Authored by Chandrachur Datta, Dr. Shelja Jose Kuruvilla & Achal Saran Pande
Pharma manufacturing faces unique market and operational challenges. When an attempt is made to manage this high-uncertainty environment with the typical method of monthly production planning, it precipitates a vicious loop of issues. Only a dynamic approach that ensures flexibility on the shop floor can sustainably ensure reliability and high output.
In FY 2023, India dubbed the ‘pharmacy of the world’, maintained its lead in global generic medication supply, with exports surpassing $25B. Projections foresee a 6.3% growth this fiscal, reaching $27B, driven mainly by US demand.
Industry Dilemma
However, the Indian pharma industry is grappling with chronic supply chain conflicts, risking its long-term growth and profitability. Increasing demand variations from the US and globally highlight the need for enhanced operational agility. However, agility is difficult to build due to two reasons:
• Due to stringent quality norms set by regulatory authorities, operations have to be rigid. For instance, the Batch Manufacturing Report (BMR) enforces a fixed set of machines or the route through which a batch of a particular drug has to be processed. Systematic quality testing also has to be done at various stages that cannot be compromised.
• Companies are under increasing pricing pressure (especially in the primary market – the US, due to intensifying competition and distributor consolidation). A pursuit of agility in this environment might endanger the much-needed cost efficiency.
Therefore, to extract proper efficiencies while also allowing for some course correction in operations most companies use a monthly rolling plan method with some agreement on a freezing period. But it does not work in most cases.
Operational challenges due to monthly rolling plans
The monthly manufacturing plan includes campaigns of batches, which have to be released and produced one after the other, formed by clubbing requirements across the month. Procurement, QC and release/dispensing are expected to align with this plan.
Firefighting in procurement
To ensure timely raw material availability, procurement aligns orders with sales forecasts and monthly production plans. However, fluctuations in material availability or market urgencies often require plan adjustments. This prompts procurement to expedite materials per the new plan, sometimes resorting to costly air shipments for high lead-time items. Consequently, in addition to incurring expediting expenses, the firm’s existing stockpiles may remain unused for months, resulting in excess inventory and write-offs.
Stress in Quality Control (QC)
The monthly plan changes spur demand for unplanned QC-tested raw materials, disrupting planned QC campaigns. QC capacity is diverted to accommodate new testing, increasing open cases (WIP). When WIP is high and ‘what production is asking for today’ is a priority, the availability of raw materials for subsequent orders becomes more uncertain.
In such an environment of frequently changing priorities, the chances of human error increase, precipitating Out-Of-Specification (OOS) or Out-Of-Trend (OOT) instances, which in turn automatically trigger time-consuming investigations with attendant paperwork. When capacity, already under pressure, is wasted on these tasks, it heightens urgencies and stress in the department.
Overload and Underload of production routes
Once procurement and QC secure raw materials, batches are dispensed according to the monthly plan. Initial departments handle batches smoothly. However, due to fixed routes and intersecting paths, multiple batches might converge at downstream departments, causing overload. Conversely, some batches may finish faster than expected at some departments, or orders might be delayed upstream, causing underload situations in downstream departments.
Lower output and poor On-Time In-Full (OTIF)
New batches tend to be dispensed according to the monthly plan regardless of emerging overload or underload downstream, worsening the situation. Empty routes naturally yield low output, while overloaded routes drop output due to unplanned changeovers to prevent deviations. Decreasing outputs lead to a decline in the plant’s on-time order performance.
When a pharma manufacturing unit experiences repeated on-time failures, and plant managers face the wrath of irate customers, they inevitably feel the pressure to dispense orders to the shop floor as early as possible (an attempt to finish sooner). The more the plant dispenses batches, the worse are the traffic jams in the plant, and poorer is the output.
