Software How are Things in Terms of Operational Excellence in the Manufacture of Active Ingredients?

For years, the manufacture of active ingredients has been considered highly profitable, posting annual double-digit growth in the sector. However, this situation has now changed. The rise in regulatory requirements, the increasing market power of customers, and the growing number of substitutes have led to a change in the market characterized above all by more intensive competition. The changing environment leads to a rising importance of operational excellence. The university of St. Gallen benchmarked the operational excellence of 21 API plants.

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The active ingredients manufacturers in the pharmaceutical industry are facing new challenges. A study by Frost & Sullivan identifies five challenges for the years ahead: rising cost pressure, a more demanding competitive situation within Europe, delayed approvals of active ingredients, a reduced pipeline of new drugs, and new competitors from low-wage countries like China and India. A study carried out by St. Gallen University’s Institute for Technology Management (ITEM) confirms this significant pressure on active ingredients manufacture. This pressure from change is not only affecting the pharmaceuticals companies engaged in research, but is also impacting manufacturers of generics and contract manufacturers. The change goes beyond the previous dominant sector mentality of pure respect for specifications. In future, a more far-reaching process understanding will be taken as the key to moving from reactive, corrective one-off measures to efficient and continuous process improvement. The American drug licensing authority (FDA) has already undertaken a first step towards recognition of process understanding in the audit of their process validation guidelines.

Comprehensive reference model

A comprehensive reference model was used to analyze the level of Operational Excellence in active ingredients manufacture. This reference model was developed on the basis of integrated production systems used in the automotive industry and adapted to the specificities of the pharmaceutical industry. For this, a distinction was made between four sub-systems in operational excellence. The main objective of the Total Productive Maintenance (TPM) system is efficient plant management. By contrast, the Total Quality Management (TQM) system is geared to a significant increase in quality performance, which finds expression for example in a lower rate of rejects or a reduction in the level of complaints.

The Just-in-Time (JIT) system, in turn, aims at reducing working capital whilst simultaneously increasing the service level. In addition to these relatively technical components of the model, experience has shown that a fourth component, the general management system, needs to support the other operational excellence activities in a goal-oriented manner. Only by coordinating and supporting these elements through a performance-oriented management system can an API location achieve high operational performance,

The global study uses the model to compare 21 API locations. The average plant involved in the survey operates with 150 employees and has costs of goods sold (COGS) of € 107.5 million. To get an impression of the extent to which the performances of the individual API locations vary, the average of the three best-operating and worst-operating locations in each category was established and compared against one another. As a result, improvement potentials were identified in the areas of TPM, TQM and JIT.

Reducing costs for maintenance

For the TPM area, a reciprocal relationship was identified between take-up of capacity, unscheduled maintenance downtimes and the costs of maintenance. Locations with poor performance and a lower overall equipment effectiveness (OEE) are simultaneously battling in most instances with a higher proportion of unscheduled maintenance downtimes. A logical consequence of this was that significant increases in costs of maintenance for these locations could be identified, and also in the number of maintenance staff when compared with the top performers. In discussions with the benchmarking partners, it clearly proved to be the case that a strong focus on modern equipment has a direct positive impact on the level of OEE. In addition to this, it also seems that the mix of products per plant (mono-purpose or multi-purpose production) is directly connected with OEE.

The second set of correlations were identified in the area of TQM. API locations see themselves faced with a trade-off in this area between low rates for customer complaints and low rates for internally-rejected batches. This fact was already observed in the preceding pharmaceutical study. Compared with the top performers, locations with poor performance have over twice as high QA/QC costs as a proportion of total costs. The study also showed that the quality performance cannot be driven up directly through the simple mechanism of the number of QA/QC staff. This is confirmed by the fact that the top performers in this category had relatively few QA/QC staff.

Many pharmaceutical producers appear to continue to pursue the logic of seeking to improve their high rates of complaints through increased inspections of end products. As a rule, however, this only increases the QA/QC costs, without having a lasting and more long-term influence on product quality. By contrast, the top performers in this category understand how to raise product quality not through straightforward inspections, but through an integrated understanding of quality and process — thereby lowering the rate of complaints for the longer-term.

Only in this way does it seem possible to reduce costs long-term and simultaneously to increase customer satisfaction. A third set of correlations was identified in the area of JIT. There is an alarming discrepancy in the average setup times between the three best-performing and the three worst-performing locations. Whilst there are only slight differences between the best and worst locations in terms of raw material turnover, this discrepancy increased significantly when looking at the turnover frequency of end products. Similarly, the study was also able to show that there was major potential for improvement at poor-performing locations in terms of volume flexibility. The service level is excellent for all the locations studied, as is standard in the sector.

In-depth process understanding

One somewhat surprising finding of the study is that at a number of locations key performance indicators (KPIs) relevant for economical production were either not clearly defined or could not even be determined due to a lack of data. Yet it is only by implementing initiatives which have been balanced against one another, and by managing these consistently with the aid of various KPIs, that operational excellence in the manufacture of active ingredients can be achieved. API locations are only able to arm themselves for the future challenges in their industry if they have an understanding of production as a complex system and have appropriate management for this. If these change processes are not embraced by the culture and management, then even the best initiatives cannot satisfy the expectations placed upon them, or else run the risk of failing entirely.

In addition to the benchmarking studies looking at the manufacture of pharmaceutical products and active ingredients, in-depth research and industry projects were carried out looking at the production flows in pharmaceutical companies. Current and forthcoming research activities by the Institute cover the development and implementation of customer-individual integrated production systems for pharmaceutical locations. Experience from other sectors, and discussions with those responsible for managing locations, have shown that simply implementing individual tools in this area (Six Sigma, TPM) has not brought about the hoped-for success in the past. This underlines the key relevance of a deeper understanding of the mode of function and the interdependencies in integrated production systems and the correlations between individual KPIs. Based on comprehensive on-the-ground analyses and the key findings mentioned above from previous studies, we will develop and implement individual integrated production systems with the respective project partners. The aim is to achieve a significant increase in operational excellence for the project partners and to develop production to become a strategic success factor in competition going forward. Information on further studies can be obtained from the phone contact.

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