Operational Excellence in the Pharmaceutical Industry –
An Architecture for Emerging Markets
DISSERTATION
of the University of St.Gallen,
School of Management,
Economics, Law, Social Sciences
and International Affairs
to obtain the title of
Doctor of Philosophy in Management
submitted by
Daniel Bellm
from
Germany
Approved on the application of
Prof. Dr. Thomas Friedli
and
Prof. Dr. Wolfgang Stölzle
Dissertation no. 4331
Difo-Druck GmbH, Bamberg 2015
The University of St.Gallen, School of Management, Economics, Law, Social
Sciences and International Affairs hereby consents to the printing of the present
dissertation, without hereby expressing any opinion on the views herein expressed.
St.Gallen, October 22, 2014
The President:
Prof. Dr. Thomas Bieger
For my brother,
Nicolas
ACKNOWLEDGEMENT
This dissertation is the final result of my doctoral studies at the Institute of Technology
Management of the University of St.Gallen from 2011 to 2014. During that time I had
the opportunity to participate in numerous industry and research projects which not
only laid the foundation for this dissertation but were also a personal gain which I will
surely benefit from and to which I will enjoy looking back for many years. I am
grateful to all who made this an extraordinary time.
First of all, I would like to thank my supervisor Prof. Dr. Thomas Friedli for this
excellent guidance and his constant support. As my mentor, he created the culture that
inspired me to thrive, allowed my thoughts to run free, and was never short on advice.
I also want to extent my gratitude to my advisor Prof. Dr. Wolfgang Stölzle for the cosupervision of this dissertation and the valuable food for thought.
With regard to the empirical basis of this dissertation, I would like to thank all the
practitioners of the African companies and at UNIDO who participated in this
research. Furthermore, I am thankful for all managers and OPEX leaders, who were
available for interviews, shared their valuable experience with me, and who invested
their time to contribute to this dissertation.
I would also like to take the opportunity to express my gratitude to Dr. Jürgen Werani
and Prabir Basu, PhD. I owe a great deal of respect to them as valuable companions
during my doctorate. Jürgen, who always let me participate in his merely unlimited
OPEX experience, his entrepreneurial attitude and who opened so many doors. Prabir,
who was an excellent discussion partner not only for OPEX but also for impressive
insights in emerging markets and who was a great host during my time in Chicago.
I really enjoyed the time as a research associate and the cooperative working
environment at the Chair of Production Management in particular, and the University
of St.Gallen in general. Especially, I would like to emphasize my thanks to Jakob
Ebeling who took me along on his daily pursuit of cheerfulness and his numberless
advice, and Fabian Liebetrau, whose visionary and well-considered mind were always
a true motivation and a highly appreciated support. Moreover, I thank Sebastian Biehl,
Lukas Budde, Maria Fischl, Maximilian Klein, Nikolaus Lembke, Christian Mänder,
‘my two ladies’ Caroline Ubieto and Ruth Meier, Dr. Thomas Gronauer, and Dr.
Tobias Schlager; they all did their bit to this research.
Finally, I would like to thank my parents Herbert and Rita, who I owe everything and
who have always inspired me to reach higher.
St.Gallen, October 2014
Daniel Bellm
SUMMARY
Launching Operational Excellence (OPEX) constitutes a true challenge for every
manufacturing organization. Changing the habits and behavior of people, making them
to leave the beaten track and ultimately changing their mindset to continuous
improvement is a real management task and demands leaders to be charismatic,
encouraging and tenacious. This especially holds true for the highly regulated
pharmaceutical industry and its heritage of reluctance to change. Nevertheless, most
large pharmaceutical organizations based in advanced economies have launched an
OPEX program in an effort to holistically improve their operations since the turn of
the millennium. Moreover, after the first results and realized benefits have been
publicized, the transformational concept found its way to small and medium-sized
pharmaceutical manufactures and did not stop to enter domestic organizations of the so
called emerging markets. These markets distinguish substantially from advanced
economies and their unique setup make it nearly impossible, to transfer the concepts
that work perfectly in western organizations to domestic emerging market
manufacturers without any localized adaptions.
This dissertation suggests an approach how domestic pharmaceutical manufacturers in
emerging markets can design their individual OPEX program that fits to their specific
internal and external requirements.
First, two literature reviews examine the knowledge base on emerging markets and
OPEX. These reviews provide deep insights into what constitutes an emerging market
and list the major influences of these markets towards domestic manufacturing sites.
Furthermore, the philosophy and elements of OPEX are analyzed and critically
reflected within a pharmaceutical and emerging market context.
Second, a benchmarking of OPEX practices of 267 pharmaceutical manufacturing
sites allows the comparison of sites in advanced and emerging markets. Subsequent
case studies and workshop results in two Sub-Saharan African countries give firsthand impressions of the current status of pharmaceutical operations in selected
emerging markets.
Third, based on the findings the requirements for a transformation of a domestic
pharmaceutical manufacturing site towards OPEX are derived.
Finally, an OPEX Architecture is designed to support the focused manufacturing sites
in the development of their own OPEX program and an underlying model. The
discussion is enhanced by anecdotal evidence from interviews with OPEX leaders in
emerging markets of various multinational pharmaceutical organizations.
ZUSAMMENFASSUNG
Die Einführung einer Operational-Excellence-Initiative (OPEX) an einem
Produktionsstandort stellt jedes Unternehmen vor grosse Herausforderungen.
Mitarbeiter zu motivieren, ihre Routinen und ihr Verhalten zu ändern und dabei eine
Kultur der kontinuierlichen Verbesserung zu schaffen, ist eine Managementaufgabe,
die nach charismatischer und visionärer Führung verlangt. Dies gilt insbesondere für
die pharmazeutische Industrie, die aufgrund strenger regulatorischer Anforderungen
über lange Zeit hinweg eine veränderungshemmende Kultur entwickelte. Dennoch
haben in den vergangenen Jahren die meisten grossen Pharma-Hersteller der
entwickelten Volkswirtschaften umfangreiche OPEX-Programme gestartet, um ihre
Geschäftsaktivitäten kontinuierlich zu verbessern. Nachdem die ersten Ergebnisse und
der Mehrwert der Initiativen bekannt wurden, fand die OPEX-Philosophie auch in
kleinen und mittleren Unternehmen ihre Befürworter. Heute beschränkt sich die
Implementierung nicht mehr lediglich auf die Standorte grosser internationaler
Pharma-Hersteller in entwickelten Volkswirtschaften, sondern findet auch in
pharmazeutischen Betrieben unterschiedlicher Grösse in den Schwellenländern
zunehmende Akzeptanz. Jedoch unterscheiden sich die Schwellenländer massgeblich
von bereits entwickelten Volkswirtschaften, sodass ein Übertragen funktionierender
Management-Konzepte ohne kontextspezifische Anpassungen als nahezu unmöglich
erscheint.
Diese Dissertation stellt lokalen Pharma-Herstellern in Schwellenländern einen
Diskussionsrahmen zur Verfügung, mit dessen Hilfe ein individuelles OPEXProgramm entwickelt werden kann.
Zunächst werden basierend auf zwei Literaturanalysen die Charakteristika von
Schwellenländern und ihr Einfluss auf lokale Produzenten, aber auch die einzelnen
Elemente von OPEX sowohl im Kontext der pharmazeutischen Industrie als auch in
Schwellenländern kritisch untersucht.
Darauf aufbauend werden anhand eines Benchmarkings die Implementierung von
OPEX-Praktiken zwischen 267 pharmazeutischen Produktionsstandorten aus
entwickelten Volkswirtschaften und Schwellenländern miteinander verglichen. Die
Erkenntnisse werden mit Fallstudien und Workshop-Ergebnissen aus zwei afrikanischen Ländern untermauert.
Diese Erkenntnisse dienen im Weiteren dazu, Anforderungen an eine Architektur, die
die Transformation lokaler Pharma-Unternehmen hin zu OPEX unterstützt, abzuleiten.
Schliesslich wird eine OPEX-Architektur entworfen, die das Ableiten eines eigenen
Programms ermöglicht. Die Diskussion ist durch Erfahrungsberichte von OPEXManagern von internationalen Pharma-Unternehmen in Schwellenländern bereichert.
INDEX
V
INDEX
INDEX ........................................................................................................................... V
TABLE OF CONTENTS ......................................................................................... VII
LIST OF FIGURES .................................................................................................. XII
LIST OF TABLES .................................................................................................... XV
LIST OF ABBREVIATIONS ............................................................................... XVII
1
INTRODUCTION ................................................................................................. 1
1.1
1.2
1.3
1.4
2
UNDERSTANDING EMERGING MARKETS ............................................... 18
2.1
2.2
2.3
2.4
2.5
3
DETERMINANTS OF OPERATIONAL EXCELLENCE ........................................... 49
ELEMENTS OF OPERATIONAL EXCELLENCE ................................................... 53
PHARMACEUTICAL OPERATIONAL EXCELLENCE ........................................... 74
OPEX IN EMERGING MARKETS ...................................................................... 79
SUMMARY & DISCUSSION .............................................................................. 94
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD ............... 96
4.1
4.2
4.3
5
TERMS AND DEFINITION ................................................................................. 18
CHARACTERISTICS OF EMERGING MARKETS ................................................. 23
MANUFACTURING IN EMERGING MARKETS ................................................... 34
DIFFERENCES OF NATIONAL CULTURES ......................................................... 40
SUMMARY & CONCLUSION ............................................................................ 47
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS ..................... 49
3.1
3.2
3.3
3.4
3.5
4
MOTIVATION AND RELEVANCE ........................................................................ 1
RESEARCH FOUNDATION AND QUESTION ........................................................ 6
RESEARCH METHODOLOGY AND DESIGN OF THE THESIS .............................. 10
STRUCTURE OF THE THESIS ............................................................................ 16
OPEX BENCHMARKING.................................................................................. 96
INVESTIGATION IN THE FIELD ....................................................................... 113
CROSS CASE COMPARISON ........................................................................... 156
REQUIREMENTS FOR AN EMERGING MARKET SITE
TRANSFORMATION ...................................................................................... 170
5.1
5.2
REQUIREMENTS FOR A TRANSFORMATION ................................................... 170
ELEMENTS OF A TRANSFORMATION ............................................................. 175
VI
6
INDEX
TRANSFORMATION OF A PHARMACEUTICAL EMERGING
MARKET SITE ................................................................................................. 181
6.1
6.2
7
OVERVIEW .................................................................................................... 181
DESCRIPTION OF THE ELEMENTS .................................................................. 183
SUMMARY & OUTLOOK .............................................................................. 231
7.1
7.2
7.3
CONTRIBUTIONS TO THEORY........................................................................ 231
CONTRIBUTIONS TO PRACTICE ..................................................................... 232
LIMITATIONS AND FURTHER RESEARCH ...................................................... 233
REFERENCES .......................................................................................................... 236
APPENDIX A ............................................................................................................ 268
APPENDIX B ............................................................................................................ 269
APPENDIX C ............................................................................................................ 272
APPENDIX D ............................................................................................................ 293
CURRICULUM VITAE ........................................................................................... 294
TABLE OF CONTENTS
VII
TABLE OF CONTENTS
INDEX ........................................................................................................................... V
TABLE OF CONTENTS ......................................................................................... VII
LIST OF FIGURES .................................................................................................. XII
LIST OF TABLES .................................................................................................... XV
LIST OF ABBREVIATIONS ............................................................................... XVII
1
INTRODUCTION ................................................................................................. 1
1.1
MOTIVATION AND RELEVANCE ........................................................................ 1
1.1.1
RESEARCH MOTIVATION ........................................................................... 1
1.1.2
PRACTICAL RELEVANCE ........................................................................... 3
1.1.3
THEORETICAL GAPS .................................................................................. 6
1.2
RESEARCH FOUNDATION AND QUESTION ........................................................ 6
1.2.1
RESEARCH FOUNDATION AND BACKGROUND .......................................... 6
1.2.2
RESEARCH QUESTIONS.............................................................................. 9
1.3
RESEARCH METHODOLOGY AND DESIGN OF THE THESIS .............................. 10
1.3.1
RESEARCH GROUNDING AND PROCESS ................................................... 10
1.3.2
RESEARCH METHODOLOGY, THEORY BUILDING, DATA COLLECTION &
ANALYSIS ................................................................................................ 11
1.4
STRUCTURE OF THE THESIS ............................................................................ 16
2
UNDERSTANDING EMERGING MARKETS ............................................... 18
2.1
TERMS AND DEFINITION ................................................................................. 18
2.1.1
THE RISE OF EMERGING MARKETS ......................................................... 18
2.1.2
CLASSIFYING EMERGING MARKETS ....................................................... 19
2.2
CHARACTERISTICS OF EMERGING MARKETS ................................................. 23
2.2.1
ECONOMIC CHARACTERISTICS ................................................................ 25
2.2.2
TECHNOLOGICAL CHARACTERISTICS ...................................................... 27
2.2.3
INFRASTRUCTURAL CHARACTERISTICS .................................................. 28
2.2.4
SOCIOCULTURAL CHARACTERISTICS ...................................................... 29
2.2.5
POLITICAL CHARACTERISTICS ................................................................ 30
2.2.6
NATURE OF BUSINESS SYSTEM ............................................................... 31
2.2.7
SUMMARY ............................................................................................... 33
2.3
MANUFACTURING IN EMERGING MARKETS ................................................... 34
2.3.1
A RELEVANCE FOR MANUFACTURING .................................................... 35
VIII
TABLE OF CONTENTS
2.3.2
THE ROLE OF FOREIGN DIRECT INVESTMENT ......................................... 37
2.3.3
A TYPICAL EMERGING MARKET MANUFACTURER................................. 37
2.4
DIFFERENCES OF NATIONAL CULTURES ......................................................... 40
2.4.1
NATIONAL CULTURE ............................................................................... 41
2.4.2
CULTURAL CONCEPTS ............................................................................. 42
2.4.3
CULTURAL DIMENSIONS ......................................................................... 43
2.5
SUMMARY & CONCLUSION ............................................................................ 47
3
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS ..................... 49
3.1
DETERMINANTS OF OPERATIONAL EXCELLENCE ........................................... 49
3.1.1
MANUFACTURING STRATEGY ................................................................. 49
3.1.2
MANUFACTURING OUTPUT & CAPABILITIES .......................................... 51
3.1.3
SHAPING THE SYSTEM: MANUFACTURING LEVERS ................................ 52
3.2
ELEMENTS OF OPERATIONAL EXCELLENCE ................................................... 53
