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Small- and large-molecule drugmakers debate whether they can replicate other industries' success with just-in-time manufacturing.
Although sectors such as the automotive industry adopted just-in-time (JIT) manufacturing principles long ago, pharmaceutical and biopharmaceutical companies have been slow to embrace them. Now, faced with increased pressure to reduce costs, drug manufacturers are more receptive to the idea that JIT manufacturing could be beneficial. Companies such as Novartis (Basel) and Roche (Basel) have created programs to implement JIT concepts.
The gist of JIT
JIT, also called lean manufacturing, is a management philosophy focused on how the supply chain fits into the manufacturing process, says Dave Schoneker, past chairman of the International Pharmaceutical Excipients Council of the Americas. One of its main principles is to eliminate waste in the supply chain. To do this, a company should buy small quantities of raw materials from its suppliers and reduce the amount of materials that it stores as inventory. An efficient approval process must be instituted so that materials can be brought into the production process as close as possible to the start of manufacturing.
In contrast to push manufacturing, or making products to stock, JIT is based on pull manufacturing, which manufactures product in response to actual consumer demand. The goal of JIT manufacturing is to create products only when they're needed, and only in the quantities necessary to satisfy the demand. Pull manufacturing requires a synchronized supply chain aligned with the manufacturing process.
Short setup times, an even flow of products through the factory, a high level of process control and reliability, and the possibility of continuous improvement are also important JIT principles. These elements help improve process efficiency, ensure product quality, and reduce costs.
It's good to be lean
Arguably the biggest benefit of JIT manufacturing is that it greatly reduces inventory, thus "quickly creating tax-free, positive cash flow," says Ken Thomas, president of Taith Group (Avon, IN) and retired head of Eli Lilly's (Indianapolis, IN) supply-chain management organization. "That liquid asset clearly has many advantages in the current economic environment," he adds.
JIT principles also can reduce throughput time by identifying and eliminating unnecessary procedures. Low throughput time helps a manufacturer respond quickly to sudden increases in demand, which sometimes occur after a new drug is launched. Long throughput times require a company to create a large inventory of a product before launch to rapidly satisfy a potential increase in demand. If demand turns out to be lower than predicted, a nonlean company would be left with excess inventory. By reducing inventory and throughput times, JIT manufacturing helps prevent this outcome, says Tom van Laar, head of global technical operations at Novartis.
Another important advantage of JIT manufacturing is that it reduces the likelihood that a company will run out of finished-product inventory, according to van Laar. Stockouts hurt a manufacturer's bottom line, and they are even worse for the pharmaceutical industry because they impede patients' access to drugs. JIT manufacturing "provides a way to still get the benefits of lower inventories, at the same time minimizing the chance of a stockout or poor customer service," says van Laar.
JIT principles can bring benefits to suppliers as well. Through a partnership, a manufacturer could help a supplier reduce inefficiencies in its processes, thereby resulting in lower costs that aid both parties. Such a partnership fosters long-term relationships and helps suppliers achieve the quality that manufacturers need. Some automobile companies adopted this technique many years ago, van Laar says, and shared the resulting benefits with their suppliers.
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.
JIT would not necessarily improve a drug company's bottom line. "Making all pharmaceutical manufacturing processes robust enough that you can do JIT might not be a good business decision because it might cost you more to make the process robust and get it reregistered than the value of having reduced inventory," says Thomas. "The better question in healthcare is what the impact of a more responsive and flexible supply chain is on meeting customer expectations," he adds.
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."
Drawing a line
Some drug companies see the potential advantages of JIT manufacturing, but don't believe that current pharmaceutical production processes are sufficiently quick, robust, or reliable for JIT concepts to be applied throughout the whole supply chain. The technique of postponement can enable JIT approaches to be appropriately applied to complex supply chains, says Thomas. Postponement puts a dividing line between separate planning techniques within a supply chain. Slow and unreliable processes can be run as push systems, and quick, robust processes as pull systems, he adds.
The line, or push–pull point, might be in a different place for each product, but manufacturers can follow basic guidelines to find the right spot. Companies typically produce consistent, large quantities of active pharmaceutical ingredients (APIs) on equipment that operates at a constant speed. This process runs best as push manufacturing, Thomas says, so postponement would have to occur after this process.
Pull systems need manufacturing steps with short lead times to enable responsiveness. The time between ordering and receiving materials must be relatively short after the push–pull point, says Thomas. Pull systems also require reliable and robust processes. If the product can be stored in a stable state, the push–pull point can occur after final dosage-form manufacturing. Upstream processes often exhibit long lead times and high variability, Thomas says.
The best place for postponement might be the point at which a product is differentiated such as the labeling, packaging, and shipping processes. If the process of packaging pills in bottles, cartons, and cases for shipping is fast and reliable, "what we might want to do is keep a relatively large inventory of tablets close to the packaging lines and label, carton, and ship them when we receive an order," Thomas says. Running product-differentiation processes in a pull system protects a manufacturer from fluctuations in demand and inaccurate forecasts. Postponement can thus help a drugmaker achieve sales without waste, with less inventory, and with better use of its assets.
