MEASURING THE FUTURE. How to Achieve Superior Operational Performance in the Pharmaceutical Industry

Transcription

1 John R. Brandt, CEO, The MPI Group Carolyn Lawrence, Director, Corporate Development, APICS MEASURING THE FUTURE How to Achieve Superior Operational Performance in the Pharmaceutical Industry

2 PHARMACEUTICAL BENCHMARKS AND BEST PRACTICES State of the industry Performance levels Best practices

3 KNOW WHERE YOU ARE GOING. Supply chain excellence is a journey. Implement with APICS APICS Confidential and Proprietary

4 Proven Roadmap The Assessment Roadmap provides a consistent fact-based approach that leverages SCOR to build organizational buy-in throughout the Assessment cycle APICS Confidential and Proprietary

5 PHARMACEUTICAL BENCHMARKS AND BEST PRACTICES State of the industry Performance levels Best practices

6 Dynamic industry growth continues Worldwide population growth, aging populations, and improved access to healthcare in emerging markets are driving pharmaceutical industry growth: - Global medicine spending is projected to reach $1.3 trillion in 2018, an increase of about $300 billion from 2013* - Largest per capita increase in spending will come from the United States* - U.S. spending on prescription drugs was $425 billion in 2015** Individual drugs are earning billions in the United States (2015 sales): - Harvoni $14.3 billion - Humira $10.6 billion - Embrel $6.6 billion - Crestor $6.3 billion - Lantus SoloStar $5.8 billion*** * Global Outlook for Medicines through 2018, IMS Institute for Healthcare Informatics, November ** IMS Health *** Peter Loftus, U.S. Drug Spending Climbs, The Wall Street Journal, April 14, APICS Confidential and Proprietary

7 As demand for drugs rises, so, too, do manufacturing plants From , the number of pharmaceutical and medicine manufacturing establishments rose by 19% vs. 19% decrease in overall manufacturing Pharma and medicine manufacturing establishments From , number of paid pharmaceutical and medicine employees rose by 8% vs. 31% decrease in overall manufacturing , , , ,830 Source: County Business Patterns, U.S. Census Bureau APICS Confidential and Proprietary

8 Drug manufacturing requires substantial investments Billions of R&D dollars to bring a drug to production Thousands of screenings to get just a single drug readied for testing Years of clinical and preclinical testing Hundreds of millions of dollars to build highly specialized plants with complex, unique operations and equipment Once plants are up and running, manufacturers must quickly recover costs and get optimum value from their operations Patent-holding companies must reap revenues before patents expire APICS Confidential and Proprietary

9 Drug companies race against loss of patent exclusivity Peak year was 2012 when loss of exclusivity was $48 billion and included Lipitor and Plavix Value of small molecule products facing loss of exclusivity in developed markets ($ billions) 2018 $ $ $ $ $25 Source: Global Outlook for Medicines through 2018, IMS Institute for Healthcare Informatics, November 2014, citing IMS MIDAS APICS Confidential and Proprietary

10 PHARMACEUTICAL BENCHMARKS AND BEST PRACTICES State of the industry Performance levels Best practices

11 Plant reliability is vital to market availability Machine-availability rates underperform manufacturing in general 54% vs. 78.3% (averages) Pharma plants devote one-tenth of their upkeep in responding to unplanned maintenance Plant maintenance performance Median Average 75th percentile Machine availability (as % of scheduled uptime) current year 70.0% 54.0% 90.0% Machine availability (as % of scheduled uptime) 3 years ago 50.0% 44.2% 80.0% Unplanned maintenance (% of total maintenance based on annual maintenance expenses) current year 10.0% 10.0% 2.5% Unplanned maintenance (% of total maintenance based on annual maintenance expenses) 3 years ago 5.0% 12.2% 0.5% Source: The MPI Manufacturing Study APICS Confidential and Proprietary

12 Pharma plants deliver major returns on investment Pharmaceutical plants report high production volumes and strong returns Capacity performance improved over three years Plant asset performance Median Average 75th percentile Production volume (as % of designed plant capacity) current year 80.0% 80.0% 90.0% Production volume (as % of designed plant capacity) 3 years ago 60.0% 63.3% 80.0% Return on capital invested (net operating profit after taxes by capital invested) Current year 22.5% 26.3% 45.0% Return on capital invested (net operating profit after taxes by capital invested) 3 years ago 22.5% 21.5% 37.5% Source: The MPI Manufacturing Study APICS Confidential and Proprietary