3.2.1
INFRASTRUCTURAL PRACTICES .............................................................. 53
3.2.1.1 TOTAL PRODUCTIVE MAINTENANCE (TPM) ....................................... 53
3.2.1.2 TOTAL QUALITY MANAGEMENT (TQM)............................................. 54
3.2.1.3 JUST-IN-TIME (JIT) .............................................................................. 56
3.2.1.4 HUMAN RESOURCE MANAGEMENT (HRM) ........................................ 57
3.2.1.5 LEAN MANUFACTURING ...................................................................... 57
3.2.1.6 WORLD CLASS MANUFACTURING (WCM) ......................................... 61
3.2.1.7 SUMMARY & DISCUSSION ................................................................... 63
3.2.2
ORGANIZATIONAL CULTURE................................................................... 64
3.2.3
ORGANIZATIONAL LEARNING ................................................................. 65
3.2.4
CHANGE MANAGEMENT.......................................................................... 67
3.2.4.1 THE GENERAL MANAGEMENT NAVIGATOR – A GUIDELINE FOR
TRANSFORMATION .............................................................................. 69
3.2.5
SUMMARY & DISCUSSION ....................................................................... 72
3.3
PHARMACEUTICAL OPERATIONAL EXCELLENCE ........................................... 74
3.3.1
CHALLENGES IN PHARMACEUTICAL MANUFACTURING ......................... 74
3.3.1.1 REGULATIONS INHIBIT INNOVATIVENESS ........................................... 74
3.3.1.2 GMP IN EMERGING MARKETS ............................................................ 75
3.3.1.3 GLOBAL DRUG QUALITY ..................................................................... 76
3.3.2
CURRENT STATUS OF OPEX IN PHARMA ................................................ 78
3.4
OPEX IN EMERGING MARKETS ...................................................................... 79
3.4.1
BARRIERS TO AN OPEX IMPLEMENTATION ............................................ 79
3.4.1.1 EXTERNAL BARRIERS .......................................................................... 80
3.4.1.2 INTERNAL BARRIERS ........................................................................... 81
TABLE OF CONTENTS
IX
3.4.1.3 SUMMARY AND DISCUSSION ............................................................... 84
3.4.2
CULTURAL INFLUENCES ON THE IMPLEMENTATION OF OPEX ............... 87
3.4.2.1 POWER DISTANCE................................................................................ 87
3.4.2.2 INDIVIDUALISM VS. COLLECTIVISM .................................................... 88
3.4.2.3 MASCULINITY VS. FEMININITY............................................................ 89
3.4.2.4 UNCERTAINTY AVOIDANCE ................................................................ 89
3.4.3
FAILURE CULTURE .................................................................................. 90
3.5
SUMMARY & DISCUSSION .............................................................................. 94
4
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD ............... 96
4.1
OPEX BENCHMARKING.................................................................................. 96
4.1.1
BUILDING THE DATA SAMPLES ............................................................... 97
4.1.2
ENABLING THE MANUFACTURING SITES ................................................ 99
4.1.3
PERFORMANCE OF THE MANUFACTURING SITES .................................. 109
4.2
INVESTIGATION IN THE FIELD ....................................................................... 113
4.2.1
EXPLANATION OF THE CASES................................................................ 113
4.2.2
THE CASE OF PHARMCO A.................................................................... 116
4.2.2.1 COMPANY PROFILE ............................................................................ 116
4.2.2.2 STRUCTURAL LEVERS........................................................................ 118
4.2.2.3 PHARMACEUTICAL MANUFACTURING ENVIRONMENT ..................... 119
4.2.2.4 PROCESSES ........................................................................................ 121
4.2.2.5 MANAGEMENT & CULTURE .............................................................. 124
4.2.3
THE CASE OF PHARMCO B .................................................................... 125
4.2.3.1 COMPANY PROFILE ............................................................................ 125
4.2.3.2 STRUCTURAL LEVERS........................................................................ 127
4.2.3.3 PHARMACEUTICAL MANUFACTURING ENVIRONMENT ..................... 128
4.2.3.4 PROCESSES ........................................................................................ 130
4.2.3.5 MANAGEMENT & CULTURE .............................................................. 131
4.2.4
THE CASE OF PHARMCO C .................................................................... 132
4.2.4.1 COMPANY PROFILE ............................................................................ 132
4.2.4.2 STRUCTURAL LEVERS........................................................................ 134
4.2.4.3 PHARMACEUTICAL MANUFACTURING ENVIRONMENT ..................... 135
4.2.4.4 PROCESSES ........................................................................................ 137
4.2.4.5 MANAGEMENT & CULTURE .............................................................. 139
4.2.5
THE CASE OF PHARMCO D.................................................................... 140
4.2.5.1 COMPANY PROFILE ............................................................................ 140
4.2.5.2 STRUCTURAL LEVERS........................................................................ 141
4.2.5.3 PHARMACEUTICAL MANUFACTURING ENVIRONMENT ..................... 141
X
TABLE OF CONTENTS
4.2.5.4 PROCESSES ........................................................................................ 141
4.2.5.5 MANAGEMENT & CULTURE .............................................................. 142
4.2.6
WORKSHOP I ......................................................................................... 142
4.2.7
THE CASE OF PHARMCO E .................................................................... 144
4.2.7.1 COMPANY PROFILE ............................................................................ 144
4.2.7.2 STRUCTURAL LEVERS........................................................................ 145
4.2.7.3 PHARMACEUTICAL MANUFACTURING ENVIRONMENT ..................... 145
4.2.7.4 PROCESSES ........................................................................................ 146
4.2.7.5 MANAGEMENT & CULTURE .............................................................. 147
4.2.8
THE CASE OF PHARMCO F .................................................................... 147
4.2.8.1 COMPANY PROFILE ............................................................................ 147
4.2.8.2 STRUCTURAL LEVERS........................................................................ 149
4.2.8.3 PHARMACEUTICAL MANUFACTURING ENVIRONMENT ..................... 150
4.2.8.4 PROCESSES ........................................................................................ 151
4.2.8.5 MANAGEMENT & CULTURE .............................................................. 153
4.2.9
WORKSHOP II ........................................................................................ 155
4.3
CROSS CASE COMPARISON ........................................................................... 156
4.3.1
EXTERNAL BARRIERS............................................................................ 156
4.3.2
INTERNAL BARRIERS ............................................................................. 159
4.3.3
SUMMARY ............................................................................................. 168
5
REQUIREMENTS FOR AN EMERGING MARKET SITE
TRANSFORMATION ...................................................................................... 170
5.1
REQUIREMENTS FOR A TRANSFORMATION ................................................... 170
5.1.1
REQUIREMENTS DERIVED FROM LITERATURE ...................................... 171
5.1.2
REQUIREMENTS DERIVED IN CHAPTERS 2, 3 & 4 .................................. 172
5.2
ELEMENTS OF A TRANSFORMATION ............................................................. 175
5.2.1
OVERVIEW............................................................................................. 175
5.2.2
DESCRIPTION OF THE ELEMENTS........................................................... 177
5.2.2.1 EMERGING MARKET ENVIRONMENT ................................................. 177
5.2.2.2 ORGANIZATION/MANUFACTURING SITE ........................................... 178
5.2.2.3 OPERATIONAL EXCELLENCE PROGRAM ............................................ 178
5.2.2.4 DYNAMIC ........................................................................................... 179
5.2.2.5 FIT ..................................................................................................... 179
6
TRANSFORMATION OF A PHARMACEUTICAL EMERGING
MARKET SITE ................................................................................................. 181
6.1
6.2
OVERVIEW .................................................................................................... 181
DESCRIPTION OF THE ELEMENTS .................................................................. 183
TABLE OF CONTENTS
XI
6.2.1
MANAGEMENT COMMITMENT .............................................................. 183
6.2.1.1 LEADERSHIP & COMMUNICATION ..................................................... 184
6.2.1.2 RESOURCES ....................................................................................... 189
6.2.1.3 RESPONSIBILITIES & DELEGATION .................................................... 190
6.2.1.4 CULTURE OF CONTINUOUS IMPROVEMENT ....................................... 192
6.2.2
STRATEGY ............................................................................................. 195
6.2.2.1 STRATEGIC OPEX ALIGNMENT......................................................... 195
6.2.2.2 ROADMAP & COMMUNICATION ........................................................ 197
6.2.3
PEOPLE .................................................................................................. 200
6.2.3.1 EMPOWERMENT VS. COMMAND & CONTROL .................................... 200
6.2.3.2 KNOWLEDGE RETENTION & TRAINING ............................................. 203
6.2.3.3 QUALITY AWARENESS....................................................................... 207
6.2.4
PHARMACEUTICAL MANUFACTURING ENVIRONMENT & QUALITY ..... 209
6.2.4.1 MAINTENANCE POLICY ..................................................................... 209
6.2.4.2 HOUSEKEEPING, STANDARDIZATION & VISUAL MANAGEMENT ...... 211
6.2.4.3 QUALITY SYSTEM .............................................................................. 212
6.2.5
PRODUCT PORTFOLIO ............................................................................ 216
6.2.6
PROCESSES ............................................................................................ 217
6.2.6.1 CREATING THE PROCESS LANDSCAPE: STABILIZE THE SYSTEM ....... 218
6.2.6.2 FROM PUSH TO PULL AND INVENTORY VS. WASTE........................... 222
6.2.6.3 LAUNCHING ....................................................................................... 223
6.2.7
TRANSPARENCY .................................................................................... 224
6.2.8
A TRANSFORMATIONAL GUIDELINE ..................................................... 227
7
SUMMARY & OUTLOOK .............................................................................. 231
7.1
7.2
7.3
CONTRIBUTIONS TO THEORY........................................................................ 231
CONTRIBUTIONS TO PRACTICE ..................................................................... 232
LIMITATIONS AND FURTHER RESEARCH ...................................................... 233
REFERENCES .......................................................................................................... 236
APPENDIX A ............................................................................................................ 268
APPENDIX B ............................................................................................................ 269
APPENDIX C ............................................................................................................ 272
APPENDIX D ............................................................................................................ 293
CURRICULUM VITAE ........................................................................................... 294
XII
LIST OF FIGURES
LIST OF FIGURES
FIGURE 1.1: WORLDWIDE TOTAL PHARMACEUTICAL R&D SPEND (EVALUATEPHARMA,
2012) ......................................................................................................... 3
FIGURE 1.2: PHARMERGING CONTRIBUTION TO TOTAL MARKET GROWTH (IMS HEALTH,
2012) ......................................................................................................... 4
FIGURE 1.3: COST STRUCTURES BY COMPANY TYPE (OPEX BENCHMARKING) ............. 5
FIGURE 1.4: THE ST.GALLEN MODEL FOR OPERATIONAL EXCELLENCE ........................ 7
FIGURE 1.5: THE SELECTION, INTERACTION AND SYSTEM FORMS OF FIT (SOUSA AND
VOSS, 2008; DRAZIN AND VAN DE VEN, 1985) ......................................... 8
FIGURE 1.6: RESEARCH PROCESS (KUBICEK, 1977; TOMCZAK, 1992; GASSMANN, 1999)
................................................................................................................. 11
FIGURE 1.7: STRUCTURE OF THE THESIS........................................................................ 17
FIGURE 2.1: CONTINUUM OF INSTITUTIONAL VOIDS AND MARKET CLASSIFICATIONS
(KHANNA ET AL., 2010) ........................................................................... 28
FIGURE 2.2: THE CULTURAL CONCEPTS OF SCHEIN (1992) AND ADLER (1991)............ 43
FIGURE 3.1: THE DYNAMIC PROCESS OF ORGANIZATIONAL LEARNING (CROSSAN ET AL.,
1999) ....................................................................................................... 67
FIGURE 3.2: THE ‘QUASI-STATIONARY’ EQUILIBRIUM OF CHANGE, ADAPTED FROM
BURNES (2009) ........................................................................................ 68
FIGURE 3.3: SCOPE OF ACTION OF AN ORGANIZATION BEFORE AND AFTER LAUNCHING
OPEX ...................................................................................................... 70
FIGURE 3.4: THE GENERAL MANAGEMENT NAVIGATOR (MÜLLER-STEWENS AND
LECHNER, 2005) ...................................................................................... 71
FIGURE 3.5: THE DEFINITION OF FAILURE, ADAPTED FROM TÖPFER (2007).................. 91
FIGURE 3.6: THE DEFINITION OF FAILURE IN EMERGING MARKETS, ADAPTED FROM
TÖPFER (2007) ......................................................................................... 94
FIGURE 4.1: GEOGRAPHIC DISTRIBUTION OF THE ADVANCED AND TOP-10 SAMPLE ..... 97
FIGURE 4.2: GEOGRAPHIC DISTRIBUTION OF THE EMERGING MARKET SAMPLE ............ 98
FIGURE 4.3: COMPARISON OF PREVENTIVE MAINTENANCE IMPLEMENTATION ........... 102
FIGURE 4.4: COMPARISON OF TECHNOLOGY ASSESSMENT AND USAGE ...................... 102
FIGURE 4.5: COMPARISON OF PROCESS MANAGEMENT ............................................... 103
FIGURE 4.6: COMPARISON OF CROSS-FUNCTIONAL PRODUCT DEVELOPMENT ............ 103
FIGURE 4.7: COMPARISON OF SETUP TIME REDUCTION ............................................... 104
FIGURE 4.8: COMPARISON OF PULL PRODUCTION....................................................... 104
FIGURE 4.9: COMPARISON OF LAYOUT OPTIMIZATION ................................................ 105
FIGURE 4.10: COMPARISON OF PLANNING ADHERENCE .............................................. 105
LIST OF FIGURES
XIII
FIGURE 4.11: COMPARISON OF DIRECTION SETTING ................................................... 106
FIGURE 4.12: COMPARISON OF MANAGEMENT COMMITMENT AND COMPANY CULTURE
............................................................................................................... 107
FIGURE 4.13: COMPARISON OF EMPLOYEE INVOLVEMENT AND CONTINUOUS
IMPROVEMENT ....................................................................................... 107
FIGURE 4.14: COMPARISON OF FUNCTIONAL INTEGRATION AND QUALIFICATION ...... 108
FIGURE 4.15: COMPARISON OF STANDARDIZATION .................................................... 108
FIGURE 4.16: COMPARISON OF VISUALIZATION .......................................................... 109
FIGURE 4.17: HEADCOUNT STRUCTURE PHARMCO A ................................................. 116
FIGURE 4.18: MANUFACTURING STRATEGY & REASONS FOR LAUNCHING OPEX OF
PHARMCO A .......................................................................................... 117
FIGURE 4.19: HEADCOUNT STRUCTURE PHARMCO B ................................................. 126
FIGURE 4.20: MANUFACTURING STRATEGY & REASONS FOR LAUNCHING OPEX OF
PHARMCO B .......................................................................................... 127
FIGURE 4.21: HEADCOUNT STRUCTURE PHARMCO C ................................................. 133
FIGURE 4.22: MANUFACTURING STRATEGY & REASONS FOR LAUNCHING OPEX OF
PHARMCO C .......................................................................................... 134
FIGURE 4.23: HEADCOUNT STRUCTURE PHARMCO F ................................................. 148
