Wednesday, October 19, 2016

Holding the Diagnostic Mirror

Only those pharma companies with enough courage and imagination to learn and apply lessons from other industry leaders can hope to break from the pack

By Thibaut Dedeurwaerder and Jonathan Tilley, McKinsey & Company
Pharma managers should learn to watch their operations differently, see opportunities for improvement on their shop floor, and learn from top-performing peers and from leaders in other industries how to capture these opportunities.

The pharmaceutical industry is lagging other industries in operational efficiency, as indicated by OEE ranges of 10-60 percent, up to six-month lead times, and other measures. Few pharma managers understand shop-floor operations and their potential for improvement, and few learn from their industry peers — even those whose performance is far superior. But even the best-performing pharmaceutical plant is miles away from the efficiency achieved at the average Toyota plant. Only those pharmaceutical companies and plants with enough courage and imagination to learn and apply lessons from other industry leaders can hope to break from the pack.
When Taichi Ohno, Toyota’s head of production engineering after the second world war, visited Ford’s plants in Michigan, he may have been impressed by what he saw in the industry leader’s facilities. But beyond understanding the manufacturing system, he found many areas for improvement on the production line, such as a leveled pace of production and a smaller work-in-progress inventory. His visit, and the knowledge he took back to Japan, show how looking at systems or processes with fresh eyes can reveal new insights at the most basic level. This is exactly what pharmaceutical companies need to do now to uncover opportunities for improvement in operations.
This type of visit offers several lessons. Years before Toyota codified its core manufacturing principles, Mr. Ohno had already found new approaches to looking at production processes. The principle was “Genchi Genbutsu” — go and see for yourself. Managers watch processes, in person, to understand the fundamentals of what adds value and what does not. This approach would later become one of Toyota’s most famous slogans, and it is fundamental to production process diagnostics.
No matter how good their information, pharma managers rarely find inefficiencies in operations behind a desk. Yet all too often, managers accept the data in front of them without challenge. Anybody who wants to know what really goes on in manufacturing, including people’s difficulties and daily worries, must go to the shop floor and look, listen, question and understand.
We find that many pharma managers get wrapped up in other areas and fail to understand how much value can be added. They spend too little time watching operations or meeting and talking with employees. People on the shop floor often tell us that managers seem uncomfortable during visits. Not sure how they should behave, what they should be looking for or asking, many managers are actually relieved when they can return to the safety of their offices.
Pharmaceutical managers need to “learn to see” waste and variability in familiar processes, rather than just the barriers to change. Managers must ask “what would it take” rather than simply report “why we can’t do it.” Looking for waste and variability, especially in your own operations, requires courage. It also requires observation. In more than 50 plant walks and diagnostics we have conducted, we have seen pharma executives gain tremendous insights and benefits.
When we brought pharma managers to the shop floor, we sometimes found that less than half the equipment was running, and that multiple weeks of work in progress (WIP) was stored in many different places. On other occasions, we found different operators working on the same equipment with no clear work descriptions, and saw for ourselves the heavy burdens of batch documentation.
Results from these diagnostics speak for themselves: Many plants can improve their productivity and throughput times by 30 percent, and some by 50 percent.
Some pharma plants perform up to 20 times better than their lowest-performing peers, according to POBOS benchmarks for over 200 facilities. What distinguishes the top performers?
What we notice first when visiting top performing plants is the activity on the shop floor. Paradoxically, it is relatively low! Corridors are lonely, lines are populated sparingly and people aren’t running around. Multi-machine handling helps make this possible. But implementing this seemingly simple principle requires three enablers that distinguish top performers:
• Machine effectiveness at top-performing plants is significantly higher, with OEEs as high as 60 percent. Lines have fewer minor stops and breakdowns; product changeovers are executed efficiently; lines are run at a speed that meets the targeted output and quality. Underlying high machine effectiveness is a problem-solving approach where production operators, maintenance technicians and engineers collaborate in the pursuit of continuous improvement. Line performance is monitored systematically and continuously. Where a gap appears between planned and actual performance, the team responds immediately by looking for the root cause and implementing countermeasures.
• Efficient workplace design also plays a key role. Good plant layout enables multi-tasking. This includes a minimum of physical barriers on the shop floor to allow operators to flow between areas (e.g., automatic doors, same clean room classification throughout production). Line operators at top plants have all they need at arm’s length, and work stations are close to each other to reduce walking and searching time.
