The right tool for the job?

Despite its potential advantages, drug manufacturers have not universally embraced JIT manufacturing. In fact, companies disagree about whether the philosophy is appropriate for the pharmaceutical industry. A business strategist once said that a company can only be good at one thing, according to Kevin McNelly, vice-president of supply chain at MedImmune (Gaithersburg, MD), the global biologics unit of AstraZeneca (London).

JIT principles promote supply-chain excellence by reducing inventory, but "in pharmaceutical companies, inventory management is not the critical element that defines enterprise success," says Thomas. McNelly agrees that it is more important for biotechnology and pharmaceutical companies to excel at research and development.

On the other hand, generic-drug companies might be more eager to adopt JIT manufacturing than innovator companies. Generic-drug manufacturers are "more prone to driving manufacturing innovation to reduce cost because their margins are razor thin compared with the branded products," explains Hussain Mooraj, vice-president of healthcare and life sciences at AMR Research (Boston), which provides advisory services in the global supply chain and enabling technology.

A drugmaker would not necessarily achieve the same level of success with JIT manufacturing as a carmaker has, and it would be misguided for a drug company to adopt JIT principles merely because it works for Toyota, Thomas cautions. Financial and manufacturing considerations are different in the pharmaceutical and automotive industries. JIT principles that work for a carmaker might not be appropriate for all drug-production processes, he says.

Though he recognizes that the pharmaceutical industry faces different challenges than other sectors do, van Laar believes that this argument should not dissuade drugmakers from implementing JIT manufacturing. "Our technology will be different from [that of] Heinz, Apple, or any other manufacturing company," he concedes, "but the basic methodology, the concept, and the approaches are really the same."

Obstacles to JIT

Many pharmaceutical professionals do not share van Laar's optimism, instead pointing to what they consider major obstacles in the path toward JIT manufacturing. One problem relates to the idea that a manufacturer should create just enough product to satisfy customer demand. "That means you have to gauge demand correctly," says Mooraj. "Today, the life-sciences industry has an abysmal demand-forecast accuracy." Consequently, the industry must carry between 150 and 365 days of buffer inventory, compared with 50 to 70 days in consumer products, he adds.

The inaccuracy partly results from confusion about who the drugmaker's client is. Manufacturers of prescription drugs have plausible arguments for identifying their clients as patients, prescribing doctors, and benefits providers, and it is difficult to decide which option is correct.

Most pharmaceutical companies view wholesalers as their clients, but some observers say this choice is inappropriate. The industry should judge demand at the point of consumption, namely the "retail-pharmacy level, patient level, and provider or hospital level," argues Mooraj.

Indeed, more than 50% of Roche's products are sold directly to hospitals, according to Dieter Wegmann, who runs Roche's global supply-chain transformation program. "Our ultimate responsibility is, of course, to the patient," he adds.

Regulatory obligations, particularly in regard to release testing, can hamper a drugmaker's ability to fulfill orders quickly, thus posing an obstacle to JIT manufacturing, says Wegmann. In addition to qualifying its raw-material suppliers, a manufacturer must test the identity of the ingredients upon receipt to ensure their safety. Companies also perform quality testing at defined control points in the manufacturing process, and these procedures, though necessary, lengthen the overall supply lead time.

Real-time batch release would mitigate this problem, but most companies have not achieved this capability. To enable real-time batch release, pharmaceutical companies should base their operational-excellence strategies on their regulatory-compliance and quality-control criteria, says Mooraj. The US Food and Drug Administration's quality-by-design (QbD) framework could help a drugmaker understand the science behind its process and enable it to adopt JIT manufacturing in a batch environment. Although QbD favors a continuous-processing environment, the concept helps a company determine why a batch's test results exceed preset parameters and decide whether the batch has maintained its integrity, Mooraj says.

Regulatory authorities require pharmaceutical companies to register technical details of their manufacturing processes such as batch size, says Wegmann. "This requirement makes it more difficult to adapt pharmaceutical production to demand because regulators must approve these changes, which can take from one to three years," Wegmann says.

A company might successfully apply lean principles to its manufacturing process yet struggle to incorporate them in its supply chain, says Mooraj. Problems sometimes arise during suppliers' adoption of lean techniques, and lean best practices in the factory sometimes conflict with the global requirements of a demand-driven value network.

The biggest obstacle to the pharmaceutical industry's adoption of JIT manufacturing is its own resistance to change, according to van Laar. Some drugmakers believe that JIT principles cannot be incorporated into a research-based, highly regulated industry. This belief sometimes results from a misunderstanding of the JIT philosophy. In the past, the pharmaceutical industry understood JIT to emphasize speed at the expense of regulatory compliance. Companies thus resisted modifying FDA-regulated manufacturing processes.

JIT manufacturing is still widely misunderstood, says van Laar, but drugmakers that examine the concept closely realize that it enhances the efficiency and quality of the production process and improves the ability to maintain regulatory compliance and quality. "Breaking through that initial mindset barrier is the biggest challenge in this industry," says van Laar.

When he began working in the pharmaceutical industry, colleagues told van Laar that the company could not embrace JIT manufacturing because of regulatory concerns. To counter this argument, he chose to apply lean principles to one site's validation process as a re-engineering exercise. Previous inspections of the site had revealed compliance problems that could cost the company a lot of money. Despite other employees' trepidation, van Laar adapted the validation process using lean ideas. The new process required 50% less work and cost 50% less money. At the closing conference of the following FDA inspection, "the inspector looked me in the eye and said he was never so impressed with the improvements in the validation process at that location," says van Laar. "It literally killed the argument in every sense of the word."