FIGURE 4.24: MANUFACTURING STRATEGY & REASONS FOR LAUNCHING OPEX OF
PHARMCO F ........................................................................................... 149
FIGURE 4.25: PERFORMANCE FRONTIER DEPENDING ON ASSET AND OPERATING
FRONTIERS, ADAPTED FROM VASTAG (2000) ........................................ 161
FIGURE 5.1: REQUIREMENTS FOR AN ARCHITECTURE MUNDT (2012), ADAPTED FROM
FRIEDLI (2000) ...................................................................................... 171
FIGURE 5.2: SUMMARY OF REQUIREMENTS ................................................................. 175
FIGURE 5.3: FIRST LEVEL ELEMENTS OF AN OPERATIONAL EXCELLENCE
ARCHITECTURE...................................................................................... 176
FIGURE 6.1: THE OPERATIONAL EXCELLENCE ARCHITECTURE .................................. 182
FIGURE 6.2: WILL / SKILL MATRIX, ADAPTED FROM HERSEY AND BLANCHARD
(1977, P. 170)......................................................................................... 191
FIGURE 6.3: ORGANIZATIONAL STAGES TOWARDS CONTINUOUS IMPROVEMENT,
ADAPTED FROM BESSANT ET AL. (2001) ............................................... 194
FIGURE 6.4: DEFINING THE COMPETITIVE PRIORITIES ................................................. 196
FIGURE 6.5: ACTION LIST FOR AN OPEX ROADMAP ................................................... 199
FIGURE 6.6: VISUALIZATION OF AN OPEX ROADMAP ................................................ 200
FIGURE 6.7: FIVE STAGES TO PEOPLE EMPOWERMENT, ADAPTED FROM CONGER (1988)
............................................................................................................... 202
XIV
LIST OF FIGURES
FIGURE 6.8: QUALITY-RELATED EMPLOYEE BEHAVIOR, ADAPTED FROM SEGHEZZI ET
AL. (2013) .............................................................................................. 208
FIGURE 6.9: QUALITY STAFFING AT A MULTINATIONAL’S INDIAN PHARMA SITE
(OPEX BENCHMARKING) ...................................................................... 213
FIGURE 6.10: A FRAMEWORK TO ASSESS ORGANIZATIONAL QUALITY CULTURE,
ADAPTED FROM SEGHEZZI ET AL. (2013) .............................................. 215
FIGURE 6.11: INTERNAL COMPLEXITY DRIVERS .......................................................... 217
FIGURE 6.12: PROCESS LANDSCAPE AS DESIGNED IN THE RESEARCH PROJECT E2E-SC
............................................................................................................... 219
FIGURE 6.13: EXTERNAL COMPLEXITY DRIVERS ......................................................... 220
FIGURE 6.14: PRODUCT PULL WITH KANBAN SYSTEM ................................................ 223
FIGURE 6.15: THE GMN AS TRANSFORMATIONAL GUIDELINE.................................... 227
LIST OF TABLES
XV
LIST OF TABLES
TABLE 1.1: OVERVIEW OF EMPIRICAL DATA BASE PHASE II ......................................... 13
TABLE 1.2: OVERVIEW OF EMPIRICAL DATA BASE PHASE III – INTERVIEWS ................ 14
TABLE 1.3 OVERVIEW OF EMPIRICAL DATA BASE PHASE III – WORKSHOP & PROJECTS15
TABLE 2.1. FREQUENTLY USED CRITERIA FOR DEFINING EMERGING MARKETS
(KHANNA ET AL., 2010) ............................................................................. 20
TABLE 2.2: SELECTED COUNTRY CLASSIFICATION SYSTEMS (NIELSEN, 2011) ............. 21
TABLE 2.3: EMERGING MARKETS AS DEVELOPING COUNTRIES AND ECONOMIES IN
TRANSITION – GEOGRAPHICAL REGION CLASSIFICATION
(UNITED NATIONS, 2012; HOSKISSON ET AL., 2000) ................................. 22
TABLE 2.4: INSTITUTIONAL SUBSYSTEMS TO TYPIFY EMERGING MARKETS, ACCORDING
TO BURGESS AND STEENKAMP (2006) ....................................................... 24
TABLE 2.5: SELECTED DIMENSIONS TO CHARACTERIZE AN EMERGING MARKET .......... 25
TABLE 2.6: CORRUPTION PERCEPTIONS INDEX 2012 (TRANSPARENCY INTERNATIONAL,
2012).......................................................................................................... 32
TABLE 2.7: MARKET SEGMENTS IN EMERGING MARKETS (KHANNA ET AL., 2010) ...... 33
TABLE 2.8: SUMMARY OF EMERGING MARKETS’ MAJOR INFLUENCES ON
MANUFACTURING SITES ............................................................................. 34
TABLE 2.9: OVERVIEW OF CULTURAL DIMENSIONS, ADAPTED FROM HASENSTAB (1998)
................................................................................................................... 45
TABLE 2.10: HOFSTEDE’S CULTURAL DIMENSIONS: EMERGING VS. ADVANCED
MARKETS (HOFSTEDE, 2014) ..................................................................... 46
TABLE 3.1: MANUFACTURING OUTPUTS & CAPABILITIES, ADAPTED FROM MILTENBURG
(2008) AND MUNDT (2012) ....................................................................... 51
TABLE 3.2: STRUCTURAL AND INFRASTRUCTURAL LEVERS OF A MANUFACTURING SITE
(MILLS ET AL., 2002) ................................................................................. 53
TABLE 3.3: THE CONSTITUENTS OF LEAN PRODUCTION ............................................... 60
TABLE 3.4: THE SIX WORLD CLASS MANUFACTURING PRACTICES (FLYNN ET AL., 1999,
P. 250) ........................................................................................................ 61
TABLE 3.5: PHARMACEUTICAL ADAPTION STANDARDS, ADAPTED FROM BRHLIKOVA
(2007) ........................................................................................................ 74
TABLE 3.6: CHALLENGES FOR AFRICAN MANUFACTURERS TOWARDS ACHIEVING
UNIVERSAL GMP STANDARDS, ADAPTED FROM UNIDO (2012) ............... 76
TABLE 3.7: TESTED DRUG QUALITY – EMERGING VS. ADVANCED COUNTRIES, ADAPTED
FROM BATE (2010) .................................................................................... 77
TABLE 3.8: EXTERNAL AND INTERNAL BARRIERS TO OPEX IN EMERGING MARKETS .. 86
XVI
LIST OF TABLES
TABLE 4.1: SIZE OF MANUFACTURING SITES IN THE ADVANCED AND EMERGING SAMPLE
................................................................................................................... 98
TABLE 4.2: PRODUCTION STRUCTURE OF SITES IN THE ADVANCED AND EMERGING
SAMPLE ...................................................................................................... 99
TABLE 4.3: THE APPLIED BUSINESS MODEL OF THE DATA SAMPLES ............................. 99
TABLE 4.4: IMPLEMENTATION SCORES OF OPEX PRACTICES ..................................... 101
TABLE 4.5: COMPARISON OF PRODUCTION SCHEDULE ACCURACY ............................. 109
TABLE 4.6: COMPARISON OF PRODUCTION FLEXIBILITY UPSIDE (IN DAYS) ................ 110
TABLE 4.7: COMPARISON OF PRIORITY ORDERS .......................................................... 110
TABLE 4.8: COMPARISON OF DEDICATED EQUIPMENT ................................................ 111
TABLE 4.9: COMPARISON OF AVERAGE PRODUCTION LEAD TIME (IN DAYS) (PHARM.
MANUF.) ................................................................................................... 111
TABLE 4.10: COMPARISON OF AVERAGE PRODUCTION LEAD TIME (IN DAYS) (QA/QC)
................................................................................................................. 111
TABLE 4.11: COMPARISON OF RIGHT-FIRST-TIME ...................................................... 112
TABLE 4.12: COMPARISON OF DEVIATIONS PER BATCH .............................................. 112
TABLE 4.13: COMPARISON OF DEVIATION CLOSURE TIME (IN DAYS) .......................... 112
TABLE 4.14: COMPARISON OF SERVICE LEVEL (DELIVERY) ........................................ 113
TABLE 4.15: COMPARISON OF FUNCTIONAL INTEGRATION ......................................... 113
TABLE 4.16: QUALITY-RELATED KPIS OF PHARMCO A IN COMPARISON ................... 123
TABLE 4.17: MANUFACTURING CHALLENGES AND KPIS OF SUB-SAHARAN AFRICAN
PHARMCOS ............................................................................................... 143
TABLE 4.18: MAJOR CHALLENGES TO THE IMPLEMENTATION OF TPM, TQM, AND JIT
AT AFRICAN PHARMACEUTICAL MANUFACTURERS ................................. 155
TABLE 4.19: SHIFT MODEL OF THE DATA SAMPLES ..................................................... 162
TABLE 4.20: BARRIERS TO PHARMACEUTICAL OPEX IN EMERGING MARKETS .......... 169
TABLE 5.1: GENERIC ELEMENTS OF THE ARCHITECTURE (FIRST LAYER).................... 177
TABLE 6.1: SECOND LAYER ELEMENTS OF THE OPERATIONAL EXCELLENCE
ARCHITECTURE ........................................................................................ 183
TABLE 6.2: LEADERSHIP SKILLS AND ACTIVITIES: A TAXONOMY OF GENERAL
MANAGEMENT, ADAPTED FROM PAVUR (2012) ...................................... 186
TABLE 6.3: A SELECTION OF TYPICAL MONTHLY PERFORMANCE MEASURES (NEELY ET
AL., 1995) ................................................................................................ 226
LIST OF ABBREVIATIONS
XVII
LIST OF ABBREVIATIONS
ASEAN
Association of Southeast Asian Nations
BOM
Bill Of Material
ca.
circa
CAPA
Corrective And Preventive Action
CEO
Chief Executive Officer
COO
Chief Operating Officer
DOH
Days On Hand
EBIT
Earnings before Interest and Taxes
ed.
Edition
Ed.
Editor
EFTA
European Free Trade Association
e.g.
exempli gratia
et al.
et alii
etc.
et cetera
FDI
Foreign Direct Investment
GATT
General Agreement on Tariffs and Trade
GDP
Gross Domestic Product
GMN
General Management Navigator
GMP
Good Manufacturing Practice
HR
Human Resource
HSG
University of St.Gallen (Universität St.Gallen)
i.e.
id est
IFC
International Finance Corporation
IMF
International Monetary Fund
Imp.
Implication
ISO
International Organization for Standardization
XVIII
ITEM-HSG
LIST OF ABBREVIATIONS
Institute for Technology Management
University of St.Gallen
JIT
Just-In-Time
KPI
Key Performance Indicator
Mercosur
Mercado Común del Sur (Southern Common Market)
MNC
Multinational Corporation
MNE
Multinational Enterprise
NAFTA
North American Free Trade Agreement
NGO
Non-Governmental Organization
NME
New Molecular Entity
No.
Number
OECD
Organization
Development
OOS
Out Of Specification
OPEX
Operational Excellence
p. / pp.
Page / Pages
p.a.
per annum
Q.
Question
QA/QC
Quality Assurance/Quality Control
R&D
Research & Development
S&OP
Sales & Operations Planning
SC
Supply Chain
SCM
Supply Chain Management
SOP
Standard Operating Procedure
TPM
Total Preventive Maintenance
TQM
Total Quality Management
TRIPS
Trade-Related Aspects of Intellectual Property Rights
UNCTAD
United Nations
Development
for
Economic
Conference
Cooperation
on
Trade
and
and
LIST OF ABBREVIATIONS
XIX
UNDP
United Nations Development Programme
WCM
World Class Manufacturing
WESP
World Economic Situation and Prospects
WHO
World Health Organization
WTO
World Trade Organization
INTRODUCTION
1
1 Introduction
“Πάντα ῥεῖ καὶ οὐδὲν μένει”
“Nothing endures but change”
Heraklit of Ephesus (540 – 480 BC)
1.1 Motivation and Relevance
1.1.1 Research Motivation
The continuous pursuit of operational improvements unlocks valuable strengths and
opportunities for all kind of organizations. Streamlining a company’s manufacturing
function by ultimately eliminating all types of waste within processes fosters
organizational efficiency and agility alike, and may finally provide the organization
with a competitive advantage. Thus, the implementation and management of
distinctive programs to improve an organization’s effectiveness and efficiency
constitute a significant success factor. In order to leverage these often hidden
potentials, the literature offers a multitude of concepts. While some research argues to
transform an organization into a lean state (Ohno, 1988; Womack et al., 1990; Liker,
2004), other authors propose to build world class manufacturing capabilities
(Schonberger, 1986), improving a company’s responsiveness (Suri, 1998) or to
primarily pursue an organization’s agility (Naylor et al., 1999; Yusuf et al., 1999).
Though research follows differently termed approaches, all of them jointly strive to
increase an organization’s performance and to ultimately transform it towards
Operational Excellence (OPEX). Initially, within this process of transformation
‘Operational Excellence’ is often no more than an empty phrase which prompts
organizations to emulate the tactics, strategies and behaviors of other, more successful
organizations. In the end, it is concrete actions which make the formerly mere phrase
to a key to organizational success (Perlitz, 2004). These actions are manifold, and
summarized in manufacturing practices they are part of distinctive manufacturing
programs (Cua et al., 2001; Shah and Ward, 2003, 2007).
Until the present day, the concept of OPEX has disseminated into many industries
(Hines et al., 2004). Nonetheless, scientific literature describing OPEX practice
implementations in process industries in general (Tanco et al., 2012), and the
pharmaceutical industry in particular, (Melton, 2005) is still scarce. As conclusions
2
INTRODUCTION
from other industries might be misleading (Deflorin and Scherrer-Rathje, 2011), more
scientific studies are necessary to assess the feasibility of the concept within the
context of pharmaceutical manufacturing (Haleem et al., 2014).
Realizing the potentials of OPEX is not solely limited to the developed world.
Manufacturing organizations around the globe put considerable emphasis on
management systems that induce superior performance and provide them with
competitive advantages. With the rise of emerging economies, these geographic
regions have not only gained the interest of organizations to manufacture and market
their products there, but have also widened the scope of research. Several journals
have already acknowledged the increasing importance of emerging markets, and
special issues from the Journal of Management Studies (2005), Journal of International
Management (2007), Journal of International Business Studies (2007, 2010),
Management International Review (2009), and Advances in International Management
(2010) have been published (Singh, 2012). One of the most interesting aspects of
studying emerging markets lies in their huge diversity (Kearney, 2012) and the effects
of national culture on management concepts (Hofstede, 1994a). Emerging markets
currently make up about three quarters of the world’s land mass, comprise more than
four fifth of the world’s population yet control only one fifth of the global GDP
(Kearney, 2012). The latter, however, is going to change rapidly and thus raises “[…]
the need to extend theoretical research developed in industrialized countries to newly
developing countries.” (Laohavichien et al., 2011, p. 1052). One reason for the
necessity to further assess the peculiarities of these markets is the only very limited
number of small and medium-sized companies which have profited from
implementing OPEX so far (Yang and Yu, 2010), as well as their lack of profound
understanding of the concept itself (Ghosh, 2013). Furthermore, the scientific
understanding of manufacturing practices in emerging markets is crucial not only to
support domestic companies in the improvement of their operations, but because of the
potential competition organizations in these markets raise for the already developed
world (Kathuria et al., 2010). In order to be successful, strategies known from
advanced economies need to be adapted to the unique institutional settings in emerging
markets (Bruton et al., 2007).
This dissertation aims at tackling the above mentioned limitations. It strives to support
leaders of domestic pharmaceutical manufacturing sites in emerging markets in the
design, implementation and management of their own, company-specific OPEX
programs. To ensure operational feasibility, an architecture for a focused and goaloriented discussion of the main dimensions of OPEX at an emerging market
pharmaceutical manufacturing site is set up. The discussion is enhanced by insights
into operational practices of multinationals’ offshore sites.
INTRODUCTION
3
1.1.2 Practical Relevance
The global pharmaceutical industry is currently undergoing a large transformation.
Although the industry’s R&D pipeline is expected to stabilize at delivering about 36
new molecular entities (NMEs) yearly until 2016 (Berggren et al., 2012), its stuttering
for the past years and a continued shrinking of its R&D productivity put a major
source of the industry’s welfare at risk (Paul et al., 2010). Stabilizing the output of
research-driven organizations, namely generating new drugs as therapeutic
innovations, is realized at the expense of substantially increased investments in
pharmaceutical R&D (Pammolli et al., 2011) (see Figure 1.1).
-2.8%
14%
10%
8%
6%
4%
2%
R&D Spend Growth %
12%
0%
-2%
-4%
2018
2008
2007
2005
2006
20
0
-0.3%
2017
40
+0.8%
+1.8% +2.0% +2.0% +1.9%
+1.4% +1.7%
2016
+6.5% CAGR 2004–10
+4.9%
2015
96
2011
60
88
+9.1%
2010
80
108
131 127 128
2009
100
120
147 149
141 144
135 134 136 138
2014
120
+10.8%
+1.5% CAGR 2011–18
2013
+9.6%
+12.3%
2012
140
2004
Worldwide Pharma R&D Spend ($bn)
Worldwide Total Pharmaceutical R&D Spend in 2004–18
160
Figure 1.1: Worldwide total pharmaceutical R&D spend (EvaluatePharma, 2012)
Moreover, patent expirations of many top-selling drugs, between 2012 and 2015
placing some US$ 250 billion in sales at risk, (DeRuiter and Holston, 2012), the end of
the blockbuster era (Jørgensen, 2008) and declining sales growth in advanced
economies (Anderson et al., 2009) create the need for pharmaceutical organizations to
expand into new markets. Though the sales growth in Western countries is about to
stagnate, the volume of the global pharmaceutical market has increased from US$ 503
billion in 2003 to US$ 956 billion in 2011 (IMS Health, 2012) and is expected to
exceed US$ one trillion in 2015 (KPMG, 2011).
