Building quality excellence in pharma industry

With the pharma industry expanding scale and complexity, quality has emerged as a major focus area. Is quality merely a risk to be mitigated or does it represent an opportunity to create real value and what does it take to build great quality? Vikas Bhadoria, Director, McKinsey & Company and Leader, Pharmaceutical and Medical Products Practice, India and Jaidev Rajpal, Principal, McKinsey & Company address some of these questions in this article

India has emerged as one of the major suppliers of affordable, life-saving drugs and vaccines to the world on the back of its distinctive capabilities in product development, manufacturing and process innovation.

India accounts for 60 per cent of global vaccine production, contributing 40 to 70 per cent of the WHO demand for DPT and BCG vaccines and 90 per cent of the WHO demand for the measles vaccine1. Indian generic drugs help reduce healthcare costs worldwide. Medicines of Indian origin account for nearly 25 per cent of the medicines used in the UK2, save on the US healthcare costs and give people in Africa access to life-saving drugs.

With more than 33 per cent of Abbreviated New Drug Application (ANDA) filings in 2015 and more than 40 per cent of Drug Master Files (DMFs) in 20143, the Indian pharma industry is poised to continue its remarkable contribution to public health across developed and developing countries.

The question of quality: Risk or opportunity?

Between 2008 and 2014, the number of product recalls and warning letters to pharma companies globally tripled. The number of warning letters from the US Food and Drug Administration (US FDA) to Indian manufacturing sites increased from an average of five between 2011 and 2014, to 12 in 20154.

The industry therefore faces the dual challenge of upgrading quality while continuing to deliver life-saving medicines worldwide. The way companies approach the subject of quality determines whether it is a big risk or an opportunity.

Companies are discovering that quality problems can prove surprisingly expensive. Recent benchmarking suggests that companies suffering from quality challenges can lose annual revenue
up to four to five per cent of cost of goods sold (COGS)5 and market value of five to 20 per cent6.

More importantly, the way companies approach remediation can play a significant part in determining the final cost of quality. To address these issues promptly and thoroughly, with a carefully crafted engagement strategy and full organisation commitment is critical for success.

The good news is that quality also has an upside. When an abrasives manufacturing company mired in customer complaints with dwindling sales committed to a ‘quality revolution’, Defects in Parts Per Million (DPPM) fell by more than a quarter, and sales more than doubled. Another major biopharma company saved over $350 million through six-sigma quality excellence initiatives.

This upside, however, is possible only when you reach an outstanding level of quality. A survey by an auto original equipment manufacturer (OEM) showed that customer satisfaction and loyalty jumped five-fold7 when quality perception moved from ‘good’ to ‘outstanding’. Data from the proprietary McKinsey’s pharma operations benchmarking (POBOS) database shows that companies with a top-quartile quality performance had an average yield loss four times lower than the median.

Maintaining high quality standards thus represents, an opportunity for pharma companies to distinguish themselves in the market, and equally importantly, in the eyes of other industry stakeholders, who are moving towards recognising and actively encouraging quality excellence.

At the Quality Conference organised by the Indian Pharmaceutical Alliance (IPA) where McKinsey was a knowledge partner recently, attendees unanimously recognised the industry’s need to move towards 6-sigma quality. Regulatory initiatives such as risk-based inspections further strengthen the case for investing in outstanding quality systems.

The writing on the wall is clear: Weak quality systems put companies at significant risk of value erosion while quality excellence can be a significant driver of value creation.

Building outstanding quality

Outstanding quality is built (and can be destroyed) at the foundation itself, where it needs to be embedded into three fundamental systems: operating, people and management systems.

Quality in the operating system: Product development and operations

Organisations generally concentrate on the value stream (suppliers, facilities and market) to deliver quality. While advances in machines and improved input material quality do merit attention, organisations could benefit from additional focus on the following crucial areas:

Evaluating and upgrading Quality Management Systems (QMS)

The rapid growth of the Indian pharma industry has made operations significantly larger and more distributed across geographies, product portfolios much more complex and supply chains denser, with the industry now involving more stakeholders.

So, how can companies evolve and upgrade their QMS to address increasing scale and complexity? How can they ensure that their systems build in the latest regulatory guidelines and evolving current good manufacturing practices (cGMP)?

Every company needs a customised approach, informed by its overall quality aspiration and legacy systems. McKinsey has found four things to be critical and relevant across organisations: a structured diagnosis to pin-point gaps, a risk-based prioritisation of initiatives to address these gaps, a detailed change management approach (including a plan to transition to a new QMS), and a strong continuous improvement engine.