• Elimination of non-value-adding activities. Obviously, high machine effectiveness and efficient workplace design help reduce non-value added activities like repairing, waiting and walking. But top performers push it further. For example, by adopting the “critical to quality” principle, they reduce documentation by limiting the number of inputs to the items that really matter for product quality. Beyond removing non-value adding tasks, they also try to simplify activities. Fewer and simpler tasks mean fewer mistakes. The number and frequency of in-process controls are reduced to what is appropriate based on the process need and knowledge, rather than habit or tradition.
Many top performers have also reduced non-value-adding activities by investing in automation, such as automatic weighing stations and guided vehicles, container-washing machines and electronic batch records. The distinctiveness here, however, lies not so much in the investments but in the way the automation and systems are selected and implemented. Top performers understand that automation in itself does not guarantee performance or productivity. For any automation investment, they require a clear business case that is reviewed in a thorough capex approval process. Also, any process to be automated is optimized in-depth before being automated to avoid “locking in” inefficiencies.
Another characteristic that distinguishes top-performing plants is the mindset of their leaders. Most recognize that pharma is no different from other industries that have applied lean concepts. A recurring challenge is the perception that lean principles are difficult to marry with pharmaceutical operations, because of the highly regulated nature of the industry.
But managers at high-performing plants find the lean journey does not expose them to undue risk — and can even offer the same kinds of benefits seen in other industries. On one hand, managers understand that productivity and efficiency do not have to compromise quality, and that simplified work processes can reduce complexity, non-value-added activity and opportunities for error. What’s more, with quality being one of the main functions in pharma plants, managers also understand how lean principles can have tremendous benefits when applied in the quality department itself.
Given the huge spread in performance, pharma plants can learn a lot from each other about how to run operations efficiently. But even the best-performing plants can raise their aspirations by looking critically for waste and variability in their operations. A key purpose of a diagnostic is to find the technical limits of “what would we have to do” to improve. Each company should aspire to be the “Toyota of the pharma industry.” Admittedly, cars are not pills or vaccines. But it is worth thinking about how Toyota might go about making pills; this insight guides how we look at a diagnostic.
When comparing a top-performing pharma plant with the production system at Toyota, questions immediately arise:
1. Why are line-OEEs below 90 percent?
2. Why is throughput time 10 to 30 longer than actual process time?
3. Why don’t all operators follow a standardized work pattern?
Pharma executives reply with rational-sounding explanations, such as that change-over times and campaign sizes limit the flow, they face quality constraints, and that unforeseeable events prevent further standardization of work.
These explanations for inefficiency sound like those of automotive executives of 30 to 40 years ago. Yet today the car industry produces an exceptional variety of products in an ever more efficient way, with ever shorter delivery lead times and extremely high quality. Toyota assembles all the variants of more than one model on a single production line with a 97-99 percent run ratio (a kind of an OEE measurement), with virtually no buffer stocks, while achieving the best quality-performance in the industry, enabling them to offer five-year warranties in many markets.
It is reasonable to believe that Toyota would immediately address the poor OEE-levels of 10-60 percent in pharma. Just as automotive companies started to improve equipment effectiveness decades ago, pharmaceutical companies should now follow suit.
Toyota would not accept a product spending more than 30 days in a manufacturing facility. They aspire to get production down to pure processing time. Production would be controlled by pull to minimize work-in-process levels. Quality checks would be built into the process via error-proofing, and confirmation would be done in real time, leading to immediate release on receipt of any test needing incubation time.
Finally, by no means would Toyota allow non-standardized work execution. Standardized work is the basis of performance and improvement. Every process — be it a quality test, a changeover or a line replenishment — would be torn down to its basic elements. These would be sequenced and put onto a timeline, and managers would meticulously verify adherence to standards.
When Mr. Toyoda, former president of Toyota Europe, grandson of the founder and now the head of Toyota, visited the assembly plant in France a couple of years ago, he complained that operators did not follow standardized work processes. Indeed, during the plant tour, he stopped on the line, opened the standardized work manual for the position, and verified second-by-second that the operator performed the job according to its specified elements.
In what other industry does the head of the corporation take the time to investigate how a process is executed on the factory floor? Or pause long enough to ask why an operator handled a bolt with his right hand instead of his left?
What nobody thought possible in the automotive industry 50 years ago came true as one leader emerged. Pharmaceutical executives should aspire to excel on cost, service and quality and move away from the current “either-or” mindset.
Those with the courage to look firsthand at their operations — and the imagination to find the solutions to remove waste and variability from the processes and production system as a whole — will become leaders in their industry.

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