The new engines of pharmaceutical growth are widely known as ‘pharmerging
markets’ and comprise among the BRIC countries also far-flung nations ranging from
Argentina over South Africa to Vietnam (Figure 1.2). Due to their rapid growth, they
4
INTRODUCTION
were already worth a projected US$ 185 billion by the end of 2013 (Hill and Chui,
2009).
17%
20%
22%
12%
2%
11%
18%
15%
14%
2010
7%
21%
16%
15%
7%
2011 (f)
4%
7%
29%
21%
21%
10%
2012 (f)
5%
6%
10%
2%
27%
18%
20%
9%
2013 (f)
17%
7%
2%
7%
7%
9%
2%
US
EU 5
Japan
28%
Pharmerging Tier 1
16%
17%
Pharmerging Tier 2
19%
21%
Pharmerging Tier 3
2014 (f)
2015 (f)
25%
8%
7%
Rest of the World
Figure 1.2: Pharmerging 1 contribution to total market growth (IMS Health, 2012)
Although emerging markets are rich in opportunities for pharmaceutical organizations,
they share some common characteristics that deter multinationals from entering these
countries at random. That is, companies operating in emerging economies face several
challenges like insufficient drug quality compliance systems, scarce knowledge on
drug regulatory systems, and sometimes adventurous patent protection (Bowonder et
al., 2003). With the agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS Agreement), emerging markets have started to improve their
intellectual property protection. With their commitment to provide health care
coverage for their citizens in the near future, countries like China, Mexico, and Turkey
are getting even more attractive to pharmaceutical manufacturers. In fact, the steadily
rising GDP in emerging countries entails a marked number of wealthier middle-class
citizens demanding Westernized cure (Anderson et al., 2009).
The entrance of large multinational pharmaceutical organizations into emerging
markets created severe competition for domestic manufacturers. Though domestic
manufacturers have the benefit of knowing their countries’ distinctive characteristics,
they often miss superior knowledge and lack sufficient financial resources to
implement modern manufacturing principles (Hitt et al., 2005). Thus, there is an urge
1
Tier 1: China; Tier 2: Brazil, India, Russia; Tier 3: Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia,
South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan and Vietnam (IMS Health, 2012).
INTRODUCTION
5
for domestic manufacturers to increase their operational efficiency and effectiveness in
order to sustain the rising competitive forces in their home markets.
While responding to changes in their business environment, pharmaceutical
organizations increasingly pursue efficiency seeking strategies. Kickuth et al. (2006)
argue that continuous improvements of manufacturing practices for pharmaceutical
companies gain importance as simply focusing on R&D will most likely not pay off in
the future. Accordingly, with cost of sales of more than 50%, manufacturing accounts
for the highest cost factor at generics and contract manufacturing organizations, thus
constituting a large lever for operational improvements (Figure 1.3).
13%
31%
9%
22%
25%
Brand-name
companies
5%
3%
53%
63%
11%
20%
12%
4%
Generics
manufacturer
Contract
manufacturer
11%
R&D
Manufacturing
General & Administration
Sales & Marketing
Margin
18%
Figure 1.3: Cost structures by company type (OPEX Benchmarking)
Emerging economies are regarded as inefficient pharmaceutical markets dominated by
generics and low-budget bio-similar drugs which are predominately manufactured by
domestic organizations (Anderson et al., 2009; Campell and Maag, 2010). Moreover,
the majority of these organizations still perceive manufacturing simply as a support
activity (Dangayach and Deshmukh, 2001a). However, applying OPEX practices does
not only increase the flexibility and creativity of organizations (Jenner, 1998), but also
supports companies in emerging markets in alleviating the problems they typically
face, like underutilization of capacity, low levels of technology, high scrap rates,
insufficient product quality etc. (Bello-Pintado and Merino-Díaz-de-Cerio, 2013).
Therefore, OPEX in the pharmaceutical industry readies manufacturing organizations
for their survival in the face of global competition (Riehle, 2010).
6
INTRODUCTION
1.1.3 Theoretical Gaps
Womack et al.’s (1990) ‘machine that changed the world’ kicked off a true spate of
publications dealing with Lean and OPEX in various industries, the challenges on the
concept’s implementation as well as the dos and don’ts along an organization’s way to
OPEX. Nonetheless, the summary of theoretical gaps as derived in this thesis from two
literature reviews on emerging markets (Chapter 2) and pharmaceutical OPEX
(Chapter 3) reveals that despite the multitude of scientific and practical publications
the topic has not been sufficiently examined yet:
 First, existing literature on manufacturing in emerging markets lacks a
comprehensive overview of the influences that determine decision making and
operations at manufacturing sites located in those countries. These contextual
factors in turn influence OPEX programs launched and maintained at such sites.
 Second, due to scarce scientific evidence on OPEX in process industries like the
pharmaceutical industry, literature on the challenges of implementing OPEX is
rather limited. In the context of domestic manufacturing organizations in
emerging markets, pharmaceutical OPEX is widely underrepresented and points
out various drawbacks.
 Third, literature does not support practitioners with a distinctive framework
designed specifically against the background of emerging markets which
comprises the relevant dimensions of an OPEX program for domestic
pharmaceutical manufacturing sites.
1.2 Research Foundation and Question
1.2.1 Research Foundation and Background
The research of this thesis was initially inspired by the OPEX model 2 as it is used by
the Institute of Technology Management at the University of St.Gallen. The model as
illustrated in Figure 1.4 contributes to the structured and systematic discussion of
OPEX initiatives within pharmaceutical manufacturing organizations. It has its origin
in the concept of fit and the foundations of the socio-technical systems theory (Cua,
2000; Kickuth, 2005). Indeed, organizations that have applied the model’s concept
have gradually aligned their manufacturing function with their environment.
2
For more details on the model’s construction and the interrelation of its elements see Kickuth (2005) and
Friedli et al. (2006; 2010a; 2013c).
INTRODUCTION
7
Preventive Maintenance
TPM
Housekeeping
Direction Setting
Process
Management
Effective Cross-funct.
Technology Product
Usage Development
TQM
Customer Setup Time
Integration Reduction
Supplier
Quality Planning
Management Adherence
Standardization and Visual Management
&
Effective Management System
Management Commitment Employee Involvement
&
&
Company Culture
Continuous Improvement
JIT
Pull
System
Layout
Optimization
Functional Integration
&
Qualification
Figure 1.4: The St.Gallen Model for Operational Excellence
The alignment of organizational activities, structures and processes with external
contextual factors is, however, not new to operations research (Lawrence et al., 1967;
Thompson, 1967) and follows the idea of contingency theory.
In general, contingency theory can be seen as a lens to view and describe an
organization. The underlying paradigm of contingency theory is essentially based on
the assumption that organizational performance results from a fit of organizational
characteristics. Literature distinguishes external from internal fit. While internal fit
describes the match of intra-organizational processes and structures, external fit is
achieved by adapting these internal structures and processes to a company’s specific
environment (Drazin and Van de Ven, 1985; Miller, 1992; Donaldson, 2001). As
structure and processes influence organizational performance, changing contextual
factors require these structures to adapt situational in order to attain and sustain high
performance (Friedli, 2006; Sousa and Voss, 2008; Drazin and Van de Ven, 1985).
Drazin and Van de Ven (1985) distinguish three forms of fit in considering the
relationships between the two variables context and response, and the resulting
organizational performance (Figure 1.5).
 The selection approach examines a fit between the context of an organization
and its response variables. An impact on performance due to the contextresponse relationship is not examined (Sousa and Voss, 2008).
8
INTRODUCTION
Selection
Interaction
System
Context
Context
Context
Performance
Response
Variable
Response
Variable
Response
Variables
Performance
Figure 1.5: The selection, interaction and system forms of fit (Sousa and Voss, 2008; Drazin
and Van de Ven, 1985)
 The interaction approach analyzes the fit from interaction between
organizational context and response factors and its effect on performance
(Drazin and Van de Ven, 1985).
 In contrast to the above approaches, the system approach considers a set of
contingencies, several response variables, and performance characteristics. Fit
is understood as the internal contingency of a multitude of contextual and
response variables which in turn affect performance characteristics (Sousa and
Voss, 2008). Extended by the concept of equifinality, fit can be achieved by
multiple, equally effective methods (Doty et al., 1993; Sousa and Voss, 2008).
If the St.Gallen Model for Operational Excellence is viewed through the lens of
contingency theory, two distinctive elements can be distinguished: a technical and a
social system (Friedli and Bellm, 2013c). In order to achieve a stable, effective and
efficient manufacturing function, fit is pursued between the two systems and an
organization’s contextual factors like customers, competitors etc. Fit is also pursued
within the two systems of the model. The technical sub-system consists of the three
practices Total Productive Maintenance (TPM), Total Quality Management (TQM),
Just-in-Time (JIT), and the Basic Elements (Friedli and Bellm, 2013c). To achieve fit
within the technical sub-system, first, the elements of a single practice have to be
aligned by fitting their variables to an organizational context. Second, fit is pursued
within a practice by aligning its elements to each other. Once the first practice – TPM
– is in place, an organization strives for implementing the second (TQM) and third
(JIT) practice and aims at a fit between the three implemented practices and the
underlying Basic Elements. At the same time, the organization aims at aligning its
INTRODUCTION
9
social system to the needs of the organization. These needs are also determined by
internal contextual factors like different products and processes (e.g., tablets vs. sterile
liquids) etc. Since there is not a single best way to align the two systems to
organizational needs while maintaining an internal and external fit, an organization
may end up in one of many different set-ups which result in equally consistent and
stable systems. This is in line with the requirement of equifinality.
In summary, the idea behind the St.Gallen Model for Operational Excellence –
aligning internal manufacturing practices within an organizational context and finally
shaping these to fit the turbulent environment of emerging markets – constitutes the
anchor of the current research.
1.2.2 Research Questions
Based on the research motivation, the underlying research theory and following the
practical relevance and theoretical gaps, this thesis aims at answering the subsequent
main research question:
How should an approach for the transformation towards Operational
Excellence of a domestic pharmaceutical manufacturing site in an
emerging market be designed?
In order to answer the main research question, following second-order questions shall
be addressed, predefining and structuring the research approach.
 What are the characteristics of emerging markets and the barriers they present
to an Operational Excellence implementation that need to be considered at a
pharmaceutical manufacturing site?
 Which elements are regarded as central for an Operational Excellence program
at a pharmaceutical manufacturing site and how are these elements
implemented at sites in advanced countries?
 What are the requirements for an Operational Excellence transformation
concept?
 How should such a concept be designed in order to allow a pharmaceutical
manufacturing site to compose its own customized Operational Excellence
program?
10
INTRODUCTION
1.3 Research Methodology and Design of the Thesis
1.3.1 Research Grounding and Process
The dissertation at hand is motivated by practical problems of pharmaceutical
manufacturing organizations operating in emerging markets, and aims at contributing
to the knowledge base providing practical solutions (Ulrich, 1984). The tradition of
business administration as a systems-oriented applied social science sets the scientific
foundation of this study within its pursuit of the design, control and development of
purpose-oriented social systems (Hill and Ulrich, 1979; Rüegg-Stürm, 2005). The
complexity of a pharmaceutical manufacturing site is acknowledged, while the effort
to control the social system in its ultimate dimensions is dismissed (Ulrich, 1984).
The underlying research process has its origin in the synthesis of current practical
problems and the battery of questions which emerge from new research areas in the
field of OPEX. Given the multitude of publications on OPEX 3, and in order to clearly
distinguish the dissertation from other aimless accumulations of knowledge (Tomczak,
1992) the research process does not concentrate on empirically testing theory-based
hypotheses (Kubicek, 1977; Tomczak, 1992). Rather, it seeks to build a new theory in
order to support the design and development of new realities in emerging market’s
pharmaceutical manufacturing organizations (cf. Ulrich (1984)).
With regard to the complexity of operations at pharmaceutical manufacturing sites in
emerging markets and the understanding of the specific setup of the research process,
this dissertation was designed as an iterative learning process (Kubicek, 1977;
Tomczak, 1992; Gassmann, 1999). The research process is illustrated in Figure 1.6.
Based on the researcher’s initial understanding, first questions were raised and linked
to the practical reality (Gassmann, 1999). Subsequently, collected data was critically
reflected and led to abstractions, differentiations and changes of perspectives with
regards to existing theoretical knowledge (Gassmann, 1999). Over these iterations, the
research process was characterized by either theoretical or empirical work.
3
Most of them can be found by specifically searching for the elements of Operational Excellence (see Section
3.2).
INTRODUCTION
11
Literature
analysis
Differentiation,
abstraction
(Preliminary)
theoretical
knowledge
Initial
findings from
practice
Theory
Practical
problems
Critical
reflection
Research as iterative
learning process
Data collection
Questions
addressed to
practice
Field work
Practical
phenomena
Figure 1.6: Research process (Kubicek, 1977; Tomczak, 1992; Gassmann, 1999)
1.3.2 Research Methodology, Theory Building, Data Collection & Analysis
The research methodology underlying this dissertation combines both quantitative and
qualitative research methods, with an emphasis on the latter. Combining both methods
supports the exploratory nature of the study, while seeking for internal and external
validity of the research results (Voss et al., 2002). Furthermore, these research
methods should not be regarded as rivaling but complementary (Jick, 1979). The
utilization of different research methods while studying the same object follows the
approach of triangulation (Denzin, 1978) where the application of different research
methods can compensate for each other’s deficiencies.
The empirical research was conducted in three phases. Though in the following the
phases are described in a consecutive manner, the process itself was highly iterative
(as illustrated in Figure 1.6). Thus, the research was characterized by forward and
backwards jumps between the phases.
Phase I: The beginning of Phase 1 was characterized by understanding the practical
and theoretical relevance of the research objective and its underlying questions. This is
in line with Eisenhardt (1989) who asserts to define the research question and to
possibly use a priori constructs at the first step of a theory building process.
Subsequently, two extensive literature reviews were conducted. The first review
covered the current literature base on emerging markets with the focus on
12
INTRODUCTION
manufacturing organizations. In a second literature analysis on OPEX, the origins of
the philosophy, its recognition and application in the pharmaceutical industry as well
as current findings of applying selected concepts of OPEX in emerging were
researched. During the iterative process of aligning the findings of both literature
analyses with the initially defined research questions, the main research question was
sharpened and finally fixed.
Phase II: The second phase of the research process started with the analysis of a data
set of 267 pharmaceutical manufacturing sites from different geographic regions.
Following Punch (2005) 4, the quantitative data was utilized to show the discrepancies
between manufacturing sites of the developed and developing world. Following Ulrich
(1984), case study research was used as a next step to spot and investigate relevant
interrelations of first built theories.
Case studies are considered an appropriate method to provide a better understanding of
the dynamics underlying the relationships of a researched object, and are thus useful
for answering “how” and “why” questions (Eisenhardt, 1989; Yin, 1984). Following
Eisenhardt (1989), the qualitative part of this study was based on six case studies
following the same structure, yet differing in length. Additionally, two round-table
discussions complemented the database (see Table 1.1).
4
Punch (2005, p. 242) argues that “[q]uantitative research readily allows the researcher to establish relationships
among variables, but is often weak when it comes to exploring the reasons for those relationships.”.
