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 a