PharmTech: We often hear the phrase "operational excellence" as a goal for a company's manufacturing activities. How do you define operational
Maddaluna (Pfizer): Operational excellence is all about optimizing output while reducing input—streamlining our internal and external processes
(across laboratory, packaging, manufacturing, and all other areas) to deliver a quality and compliant product. OEE (i.e.,
operational excellence plus effectiveness) is our measure of success.
Bailey (PwC): This may not sound particularly insightful, but it's powerful. Operational excellence can be defined as achieving the key
quantitative and qualitative metrics that are required by a supply-chain organization's three key stakeholders: meeting the
needs of the business for assurance of supply and competitive total delivered cost; meeting the needs of regulators for assured
quality and effective risk management; and meeting the needs of society for responsible corporate citizenship (e.g., as it
relates to environmental issues). This framework may look different in practice based on any particular company's particular
situation, but it can be the starting point for a powerful and integrated cascade of performance metrics.
Villax (Hovione): The industry as a whole is still looking for what it means; we are a good 20 years away from the Toyota way. For our industry
to start comprehending what operational excellence is, it needs to cease being in denial and defending its poor record by
blaming FDA and regulatory handcuffs. Our industry is at Sigma Two or Three. Operational excellence is a matter of measuring
to allow managing. It is a matter of developing a problem-solving mindset, so that deviations are truly tackled and root causes
are confronted and fixed before the next batch. It is a matter of adopting methodologies and using them well and systematically.
A good indicator of how well are we doing in terms of operational excellence is measuring how many of our people know and
use things such as 8D [a problem-solving methodology for product and process improvement], failure modes and effects analysis
(FMEA), 5S [a workplace organization methodology], single-minute exchange of die (SMED), overall equipment effectiveness (OEE),
and statistical process control (SPC). However before you have operational excellence, you need to have a genuine quality
culture in the company across all areas and up and down the hierarchy; this is rare. At the start, you need quality which
Henry Ford said was "doing it right when no one is looking."
Hamby (Ash Stevens): Operational excellence at all levels is central to the success of a quality contract pharmaceutical manufacturing company.
CMOs generally possess a track record for consistently delivering quality APIs on schedule and on budget as well as possessing
an excellent regulatory inspection history and strong environmental, health, and safety program. Quality encompasses a number
of tangible and intangible attributes. In general, quality refers to the ability to deliver API that meets all specifications
and is compliant with all regulations. In reality, quality goes beyond this definition. Quality CMOs share the same goals
as their sponsor clients and are equally committed to the goals of the project as the sponsor. Communication and relationship
building are more difficult to assess, but nonetheless, are important. A quality CMO fosters communicative and active relationships,
timely communicates problems or delays, and rapidly adjusts to and resolves technical issues.
PharmTech: From an industry view, how do you think contract or external manufacturing
has evolved in a pharmaceutical company's manufacturing strategy?
Maddaluna (Pfizer): The "make what you sell; sell what you make" model is a thing of the past—the industry has adopted a globally competitive
cost manufacturing model that incorporates contract manufacturing as a strategic business tool. Pfizer's ability to extend
the manufacturing network to encompass an external-supplier network provides access to a broad range of suppliers and technologies
that facilitate the success of its business units. For Pfizer, key factors for keeping manufacturing in-house include the
- Codevelop and launch new products jointly with research
- Improve processes and extract value throughout the product's life cycle
- Ensure quality/compliance
- Perform difficult processes, implement unique technologies, and support business goals with greater efficiency and effectiveness
than third parties
- Operate in a given country due to commercial requirements.
Bailey (PwC): It's obvious that contract manufacturing is playing an increasingly important role in the manufacturing strategies of pharmaceutical
and biotech companies. There are many reasons for this, including the emergence of a growing and highly capable contract manufacturing
market, and pharma's interest in turning fixed costs into variable costs. Increasingly, the question being posed by top corporate
management—CEOs, CFOs and other assorted Os—is why they should be making anything in-house. In response, leading supply organizations
have redefined their mission and mindset around supply management rather than manufacturing. Companies that do a good job
around contract manufacturing do five things particularly well:
First, they link the contract-manufacturing strategies to their broader business strategies and manufacturing-network strategies.
Second, they have a well-defined and commonly understood operating
model that defaults to a "center-led" approach for managing most contract manufacturing relationships. Third, they have standardized
enablers (processes, key performance indicators, scorecards, and relationship-management frameworks). Fourth, they use the
full array of tools at their disposal to manage the economics of contract-manufacturing relationships. Fifth, they have robust
and effective risk-management plans in place, supported by an anticipatory analytic environment rather than a reactive firefighting
Villax (Hovione): Outsourcing ceases to be just a buzzword, an opportunistic option or a tactical decision when Big Pharma starts measuring
cost properly. When shareholders press for performance and finance has run out of options, it starts addressing cost, and
given the uncertainty of the pipelines and the high costs of execution, it is clear that Big Pharma makes a far better deal
when it ceases to develop and manufacture in-house. Doing otherwise represents a very high capital expense cost and a very
high operating cost because Big Pharma will inevitably operate to very low occupancy rates. Time has come for finance to cause
Big Pharma organizations to take these tough decisions. By 2020, Big Pharma won't have vessels bigger than 20 L, except if
tax savings remain available at certain key locations.
Hamby (Ash Stevens): The outsourcing of drug-substance development and manufacturing continues to grow. Large pharmaceutical companies have a number
of manufacturing options available to them. Many large companies are building or have manufacturing facilitates in countries
where labor cost are less expensive than Western countries such as in Asia. This allows them to take advantage of the labor
arbitrage while controlling quality. Most Big Pharma companies have in-house manufacturing capabilities and facilities as
Big Pharma has varying philosophies and strategies regarding which projects and intermediates are outsourced to contract manufacturers.
Some prefer to outsource lower priority projects to relieve pipeline congestion and increase development capacity or outsource
projects with challenging chemistry. Big Pharma is becoming more comfortable with outsourcing manufacturing services and working
with outside manufacturing vendors. Some companies such as Eli Lilly are moving to a completely outsourced manufacturing model.
Other successful large pharmaceutical companies will likely follow suit. Large pharma and many larger biotechs typically maintain
a list of preferred manufacturing vendors they have previously vetted for work. A contract manufacturer may be assigned challenging
or lower priority projects initially to assess its abilities before being fully vetted to work on important CGMP manufacturing
projects. Large pharmaceutical companies maintain metrics on vendors as a way to measure and track their performance.