Lean Manufacturing Review

Introduction

This critical analysis report is aimed at evaluating the relevance and utility of the Lean manufacturing approach to the pharmaceutical supply chain. It covers the principles and application of Lean manufacturing in supply chain management; its potential advantages to the management of quality and efficiency in pharmaceutical industry; and whether Lean is appropriate for the pharmaceutical supply chain. Novartis and Lundbeck case studies are used to describe how the Lean approach is applied to pharmaceutical industry.

Principles of Lean manufacturing in supply chain management

Lean thinking is a concept that describes a production philosophy aiming for progressive elimination of waste whist safeguarding the critical value (Ende 2011). According to (Sople 2012: 113), the principles of Lean manufacturing are “customer value, value stream analysis, demand pull, continuous flow, and waste elimination.” The purpose of a Lean supply chain network is to bring the lowest cost in differential customer value, which can be met through collaborative priorities in demand, real-time information on markets, and logistics delivery efficiencies, to name a few. The concept of networks of supply chain partners suggests that the success of companies is through their constant origination from new networks of supply chain partners in order to meet certain objectives. As a general rule, these constantly developing networks can act in response to the dynamic characteristic of customer demand (Sople 2012). The manufacturing function must not be the only domain to which Lean principles must be applied. Rather, it must also be applied across organisations in the supply chain to decrease the wastes usually associated with supply chain operations. The full benefit of Lean manufacturing and supply chain management necessitates that the scope of Lean implementations must go beyond a single function and must be structured as a part of managing relationships with customers and suppliers (Lambert 2008). It may therefore be analysed that with the adoption of Lean techniques, the management is tasked to align corporate activities with Lean manufacturing in supply chain management across organisational functions. Lean thinking also allows the organisation to direct business relationships with customers and suppliers.

Application of Lean Principles

Lean thinking is apparently applicable to pharmaceutical development and manufacturing (Wigglesworth and Wood, 2012). Lambert (2008) states that whilst the various material flows as well as flows of goods and information are the focus of Lean supply chain operations, Lean application to the management of supply chains is further from the physical flows of inventory. It also takes account of the entirety of the business relationship amongst firms. When a firm applies Lean manufacturing concepts to its supply chain management, it begins to focus on value drivers; revenue development; asset efficiency, and reductions in cost, inventory, and working capital. All of these are apparently beneficial to an organisation.

Applying Lean thinking to supply chain management is very likely since both of them share commonalities, such as long-term perspectives, value and customer creation; systems view; and structured business relationships;amongst others (Lambert 2008). These commonalities indicate how much Lean thinking and supply chain management lend to each other. Based on this, one can conclude that Lean approaches are aligned to supply chain management and that the two are generally not in contrast with each other.

Potential advantages of Lean approach to managing quality and efficiency in the pharmaceutical industry

One of the potential advantages of Lean approach in the pharmaceutical industry is the reduction of cost of goods in pharmaceutical development and manufacturing. The implementation of Lean thinking can be carried out by developing workflows and infrastructures to reduce inventories (Ende 2011), which are in fact a target of quality and efficiency efforts within pharmaceutical companies. The concept of continuous manufacturing in pharmaceutical companies deals with the challenge of overproduction, which leads to surplus inventory and longer cycle teams. These are the focus of efficiency on which pharmaceutical companies must be engaged. Its significance is seen in the fact that excess inventory is considered the greatest waste because it brings upon itself certain costs related to the management, storage, and transport of inventories adding to the waste (Schneider 2010). Therefore, when Lean techniques are used, such wastes are reduced, if not totally eliminated within the pharmaceutical firm.

Novartis and H. Lundbeck case studies

Novartis is one of the world’s largest pharmaceutical firms (Abreau 2013). The upstream part of its supply chain indicates flow of information and full visibility. Novartis uses product-to-demand technique based on demand, whereby its daily variable demand stream is integrated to production (AMR Research 2006). Between its levels of supply chain are limited visibility and flow of information (Abreau 2013).

Despite being ranked number 2 behind Pfizer in cost of goods sold in 2006, Novartis decided to take on Lean principles and become the “Toyota of pharmaceuticals.” Using Lean principles, the company is focused on reducing its cycle time to 70 per cent and reducing spending by 40 per cent, as well as pursuing continuous manufacturing with raw materials going in one end of the chain and finished products coming out the other (AMR Research 2007). Along with this is the reengineering of every process and role, leveraging information technology, and setting up process-oriented teams in the absence of first-line supervisors so that personnel would report directly to one team leader (Shanley 2004). Here, one can see the application of Lean techniques to Novartis’ supply chain, thereby helping the company to improve its internal processes and eliminate waste.

Lundbeck, on the other hand, is an international pharmaceutical firm that began its Lean adoption in 2005. The company went through certain phases in its Lean adoption, such as building consensus in the management group and running a range of Lean events and building a culture around these events. In the first phase, Lundbeck implemented 40 Lean events assisted by external experts, followed by 70 to 80 Lean events each year, with all personnel in the supply chain being involved (Simpler Consulting 2010).

Through its adoption of Lean principles in its supply chain, the company was able to cut costs by 25 per cent. Workflow analysis within the organisation is also aided by video cameras, which leads to further improvements. Part of its Lean techniques adoption is the use of large bags instead of small box packaging, which reduced production delays from four hours to only an hour (Miller 2012).