13 Product quality is critical, but at what cost? Intense scrutiny from FDA, with plants subject to Current Good Manufacturing Practice (CGMP) regulations Quality product must be a top objective: Plants reported modest first-pass yield performance (92% average) Yield performance came at expense of high scrap/rework rates (11.4% average) Some plants will dump entire batches of product even when a quality problem is isolated to a small volume Still some 2,000 drug recalls in the U.S. in 2015, of which 105 were Class 1 recalls (situations in which a reasonable probability exists that the use of, or exposure to, a violative product will cause serious adverse health consequences or death)* Source: FDA Enforcement Reports, U.S. FDA APICS Confidential and Proprietary

14 Pharma plants must meet demanding delivery expectations Manufacturing cycle time has decreased over a three-year period Cycle time improvements help with delivery improvements Plant speed and delivery performance Median Average 75th percentile Manufacturing cycle time (start of plant production to completion of primary product) Current year Manufacturing cycle time (start of plant production to completion of primary product) 3 years ago 30.0 hours 77.2 hours 22.0 hours 48.0 hours 94.2 hours 27.5 hours On-time delivery rate (% of goods delivered on time) Current year 95.0% 91.8% 97.0% On-time delivery rate (% of goods delivered on time) 3 years ago 90.0% 90.6% 96.5% Source: The MPI Manufacturing Study APICS Confidential and Proprietary

15 Pharma plant cost structures outperform those in other industries Productivity (sales per employee) is higher than manufacturing in general $430,027 vs. $256,104 (averages) but varies widely ($140,000 median) Only 17% of plants have increased productivity over the past year Cost of goods sold (COGS) as a percentage of plant revenues also better than overall manufacturing 45.9% average vs. 55.8% Plant cost performance Median Average 75th percentile Cost of goods sold (% of annual plant revenue) 45.0% 45.0% 22.5% Sales per employee $140,000 $430,027 $895,067 Source: The MPI Manufacturing Study APICS Confidential and Proprietary

16 PHARMACEUTICAL BENCHMARKS AND BEST PRACTICES State of the industry Performance levels Best practices

17 Operational best practices are missing in many drug plants Most facilities have adopted improvement methodologies; lean manufacturing in place at 86% of plants 57% of plants report significant progress toward world-class manufacturing status and 43% report some progress But many plants have not adopted common best practices: Benchmarking in place at 71% of plants Continuous improvement 71% Quality certifications 43% Value-stream mapping 43% Waste elimination 29% Kaizen events 29% Total productive maintenance 14% Strategy/policy deployment 14% PDCA problem solving 0% Open-book management 0% Source: The MPI Manufacturing Study APICS Confidential and Proprietary

18 Process quality could benefit by benchmarking other industries Processes do not translate well from R&D lab to plant floor Designers under pressure to launch quickly may not use quality gates to ensure a scaled-up design for manufacturability Factories rarely apply error-proofing effectively Work standardization is not common, and equipment across sites differs Insufficient validation and verification and overly tight specifications for many things not critical to product quality can create problems: Require secondary processing Need for compensatory testing Cause yield loss Source: Alessandro Delfino, Alessandro Faure Ragani, Vanya Telpis and Jonathan Tilley (McKinsey & Co.), Mature Quality Systems: What Pharma Can Learn from Other Industries, Pharmaceutical Manufacturing, Feb. 26, APICS Confidential and Proprietary

19 Leading pharma plants focus on top 10 operational excellence (OPEX) topics Quality metrics Benchmarking the quality organization Organizing OPEX OPEX maturity Managing complexity Shift from tool to culture OPEX leadership Continuous improvement culture OPEX in network Source: Thomas Friedli, Christian Maender, and Nicolas Ponce (University of St. Gallen), What are the 10 Hot Topics for Pharmaceutical Operations Excellence in 2015? APICS Confidential and Proprietary

20 Inventory-management best practices are missing in many drug plants 5% of plant s total inventory is obsolete Many plants do not use inventory management best practices: RFID and computerized inventory tracking 43% of plants Pull systems with kanban signals 29% Quick equipment changeovers 29% Just-in-time supplier deliveries 29% One-piece flow techniques 14% Parts/goods supermarkets 0% Production leveling/heijunka 0% Vendor-managed or -owned inventories 0% Source: The MPI Manufacturing Study APICS Confidential and Proprietary

21 Merck looks to lean manufacturing, lowers inventories Merck s vision was to make processes more flexible, responsive, and efficient Deployed common ERP framework across its global operations Created standard business processes based on lean principles Piloted lean approach effort at Arecibo, Puerto Rico, plant: Business benefits: Reduced production-related inventory by as much as 30% Reduced overall operating expenses by as much as 20% Reduced changeover times by 50% Began applying lean improvement process to other Merck plants With value-stream mapping found that most process waste resulted from long, campaign-based production practices and lack of standardized quick-changeover processes Moved from a rigid monthly production schedule to a flexible one driven solely by customer demand Incorporated continuous, just-in-time production flow triggered by external demand signals Source: Merck adopts lean manufacturing to slim down its supply chain costs and get closer to the customer, IBM, APICS Confidential and Proprietary