INTRODUCTION
13
Table 1.1: Overview of empirical data base Phase II
Site visit & onsite interviews /
workshop
Site participated at
the Benchmarking
Ex post discussion of
Benchmarking data after
visit
Preliminary
workshop
ca. 8h
PharmCo A
ca. 8h
x
3
(avg. 1h)
PharmCo B
ca. 7h
x
2
(avg. 1h)
PharmCo C
ca. 7h
x
2
(avg. 1h)
PharmCo D
ca. 4h
PharmCo E
ca. 6h
PharmCo F
ca. 4h
Workshop I
ca. 4h
Workshop II
ca. 3h
Overall number
Total duration
9
51h
x
4
7
7h
Both case studies and round-table discussions contributed to the understanding of the
situation of domestic pharmaceutical manufacturing sites in emerging markets. Based
on these findings, propositions from Chapter 2 and 3 are confirmed in a
pharmaceutical context. Finally, the requirements on the OPEX Architecture were
derived.
Phase III: Findings from literature and practical insights from the case studies and
round-table discussions built the basis for the OPEX Architecture. Though an
architecture has to be holistic in nature and operates at a high level of aggregation, the
discussion of its elements was enriched with practical insights from interviews,
workshops, and research projects. Interviews are a very efficient method to gather
comprehensive empirical data (Eisenhardt and Graebner, 2007) and were conducted
with practitioners of mostly multinational pharmaceutical organizations working in
different emerging markets (see Table 1.2). Due to the geographic distance, all
interviews were conducted via telephone, with an average interview length of one hour
and supported by a semi-structured questionnaire (see Appendix A).
14
INTRODUCTION
Table 1.2: Overview of empirical data base Phase III – interviews
Interview
No.
Code
Country of site
Type of
company
Type of
site
Function
interviewee
Nationality
of
interviewee
1
BR_MNC1
Brazil
multinational
offshore
Business
Excellence
Manager
local
2
BR_MNC2
Brazil
multinational
offshore
Site leader
Western
3
IN_MNC1
India
multinational
offshore
Managing Director
local
local
4
IN_MNC2
India
multinational
offshore
Operational
Excellence Area
Leader Emerging
Markets
5
IN_DC1
India
multinational
domestic
COO & Head of
Business Strategy
local
6
CN_MNC1
China
multinational
offshore
Lean Deployment
Leader
local
7
CN_MNC2
no specific site,
focus on China
multinational
offshore
Leader Operational
Excellence Asia,
Africa and Middle
East
local
8
CN_MNC3
China
multinational
offshore
Lean Deployment
Leader
local
9
CN_DC1
China
national
domestic
Head of Production
local
10
CN_EXP
no specific site,
focus on China
External Expert
local
11
TW_DC1
Taiwan
international
domestic
&
offshore
Head of Production
local
12
SG_MNC1
Singapore
multinational
offshore
OPEX Director
local
Operational
Excellence
Training
Organization
Director
Western
13
14
15
16
no specific site,
WEST_OET focus on Emerging
Markets in general
n/a
no specific site,
focus on Emerging
Markets in general
n/a
European
Operational
Excellence Leader
Western
n/a
no specific site,
focus on Emerging
Markets in general
Consulting,
focus on
Change
Management
International
Management
Trainer
Western
n/a
no specific site,
focus on Supply
Chain in Emerging
Markets
multinational
Specialist Global
Supply Chain
Management
Western
In addition to the interviews, data was collected in two workshops with a Western
multinational organization and German-based pharmaceutical manufacturing site.
INTRODUCTION
15
Furthermore, three research projects enriched the database and discussion of the
Architecture’s elements; the companies are based in Switzerland and Germany (see
Table 1.3). Each project had its general focus on the improvement of the companies’
supply chains. Therefore, within each project the relevant value creation and support
processes of the respective organization were mapped and discussed with their
stakeholders. In order to get the buy-in of all interviewed employees and to enhance
their end-to-end process thinking, selected workshops were conducted with all
interviewees. Although Phase III was dominated by empirically collected data, the
discussion of the Architecture’s elements were constantly linked back to the existing
literature. This method ensures consistency with the current literature base as well as
enabling practitioners to search for additional readings in a target-oriented way.
Table 1.3 Overview of empirical data base Phase III – workshop & projects
Company
Number of
interviews
Number of
workshop
PharmCo_OPEX_RESTRUC
2
(avg. 1 h)
2
(avg. 7h)
PharmCo_COMPET-PRIO
2
(avg. 2h)
1
(ca. 8h)
OPEX
Benchmarking
15
(avg. 1.5h)
7
(avg. 5h)
Company
internal
documents
PharmCo_END2END-SC
19
(avg. 1h)
7
(avg. 7h)
Company
internal
documents
PharmCo_LLT
(Launch Lead Time)
10
(avg. 1h)
5
(avg.7h)
Company
internal
documents
Overall number
Total duration
48
58h
22
141h
PharmCo_CT
(Complexity Transparency)
Additional
data source
Company
internal
documents
In summary, the literature reviews in Phase I started on a global level, analyzing
literature dealing with emerging markets from every geographic region. The case
studies and round-table discussions in Phase II, however, narrowed the scope to SubSaharan Africa. By enhancing the Architecture’s discussion in Phase III with findings
from the interviews summarized in Table 1.2, the focus of this thesis was finally
brought back to a global emerging market level.
16
INTRODUCTION
1.4 Structure of the Thesis
The dissertation is structured along seven chapters (see Figure 1.7). The present
chapter outlines the motivation and relevance of this study and introduces the
questions which guide the research. Further, it explains the methodology and design of
the research process and ends with providing the structure of the thesis.
Chapter 2 discusses the characteristics and peculiarities of emerging markets,
summarizes the challenges which they pose to manufacturing organizations and ends
by explaining the concepts of cultural research.
Chapter 3 examines the current knowledge base on OPEX. After the review of the
elements of OPEX, the philosophy is first brought into a pharmaceutical context.
Subsequently, OPEX is merged with the perspective of emerging markets.
Chapter 4 builds on an international quantitative survey on OPEX that sets the stage
for six in-depth case studies and two round-table discussions. Data is condensed and
summarized in a cross-case comparison.
Chapter 5 derives the requirements for an architecture, and discusses its generic
elements. The starting points of this chapter are the findings from literature and the
knowledge gained in the field.
Chapter 6 describes the Architecture and its elements. The discussion is enriched by
anecdotic evidence from pharmaceutical manufacturers in emerging markets.
Chapter 7 provides a summary of the dissertation and closes with a discussion of the
study’s limitation and implications for future research.
INTRODUCTION
17
Chapter 1
Chapter 2
Understanding
Emerging Markets
Research
Problem & Objective
Chapter 4
Understanding the Reality:
Studies in the Field
Chapter 5
Requirements on an Emerging
Market Site Transformation
Chapter 6
Transformation of an
Pharmaceutical
Emerging Market Site
Chapter 7
Summary & Outlook
Figure 1.7: Structure of the thesis
Chapter 3
Operational Excellence
in Pharmaceuticals & Emerging
Markets
18
UNDERSTANDING EMERGING MARKETS
2 Understanding Emerging Markets
“One of the most effective ways to learn about oneself is by taking
seriously the cultures of others. It forces you to pay attention to
those details of life which differentiate them from you.”
Edward T. Hall (1990, p. 31)
2.1 Terms and Definition
2.1.1 The Rise of Emerging Markets 5
Globalization is considered one of the most critical challenges companies face in their
daily operations (Khanna et al., 2005; Burgess and Steenkamp, 2006). It has
increasingly gained momentum, especially in the late 1980s, and contributed to an
intensified global competition ever since.
After the collapse of the Soviet Union and other Eastern Asian countries, a notable
number of the world’s population transitioned from state-controlled and central
planning economies to a global market economy. The revolution of information
technology and companies’ willingness to outsource their operations led to global
partnerships and supply chains (Hayes et al., 2005; Yip, 2002). Moreover, the
establishment of international trade agreements like GATT (1941) 6, WTO (1995) as
well as economic pacts like EFTA (1960), ASEAN (1967), Mercosur (1991) and
NAFTA (1994) continue to drive the trend of transnational manufacturing (Ferdows,
1997; Dangayach and Deshmukh, 2001b; Mora-Monge et al., 2008) facilitate global
sourcing and distribution (Khanna et al., 2010) and spur global (Sheth, 2011) and
domestic competition (Fleury, 1999).
With increasing competition in the developed world, pricing pressures were high by
the end of the twentieth century and companies started to look out for new sources of
low cost labor (Hayes et al., 2005). Establishing operations in low labor cost markets
like China, Eastern Europe, India, and Latin America (Hayes et al., 2005), companies
often wrongly assumed that these countries were at an earlier stage of a developmental
path similar to that of industrialized countries, erroneously surmising “[…] that the
5
6
Parts of this text have already been published in Friedli and Bellm (2013b).
The number in brackets is the year of foundation of the respective agreement or pact.
UNDERSTANDING EMERGING MARKETS
19
game is therefore one of catch-up, and that market evolution patterns seen previously
in developed economies will be replicated in the EMs [emerging markets].” (Arnold
and Quelch, 1998, p. 9).
In their recent book on strategy in emerging markets, Khanna et al. (2010) added that
despite the decline of trade and investment barriers and the growth of global supply
chains which have gradually connected far-flung countries, organizations must still
distinguish emerging markets collectively from advanced markets and in addition
distinguish the markets individually from each other.
Hoskisson et al. (2000) argue that emerging markets cannot be seen as a homogeneous
group, even if they are assigned to the same geographic region. Countries within the
same geographical groups, such as, for instance, Africa/Middle East, Eastern Europe,
East Asia, and Latin America, can have very different cultural origins and histories,
and thus differ significantly.
Implications from ‘The Rise of Emerging Markets’
Imp. 2.1: Emerging markets must not only to be distinguished from advanced
markets, but different characteristics of these markets also necessitate an individual
differentiation of emerging markets from another.
Imp. 2.2: Some companies assume that emerging markets function similarly to
advanced markets and just lag behind in their development. Consequently, it is
thought that (managerial) concepts that work at home will work equally well abroad.
The outline given above hints at the term ‘emerging market’ being used as an umbrella
buzz word that is applied to many countries at various levels of development. Thus,
the next section aims to clarify how to define an emerging market and introduces wellestablished classification systems.
2.1.2 Classifying Emerging Markets
The term ‘emerging market’ was coined by economists at the International Finance
Corporation in 1981 (IFC) (Süss, 2004; Khanna et al., 2010). Previously, commonly
applied terms like ‘developing country’ or ‘less developed country’ were belittling
countries that have not yet participated in the industrialization of the last centuries. The
newer term emerging markets acknowledges these economies’ recent prosperity and
their increasing significance for global business (Süss, 2004).
However, a clear definition of what constitutes an emerging market is lacking and the
term thus used loosely (Kearney, 2012; El-Khasawneh, 2012). Though literature on
20
UNDERSTANDING EMERGING MARKETS
emerging markets partially relies on country level classifications, the majority of
scholars seems to consider the term ‘emerging market’ as self-explanatory and uses it
without further explanation (Hoskisson et al., 2000).
Colloquial classification criteria are abundant and have become ubiquitous in foreign
policy and trade debates, organizations’ annual reports, and media (Khanna et al.,
2010). These criteria can usually be assigned to one of three categories, ‘poverty’,
‘capital markets’ and ‘growth potential’. Table 2.1 provides a condensed overview.
Table 2.1. Frequently used criteria for defining emerging markets (Khanna et al., 2010)
Category
Criteria
Poverty
 Low- or middle-income country
 Low average living standards
 Not industrialized
Capital market
 Low market capitalization relative to GDP
 Low stock market turnover and few listed
stocks
Growth potential
 Economic liberalization
 Open to foreign investment
 Recent economic growth
Institutions classifying countries according to their level of development, such as IMF,
World Bank and UNDP, use different termini and build their classification systems on
various data sets (Table 2.2).
Nielsen (2011) argues that the diversity in constructed development taxonomies stems
from (1) a lack of guidance by economic theories and (2) the institutions’ different
mandates which result in different operational and analytical perspectives. Despite the
differences in classification systems, they categorize countries as either developing or
developed. Since the group of developing countries is quite large and diverse, all three
organizations introduced a finer classification into distinctive subgroups (Nielsen,
2011).
UNDERSTANDING EMERGING MARKETS
21
Table 2.2: Selected country classification systems (Nielsen, 2011)
Criteria
Name of 'developed
countries'
IMF
Advanced
countries
UNDP
World Bank
Developed
countries
High-income
countries
Name of 'developing Emerging and
developing countries
countries'
Developing
countries
Low- and middleincome countries
Development
threshold
Not explicit
75 percentile in the
HDI distribution
US$6,000 GNI per
capita in 1987-prices
Type of development threshold
Most likely
absolute
Relative
Absolute
Share of countries
'developed' in 1990
13 percent
25 percent
16 percent
Share of countries
'developed' in 2010
17 percent
25 percent
26 percent
Subcategories of
'developing
countries'
(1) Low-income
developing countries
(2) Emerging and other
developing countries
(1) Low human
development countries
(2) Medium human
development countries
(3) High human
development countries
(1) Low-income
countries
(2) Middle-income
countries
The World Economic Situation and Prospects (WESP) employs a distinctive set of
data to illustrate trends in world economy. The WESP classifies each country into one
of the three categories: developing economies, economies in transition and developed
economies. For its market classifications, the WESP draws on information from
UN/DESA and the five United Nations commissions: the United Nations Conference
on Trade and Development (UNCTAD), the United Nations World Tourism
Organization (UNWTO), the International Monetary Fund (IMF), the World Bank and
the Organization for Economic Cooperation and Development (OECD) (United
Nations, 2012).
Following Hoskisson’s et al. (2000), an emerging market can be classified as either a
‘developing country’ or as an ‘economy in transition’. Therefore, the further
understanding of which country is considered as an emerging market is based on the
country categorizations of the WESP, in particular those countries that are labeled as
22
UNDERSTANDING EMERGING MARKETS
‘developing countries’ and ‘economies in transition’. Table 2.3 summarizes the
geographic areas that are considered as emerging markets in the following. 7
Table 2.3: Emerging markets as developing countries and economies in transition –
geographical region classification (United Nations, 2012; Hoskisson et al., 2000)
Developing countries
Africa
North Africa
Sub-Saharan Africa
Asia
East Asia
South Asia
West Asia
Latin America & the Caribbean
Caribbean
Mexico and Central America
South America
Small island developing States
No geographic classification possible
Economies in transition
South-Eastern Europe
Commonwealth of Independent States
Following the understanding of Table 2.3, emerging markets cover vast geographic
regions and countries of various sizes. Several scholars have drawn attention to the
heterogeneity of large emerging markets such as India and China in Asia, and Brazil in
Latin America, which results from the countries’ sizes, immobility of inhabitants and
cultural differences within countries (Cui and Liu, 2000; Sheth, 2011; Singh, 2012;
Schlager, 2013).
Implications from ‘Classifying Emerging Markets’
Imp. 2.3: Emerging markets are spread over the globe and exist in almost every
geographic region.
Imp. 2.4: Emerging markets comprise countries that are either developing or in
7
Hoskisson et al. (2000) argue that it is important to indicate which countries are included in a scholar’s
understanding of emerging markets. An extended version of Table 2.3 and the countries that are considered as
emerging market can be found in Appendix B.
UNDERSTANDING EMERGING MARKETS
23
transition. The level of economic development differs substantially between emerging
markets; companies thus face considerably different conditions in different emerging
markets.
Imp. 2.5: Large emerging markets are heterogeneous countries, i.e. culture and
economic prosperity of regions are not necessarily congruent within the same market.
Imp. 2.6: While emerging markets comprise different, far-flung countries
encompassing different cultures, they do share some characteristics that allow their
classification and allocation.
The subsequent section elaborates on the commonalities of emerging markets along a
set of defined market features.
