Next Generation Optimization Software, Methodologies May Be The Solution
Raymon Krishnan, president of the Singapore Logistics & Supply Chain Management Society and a Fellow of the Australian Logistics Academy, and Daniel Sherwood, a practicing logistician in the pharmaceutical industry, give their views on challenges in the pharmaceutical industry for supply chain providers.
The idea of lean comes from the Japanese word muda, meaning waste. Popularised by the practices of Toyota, the essence of lean is to eliminate any waste or any function that consumes resources but does not create any value.
Adopting such an approach to the pharmaceutical industry has, however, met with little success. Regulatory compliance issues, globalisation, production and pricing pressures are all placing overwhelming demands on the profitability and competitiveness of both large and small companies.
In a report released in 2006, it was identified that drug manufacturing wastes US$50B per year. Since then, multinational drug makers have turned to traditional lean manufacturing practices to transform their operations from the high margin, low-productivity model of the past.
But success has been elusive, as traditional lean practices are not suited to the pharmaceutical sector's complex, highly variable production schedules that make use of shared-asset production environments.
In 2006, for example, Southeast Asia was hit by the bird flu virus. The only preventive medication available was Tamiflu but the manufacturer was not able to meet the demand. This was partly due to the fact that one of the key ingredients, a species of the star aniseed herb, which is only cultivated in some parts of China, was not available. Faced with such uncertainty, the concept of lean manufacturing simply cannot work.
To achieve the benefits of lean, pharmaceutical manufacturers, especially the multinational companies, need global visibility of production performance and optimisation and simulation solutions that help model scenarios for more-agile performance.
They must battle the main manufacturing performance killer called "variability". There are very few industries that deal with as much variability in products and processes as drug makers. Pharmaceutical product mix averages at 20 percent in new Stock Keeping Units (SKUs) per year due to market demands for different strength, packaging type and presentation type such as tablets, capsules or liquids. Additionally, there is up to 60 percent in overall Stock Keeping Units (SKUs) volatility due to the emergence of substitutes brought about by new discoveries that may render existing products obsolete!
The future does, however, look more promising. Next-generation optimisation software and methodologies appear to be able to adapt to traditional lean manufacturing techniques. This new software will take into account variability and take steps to mitigate its impact by changing traditional performance metrics, using flow-path management to derive more flexible approaches to define value streams and organisational structure.
At least one pharma giant has cut cycle times and inventory in half, while achieving on-time delivery rate as high as 99 percent by using alternate means of calculating inventory, capacity planning and lot sizing.
To reduce the $50B per year waste, manufacturers need to consider leveraging on this modified lean approach and combine it with flow-based manufacturing methodologies, simulation and analytics software.
The next generation solution will enable companies to break down organisational silos and integrate manufacturing operations. Decisions can be made on the basis of product flow through the factory, not by individual departmental metrics.
Secondly, it will improve decisions that impact the bottom line. Improved real-time data are fed back into the enterprise resource planning and other business systems for better visibility, planning, and decision-making. By feeding more accurate data from the plant floor into other business systems, manufacturers can slash inventory and reduce cycle times by up to 80 percent.
Finally, simulations can allow manufacturers to model solutions to scenarios, such as the reduction of cycle times, more effectively. It can help accurately identify where reductions in variability will most benefit the bottom line.
SOURCE: Marshall Cavendish Business Information