INDUSTRY ANALYSIS
PHARMACEUTICAL MANUFACTURING
OF BRAND NAME DRUGS
Group 45A
Leia Eldreth- Senior, Human Resources, May 2011
David Watson- Senior, Entrepreneurship, May 2011
Deniece McCoy- Senior, Finance, May 2011
PHARMACEUTICAL MANUFACTURING OF
BRAND NAME DRUGS
Merck & Co.
• Traded on New York Stock Exchange (MRK)
• Headquarters Located in White House
Station, NJ
Pfizer Inc.
• Traded on New York Stock Exchange (PFE)
• Headquarters Located in New York, NY
INDUSTRY KEY SUCCESS FACTORS
• Manufacturing Efficiency
• Economies of Scale
• Inventory Turnover
Strength Analysis Scale Used: 1-5
1- Weak
5- Strong
Based on 2010 Data
MANUFACTURING EFFICIENCY
• Allows companies to produce more product
efficiently
• Critical deciding factor in industry
competition
• Measured by: COGS/ Sales Revenue
• Lower is better for cost based strategies
MANUFACTURING EFFICIENCY
COGS/ SALES REVENUE
Merck & Co.:
Manufacturing Efficiency:
$11,015,000/ $45,987,000 = .2
Strength Analysis: 3
Pfizer Inc.:
Manufacturing efficiency:
$13,196,000/ $67,809,000 = .19
Strength Analysis: 3
ECONOMIES OF SCALE
• Allows companies to decrease the internal
cost of operation by reducing the cost per
unit.
• Result of increased production
• Measured by: Costs/ Total Assets
• Lower number is better if company has a
growth strategy.
ECONOMIES OF SCALE:
COSTS/ TOTAL ASSETS
Merck & Co.:
Economies of Scale:
$11,015,000/ $105,781,000 = .104
Strength Analysis: 1
Pfizer Inc. :
Economies of Scale:
$13,196,000/ $195,014,000= .068
Strength Analysis: 5
INVENTORY TURNOVER
• A measure of how often the company sells and
replaces its inventory. It is the ratio of annual
cost of sales to the latest inventory.
• Affects both supply chain and value chain.
• Measured by: Revenue/ average inventory
• Higher inventory turnover is better if industry
has product innovation
INVENTORY TURNOVER
REVENUE/ AVERAGE INVENTORY
Merck & Co.:
Inventory Turnover:
$45,987,000 / $6,961,000 = 6.6
Strength assessment: 3
Pfizer Inc.:
Inventory Turnover:
$67,809,000 / $10,404,000 = 6.5
Strength assessment: 3
OVERALL STRENGTH
ASSESSMENT
KSF
Merck & Co.
Pfizer Inc.
Manufacturing
Efficiency
3
3
Economies of
Scale
1
5
Inventory
Turnover
3
3
Totals:
7
11
Average:
2.33
3.66
PROTECTION FROM HIGHPOWER THREATS
Manufacturing Efficiency:
• Determines capability for production to supply the demand
• Greater efficiency, higher profits with lower COGS
• Higher top line revenue
• Better efficiency leads to a competitive advantage with the
ability to allocate funds elsewhere
PROTECTION FROM HIGHPOWER THREATS
Economies of Scale:
• Profit = [(QUANTITY x AVERAGE SALES PRICE)] – COSTS
• EOS allows reduction of internal costs without reducing
quality of product
• Cost per unit decreases as production increases
• Protection: High power rival forces drive average price down,
lower internal costs of production allow for lower prices to be
passed onto customers without reducing profits.
SOURCES:
"Merck & Co, Inc. - Company Report US." IBIS World, n.d.
Web. 10 Apr. 2011. <http://www.ibisworld.com/
enterprise/default.aspx?entid=1208>.
"Pfizer Inc. - Company Report US." IBIS World, n.d. Web. 10
Apr. 2011. <http://www.ibisworld.com/enterprise/
financialsannual.aspx?entid=1464>.