2.2 Characteristics of Emerging Markets
While literature lacks a clear definition of what constitutes an emerging market,
classification systems based on country levels can help to identify those countries that
can be generally regarded as emerging markets. That is, despite the lack of clear
definitions, there seems to be a common understanding of the characteristics of
emerging markets. Often, these countries are described as being on the brink of being
industrialized (Süss, 2004), affected by low-income and “[…] using economic
liberalization as their primary engine of growth.” (Hoskisson et al., 2000, p. 249).
From an economics perspective, country characteristics can be defined by the
conditions that affect the attractiveness of a country (Root (1987) cited in Christmann
et al. (1999)). Literature on country attractiveness comprises a large number of distinct
country conditions which, accordingly, affect the performance of companies operating
in these countries (Christmann et al., 1999).
Christmann et al. (1999) argue that country characteristics not only affect firm
performance, but indirectly also influence a country’s industry conditions. Industry
conditions are characterized by different economic and political conditions, which
differ significantly between advanced and emerging countries. Thus, in their research
on the influence of country conditions on firm performance, Christmann et al. (1999)
derive various country characteristics from the wide literature body of foreign direct
investment (FDI). Besides a country’s level of development, they summarize these
characteristics as population, inflation rate, exchange rate instability, tax rate, and
political stability (Christmann et al., 1999). Several other authors too apply sets of
various country characteristics in their definition of emerging markets in order to tie
their findings to the diverse environment of these economies.
24
UNDERSTANDING EMERGING MARKETS
Considering the countries’ income level and business environment, Tybout (2000)
points to the heterogeneity of economies labeled ‘developing’. He discusses that
distinctive features of emerging countries’ business environment become increasingly
obvious parallel to descending the per capita income scale. He lists market size, access
to manufactured inputs, human capital, infrastructure, volatility and governance as the
most striking and widely used features (Tybout, 2000).
Enhancing the marketing research, Burgess and Steenkamp (2006) identify a set of
institutional characteristics which are used for the typification of emerging markets.
Idiosyncratic influences on the countries’ developmental trajectory entail
characteristics that are not equally shared by each market. They build their framework
on theories by sociologist Scott (2001) and economist North (1990). Burgess and
Steenkamp (2006) distinguish three individual but interrelated institutional pillars –
‘socioeconomic’, ‘cultural’ and ‘regulative systems’ – that provide structure to society.
Each system is split into sub-systems that are given in Table 2.4.
Table 2.4: Institutional subsystems to typify emerging markets, according to Burgess and
Steenkamp (2006)
Institutional system
Sub-system
Socioeconomic system
Dynamics
Demographics
Diversity
Cultural system
Hierarchy vs. egalitarianism
Embeddedness vs. autonomy
Regulative system
Rule of law
Stakeholder influence on corporate
governance
Also originating from the broad research field of international marketing, Sheth (2011)
has identified a set of five dimensions on which emerging markets are distinctive from
developed markets. These are market heterogeneity, sociopolitical governance,
unbranded competition, inadequate infrastructure and chronic shortage on resources.
He argues that these characteristics significantly impact the four marketing areas
theory, strategy, policy and practice (Sheth, 2011).
In order to understand emerging economies in general, and large emerging markets
such as China and India in particular, Enderwick (2007) lists a number of
characteristics that are commonly shared by emerging markets. These are economic
UNDERSTANDING EMERGING MARKETS
25
characteristics, technological characteristics, sociocultural characteristics, political
characteristics and the nature of the business system (Enderwick, 2007). Along these
dimensions, he discusses distinctive features of emerging markets that allow a
separation from developing countries.
Table 2.5 summarizes the discussion above and provides an overview of the
dimensions that are usually applied in country characterizations.
Table 2.5: Selected dimensions to characterize an emerging market
Author
Dimensions for market characterization
Christmann et al.
(1999)
Level of development, population, inflation rate,
exchange rate instability, tax rate, political
stability
Tybout (2000)
Market size, access to manufactured inputs,
human capital, infrastructure, volatility,
governance
Burges and
Steenkamp (2006)
Socioeconomic, cultural system, regulative
system
Sheth (2011)
Market heterogeneity, sociopolitical governance,
unbranded competition, inadequate infrastructure,
chronic shortage on resources
Enderwick (2007)
Economic characteristics, technological
characteristics, sociocultural characteristics,
political characteristics, the nature of the business
system
Emerging markets comprise unique characteristics that distinguish them from
advanced countries even though they are scattered around the globe. These
commonalities are discussed in the following section. To structure the discussion, it
will be based on the market characteristics introduced by Enderwick (2007). This
structure is enhanced by Tybout’s (2000) and Sheth’s (2011) infrastructural
characteristics since a sound infrastructure is considered as an enabler for economic
growth in general (Démurger, 2001) and for manufacturing reasons in particular
(Porter, 1985).
2.2.1 Economic Characteristics
Emerging markets benefit from considerable growth rates that have excelled the
average growth of global economy in the past (Enderwick, 2007). Even before the
26
UNDERSTANDING EMERGING MARKETS
global financial crisis that emanated from the United States and Europe, emerging
markets’ average growth has accelerated, while growth in advanced markets remained
on a weak level (IMF, 2012). During the crisis, most emerging markets too
experienced an economic downturn. However, they recovered quickly and continued
to grow at or even above pre-crisis rates and constitute now the main source of global
growth (IMF, 2012).
Despite high growth, companies in emerging markets still operate in an unfavorable
macroeconomic condition with high inflation (Karpak and Topcu, 2010) that can bring
governments to curb growth (Enderwick, 2007).
Hermelo and Vassolo (2010; 2012) compare the macroeconomic environment of
emerging economies with developed countries. They claim that emerging economies’
environment is more volatile and economic cycles are not as smooth and predictable as
in developed countries. Furthermore, economic cycles in emerging economies are
more frequent, more intense, and usually the forerunners and first indicator of severe
crises (Hermelo and Vassolo, 2010; Karpak and Topcu, 2010).
The economy of emerging markets’ is characterized by weak economic structures that
are heavily dependent on only a few industries, e.g., agricultural or mineral
commodities. Thus, the economic wealth of emerging markets is strongly dependent
on the cycles of those products, and usually the markets suffer from a lack of
diversification that in return intensifies the impact of economic cycles (Hermelo and
Vassolo, 2012).
In addition, due to the weakness of emerging economies’ financial markets, these
markets often fail to build financial cushions for the next economic downturn and to
make the resources available that are needed to fuel business growth (Hermelo and
Vassolo, 2012). Moreover, emerging markets like China or India rely on remittances
from their nationals working abroad; in 2005, these amounted to 1.3 % of China’s
GDP and even made up 3.1 % of the Indian GDP (Enderwick, 2007).
Large emerging markets usually feature heterogeneity between geographic regions
within their national territory (Cui and Liu, 2000; Sheth, 2011; Singh, 2012). This
heterogeneity hinders emerging markets from universally enjoying the benefits of their
growth. Instead, growth in these countries is often accompanied by income disparities
between the traditional, often agricultural and modern, mostly industrial sectors
(Enderwick, 2007).
UNDERSTANDING EMERGING MARKETS
27
2.2.2 Technological Characteristics
One characteristic of emerging markets is an often limited spending (absolute & per
GDP) on investments in technological development that results in a dependency on
advanced economies for foreign direct investment (FDI) and technology (Singh and
Lakhwinder, 2006). In order to compete in the pace of globalization, Huq (2004)
argues that emerging economies do need to build technological capabilities instead of
simply relying on liberalization, which appears to be a non-starter in such cases.
With regard to technological capabilities, Gilboy (2004) adds that in the case of China,
emerging markets predominately rely on high-tech and industrial exports of foreign
companies; moreover, domestic firms usually depend on design specifications,
imported components and manufacturing equipment of industrialized countries. The
majority of technological imports constitute, however, hard technology, i.e. spare parts
and equipment – soft elements of a technology transfer, i.e. knowledge, like licensing,
consulting, and know-how represent only a small percentage (Mefford and Bruun,
1998; 2004).
Excursus 2.1: The CEO of an African pharmaceutical manufacturer on technology: “A decade ago
our employees could hardly operate the high-tech machines from Europe. Today we can do small
maintenance work on the machines but we still rely on external know-how for large maintenance work
at major breakdowns. Hopefully in a decade or two our country is also capable of developing similar
equipment.”
Measuring and comparing the technological output of emerging markets, Enderwick
(2007) argues that emerging markets hold less R&D workers per million of the
population, grant less patents, and have a lower percentage of high-tech products
making up manufactured exports than advanced countries. Enderwick (2007) also
refers to the Innovation Capability Index of UNCTAD (2005) that combines
technological and human capital measures in order to rank the innovation capability of
117 countries. According to this index, the capability of the BRICS countries is on
average comparably low 8 (Brazil (rank 49), Russia (rank 24), India (rank 83), China
(rank 74), and South Africa (rank 48)).
To some extent, the silent technological conditions of emerging markets stem from
poor and deteriorating infrastructure (Nakata and Sivakumar, 1997; Kouznetsov,
2009). Huq (2004) warns that the less emerging countries are willing to learn from
technologies they have received from advanced countries, the less their chance of a
8
USA (rank 3), Switzerland (rank 13), Germany (rank 18) (UNCTAD, 2005).
28
UNDERSTANDING EMERGING MARKETS
successful development of technological capabilities and an increase of the respective
market share.
Excursus 2.2: A large Swiss mechanical engineering company recently established a R&D site in
India to support its global engineering network with best cost technological know-how. The global
operations manager stated that Indian engineers bring sufficient technical knowledge but after all
require a profound training in the company’s processes and culture.
Large emerging markets took Huq’s (2004) warning to heart and have started to
engage in big technology investments 9. Furthermore, multinationals of emerging
countries now strengthen their operations abroad to get a better access to technological
resources (Zhouying, 2005; Gammeltoft et al., 2010; Pradhan, 2010, 2011).
2.2.3 Infrastructural Characteristics
Infrastructure is divided in soft and hard infrastructure (Khanna et al., 2010). Soft
infrastructure comprises legal and accounting systems, and cultural attitudes 10
(Niskanen, 1991). The absence of institutional mechanisms in emerging markets, e.g.,
market intermediaries, regulations, and contracts that can be enforced, restrain an
adequate structure and support for product, labor, and capital markets (Khanna and
Palepu, 2006). This absence of institutional mechanisms is described as institutional
voids (Figure 2.1) (Khanna and Palepu, 1999, 2006; Khanna et al., 2005; Khanna et
al., 2010).
Many
Institutional voids
Few
Market classifications
Dysfunctional
markets
Emerging markets
Developed
markets
Figure 2.1: Continuum of institutional voids and market classifications (Khanna et al., 2010)
Although a lack of soft infrastructure decelerates a country’s development and
standard of living, governments of many emerging markets do not recognize its
importance for sustainable growth. Moreover, these economies struggle to build a
9
Both countries China (Plafker, 2013) and India (Bagla, 2013) recently launched ambitious space programs to
promote and obtain technological capabilities.
10 See Section 2.2.5 for legal/political characteristics and Section 2.2.4 for the sociocultural characteristics, for a
deeper discussion of culture see Section 2.4.
UNDERSTANDING EMERGING MARKETS
29
stable soft infrastructure because of difficulties at importing and implementing
Western concepts and practices (Khanna and Palepu, 1999).
Sound physical infrastructure is another prerequisite to operate effectively in any kind
of market (Khanna et al., 2010). Literature agrees on the shortfalls of emerging
markets’ hard infrastructure, which is often deteriorating and unreliable and thus
impedes a wide range of commercial activities (Luo, 2003; Kouznetsov, 2009).
Hard infrastructure like roads, bridges, ports, and airports that benefits the
transportation of physical goods is limited in emerging markets (Tybout, 2000;
Khanna et al., 2010). Unstable supply of safe water and electrical power do not only
delay manufacturing time and again (Nakata and Sivakumar, 1997; Tybout, 2000) but
also determine the modes of communication (Khanna and Palepu, 1997; Nakata and
Sivakumar, 1997).
Excursus 2.3: The CEO of an African pharmaceutical manufacturer complained about the physical
infrastructure along with the challenges for pharmaceutical manufacturing involved. She reported
incidents of water supplies running dry amidst production, which led the company to cancel its
manufacturing process and to scrap costly work in progress.
The COO of a German automotive supplier criticized Russia’s poor road conditions and reported of
supply trucks that got stuck on muddy roads and thus brought the company’s sophisticated
manufacturing system to its limits.
These problems mainly affect rural sectors; cities are usually exempt from such
problems and mostly enjoy a well-developed but often overpriced infrastructure
(Kouznetsov, 2009).
2.2.4 Sociocultural Characteristics
Emerging market economies are characterized by a considerable ethnic and cultural
fragmentation; while some of these market economies prosper and flourish, others
struggle notably (Enderwick, 2007).
One remarkable feature of emerging markets has been their rapid urbanization over the
last decades (Cui and Liu, 2000), which is driven by increases in the markets’ total
population as well as a massive population shift from rural to urban areas (Nakata and
Sivakumar, 1997). Whereas in the 1960ies the countries that are today known as
emerging markets counted a total of roughly 50 cities exceeding one million
inhabitants (Nakata and Sivakumar, 1997), today China alone has more than 30 such
cities; but even China is outnumbered by India, counting about 40 megacities that
comprise only 30 percent of the country’s population (Enderwick, 2007).
30
UNDERSTANDING EMERGING MARKETS
However, rapid urbanization is not just a blessing for emerging markets. Metropolitan
areas in emerging economies such as Shanghai, Sao Paulo, and Mumbai have
developed into important markets, while rural areas often have not been able to
prosper from the booming economy in urban areas (Cui and Liu, 2000). Moreover, the
infrastructure in some cities is not able to support recent increases in population,
resulting in considerable infrastructural inefficiencies (Nakata and Sivakumar, 1997).
Furthermore, in comparison to advanced countries, emerging markets show substantial
cultural differences 11. These differences affect, for instance, the understanding and
self-perception of individuals and societies, power structures, personal attitudes and
behaviors, risk tolerances and the degree of autonomy (Hofstede, 1980; Trompenaars,
1993; House et al., 1999; Schwartz, 2004).
Severe regional poverty, poor health conditions, a lack of social security, a low
standard of living, high rates of illiteracy and low rates of secondary education are
other characteristics of the iridescent emerging markets (Khanna and Palepu, 1997;
Nakata and Sivakumar, 1997; 2012). The shortage of technicians and scientists leads
to considerable difficulties for companies in finding qualified and trained personnel
(Nakata and Sivakumar, 1997; Tybout, 2000).
2.2.5 Political Characteristics
As institutions build the framework that provides the rules of the game, they structure
human interaction in societies and organizations (North, 1990). National and local
governments as well as other regulatory bodies and institutions are far more influential
in emerging markets than they are in developed and industrialized market systems
(Arnold and Quelch, 1998). Many argue that a lack of institutions, namely institutional
voids, hinders these markets from functioning (Khanna and Palepu, 1999; Khanna et
al., 2010) and leads to political instability (Arnold and Quelch, 1998; Enderwick,
2007; Kouznetsov, 2009). In general, political instability is more common in emerging
markets at a lower level of development than in more developed ones (Nakata and
Sivakumar, 1997).
Political risk in emerging markets may originate from three major sources.
The first is the political instability that arises from uncertain continuity of a particular
government (Enderwick, 2007; Kouznetsov, 2009), even though this is less a problem
in countries like China (with a long-term domination of the Communist Party), or
Brazil and India (vital democracies). Additionally, the political stability in several
11
See Section 2.4.3 for a comparison of cultural dimensions between advanced and emerging economies.
UNDERSTANDING EMERGING MARKETS
31
countries is shaken by ethnic conflicts and civil disorder (Nakata and Sivakumar,
1997; Enderwick, 2007).