22 Pharma plants pay attention to human resources best practices Pharma workforces are generally well-trained, empowered, and engaged: 67% of plants have empowered a majority of their production workforces 62% (average) of employees are fully engaged in their plants improvement methodologies 71% of plants train each employee more than 40 hours annually Many HR practices/programs are common: Formal employee training program in place at 86% of plants Paid sick and/or personal days 86% Paid vacation days 86% Bonus plan 86% Annual review and raise program 86% Paid medical benefits 71% Formal safety/health program 71% Education reimbursements 71% Recruiting and hiring program 57% Leader/supervisor development 43% Source: The MPI Manufacturing Study APICS Confidential and Proprietary

23 Genentech ranks #11 on Fortune 100 Best Companies to Work For Employees rate the company highly: Great pride 99% Great atmosphere 97% Great challenges 96% Great rewards 96% Great communication 96% Great bosses 94% Perks include: Sabbaticals Excellent parental perks New employee center focused on worker wellbeing A giving culture 6% 401k plan contribution and matches up to 4% of employee contribution Lifestyle perks (car wash, massage therapy, dry cleaning, etc.) Source: Announcing the 2016 Fortune 100 Best Companies to Work For, Great Place to Work Institute, APICS Confidential and Proprietary

24 Supplier-management best practices are missing in many drug plants Only 14% of pharma plants describe relationship with suppliers as partnership Pharma plants usually assess and document supplier criteria: Quality 71% Delivery to schedule 71% Productivity 71% Total costs 57% Adherence to specifications 57% Service/responsiveness 43% Labor practices 43% Environmental compliance 43% Ethics 14% But plants lack supply-chain management best practices Certification of major suppliers in place at 57% of plants Supplier management program 29% Collaborative design with suppliers 29% Sharing forecasts with suppliers 14% Source: The MPI Manufacturing Study APICS Confidential and Proprietary

25 Bristol-Myers Squib integrates its global supply chain From: Every participant in the supply chain is working from a different plan Little or no visibility beyond local unit Disjointed metrics, inconsistent reporting Same data has a different meaning at every site High variability in non-cgmp processes (like planning) To: One global supply-chain plan Daily, global visibility of planning data Standard, global metric calculation and reporting Consistent data definitions Minimum standards for key processes Strategies: Step 1: Develop a compelling case for change Step 2: Create a vivid picture of the future Step 3: Identify the gaps in capabilities between the as is and to be state Step 4: Build a road map Step 5: Design the project Step 6: Establish change management program Benefits of change likely understated in business case Source: Cheryl Capps, Integrating a Global Supply Chain: Essential Strategies, Bristol-Myers Squibb, APICS Confidential and Proprietary

26 Sustainability is not a major focus at drug plants Only 29% of pharma plants report green/sustainability is important 14% somewhat important and 57% minor importance Some green/sustainability practices in place at some plants: Energy management program 57% Recycling/reuse program 57% Use of renewable energies 14% Carbon footprinting 14% Energy per unit of product output reduced by 5.2% (average) over past year Source: The MPI Manufacturing Study APICS Confidential and Proprietary

27 Pfizer integrates EHS performance into its business Believes environment, health, and safety (EHS) success and optimal performance occurs when EHS is integrated into the business and all colleagues are engaged and understand what is expected of them EHS Governance framework helps ensure success and high performance: Commitment to safeguarding colleagues, ensuring workplace safety, and protecting the environment (described in EHS Policy Statement) Routine internal audits drive EHS performance, continuous improvement, and risk control Senior leader responsibility that encompasses setting EHS strategy, managing risk, and ensuring compliance Formal EHS Management System based upon plan-do-check-act (PDCA) cycle Third-party verification recognizing EHS management systems through standards such as ISO and OHSAS 18001, or regional programs that include OSHA VPP and EMAS Disclosure of compliance non-conformances Source: Pfizer APICS Confidential and Proprietary

28 Continuous improvement is essential in pharma Few business sectors are so critical to quality of life or under such intense scrutiny as the pharmaceutical Industry Customers want better, cheaper, and safer drugs, which only adds to the pressures on the industry and its manufacturing plants Pharmaceutical companies should look to benchmark data to help their organizations find examples of success today and to plan for more productive and profitable tomorrows APICS Confidential and Proprietary

29 QUESTIONS?

30 FOR MORE INFORMATION: John R. Brandt CEO, The MPI Group MPI-Group.com Carolyn Lawrence, SCOR-P Director, Corporate Development

31 THANK YOU