The competence centre for Operational Excellence (OPEX) at the Institute of Technology Management at the University of St. Gallen, Switzerland (ITEM-HSG) has focused its research for more than ten years on the challenges faced by pharmaceutical companies in their pursuit of Operational Excellence. Over time the researchers have been able to sustain a database consisting today of 281 data sets from 123 different pharmaceutical companies from all over the world. With this data, and on the basis of several continuous exchange platforms, we are able to follow the trends in the manufacturing sector in real time. From an operations management perspective, we were able to identify ten topics that are on the agenda of almost every production manager in the pharmaceutical industry. This allows us to make a projection about where pharmaceutical OPEX is headed in the near future. Figure 1 exhibits an overview of the mentioned topics.
1. Quality metrics
The starting point of our “hot topic” list, quality metrics, goes back to the publication of the US Food and Drug Administration Safety and Innovation Act (FDASIA) in 2012, and a subsequent public docket in February 2013. In this work the FDA announced their intention to examine the use of selected Quality Metrics to support their risk-based inspection programme. The purpose of the metric is to support the industry to deliver high quality medicines across all sites (US Congress, 2012). The quality metric programme is supported by the big pharma associations (ISPE, 2013; PDA, 2013). The first draft of the FDA’s quality metrics is expected by the end of this year. Depending on the chosen set of metrics the impact on the industry could be supportive for the above mentioned objectives but also the opposite could become true. If the final metrics are not based on mutual trust between the regulators and the industry and has limits concerning comparability and interpretability it could lead to unwanted behaviour. A positive impact so far can be seen in the fact that, based on the discussion, more and more quality and OPEX have become to be integrated in pharmaceutical companies.
2. Benchmarking the quality organisation
As OPEX and Quality is more and more integrated the efficiency of the whole quality organisation becomes a focus topic in pharmaceutical companies. The hard separation of the quality organisation had the effect that there hasn’t been a true evaluation of effectivity and efficiency of the quality organisations. Nevertheless, it needs some sophistication to do this in a way that the overall perspective and the quality performance are not sacrificed for costs. It is especially important to measure the right KPIs and to evaluate them in a meaningful way. The team at the University of St. Gallen proposed to constantly consider the entire picture. A separation in resource consumption (efficiency) and goal attainment (quality performance) both being aggregated KPIs consisting of diverse single KPIs could be a way to keep the overall understanding in the centre of the discussion. Figure 2 shows an example of the evaluation of quality organisation. Managers in this company should further investigate the differences between site six and four in this specific production network.
3. Organising OPEX
In general there is no ‘best’ structure for Operational Excellence in an organisation that is valid for all situations. The share of corporate to site based resources concerning OPEX varies depending on the maturity level a company achieves in relation to Operational Excellence. The formal organisation structure has a strong influence on the efficiency of an organisation. The researchers of the University of St.Gallen are developing a management model for organising OPEX relating to the level of implementation over time.
4. Opex maturity
Three key observations are often made when talking about the pathway to Operational Excellence: 1) Companies have to know their current state of OPEX implementation; 2) They should be interested in the next steps to improve the level of OPEX implementation; 3) They need to know the level their competitors achieved to benchmark themselves against the peer’s OPEX levels. The team of the University of St. Gallen developed an OPEX maturity model that can be backed up with data to give answers to these questions (see figure 3). The core elements of the model are equipment stability, process stability, pull production and continuous improvement. It is important to understand that higher maturity levels can only be sustainably reached if the requirements of the lower levels have been fulfilled.
5. Managing complexity
Increasing complexity is a topic every pharmaceutical company is facing. The researchers of the University of St. Gallen separate the complexity as internal and external. Internal complexity consists of the elements people, processes and products, external complexity addresses the market and the supply side of a plant. Figure 4 gives an overview of the complexity drivers. Sites that are able to translate a high external complexity into a low internal complexity are considered as complexity masters. Furthermore, the idea is to compare the ability of a site to handle complexity with the overall operational performance of the site. If this evaluation shows that a site has achieved the level of mastery and has very high operational performance we name the site a true master. True masters are especially well-structured in their processes, have an above average level of OPEX practices implementation and find ways to optimally adapt their internal processes to their external requirements.
6. Shift from tool to culture
For many years, pharmaceutical companies mostly focused on training of specialists and technical aspects on their pathway to OPEX. This emphasis on methods and tools somewhat distracted from one of the most important success factors for a sustainable implementation: culture. The importance of a continuous improvement culture has been notoriously underestimated in the past. Of course, tools are the prerequisite to achieve a better performance, but sustainability is only achieved with a cultural change. OPEX has to become omnipresent in structures, behaviour and actions. Managing this shift from single tool oriented company programmes to a continuous improvement culture is an essential step in the pursuit of excellence. To successfully accomplish this transformation, a strong leadership commitment is necessary, but without neglecting other crucial aspects such as the involvement of all different network players, as well as the implementation of a collaborative knowledge management system.
7. OPEX leadership
The fundamental purpose of managers is to help an organisation to become more successful (Pavur, 2012). Leadership is therefore not an end in itself, but an enabler of success. Leading OPEX is not only about creating a vision and a sense of urgency. It is more about “forming a powerful coalition, communicating a vision, empowering others to act on that vision, planning for and creating short-term wins, consolidating improvement while producing still more change and institutionalising the new approaches”. To achieve long-term success and impact, it is essential to anchor changes in the corporate culture (Kotter, 1995). “Again, this requires communicat
ion, and OPEX has to become visible in structures, activities, incentive systems, etc. To some degree, OPEX has to become a routine operation, even if it will continue to be about change. It is both, fostering change and ensuring stability, what is required from leadership, and these two perspectives on OPEX together
define the basic requirements for leaders: establishing structures, planning for improvements, organising activities, establishing routines but also being present where the action is, caring about people, communicating, coaching, supporting and motivating employees” (see figure 5). An effective model for leading OPEX has to include all of this (Friedli/Werani, 2013).