Embedding quality into the product lifecycle

Pharma manufacturers and regulators recognise that today’s 3-sigma level of process and product robustness need to be improved. This is necessary to minimise compliance risks, supply disruptions, unnecessary costs and wasted efforts on the shop floor.

So how can companies successfully build quality into products and processes?

One potential approach could be to adopt a product lifecycle approach to quality. This means building quality into key processes across the product lifecycle—Quality by Design (QbD) during development, process qualification and technology transfer and continuous process verification during commercial production.

As pharma companies incorporate these elements into their QMS, a few things are critical: robust cross-functional processes at the interfaces, clear handover points, strong governance including reliable robustness scores, knowledge management and an emphasis on capabilities and organisation.

Recognising that high quality does not equal high cost

It is a myth that a winning combination of outstanding quality, strong cost-competitiveness and rapid delivery is unachievable. In fact, the best quality plants have the lowest costs and the highest productivity. McKinsey’s POBOS found that higher quality performance went hand in hand with lower unit costs and greater output.

This is not surprising. Quality is an integral part of operations and vice versa. A common set of capabilities and practices, as well as a common culture, form the basis for mature operations and high quality. In fact, in the semiconductor industry, advanced techniques such as design for manufacturability are deployed to improve yield—a measure of quality and productivity. For example; a major semiconductor chip manufacturer was able to improve quality by 40 per cent by reducing line scrap and increasing yield.

Quality in the management system: The power of predictive metrics

Businesses believe, “If you can’t measure it, you can’t manage it.” Designing an effective metrics and governance system that identifies, measures and resolves potential quality risks is an important element of building a quality focus into the management system.

Doing this well can be challenging, especially with the prevalence of outcome-oriented metrics such as recalls or customer complaints, which tell the story after the fact. Our McKinsey POBOS research points to the power of predictive metrics, which can anticipate quality outcomes and enable preventive actions for better quality assurance.

Another issue is watermelon metrics—green on the outside but red on the inside. In our experience, other elements are critical for an effective governance process:

  • Consistent use of the same core metrics, applying uniform definitions and measurement at the right frequency.
  • A system of cascaded governance forums, which connect top management to the shop-floor and the individual KPIs to business objectives.
  • A meeting environment that supports openness and encourages active problem-solving on quality issues.

People systems: Embedding a culture of quality

The understanding of a ‘culture of quality’ varies across leaders and organisations. Some wonder if culture even matters. Others intuitively believe that it does, but are unable to provide hard empirical evidence. Arguments abound over the very meaning of a culture of quality. How can it be defined or measured? Many companies and leaders believe that measuring quality is an elusive goal. Our research shows that a quality culture drives up to 30 per cent of the outcome8.

Entrenching a culture of quality in the organisation is critical to the pursuit of excellence. This research is based on the link established between quality culture, as measured by an empirically tested survey on quality conducted at the employee level (including focus-group discussions, Gemba walks, analytics that connect the dots across various metrics) and quality outcomes, as measured by fewer rejections or higher lot-acceptance rates.

The role of leadership in building quality excellence

How can leaders shape this journey? Those who choose to see risk as an opportunity need to establish an aspiration for outstanding quality—setting goals and continuously revising this target beyond visible frontiers. This aspiration sets the course for the organisation. The leaders, as captains of the enterprise, steer their people towards this specific vision.

Leaders can role-model desired behaviours and actions—asking themselves and their top management team candid questions about quality, demonstrating openness and a knack for root-cause problem solving.

In a quality crisis, many organisations focus on the negatives or what not to do, demoralising the entire workforce. This response often robs them of their best talent during an already difficult period. Leaders can opt instead, to motivate and energise their organisations by communicating an inspirational change story.

Discerning the opportunity inherent in ensuring outstanding quality, and proactively working towards quality goals can transform a company. Leaders must take up the quality agenda as their very own—no longer can they delegate it to others in the organisation. They are the Chief Quality Officers, and their commitment to quality can determine the path and destination for the organisation as a whole.

References:
1. Press Information Bureau; “Affordable Efficacious Medicines – All Roads Leads to India” report by IDMA; Brandindiapharma
2. UK and India regulators agree deal for closer collaboration to improve public safety, Government of UK press release, 5 October 2015
3. US FDA website
4. US FDA database
5. McKinsey POBOS quality benchmarking, Industry-wide benchmarking of pharma quality
6. www.nseindia.com; press searches; McKinsey analysis
7. Customer surveys by an automotive OEM; Based on 900,000+ responses
8. POBOS Quality survey; ISPE Quality Metrics pilot Jul 2014 – March 2015

Abbreviated New Drug ApplicationIndian Pharmaceutical AllianceUS Food and Drug Administration