Pharma operations: Easing margin pressure by releasing value from operations

Achal Saran Pande, Partner, Vector Consulting Group, discusses how the crux of preventing capacity wastage lies in understanding the damages created by the prevalent monthly planning method in this environment, characterised by a unique material flow,and the steps to release this capacity

India is often described as the “pharmacy to the world,” primarily because it is the world’s largest supplier of generics. However, increasing competition, drop in the US FDA approvals, and rising instance of price erosion lead to an inherent and continuous margin pressure in many generic pharma companies. This leaves these companies no choice, but to relook at their operations to release value. For this, however, companies have to first identify sources of capacity wastage, and address it in a way that can not only improve efficiency and enhance capacity utilisation, but also prevent product shortages.

Unique material flow inside the plant

Pharma operations are characterised by dedicated routings for every product. Each route is defined by a fixed set of machines through which the product moves across various processes. An illustration of such pre-defined routes – from dispensing to packing is indicated in Figure 1.

 

Issue with typical production planning

In a bid to maximise capacity utilisation/“load levelling” across equipment, as well as meet customer order due dates, the planner makes a “Monthly Production Plan” with a daywise dispensing schedule of products. The problem with this way of planning is that when a plant experiences uncertainties (such as unavailability of raw materials, packing materials, labour absenteeism, cycle time variations, etc.), this method of material release creates overloading and underloading of routes. Overloading and added waiting time (sometimes exceeding “Hold Time”) usually happen at “convergence points”, where multiple routes converge on a work centre. At the same time, underloading of routes leads to starvation of work centres and capacity wastage. So, both these phenomena, i.e., “Underloading and Overloading of Routes” limit output of the plant, lead to poor On Time Performance, and increases WIP.

Mitigation strategies that exacerbate “capacity wastages”

When planners experience this chaotic environment, they deploy two strategies to try and protect capacity and customer due dates:

1. Early release to protect due dates – As lead times expand, and customer delivery schedules are jeopardised, the planners, who typically seek an order visibility of three-to-six months, release orders much in advance to try and offset higher lead times that orders take in the plant. The planners do not realise that this method of dispensing without assessing realtime load across equipment, increases the lead time (waiting at convergence point). Consequently, a vicious loop of early release leading to higher lead times, which then further triggers early release, is created.

2. Campaigns to protect capacity – Another misstep planners tend to take is to club customer orders across months, and release them on the shop floor as large “Campaigns” (A “campaign” consists of multiple batches, usually three to 10 batches clubbed and released). This is because the set up times in the pharma industry across machines varies from 16 hours to 24 hours per set up. Larger the campaigns, lower the set ups needed. Unfortunately, a large order creates waiting time for other orders, and creates capacity wastage (known as “Capacity Stealing”), as some of the orders clubbed in a campaign cannot be immediately dispatched to customers. The impact of these actions is that there is a perception that the capacity is insufficient, and, therefore, unnecessarily invites capex in a plant that really has “hidden capacity.”

Releasing the hidden capacity by dynamic dispensing

In this environment, what is needed to prevent capacity wastage is a dynamic scheduling mechanism that monitors real-time load on machines, and schedules releases accordingly. This mechanism works like a “Railway Track Management System” where the signalling system ascertains the load on tracks, and schedules releases of trains accordingly. Since dispensing is done only on routes with lower than optimal loading and only to the extent of the difference, this will prevent overloading of routes. If some routes are underloaded, the planners can choose to pull future orders ahead as per priority.

Additionally, any other wastages such as high set up times, breakdowns and inflated cycle times of work centres can also be addressed to further reduce process times.

Change in management approach required

To enable such a dynamic scheduling mechanism, however, a complete change is required in the management approach to how Raw Material/Packing Material (RM/PM) is secured, and how quality control is done. To align these to the daily dispensing needs, and to make sure that the shop floor at no point has to wait for any item, the following steps have to be followed:

Step 1: Decoupling purchase/quality control — Instead of linking RM/PM to each sales order, daily availability of these should be assured by stocking them. A mechanism based on daily “pull” replenishment, and order priority based on chances of an item becoming ‘stock out,’ can ensure RM/PM reflects demand trends and daily plant uncertainties, at low stock levels. A similar tactic can be implemented at RM-QC, rather than using SLAs, to ensure availability of QC cleared RM.

Step 2: Ensuring flexibility on the shop floor by aligning order full kit — Further, a separate team can ensure 100 per cent availability of all full kits required as per the priority in manufacturing. In addition to QC-approved APIs/excipients and the packing materials in adequate quantities, a full kit for an order will include all items, including documentation (batch manufacturing report), approvals (customer sanctions, if any).

Step 3: Managing priority in manufacturing To synchronise the actions in manufacturing, each order can be given a colour priority based on relative closeness to the due date. For example, red is the highest priority, then yellow, and green the least. Only this colour priority should dictate expediting at all work stations (no manual intervention).

Conclusion
Implementing these steps in operations can improve output of pharma plants by more than 30 per cent at approximately 25 per cent reduced inventory levels. Moreover, lead times would reduce to approximately onethird. This gives companies an opportunity to make low lead time offers, easily sell the additional output, and notch up higher sales. Since this sale is without any new investment, the additional gross contribution will be directly added to the bottom line! In this environment, costs too will come down. Without hold time violations, the need for inventory write offs is reduced, and better reliability means that expediting costs/airfreights/penalties for shortages are also almost eliminated.

Achal Saran Pandepharma operationsVector Consulting Group
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  • soundos

    Thanks for sharing such an informative piece of content.