Equipment Investment-Recovery Strategies For Drug Manufacturers

In the post-blockbuster era, pharma’s major manufacturers are under pressure to increase the cost efficiency of their manufacturing operations and extend the service-life of their processing equipment. Equipment investment-recovery strategies that include a well-planned and executed redeployment process and the right partners can add flexibility and extend asset utilization across geographically dispersed operations.
Over the last decade and well into the post-blockbuster era, the industry’s most prominent drug manufacturers have been working to align their internal manufacturing facilities and equipment to be more flexible and cost effective. Many of the major drug companies are fueling real change in this area, consolidating their plants in one country or rationalizing operations and equipment in a different region to exploit emerging market opportunities or improving economic circumstances. Although CDMOs are playing a more strategic role in pharma’s supply chain, most major drug companies continue to field multiple manufacturing sites to bring their core products and class- or market-leading drugs to market.
According to posted statistics on their websites, among the top 10 drug makers listing their manufacturing assets, J&J operates 139 manufacturing facilities, Novartis ~100, Roche 20, Pfizer 55, Sanofi 100 and Merck 58. Pfizer, for example, says its Global Supply Network is aligned to serve 175 markets and provides fast, flexible solutions across the full manufacturing and supply-chain spectrum. The company’s global strategy hinges on extending the flexibility and value of their supply chain throughout their network of plants and facilities.
Similarly, excipient and fine-chemical producers serving the pharmaceutical industry field extended manufacturing networks to efficiently supply their customers. BASF North America, a leading excipients manufacturer, says it has approximately 100 production and research and development sites throughout North America and operates Verbund sites in Geismar, Louisiana and Freeport, Texas.
Equipment cost recovery
Drug manufacturers of the scale described previously are constantly analyzing the value and performance of manufacturing assets to assess their manufacturing network’s ability to contribute to the company’s overall strategic and commercial direction. Most will agree that the capacity that pharma companies like J&J or Novartis maintain is in a constant state of flux. On a more granular level, the same is true for the processing lines and specific items of equipment on the manufacturing floor.
At commercial scale and across a 50-facility network or greater, the investment in manufacturing technologies is staggering, well into billions in capital and other supporting costs. Manufacturers, or at least their equipment and procurement teams, are seeking better ways to get the most return on capital equipment spend and contribute to the cost-control and investment recovery efforts of the company. All it took to get the equipment investment recovery movement started was one astute person in procurement at a major pharmaceutical company seeking to maximize the return on equipment.  They considered redeploying their equipment inside their own company or marketing directly to another end user and recouping some of their initial investment.
Since then, the idea has caught on, and many of the major industry players are implementing or plan to implement equipment cost recovery initiatives, including Pfizer and BASF North America, who both operate internal programs managed by Federal Equipment Company. A 2016 study on pharmaceutical equipment by Nice Insight surveyed procurement managers and other operations leadership (46% representing large pharma) with equipment-specifying and purchase authority. The study found 69% pursue equipment investment recovery programs. This group also identified reasons equipment becomes surplus, selecting outdated/obsolete or purchasing upgrades as primary reasons (39% and 39% respectively). A similar portion (34%) also cited “Change in production/packaging capability” as another popular reason equipment at their sites has become surplus.1
The reality is that there are a range of reasons equipment at one site can become idle and a target for internal transfer to another site. A common scenario is a major pharma manufacturer may be shutting down a line, or is transferring a product line to another site or to a CMO; this creates surplus, idle equipment. For example, a major producer in California has a process line that they have shut down. One of the company’s other facilities can use it. Doesn’t it make sense that the best possible use of this equipment is to transfer it internally and extending the production of a current product at another plant or introducing a new product at a more strategically located facility?
Better communication required
Managing extended global supply chains effectively has become a real art as well as a science, and most major pharmaceutical companies have invested heavily implementing enterprise resource planning platforms, automation technologies and the IT infrastructure to interconnect manufacturing facilities — exchanging data across the enterprise and sharing operational metrics to manage it all. In Federal Equipment Company’s experience, while some major pharma companies are quite good at sharing operational data among the facilities in the field, they’re often less successful sharing the inventory, availability and location of idle equipment in their manufacturing networks, even though they have established that it’s the right thing to do. From Federal Equipment Company’s point of view, the industry’s track record of sharing basic equipment information, applying resources and putting necessary structure and organization to the effort can be improved and suggests that to get the most from an equipment investment recovery effort, companies should engage the experience of companies like Federal Equipment Company to oversee and facilitate the internal transfer or sale of equipment. That means the plant manager in Texas can go to his computer and look for the 1,000-gallon water-for-injection tank he needs, and seeing that there are two idle ones at the plant in Ireland, he places his order and Federal Equipment Company does the rest.
The best possible way to extend a piece of idle equipment’s institutional value is to extend the equipment’s service life supporting manufacturing strategy elsewhere within the company’s manufacturing network. Beyond just inventory, Federal Equipment Company facilitates the entire process, building an inventory database and providing the basic tools and communication channels that plant and processing line managers need to successfully identify, locate and transfer equipment internally. Federal Equipment Company staff creates an internal database, supplies logistics support and provides access to a broad range of technical services from original equipment manufacturers (OEMs). The Federal Equipment Company team also provides mechanical and electrical services to make internal transfers as seamless as possible. Further, commissioning and validation are much faster because all the original data has still been retained.
Equipment strategy beyond cost recovery
An equipment investment recovery strategy can serve to support effective supply-chain strategy and new ways to leverage the value of equipment across a large network of internal plants, as well as those of contract service providers. To extend their supply-chain flexibility and hedge against supply disruption and similar risk, major drug companies often shop their product and process and hire a contract manufacturer to run their products in their facilities. Imagine the benefits if a drug owner had the means to efficiently transfer the processing line over to its contract supplier while retaining ownership — a broad range of risk and associated complexity might be avoided. Another possibility is to affect the transfer of the equipment and its ownership to the CMO and secure credits or other compensation in trade.
Not a fit after all
Obviously, not every piece of equipment can find a new home internally. Equipment can become functionally obsolete to the owner even though it still functions as designed. For example, a manager may be implementing broad process cost-efficiency strategy and switching from a hard-piped dedicated pressure vessel to a single-use system to meet his objectives. Most pharma manufacturing operations concentrate on making the highest-quality product faster and at the lowest cost. Rarely do operations managers have the time or resources to sell equipment and put in the effort needed to recover as much investment as possible. The value of this service should not be underestimated. The market for used equipment is a multifaceted and dynamic space. Federal Equipment Company’s history and reputation in the industry continues to be supported by the close relationships it maintains with all significant pharmaceutical manufacturers. Further, our association with OEMs and other suppliers helps put buyer together with seller quickly and then facilitates the close of these sales with the same services associated with internal transfers.
For major pharmaceutical manufacturers operating globally diversified manufacturing networks, internal transfer and equipment disposition that supports investment recovery is becoming an attractive standard operating procedure. But to be effective, an internally created equipment-management effort may fall short, unable to secure enough return from the program to justify the effort. An external partner with expertise in all aspects of equipment sale and transfer, like Federal Equipment Company, can offer the resources and experience to field a more effective and lucrative equipment investment recovery strategy.

  1. The 2016 Nice Insight Pharmaceutical Equipment Survey.

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