8. Continuous improvement culture
In comparison to other manufacturing industries, the pharmaceutical sector was initially slow to focus on OPEX practices and adopt a continuous improvement mindset. Various companies launched a limited number of initiatives by the late 1990s, but they were not widespread until the first decade of the 2000s (Seller/Davis, 2013). Today, however, pharmaceutical companies are at the forefront of driving performance by embracing the goals of OPEX and fostering a continuous improvement culture throughout the organisation. Their aim is to improve efficiency by optimising processes and eliminating wasted efforts. Problems are solved fast and eff
iciently at the level of occurrence in order to ensure that fewer problems occur and output gradually increases (Mejlvang, 2013). To accomplish this type of culture we already mentioned that a strong leadership emphasis is essential. But this is not the only requirement (see figure 6). Further elements of a successful OPEX culture are: Credibility of message, involvement of employees, and employee ownership. The first element is aimed at creating a shared vision amongst all employees, promoting the existence of a continuous pursuit for excellence and communicating the overall goals and performance. The involvement of employees is aimed at fostering teamwork through total involvement and committed personnel, and also about ensuring that decisions are made at the lowest possible level. Finally, employee ownership aims to share the gains with the total workforce and to provide personal and professional satisfaction for the employees (Srinivasan/Kurey, 2014). Hence, a continuous improvement culture requires new ways of working, leading and thinking. Many people believe that first they have to change the culture and this will have an impact on the work. But it is the other way round. Only by making changes in the work will you be able to change the culture. Therefore, culture is more an outcome than an input.
9. OPEX in network
As global competition intensifies, companies face difficult challenges in every aspect of corporate management. In particular, corporate OPEX initiatives must be examined anew when markets and manufactu
ring operations become global. For example, what are the implications of globalisation in terms of cycle times and production costs? Is it really possible to empower OPEX to all functions and levels across all country organisations within a global corporation? Pharmaceutical companies often do not use the full potential of their globally scattered manufacturing sites. Most often, they use them to benefit only from cheap labour, tariff and trade concessions, and reduced logistics costs. Therefore, they assign a limited range of work, responsibilities, and resources to those sites. Successful companies, however, may use various sites to unlock all the potential by getting access to new customers and suppliers, or accessing knowledge and skilled workforce. Such companies use their sites as a competitive advantage (Ferdows, 1997). A lack of transparency is another common issue within global manufacturing networks. In various projects the authors discovered that managers often know neither the potential a site has, nor the purpose and reason of their sites, nor the range of competencies the respective sites have. Furthermore, sites were developing but corporate management was not able to describe the current state of the sites, not even to speak of prescribing the path the sites would take in the next years. Assigning well-defi
ned roles to the sites within the network is crucial to overcome these problems and unlock hidden potential in a globalised world (Friedli/Liebetrau/Luetzner, 2013).
10. Knowledge management
Sharing of information and knowledge within a manufacturing network often happens to be a challenge in everyday business. In several industry projects, operation managers reported difficulties concerning, for example, the flow of information related to successful practices within the global network. Existing knowledge was not being exploited to its full potential whereby reaching improvements was costing extra resources. We believe that sharing information and knowledge is essential for good management. Transparency about production volumes, for example, enables load levelling in the network. Increased data quality in general enables managers in making well informed decisions (Friedli/Liebetrau/Luetzner, 2013). Chew et al. consider information sharing in manufacturing networks as the main coordination mechanism. Accordingly, they find the management of information flow as important as the management of the flow of physical goods between sites (Chew et al., 1990). Therefore, establishing a structure for knowledge management and knowledge exchange is a key lever to increase productivity and ensure improvements using own capabilities and competencies.
Operational Excellence can be seen as a philosophy that helps to tackle the mentioned challenges. OPEX is not only about streamlining the processes and waste elimination, but also about the engagement of every single employee and the establishment of a continuous improvement culture. With the systemic approach of OPEX the quality and complexity related issues and challenges can be solved. Management commitment and sharing of knowledge are absolutely crucial for the success of every initiative. The proper way of organising OPEX throughout the production network matching the OPEX maturity levels of a company is also a key to success. Having all the mentioned elements aligned under control OPEX can be seen as a competitive priority to ensure the overall competitiveness of a company.
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Thomas Friedli is Head of the Chair of Production Management, where he leads a team of 14 researchers, and is lecturer in Business Administration. His main research focus is on the management of industrial enterprises with an emphasis on Production Management. He is editor and author of several books. Among others, his latest book “Leading Pharmaceutical Operational Excellence” within the field of Operational Excellence attracted interest from pharmaceutical industry.
Christian Maender is a Research Associate at the University of St.Gallen (Switzerland). His research at the Institute of Technology Management focuses on the challenges faced by the pharmaceutical industry. The focal point of his industry and research projects is the management of Operational Excellence programs. Christian graduated from the Karlsruhe Institute of Technology (Germany) with a degree in Mechanical Engineering, majoring in Production Techniques.
Nicolas Ponce is a Research Associate at the University of St.Gallen (Switzerland). His research at the Institute of Technology Management focuses on the challenges faced by manufacturing companies on the pathway towards Operational Excellence, with an emphasis on the pharmaceutical industry. Nicolas graduated with honors from RWTH Aachen University (Germany) with a degree in Mechanical Engineering, majors in Production Engineering.