High FG inventory and High airfreight expenses
Delay in the delivery of orders could lead to sales loss (as there is usually more than one generic for a drug). So, to meet commitments, the manufacturer is often forced to send the shipment by air, resulting in additional expenses. Frequent such instances compel companies to forecast demand aggressively. However, if demand doesn’t meet expectations, excess inventory accumulates in warehouses, sometimes up to six to eight months’ worth for certain SKUs. Disposing of excess inventory involves offering deep discounts or incinerating and writing off expired stock. Frequent instances of discounts, air freight, and write-offs can significantly impact the bottom line.
Need to Challenge the Status Quo
Most pharma organizations have resigned themselves to these challenges because many others in their industry follow similar practices and suffer from the same problems. However, a competitive edge awaits companies that are bold enough to challenge the status quo and make a paradigm change in operations.
The key paradigm shift required to improve both reliability and output simultaneously in this environment is to opt for a more dynamic approach to manufacturing, one which does not need to depend on sales forecasts or monthly planning. This approach not only offers greater visibility of the cascading impact of changes anywhere in the supply chain but also equips the pharma manufacturing plant to respond to these with agility.
The Solution
To enable the necessary flexibility in planning and on the shop floor, first, the support departments have to be decoupled from the vagaries in manufacturing.
Decoupling Purchase
Purchasing RM/PM can be delinked from individual sales orders. Instead, to ensure the daily availability of all RM/PM, the inventory level (norm) for each item the company should be carry at any given time should be defined. The norm for each item has to be compared to the stock at hand every day, and priority should be assigned based on the chances of an item becoming ‘stock out’. The purchase team can place orders and expedite shipments based on this priority. If this exercise is done daily, it can ensure that changes made in the sales orders/AOP will be immediately captured.
Decoupling Quality Control
A similar tactic can be implemented at RM-QC to ensure the availability of QC-cleared RM. One can define the RM-QC cleared inventory level (norm) for each item that should be available at any given point in time, modified frequently to synchronize with the current manufacturing plan.
Ensuring flexibility on the shop floor
Decoupling of purchase and QC will enable the availability of QC-cleared RM/PM, but flexibility on the shop floor is only assured when there is a bank of full kits for orders in the immediate horizon perpetually ready, including documentation (BMR) and approvals (customer sanctions, if any) required to produce a complete shipment at the pharma manufacturing plant. A separate full kit team has to continuously work on creating these full kits.
Managing priority in manufacturing
To synchronize the actions in manufacturing, it is necessary to create a simple yet unified system-driven signalling mechanism for priority, which can ensure that the on-time performance of customer orders is not jeopardised. For this, each order can be given a colour priority based on relative closeness to the due date. Only this colour priority should dictate expediting at all workstations (no manual intervention).
Dispensing based on route load
The availability of full kits can free the shop floor from having to change plans due to fluctuations in RM availability, etc. Nevertheless, even now, dispensing based on monthly plans can lead to the development of bottlenecks and starving of some resources downstream. This can be avoided if forming large campaigns by clubbing orders in advance is discontinued, and dispensing is done dynamically (possible due to full kit availability) based on the load of the entire route on a given day. If there are routes that are underloaded, the planners can pull future orders to be dispensed ahead of their planned time.
Capacity improvement initiatives
When route loads are evaluated, if it is seen that a few routes are continuously overloaded, this signals the existence of real constraints in the system. Taking up focused capacity improvement initiatives on the specific work centres helps in improving the flow and increases the system output further.
Conclusion
The gloss of growth covering the pharma industry masks entrenched supply chain conflicts. The dilemma of ensuring agility to meet changing demand without escalating costs threatens the industry’s very foundation. The steps enabling the flow of orders will not only align all processes and departments but also reduce lead time and increase the output of pharma manufacturing plants. Only companies that challenge conventions, embrace innovation and transcend the shackles of operational rigidity can lead the industry towards a brighter, more agile future.
Disclaimer: This article has been produced on behalf of Vector Consulting Group by Mediawire team.
(You can now subscribe to our Economic Times WhatsApp channel)