Excursus 2.4: During the site visit and interview series at an African pharmaceutical manufacturer a
protest movement due to political and public transportation deficiencies occurred right next to the
facility. Police stopped the movement by force.
Second, political risk arises as a consequence of far-reaching protectionism, tariff and
non-tariff barriers, trade agreements, and interventions by governments like state
ownerships in China, or high levels of trade protection of India and Brazil (Nakata and
Sivakumar, 1997; Enderwick, 2007).
Economic reforms constitute the third type of political risk, although changes in laws
and regulations clear the way for pro-market reforms to improve the functioning of a
country’s product and factor market (Chari and David, 2012). Liberalization and
privatization create new and formidable opportunities for business in these countries.
However, especially first movers potentially face unclear and thus risky operating
conditions that are often subject to sudden and unpredictable changes (Nakata and
Sivakumar, 1997; Enderwick, 2007). Risks are even higher in countries where
institutional reforms like intellectual property protection and judicial processes are
lagging behind (Enderwick, 2007). Law enforcement in emerging economies is often
capricious and very slow (Khanna and Palepu, 1997). Such a weak legal system is
considered as the breeding ground for corruption and high crime rates (El-Khasawneh,
2012).
2.2.6 Nature of Business System
Despite several commonalities, emerging markets differ in size, growth rates, patterns
of economic reforms as well as political, economic and legal regimes or styles of
government. Basically, these markets do not simply differ in all aspects that provide
opportunities for business, the markets also have positive, yet complex, and negative
influences on all determinants of an entry strategy for foreign companies (Kouznetsov,
2009). In addition to these aspects, business systems of emerging markets primary
differ from those in advanced markets in their relevance of business relationships.
Enderwick (2007) describes these markets as relationship-based, arguing that the
strong interpersonal ties create difficulties for outsiders that try to enter those markets.
In China, for instance, this type of system is called ‘guanxi’ and depicts a common
practice to support companies in circumventing institutional barriers (Gu et al., 2008).
Emerging, relationship-based markets with weak legal institutions often suffer from
corruption which increases the cost of doing business through raising transaction costs
32
UNDERSTANDING EMERGING MARKETS
and increased uncertainty (Enderwick, 2007; Kouznetsov, 2009). Transparency
International (2012) publishes a corruption index on a yearly basis. Comparing
emerging and industrialized economies (Table 2.6), excessive differences become
obvious.
Table 2.6: Corruption perceptions index 12 2012 (Transparency International, 2012)
Russia
India
China
South
Africa
Turkey
Mexico
USA
Germany
Switzerland
Industrialized markets
Brazil
Emerging markets
Score
43
28
36
39
43
49
34
73
79
86
Rank
69
133
94
80
69
54
105
19
13
6
Furthermore, the business system of emerging economies is characterized by some
notable characteristics. Among others, these are trade barriers, import restrictions, and
sometimes inefficient production which transform these markets into seller markets
evoking a pent-up demand that cannot be satisfied by overprized low-quality products
(Enderwick, 2007).
Khanna et al. (2010) divide the product markets of emerging economies into
distinctive market segments that differ from those in developed countries. These
market segments are determined by a number of characteristics. Besides income and
price, they are also defined by local tastes, needs, and psychographic characteristics.
That is, companies do not only have to respond to institutional voids but also to a
catalogue of local contextual factors (Khanna et al., 2010).
The market segments in emerging markets can be divided into four groups (global,
emerging middle class, local, and bottom), which differ in their combination of price,
quality, and feature. Table 2.7 illustrates the market segments and the advantaged
company type in emerging markets.
12
The index compares 176 countries and territories around the world ranking them with a score from 0 (highly
corrupt) to 100 (very clean) (Transparency International, 2012). The countries illustrated are the countries
denoted as seven pharmerging markets (Hill and Chui, 2009), South Korea has been replaced by South Africa
due to its affiliation with the BRICS countries and further relevance in the thesis.
UNDERSTANDING EMERGING MARKETS
33
Table 2.7: Market segments in emerging markets (Khanna et al., 2010)
Segment
Global
Emerging middle class
Local
Bottom
Price
Quality
Global
Global
Global
Global
Local
Global
Local
Local
Lowest
Lowest
Features
Global
Local
Local
Local
Fewest
Domestic
Domestic
Advantage
Multinational
Battleground Battleground
Before the entrance of multinational companies, it is local companies that dominate all
market segments, as they are the sole providers of goods. With the opening of
emerging markets for foreign companies, these new entrants will quickly displace
local companies from the global market segments, as it is their nature to provide global
quality at global prices. In contrast, local companies may continue to dominate local
segments. Their local knowledge can be utilized as a competitive weapon to fit their
products to the local segment, and to sail around voids. The local segment will most
probably never vanish; while some consumers will move into the emerging middle
class, others will – promoted by economic growth – move up from the bottom to the
local segment. The segment of the emerging middle class constitutes the battleground
for both multinationals and domestic companies as neither of them provides the
adequate offerings for this segment. Whereas local companies have to increase their
product quality13, multinationals need to localize their existing products while
maintaining quality and grasping local knowledge to satisfy the segment’s needs
(Khanna et al., 2010).
2.2.7 Summary
Country characteristics are considered to be the most important determinants of a site’s
business performance, exceeding influential factors such as industry structure, the
site’s strategy or corporate characteristics (Christmann et al., 1999). The design of an
Architecture for OPEX in emerging markets is only useful if the characteristics of
these markets are included and considered. Table 2.8 summarizes the characteristics of
emerging markets that constitute the major external, environmental influences on
manufacturing sites.
13
See Section 3.3.1.3 for the product quality of domestic manufacturers.
34
UNDERSTANDING EMERGING MARKETS
Table 2.8: Summary of emerging markets’ major influences on manufacturing sites
Characteristic
Major influences
Economic




High growth rates, market fluctuations, and inflation
Weak financial markets
Dependence on few industries only
High income disparities between traditional and industrial sectors
Technological







Low spending on technology both per GDP and absolute
Low share of R&D workers per population
Low percentage of autonomously manufactured high-tech products
‘Knowledge’ is a minority of technology imports
‘High-tech’ is a minority of manufactured exports
Few grants of patents per year
Low innovation capabilities
Infrastructural
 Excessive amount of institutional voids
 Insufficient recognition of the needs for improving soft infrastructure
 Deteriorating and unreliable hard infrastructure
Sociocultural







Political
 High influence of regulatory bodies and institutions
 Political instability
 Protectionism, tariff and non-tariff barriers, interventions by
governments
 (Overdue) economic and institutional reforms (IP protection, judicial
processes etc.)
Nature of business
system
 High relevance of business relationships
 High rate of corruption
 Seller markets
Ethnic and cultural fragmentation
Substantial cultural differences to advanced countries
Rapid urbanization
Regional severe poverty, poor health conditions, low standard of living
Lack of social securities
High rates of illiteracy and low rates of secondary education
Shortage of qualified personnel (e.g. technicians and scientists)
2.3 Manufacturing in Emerging Markets
Ricardo (1817) was the first economist investigating the comparative advantage of
countries from a resource-based perspective. He claimed that countries should focus
on their most valuable economic activities and evolve from an agricultural towards an
industrialized economy. This also implies to outsource activities, even if a country is
the lowest cost producer of goods or has a differential advantage (Sheth, 2011).
Skinner’s (1964) landmark article ‘Management of International Production’ brought
manufacturing and its challenges in an international context into focus. The
internationalization process of a company and thus the establishment of subsidiaries in
foreign markets is subject of the scholarship of International Business (Johanson and
Vahlne, 1977, 1990). Although the manufacturing function was usually mentioned in
UNDERSTANDING EMERGING MARKETS
35
such cases, it was seldom the focus of studies (Fleury and Fleury, 2009). Finally, the
foundation for international manufacturing in the stream of Production and Operations
Management was laid by Flaherty’s (1996) ‘Global Operations Management’ (Fleury
and Fleury, 2009).
However, the majority of studies on manufacturing have in common that they are
based on industrialized countries. As such, Husseini and O’Brien (2004) critically note
that most researchers “[…] have mainly considered the kind of manufacturing
environment which is particular for the developed countries, very little work has
placed emphasis on manufacturing [strategy development] in other environments […]”
(Husseini and O'Brien, 2004, p. 1126) like emerging markets. Various other authors
not predominantly focusing on strategy development share their view (see, e.g., Ward
et al., 1995; Mersha, 1997; Hoskisson et al., 2000; Peng, 2003; Mady, 2009;
Salaheldin and Eid, 2007; Amoako-Gyampah and Meredith, 2007; Amoako-Gyampah
and Acquaah, 2008; Mora-Monge et al., 2008; Eid, 2009; Kathuria et al., 2010).
Implications from ‘Manufacturing in Emerging Markets’
Imp. 2.7: Literature providing insights into (domestic) manufacturing in emerging
markets is relatively scarce.
2.3.1 A Relevance for Manufacturing
As manufacturing is not simply an activity that impacts a specific sector but
transforms an entire economy, the need for a strong and sustainable manufacturing
industry for emerging markets is quite obvious to, inter alia, close the gap between the
developed and the developing world (El-Khasawneh, 2012). Tybout (2000) adds that
the manufacturing sector in emerging countries is often seen as the darling of policy
makers and promoted with special taxes and low tariff rates for imported machinery
and manufacturing equipment. As such, he argues that manufacturing “[…] is viewed
as the leading edge of modernization and skilled job creation, as well as a fundamental
source of various positive spillovers.” (Tybout, 2000, p. 11).
Along with the liberalization of emerging markets, competition due to the entrance of
multinational companies has increased (Amoako-Gyampah and Acquaah, 2008;
Khanna and Palepu, 2006; Peng, 2003). With the arrival of new competitors, cost and
pricing became the central issue for domestic companies while quality and regulations
took a back seat (El-Khasawneh, 2012). All the same, emerging markets are seen as
environments where institutional voids create weaknesses that diminish competitive
36
UNDERSTANDING EMERGING MARKETS
pressures to some extent (Hermelo and Vassolo, 2010; Chacar and Vissa, 2005;
Tybout, 2000).
Nevertheless, literature agrees that emerging markets face a kind of competition which
they are not used to from their history (Peng, 2003). Arguably, Mora-Monge et al.
(2008) view manufacturing as key in the struggle for survival in the global competition
that emerging economies are facing today. Domestic companies in emerging countries
need to be responsive and capable to reposition themselves when multinationals,
supported by local governments, enter their markets (Fleury, 1999). The development
of world-class manufacturing capabilities 14 is imperative for domestic companies in
emerging markets in order to increase their competitiveness and to no longer rely on
low-cost labor as a major competitive advantage (Fleury, 1999; Solis et al., 2000; Hitt
et al., 2005; Mora-Monge et al., 2008).
Mefford and Bruun (1998) claim that over the last decades there has been a
fundamental change in how emerging economies value foreign investment and the
relevance of manufacturing. They refer to the past fallacy of emerging economies of
focusing exclusively on hard technologies, neglecting the soft elements of a
technology transfer, i.e. organizational structures and the management system
(Mefford and Bruun, 1998). While it was previously felt that hard technology was all
that was required in the competition with multinational enterprises (MNEs) (Mefford
and Bruun, 1998), with the opening of their markets companies in emerging markets
have to acquire lacking capabilities. Several authors stress that domestic companies –
given their resource-poor conditions – must continuously and quickly learn in order to
persist in this new competitive environment (Bartlett and Ghoshal, 2000; Dawar and
Frost, 1999; Prahalad and Lieberthal, 1998).
Implications from ‘A Relevance for Manufacturing’
Imp. 2.8: Manufacturing is significant for emerging markets, but domestic companies
often lack organizational and managerial capabilities to respond quickly to the
market entrance of MNE and their shaking up of competition and market.
Imp. 2.9: With the entrance and growing competition of MNEs domestic companies
often tried to compete on price and occasionally lost sight of a focus on quality.
14
See Section 3.1.2 for a detailed discussion of a manufacturing site’s capabilities.
UNDERSTANDING EMERGING MARKETS
37
2.3.2 The Role of Foreign Direct Investment
Emerging economies benefit from foreign direct investment (FDI) (Gilboy, 2004;
Dunning and Lundan, 2008; United Nations, 2010). In fact, it is a broadly accepted
argument that companies from industrialized and developed nations are provided with
technological superiority and established management capabilities (Zhang et al.,
2010).
Local and domestic companies of emerging economies can imitate and adopt these
technologies and practices, which are widely known as spillovers. These positive
externalities can benefit domestic firms and may induce increases in productivity
among domestic companies (Zhang et al., 2010). However, MNE rarely pursue a
defined strategy to strengthen domestic competitors. Moreover, MNEs often tolerate
such spillovers and usually do not impose strong barriers to prevent companies from
emerging countries to adopt these positive externalities. A lack of several capabilities14
and a different market scope 15 make it unlikely that managers of foreign companies
perceive domestic players as a significant threat (Spencer, 2008).
Studies on FDI spillovers in emerging economies have produced mixed findings
(Zhang et al., 2010). As mentioned above, several studies identified positive spillover
effects from FDI to emerging market companies (Blomström, 1986; Buckley et al.,
2007; Wei and Liu, 2006). In contrast, other studies found evidence that FDI has either
no spillover effects or even a negative effect on the productivity of domestic emerging
market companies (Aitken and Harrison, 1999; Feinberg and Majumdar, 2001).
Implications from ‘The Role of Foreign Direct Investment’
Imp. 2.10: Manufacturing companies that are directly in favor of FDI usually benefit
from knowledge and technology transfers. This is not necessarily the case with FDI
spillovers.
2.3.3 A Typical Emerging Market Manufacturer
Literature on the status of emerging market manufacturers provides mixed findings.
Some scholars, likely being biased by Western beliefs, describe the facilities, their
management and capabilities as inferior and far behind Western standards; others
describe sites as modern and state-of-the-art.
15
See Section 2.2.6, especially Table 2.7.
38
UNDERSTANDING EMERGING MARKETS
One of the very early descriptions described emerging market sites as manufacturing
defective products and plenty of scrap, with poor processes at long and unreliable lead
times; insufficient maintenance of equipment, inadequate supervision, unpredictable
raw material supplies, short skilled workers, and quality practices in their infancies
result in low productivity (Ebrahimpour and Schonberger, 1984).
More recent studies continue to draw a similar picture. The literature is still full of
examples of poor manufacturing, inhibiting high-quality outputs (Lihong and Goffin,
1999; Li et al., 2011), lacking of organizational skills (Child, 1996; Luo and Tan,
1998), of technological capabilities (Dunning and Lundan, 2008; Bello-Pintado and
Merino-Díaz-de-Cerio, 2013), and of a purposeful employee training (Salaheldin and
Eid, 2007), with too high turnover rates of workforce (El-Khasawneh, 2012), an
unwillingness for restructuring (Nagabhushana and Shah, 1999; Salaheldin and Eid,
2007), a low prioritized manufacturing function (Li, 2000), low productivity (Li,
2000), inefficiencies (Karpak and Topcu, 2010), and lagging competitiveness (Chikán
and Demeter, 1995; Ulusoy and Ikiz, 2001; Ge and Ding, 2008), as well as suffering
from reliance on cheap labor (Fleury and Fleury, 2009), poor maintenance of
equipment (Bello-Pintado and Merino-Díaz-de-Cerio, 2013), managers’ mistrust in the
organization’s capabilities, their lacking courage in providing resources (Bartlett and
Ghoshal, 2000), their managerial skills in general (Amoako-Gyampah and Meredith,
2007; Contractor et al., 2007; Bloom et al., 2010), and an attitude of favoring shortterm gains for the sake of an increase of operational efficiency (Gilboy, 2004).
