Few managers of pharmaceutical companies see manufacturing as a competitive advantage today. Increasing cost pressures in the Industry have led more and more of them to take advantage of global low-cost sources for the production of goods while reducing their own production capacities.

Although on the surface this makes sense, this strategy could ultimately harm the competitiveness of pharmaceutical companies in the long-term. In most cases, outsourcing decisions are based on a simple comparison between the costs to make a product in one’s own location and the costs in the target country!

Besides the issues to be discussed below, separation of manufacturing from R&D has long-term consequences on the research and development process. Manufacturing input is essential for high quality product development and requires constant dialogue between the manufacturing site and researchers focused on developing a laboratory process.

The Europe-wide benchmarking study conducted by Switzerland and the International Association for Pharmaceutical Technology (APV), which analyzed about 100 pharmaceutical manufacturing locations across Europe, reveals that an average pharmaceutical plant could save up to €6.5 million per year by achieving the degree of operational excellence equivalent to that achieved by the top 10% of the sample.

The challenges in grasping this potential are manifold, and many companies struggle to achieve sustainable success. By analyzing the data from this study and from experiences gained through site visits to the European plants of a big research-driven company, one can derive the main success factors for the sustainable implementation of operational excellence.

Effectiveness before Efficiency

Our data provides evidence that if an operational excellence initiative first tackles effectiveness issues before shifting its efforts to increase efficiency, the program is much more likely to succeed than if it’s done in the reverse order. Unfortunately, this does not always reflect the interests of senior management in every company. As big savings are generated from the efficiency-driven drivers of the programs, such as Lean Manufacturing, some of them are focusing on efficiency right from the beginning.

These programs are likely to fail in the long run, since no sustainable success beyond some initial gains will be achievable.

To achieve a high Just-in-Time (JIT) performance, a stable underlying system comprising the equipment and the processes in place is first required. At the same time, a closer look at an industry sample reveals that the best performing companies in the JIT category (which comprises KPIs like inventory turnovers, throughput time, set-up time, etc.) have a significantly higher Total Productive Maintenance (TPM) and Total Quality Management (TQM) performance than the rest of the sample.

However this doesn’t work in the reverse order. Being a TPM performer doesn’t, for instance, help to predict a high JIT performance. Therefore a sustainable initiative must start with actions that reduce the variability of the core manufacturing processes. For example, reducing the percentage of unplanned maintenance by doing more preventive maintenance could stabilize equipment operations as a first step. Reducing variances (e.g. by applying Six Sigma) will help to increase the quality of the manufacturing processes. As soon as pharmaceutical manufacturing plants can ensure stable running equipment, stable running manufacturing processes and reliable and integrated suppliers, a JIT-program can help to reduce buffer stocks and increase flexibility.

However, an effective management system has to support the implementation of these steps in the right order:

Success Factors in Striving for Operational Excellence

The biggest challenge in improving operational excellence is to manage a paradigm shift at the sites that convinces people that they start to think in continuous improvement. This challenge is never really over. Therefore, operational excellence is a continuously ongoing journey that requires management attention at every level!

During the aforementioned plant visits across Europe, the following success factors supporting the sustainable implementation of operational excellence can be extrapolated:

Show Corporate Commitment

Too many poorly designed restructuring programs in the past have compromised their credibility, so employees are not always sure how seriously to take new programs. Sometimes, their attitude is to wait until it’s over. Thus there should be visible commitment from corporate management to the excellence program. Too many companies have tried to manage their corporate excellence programs from behind the desk. What is needed is physical presence of responsible managers at the sites, where change has to happen. By definition, the managers responsible for operational excellence at corporate level should be senior managers (often having managed a site on their own before) so that they can address site managers face-to-face.  Next, building up operational excellence needs dedicated people to deal with this. Fostering operational excellence is not a part-time job. Corporate budgets will be mandatory for the implementation.

