controls day-to-day execution using “pull” to ensure performance improvement goals are met. Since that same data feeds the ERP and MES applications, all systems are more productive and deliver better, consistent results. The software also lets manufacturers model future scenarios to determine their impact on throughput, cycle times, customer service levels and inventory. Need to reduce costs? Dial in lower inventory levels and see how service is impacted. Want to raise service levels? Change cycle times and add inventory to balance acceptable levels of cost while achieving service goals. The software helps manufacturers make better decisions and overcome their chief nemesis: variability.
Real World Benefits
By changing traditional performance metrics, using flow path management to derive more flexible approaches to defining value streams and organizational structure, and by utilizing alternate means of calculating inventory, capacity planning and campaign sizing, companies like Bristol-Myers Squibb have been able to cut cycle times and inventory in half or more, while achieving on-time delivery rates above 99%. Lean, Six Sigma and Operational Excellence implementations are more successful and managers can respond better to fluctuations in customer demand.

In summary, this next generation solution enables pharmaceutical manufacturers to:
• Break down organizational silos and integrate manufacturing operations. Make decisions based on product flow through the factory, not by individual departmental metrics.
• Improve decisions that impact the bottom line. Slash cycle times up to 80% while improving customer service with better, real-time inputs into ERP/other systems providing improved visibility, planning and decision-making.
• Determine best-practices and prioritize metrics based on current business goals and challenges. Model scenarios to determine answers to questions such as, ‘Which scenario will enable me to reduce cycle times more effectively?’ and ‘Where will reductions in variability benefit the bottom line most?’ All it takes is an understanding of how to adapt lean for pharmaceutical manufacturing, and a little extra software to provide a view of what’s in front of you, not behind.

About the Author: Tom Knight is founder and chief strategy officer of Invistics, a developer of manufacturing performance optimization solutions. For more information on Invistics, go to References: 1 Pharmaceutical Manufacturing Research Project Final Benchmarking Report: Jeffrey Macher, McDonough School of Business, Georgetown University and Jackson Nickerson, John M. Olin School of Business, Washington University in St. Louis, September 2006 ftsintt