For every
manufacturing operation in the world to be successful and profitable, it has to
have “operational excellence” in their business environment. Unless there is an
extreme anomaly, this is the law of economics and nature. To me, “operational
excellence” means the companies have to produce consistent quality products and
serve customer’s needs all the time. It also means that the companies comply
with necessary regulations that apply to product quality, safety, meet their sustainability
obligations and continuously innovate.
Companies focused on “regulatory
compliance” most likely will not have the best technologies to produce quality
products and also will not have “operational excellence”. Any company believing
that “regulation compliance” will give them “operational excellence” could be
considered overestimating itself. Surely such companies can produce quality
products but only after lot of effort and consternation. In a competitive
environment their long-term existence can be in jeopardy.
Companies focused on
achieving “regulation compliance” as their first priority might be able to meet
the minimum regulations. It is very likely that their inefficient technologies and
methods will result in lack of process repeatability and occasional failures.
They will have to be extra vigilant to comply with regulations. This effort would
lead to higher costs. Companies achieving “operational excellence” might take a
bit longer to commercialize their products but compared to their “regulation
centric” competitors their overall costs will be lower i.e. higher profits and
they will have easier time complying with regulations.
Companies with
marginal/mediocre operations can stay in business only if their products are a “must
have” irrespective of the cost and extend life or significantly impact life
expectancy. In a competitive environment such companies will have to watch
their costs. It is very likely that in order to stay profitable they will cut
corners every place they can. Most likely places will be like poor processing,
record keeping, personnel training, safety and house keeping to name a few.
These will impact product quality and regulatory compliance during their product’s
life. In a non-competitive environment they will pass their inefficiency costs
to their customers. If companies are able to pass inefficiency costs “operational
excellence” does not matter.
Globally some
food and pharmaceutical companies who sell “must have products to live or
extend life” could fall in mediocre/marginal category. Food business is highly
regulated and very competitive. Regulatory compliance is a must. Companies
desiring to stay in business are forced to achieve “operational excellence”
otherwise they will go out of business.
Pharmaceuticals are a
different story. In pharmaceuticals, no matter how we look at things, patients
will pay whatever it takes to extend life whether they are part of a mutually
subsidized system or pay from their own pockets. Compared to food if one does
not get the necessary medicine, life is generally shortened. This is not an
acceptable proposition. Thus, having the correct dose of quality medicine at reasonable
cost is a must.
Brand pharma have
monopoly thus can easily charge the highest price a patient will pay. For
generic products there are too many players making the same product and
generally no one has economies of scale to have the best manufacturing
technologies and operating practices. Not having the economic processes,
companies try to get a competitive edge through pricing advantage. Short cuts
are taken at every step and that includes regulatory compliance. Lack of
command of processes to assure quality demands repeated quality checks and is an
expensive task. Such companies will generally have lower profit margins and
their existence is dependent on regulatory compliance, which at times falters. Quality
and regulatory lapses are a common occurrence. Companies especially generics
watch their costs.
When every bit of “manufacturing
technology innovation” is stifled by perceived difficulty of complying with regulations
rather than by lack of application of fundamentals of science and engineering,
we begin to see issues like faltering product quality and regulatory
compliance, less than 50% asset utilization, low inventory turns (less than two)
etc. We also begin to see higher product prices and/or companies cut corners to
stay profitable. These are symptoms of an industry telling us or even begging for
help. We might not want to admit it but some pharma companies fit many of the
described symptoms. Even though pharma companies have done a wonderful job of
helping billions over the years but it itself seems to need a curing dose to
achieve “operational excellence”. This dose could be “manufacturing
technologies innovation” that will produce quality products that can exceed
regulatory expectations.
“Operational
excellence” has to come from within and cannot be thrust upon in any business
or company. I believe time has come for pharma to take a re-look of the current
model and operating practices (process development, manufacturing and supply
chain etc.). Unless it is done we will continue to see increasingly product
quality lapses, bad publicity, higher drug prices and drug shortages especially
in generics where the overall business is expanding as patents expire.
Since pharma has not
internalized “operational excellence” it seems like regulatory bodies are
creating guidances and directives trying to nudge companies to excellence.
However, companies are putting additional effort trying to comply rather than put
effort in achieving excellence. This seems like a catch 22 and no one is making
much progress.
We need to review and
explore the current business model to see how and what all is needed for
manufacturing innovation rather than pontificate “how difficult or complex” it
is to comply with regulations. Regulations are an “after effect” of lack of continuous
innovation.
A recent article discusses
regulatory complexities one will face when no regulations exist for the kinds
of technologies being practiced in other industries but not in pharma. Obstacles
are being discussed when the landscape is not even known or understood. Yoda
said rightly “Do or do not. There is no try.”
There are “creative
destructionist” companies who are driving innovation on the diagnostic side of
healthcare. Their innovations are being road blocked by traditional companies
who are afraid of loss of lucrative business. We need similar innovator companies
for the manufacturing technology side as their efforts will lower drug costs,
improve profits and could make drugs affordable to additional 20% of the global
population that cannot afford drugs.
I believe that if pharma
companies follow basic fundamentals of chemical engineering, economics and
chemistry, simplicity of economies of scale will lead them to have best of the
manufacturing technologies. This effort would even direct them to a better
business model.
“Operational
excellence” in drug discoveries will run at their pace but it is possible that they
could have a trickle down benefit of “manufacturing technology innovation”. It
will be a win-win.
Girish Malhotra, PE
EPCOT International
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