Understand the Program and its Link to Strategy

To get buy-in on all levels in an operational excellence program, understanding the meaning and objectives of the program is critical. To ensure that the program is seen as key to improving the survival and competitiveness of the plant and not simply as a “pain in the neck”, the objectives need to be linked to the overall company and site strategy.

Gain Management Commitment at Plant Level

The site manager faces tremendous pressure in today’s business landscape struggling with low cost competition both in- and outside the company, and often have to deal with multiple initiatives at the same time such as PAT, QbD, Six Sigma, Lean Production, etc.

In order to obtain management commitment, it’s mandatory to explain and manage operational excellence as an umbrella initiative helping to structure all moving parts.

This’ll ensure that the site management understands that striving for operational excellence will remain an objective even when one of the sub-initiatives takes a break. This understanding will help to get a site management commitment for operational excellence and give direction to the whole plant. A common misunderstanding is that operational excellence is something that starts in the plant, but this can be countered with preventive methods like QbD, which ensure that a process is well designed from the start.

Give Structure and Resources to the Program

In the beginning, there’s a strong need for a support organization in each plant to help kickstart operational excellence. Somebody at the plant has to coach and coordinate all activities related to improving operational excellence and ensure that there’s a close link to the plant leadership team. Without a dedicated leader for operational excellence on the site level, the efforts will usually only have limited success.

Communicate

Communication to the shop floor about operational excellence is an important factor in getting the commitment of every single employee to continuous improvement. At the launch of the program, communication will be about the basic idea, the business logic, and the number of started improvement projects etc. As time goes by, the character of communication has to change. People will want to see the success of the activities, the gains achieved, and the improvements in their operations.

Select the Right People

Improvement projects in operational excellence usually require the collaboration of cross-functional teams. The challenge in achieving results is mostly not a methodological or technical one but rather a management challenge. For instance, the key capability for successfully completing a Six Sigma black belt project is management. This means that one has to select people with yellow, green or black belt management capabilities as team leaders. Without this, you won’t see any return from the projects. This in turn requires a certain trade-off as the same people are needed to run day-to-day operations too.

Select the Right Projects

Quite often, while launching an operational excellence program, there’s usually no clear selection process for improvement projects. In some companies it’s even worse: since they’ve put a mechanism in place that staff can qualify as a green or black belt only when they’ve completed their own projects, many initiatives are started with no clear business logic but only to have done it. Such a mechanism can again endanger the credibility of the operational excellence program in general. This underscores the necessity of defining clear criteria based on business objectives a project has to fulfill to get started.

Control the Success of the Projects

There’s an old saying that “what gets measured, gets done!” Therefore, establish some simple KPI’s that show that the program is running and achieving results. KPI’s could be number of running projects, number of projects in the pipeline, cancelled projects, projects on hold, achieved savings, people trained, etc.

Ensure Knowledge Transfer

As operational excellence will be widely distributed in the overall production network of a pharmaceutical company, it makes a lot of sense to establish a mechanism to ensure knowledge transfer between sites. A good way to do it is to standardize the form of documentation across projects and make this available using a centralized data base. As an additional measure, leading companies build up a network between the people responsible for OE from the different sites. They discuss with one another in periodical meetings and exchange ideas.

Don’t Forget People

As in many other change programs, it’s critical to recognize that change can’t happen without systematically involving people in this change. Most of the success factors discussed here help to engage people in the required changes. Continuous improvement can’t be ordered by remote control from the top!

Summary

The strive for operational excellence is a journey and leading companies see it as a never- ending one. The sustainable implementation of an operational excellence program requires thoughtful design and the willingness to overcome initial problems. Figure 2 shows the most important dimensions that have to be taken into account climbing the mountain to excellence. In today’s challenging business climate, senior management often go for the quick wins instead of investing in something sustainable. This also explains why more and more companies outsource their operations or let consultants do headcount reductions instead of increasing their manufacturing excellence.