Is Lean appropriate to the pharmaceutical supply chain?

Yes, Lean techniques are appropriate to the pharmaceutical supply chain. Despite Lean thinking’s origination from Toyota manufacturing, its adoption is still suitable to the pharmaceutical industry. In fact, its applicability is seen in the number of pharmaceutical companies that continue to adopt Lean manufacturing techniques. Although many of these techniques cannot be taken on to the more complex pharmaceutical manufacturing plants, their adoption mirrors the pursuit of increased optimisation (Shanley 200). Boyer and Verma (2010) surmise that whilst the original focus of developing Lean thinking is the manufacture of automobiles, it can still be applied to other industries. This is because Lean approach is more than a set of techniques but is a mindset for all personnel and managers who are focused on waste elimination and reduction of variability in the entirety of the business process.

The advantage of Lean’s adoption in the pharmaceutical industry is the ability of pharmaceutical companies to experience logical rhythm through the supply chain. With the Lean enterprise, adaptive supply chain is carried out, causing the whole organisation to possess real-time process visualisation (Hafeli 2006).

Argument for agility in the pharmaceutical supply chain

Pharmaceutical companies are inclined to be bureaucratic, which results in several wastes in internal processes. With the application of Lean principles, pharmaceutical companies are able to strengthen their relative agility (Radeka 2013). This would mean that despite the relative limitation of the application of Lean principles in the pharmaceutical supply chain as pointed by WCI Consulting Limited (2011), the result is still improved agility in the supply chain.

Apparently, the need for agility in supply chain management is founded on decreasing product life cycles and demand patterns of increasingly volatile markets. Sweeney (2009) points out that Lean is not enough, that agility in supply chain is required because of emphasis on speed, with time being a major competitive weapon. This argument is reasonable given the rapidly changing market in which pharmaceutical companies operate. However, as emphasised above, Lean thinking is also applicable to the pharmaceutical industry.

An argument arising about the adoption of Lean thinking in the pharmaceutical industry is the risk that goes with it. Such adoption is said to put the supply chain to increased vulnerability to disruptions and unpredictable events due to lack of slack on which to withdraw. With Lean techniques making the supply chain vulnerable, a question that may come up is whether this would mean Lean is not suitable at all. The answer is pharmaceutical companies can apply Lean techniques to cut costs and adopt agility in order to obtain supply chain resilience, as pointed out by WCI Consulting Limited (2011).

Conclusion

This paper provides a critical analysis of the relevance and utility of Lean techniques in the pharmaceutical supply chain. Lean thinking allows the elimination of wastes and cost reduction in pharmaceutical companies. Lean supply chain considers the entirety of the business relationship amongst firms. Reduced costs of goods and reduced inventories are the potential advantages of Lean approach in the pharmaceutical industry.

Novartis and Lundbeck case studies provide an example where Lean techniques and supply chain management become integrated. Despite the effectiveness of agility in supply chain management, Lean cannot be set aside as a valuable tool.

References

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AMR Research (2006) Supply Chain Saves the World. US: AMR Research, Inc.

AMR Research (2007) Risk!: Navigating an Uncertain World. US: AMR Research Inc.

Boyer, K. and Verma, R. (2010) Operations and Supply Chain Management for the 21st Century. First Edition. Mason, OH: South-Western, Cengage Learning.

Ende, D. J. (2011) in the Pharmaceutical Industry: R&D to Manufacturing. New Jersey: John Wiley & Sons.

Hafeli, R. (2006) Enabling Lean and Compliant Manufacturing at Novartis with SAP. Denver: SAP Adaptive Manufacturing Summit, September 28.

Lambert, D. M. (2008) Supply Chain Management: Processes, Partnerships, Performance. Sarasota, FL: Supply Chain Management Institute.

Miller, G. (2012) Lean Earns Lundbeck Big Prize, Cost Cuts. Retrieved on March 22, 2014 from http://www.fiercepharmamanufacturing.com/story/lean-earns-lundbeck-big-prize-cost-cuts/2012-01-18

Radeka, K. (2013) The Mastery of Innovation: A Field Guide to Lean Product Development. NW: CRC Press.

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Shanley, A. (2004) Novartis Goes Lean. Retrieved on March 22, 2014 from http://www.pharmamanufacturing.com/articles/2004/111/

Simpler Consulting (2010) Lean Management of the Pharmaceutical Sector Brings Increased Efficiency and Improved Quality While Increasing Profits. Retrieved on March 22, 2014 from http://www.simpler.com/success-stories/Lundbeck_Case-Study.pdf

Sople, V. V. (2012) Supply Chain Management: Text and Cases. New Delhi: Dorling Kindersley Pvt. Ltd.

Sweeney, E. (2009) Lean, Agile and Resilient Pharmaceutical Supply Chains: Jargon or ActionIrish Pharmachem Buyers Guide (September), 38-39.

WCI Consulting Limited (2011) Keeping the Supply Chain Agile. Retrieved on March 22, 2014 from http://www.wcigroup.com/Nostrapharmus/Keeping%20the%20supply%20chain%20agile.pdf

Wigglesworth, M. and Wood, T. (2012) Management of Chemical and Biological Samples for Screening Applications. Germany: Wiley-VCH Verlag & Co.