In addition, postponement can greatly increase supply-chain efficiency and improve order fulfillment, thus benefiting distributors, retailers, and patients. Cartoning, packaging, and distribution plants differ from country to country, and incorporating these procedures into a pull system prompts a manufacturer to "design and employ manufacturing and distribution assets that are in sympathy with the characteristics of the region and the market," explains Thomas.
A pharmaceutical manufacturer must understand the inherent reliability of its process because postponement exposes variability in production. It is better to make manufacturing processes more robust and responsive before incorporating them into a pull system, Thomas says. Otherwise, a pull system would expose unreliability and unresponsiveness in the manufacturing process by not fulfilling customer orders.
From theory to practice
Several pharmaceutical manufacturers have incorporated JIT concepts into parts of their supply chains. Roche uses projections of market demand to determine how much of a dosage form (e.g., tablets) it will need in specific markets and runs its production accordingly. Semifinished products are planned and replenished weekly or monthly depending on demand, according to Wegmann.
"We use our equipment efficiently and work hard to minimize downtime for cleaning and changing instrumentation," Wegmann says. The company produces drugs in campaigns (i.e., multiple batches of the same product), but distributes the campaigns throughout the year to keep inventory levels low. The strategy helps Roche to be responsive to the market and satisfy demand, Wegmann adds.
To further reduce inventory levels, the company organizes events during which employees throughout Roche's production network pool their knowledge and capacity to continuously improve the production of chemical and biopharmaceutical products. Often, one site transfers semifinished products to another for the next stage of manufacturing. "We have synchronized our manufacturing network a lot more than we traditionally did and have created a high level of transparency along the whole supply chain," says Wegmann.
MedImmune has gotten a huge benefit from JIT concepts by applying them to its raw-material purchasing, McNelly says. Because sampling and analytical testing are so expensive, pharmaceutical and biopharmaceutical companies have traditionally bought and stored large quantities of raw materials, testing them only upon receipt so they would be available when needed. Several years ago, MedImmune used an economic-ordering-quantity calculation to compare the cost of acquiring and testing the materials with the cost of carrying them. The company realized it had been ordering too much of various products, which lay unused for long periods. "We cut quite a bit of inventory out of our system by using the JIT techniques to optimize the inventory," McNelly says.
MedImmune applies JIT principles throughout the process for manufacturing its "FluMist" live attenuated influenza vaccine. The vaccine is made in eggs that the company receives no more than seven days after they are laid. MedImmune must inoculate the eggs with the master virus and grow the virus in an incubator within eight days. The company applies JIT principles to its egg flow because the eggs' shelf life is limited. "If we don't do that right from a JIT perspective, we can shut the plant down or we have obsolete eggs that we would have to throw away," McNelly says.
Three facilities produce different strains, known as monovalent bulk, of the flu vaccine. After they're manufactured, the strains enter another facility to be blended into a trivalent vaccine. "We regularly have a monovalent show up a day or two before it must be used in our facility because we minimize the amount of bulk that we have to keep the supply chain moving," McNelly explains. After production, the vaccine is sold within three to four months.
The whole ball of wax
In 2005, Novartis developed an operational-excellence strategy called the Target 2010 Vision, which was to become "the Toyota of the pharmaceutical industry," van Laar says. The project's goal was to improve the company's business by applying JIT principles to the entire supply chain—including manufacturing sites, distribution, and transportation—for Novartis's major products.
The company began by assembling crossfunctional teams at major manufacturing sites. Each team toured its site to understand its production processes and how work flowed through them. In a half-day meeting, the teams learned about JIT principles and how they could improve drug production at their sites. Next, teams brainstormed to come up with radically revised processes that incorporated JIT concepts. The idea was for employees to invent creative solutions with no constraints on their thinking, says van Laar.
After mapping out on paper how current processes worked, thereby revealing waste and inefficiencies, teams identified a future state for their processes. Each team's goal was to use JIT principles to achieve their future state within two years.
Part of the process entailed changing the company's organizational structure to increase speed and reduce waste. Novartis eliminated traditional functions and departments at its manufacturing sites, replacing them with process-oriented organizations (i.e., teams aligned around products). The aim was to streamline and empower manufacturing teams. "Most of our sites had between five and eight levels of management, and now they have three," says van Laar.
As employees gained experience in applying JIT concepts, Novartis began to extend its approach to more of the company's sites. JIT projects branched out from manufacturing sites to the rest of the supply chain. By 2010, the company expects to have transformed its business and achieved measurable improvements in inventory, speed, flexibility, and cost. Novartis has already reduced the throughput time for some products by 50–70% and reduced inventory by about 30%, says van Laar.
The pharmaceutical industry's interest in JIT manufacturing is not likely to wane. Pressure on drugmakers' margins is mounting, and companies see JIT concepts as ways to reduce costs. The scientific and process understanding that a drugmaker achieves through FDA's QbD initiative would likely help it improve production and set the groundwork for JIT manufacturing.