Such studies do indeed hardly paint a shining picture of the current status and
capabilities of emerging market manufacturers. Chacar and Vissa (2005) found that
poor performance in an emerging market environment remains longer than in
advanced markets, whereas superior performance persists equally long in both
economies. That said, the deficits and shortcomings described above underline that
domestic manufacturers in such volatile environments with partially unpleasant
business climates (see Table 2.8) face significant challenges in improving their
operations.
Contrary to this, other studies provide a more modest picture of emerging market
manufacturers, stressing that in the past employees in such sites were often unfamiliar
with modern quality philosophies and the respective management techniques (Zhao et
al., 1995). Quality in general (Lihong and Goffin, 1999; Li, 2000) as well as the
development of people’s skills and knowledge has caught up more attention recently
(Li, 2005). Due to a continued emphasis on and increasing awareness of the
importance of quality and cost (Nagabhushana and Shah, 1999; Li, 2000), quality of
domestic companies (Zerres and Sobotta, 2011) as well as their market response
UNDERSTANDING EMERGING MARKETS
39
capability and order fulfillment processes are improving (Li, 2005). Studies on
emerging market sites’ strategic capabilities found that there is no significant
difference compared to manufacturers in advanced economies (Größler, 2010;
Kathuria et al., 2010).
In addition, Arnold and Quelch (1998) claim that those companies in emerging
markets that produce industrial products are often among the most recently built
greenfield investments. Therefore, these sites rather represent the global state of-theart in manufacturing than rank among less-developed laggards (Arnold and Quelch,
1998).
Excursus 2.5: An African domestic pharmaceutical manufacturer has recently established a new
facility in order to replace its old one. The new facility runs costly latest technology from German and
Italian equipment suppliers.
A large Indian multinational follows a two-fold equipment strategy. Expensive European equipment
for its manufacturing lines supplying the Western world (most of all to meet regulatory requirements)
and lower cost/tech Indian and Chinese equipment for manufacturing medicine for the company’s
local market.
Mefford and Bruun (1998) argue that due to the liberalization of emerging markets,
domestic sites no longer can afford to produce inefficiently and compete locally with
low quality goods with other domestic players, foreign affiliates, and imports while
ignoring the global situation. Likewise, they would not succeed in exporting these
goods to other countries (Mefford and Bruun, 1998). Thus, Amoako-Gyampah &
Acquaah (2008) conclude that those companies must significantly emphasize their
quality strategy and combine it with their competitive strategy. Literature agrees that
increasing product quality enables domestic companies to compete successfully with
multinationals (Khanna and Palepu, 2006; Khanna et al., 2010).
Small and medium sized enterprises (SME) are not only the lifeblood of developed
countries, but also of the emerging world (Ghobadian and Gallear, 1996). Most
emerging market sites are categorized as SME, covering a wide spectrum of industries.
Thus, SME not only occupy a considerable position in the planned development of
these economies, but also account for a big share of industrial production and
employment (Dangayach and Deshmukh, 2005; Karpak and Topcu, 2010). However,
Tybout (2000) citing Little (1987) argues that within the manufacturing sector policies
favor large companies, thus inhibiting growth among smaller companies.
Manufacturing companies in emerging markets are sensitive to the size of their
market. As some emerging economies are quite large, e.g., BRIC countries, the size of
their domestic market provides several opportunities for manufactured products
40
UNDERSTANDING EMERGING MARKETS
(Tybout, 2000). However, most emerging economies are not blessed with such a
market size. El-Khasawneh (2012) concludes that manufacturing consumer products in
these small markets is not a viable option.
Implications from ‘A Typical Emerging Market Manufacturer’
Imp. 2.11: A literature analysis on the current state of emerging market manufactures
and their capabilities does not provide a consistent and distinctive picture. This might
be dramatically influenced by the object of analysis.
Imp. 2.12: When the financial resources are available, emerging market
manufactures do invest in latest technologies. However, they are still lagging behind
western competitors in organizational and managerial capabilities.
2.4 Differences of National Cultures
Research on international and cross-cultural differences has its origins in the late
1950ies, when the internationalization of organizations led to unexpected management
challenges in overseas subsidiaries (Keller, 1981; Macharzina and Oesterle, 1997;
Festing et al., 2011). Insufficient performance of business activities abroad and
unforeseen conflicts gave rise to doubts 16 regarding the universality of contemporary
principles of sound management and their negligence of national contexts (Hofstede,
1983).
16
Numerous scientific contributions on the transfer of management techniques into foreign cultures have
discussed the topic controversially and have enriched the knowledge base. Perlitz (2004) argues that these
contributions structure cultural research in three mutually exclusive attitudes. The (1) universal approach – its
devotees consider principles of management as independent from a respective cultural environment and as
generally accepted. Since know-how on management practices is universal, it allows an easy transfer from one
culture to another. The (2) culture-free thesis – economic relativists expect management principles necessarily
to homogenize and converge in accordance with the economic development, industrialization, and
technologization of nations. Moreover, industrialization leads to a transformation that cultural differences start
to vanish little by little. According to the culture-free thesis, management and organizational structures depend
on cultural influences; relationships between non-cultural contextual variables and organizational structures
are, however, stable between societies. The (3) culture-bound thesis – whose mindset is based on the idea that
all management concepts are culturally dependent. Differences in cultures require an adaption of management
behavior. As such, management know-how is not easily transferred from one culture to another.
UNDERSTANDING EMERGING MARKETS
41
‘Culture’ is an integral part of intercultural management 17 and is widely discussed in
social science. The subsequent sections deal with the understanding of ‘culture’ in
general, and the introduction of contemporary cultural concepts.
2.4.1 National Culture
Culture is multifaceted and ample of definitions. Thus, it is no surprise that some argue
it “[…] is one of those terms that defy a single all-purpose definition, and [that] there
are almost as many meanings of ‘culture’ as people using the term.” (Ajiferuke and
Boddewyn, 1970, p. 154).
Culture can be defined as patterns of basic assumptions, values, attitudes and
convictions of a social entity or group that are expressed in activities and artifacts and
have been developed and learned over time as an answer to environmental challenges
(Schein, 1992; Kutschker and Schmid, 2002). If patterns work satisfactorily and prove
to be valid, they are handed over to new members of the group as the right concepts to
handle, respond, and solve occurring problems 18 (Schein, 1992).
Culture is a group-specific, collective phenomenon that is shared with people from a
similar social environment (Hofstede and Hofstede, 2005). It can be understood as
“[…] the collective programming of the mind which distinguishes the members of one
category of people from another […].” (Hofstede, 1994b, p. 1). More precisely,
Hofstede terms mental programming as “[…] that part of our conditioning that we
share with other members of our nation, region, or group but not with members of
other nations, regions, or groups.” (Hofstede, 1983, p. 76). These unwritten rules of
culture are not innate, but are learned by individuals from their social environment
(Hofstede and Hofstede, 2005).
Cartwright and Cooper (1996) stress the powerful, enduring, and pervasive influence
of culture on human behavior. They argue that individuals learn what is right and
17
The research field on intercultural management comprises two streams: (1) management research on crosscultural management and (2) intercultural management (Hasenstab, 1998). Cross-cultural management research
deals with the problems that occur within management processes and the steering of productive social systems.
The problems addressed in this research field emanate from differences between the cultural environment as
well as the confrontation of people and institutions with unequal cultural origin (Keller, 1981). Intercultural
management studies aim at the design of management processes concentrating on structures, functions, and
people with the objective to provide efficient solutions for cultural management challenges (Perlitz, 2004).
These research streams are based on the assumption that both the consideration of national and regional
cultures have distinctive relevance for management, the validity of theories and that cultural differences do not
disappear (Hofstede, 1983; Hofstede, 1993).
18
Kroeber and Kluckhohn (1952) gave a similar definition of the term culture. They reviewed nearly 170
different definitions and assigned these to eight sub-categories (Keller, 1981). In essence, Keller (1981, p. 110)
summarizes culture as the collectively shared, implicit and explicit behavioral norms, patterns, expressions and
results that can be learned by the members of a social group and are passed on from generation to generation.
42
UNDERSTANDING EMERGING MARKETS
wrong, and what constitutes the acceptable forms of behavior and language from
society. These commonly shared values, beliefs, and basic assumptions often operate
subconsciously19 and thus constitute a powerful determinant of a society’s behavior
(Hall, 1990; Hall and Hall, 1990; Hofstede, 1993).
Given the characteristics of ‘culture’, it seems rather obvious that many of these differ
between countries and can thus be considered as given facts for management
(Hofstede, 1994b). Ajiferuke and Boddewyn (1970) see cultural differences as
‘axiomatic’ and conclude that managerial characteristics must equally differ between
countries.
Implications from ‘National Culture’
Imp. 2.13: Culture is a complex and collective phenomenon not an individual one that
is used to distinguish societies form each other.
Imp. 2.14: The invisible constituents of culture comprise basic assumptions, values,
norms attitudes, etc., and are often considered as self-evident. Visible constituents like
behavior and artifacts are empirically observable and tangible constructs.
Imp. 2.15: Culture is not passed by genes but learned; it influences human behavior
fundamentally.
2.4.2 Cultural Concepts
Schein 20 (1992) and Adler 21 (1991) contributed fundamental concepts to the
understanding of cultural interdependencies.
19
Hall and Hall (1990; 1990) denote this phenomenon of unconscious communication and awareness of cultures
as ‘silent language’. They argue that such “[c]ultural communications are deeper and more complex than
spoken or written messages.” (Hall and Hall, 1990, p. 4). Similarly, Hofstede (1993) argues that the primary
differences of national cultures are rooted in these fundamental, invisible values shared by a large part of their
members and that such cultures and their value orientations are relatively stable if they do change at all. Some
argue that such cultural elements even persist over centuries (Schwartz, 2004).
20
The cultural understanding of Schein (1992) is based on a hierarchical relationship between defined levels of
culture. He argues that without a clear differentiation of these cultural levels, scholars will fail to understand
what culture really is.
21
Adler’s (1991) understanding of culture is influenced by the interrelation of culture, values, attitudes and
behavior of a society. The cultural orientation of a society is expressed by the values its individuals hold about
life and their environment (Adler and Gundersen, 2008). Values are the explicit and implicit opinions of
individuals or groups. Moreover, values are either conscious or unconscious and reflect a society’s general
belief of right or wrong and good or bad. Attitudes express values. These attitudes become apparent by
behavior, which, in turn, is any form of human action.
UNDERSTANDING EMERGING MARKETS
43
Figure 2.2a depicts the three levels of culture 22 as distinguished by Schein (1992). If an
unacquainted value has proven its physical and social validity to society, the process of
cognitive transformation starts. The perceived value transforms into a shared value or
belief, and eventually ends as a shared assumption. These assumptions are the essence
of any group’s culture (Schein, 1992).
a
Artifacts
Visual organizational structures and
processes
(hard to decipher)
Espoused values
Strategies, goals, philosophies
(espoused justification)
Basic underlying
assumptions
Unconscious, taken for granted beliefs,
perceptions, thoughts and feelings
(ultimate source of values and action)
Culture
Behavior
b
Values
Attitudes
Figure 2.2: The cultural concepts of Schein (1992) and Adler (1991)
Adler’s (1991) concept, as illustrated in Figure 2.2b, uses the variables ‘values’,
‘attitudes’, and ‘behavior’ in dependence on ‘culture’. However it is not clear from
Adler’s (1991) model whether these variables are merely affecting the culture under
examination, or actually constituting it.
On the contrary, the concept of Schein (1992) clearly separates the used variables from
the phenomenon – culture – that they seek to explain. Since the basic assumptions,
visible or invisible, have a major impact on human behavior, this concept delivers an
insight into how difficult it is to influence stabilized and meaningful behavioral
patterns that are determined by culture (Schein, 1992).
2.4.3 Cultural Dimensions
The differences and commonalities of national cultures are described by means of
cultural dimensions. In many cases, scholars researching the facets of culture equate
22
Artifacts form the highest level of Schein’s (1992) concept. These artifacts include all perceptible phenomena,
i.e. which can be seen, heard, and felt when encountering an unfamiliar culture. This cultural level is difficult
to decipher although it is easy to observe. The level in-between holds espoused values, rules, and norms which
provide the members of a society with operating principles and guidelines of their day-to-day behavior.
Unconscious basic assumptions build up the lowest level of the concept and comprise individual’s beliefs,
perceptions, feelings, and thoughts.
44
UNDERSTANDING EMERGING MARKETS
‘culture’ with ‘nation’. Nevertheless, the guiding principles of culture are usually
regarded in these studies and thus the components of a culture – of what is given and
self-evident – have been recognized (Hasenstab, 1998).
Table 2.9 depicts a summary of selected cross-cultural studies and the dimensions they
use to describe cultures and their differences. The dimensions are built on the
derivation of superordinate criteria to compare the unique components of a distinctive
cultural peculiarity across various national cultures (Hasenstab, 1998). The number of
dimensions which are used for cultural differentiations is, however, boundless
(Kutschker and Schmid, 2002).
With regards to the cultural dimensions, as illustrated in Table 2.9, it is worth noting
that the introduced scholars used different research methods within their studies to
describe cultural nature. Therefore, dimensions vary. This is one of the factors
accounting for varying findings on cultural concepts and the building of cultural
clusters. The listed studies are neither exclusive (there are some overlaps and mutual
extensions), nor exhaustive (there is no concept that includes all dimensions that are
described in the current body of cross-cultural research literature) (Kutschker and
Schmid, 2002).
UNDERSTANDING EMERGING MARKETS
45
Table 2.9: Overview of cultural dimensions, adapted from Hasenstab (1998)
Author
Dimension
Hofstede (1980)
(1) power distance, (2) uncertainty avoidance, (3)
individualism/collectivism, (4) masculinity/femininity
Triandis (1982)
(1) in-group vs. out-group, (2) doing vs. being, (3) meaning of
factors like age, sex, class, (4) self-concept, (5) ideologism vs.
pragmatism, (6) associative vs. abstractive communications,
(7) human nature is good vs. bad, (8) mastery over nature vs.
subjugation to nature, (9) emphasis on past, present, future,
(10) individualism vs. collectivism, (11) uncertainty
avoidance, (12) masculine-feminine goals
Hall & Hall (1990)
(1) high-context vs. low-context, (2) space, (3) monochronic
vs. polychronic
Adler (1991)
(1) self-perception, (2) relationship to environment, (3)
individualism vs. collectivism, (4) doing or being, (5)
emphasis on past, present, future, (6) public space vs. private
space
Trompenaars (1993)
(1) universalism vs. particularism, (2) collectivism vs.
individualism, (3) neutral or emotional, (4) specific vs.
diffuse, (5) achievement vs. ascription, (6) attitudes to time,
(7) attitudes to the environment
Schwartz (1999)
(1) egalitarianism, (2) intellectual autonomy, (3) affective
autonomy, (4) mastery, (5) hierarchy, (6) conservatism, (7)
harmony
House et al. (2004)
(1) performance orientation, (2) future orientation, (3) gender
egalitarianism, (4) assertiveness, (5) individualism/
collectivism, (6) power distance, (7) human orientation, (8)
uncertainty avoidance
In the following, this thesis is predominately based on the four 23 cultural dimensions of
Hofstede (1980; 1993; 2005), i.e. 24:
 Power distance (PDI) describes the extent to which less powerful members of
organizations within a specific country expect and accept an unequal
distribution of power.
23
The original four dimensions are based on a study of 116,000 employees of IBM. The study was conducted in
50 countries between 1967 and 1973 (Hofstede, 1983). Hofstede (2005) later added a fifth dimension (longterm vs. short-term orientation).
24 Influenced by the literature review the thesis will occasionally refer to other than Hofstede’s (1980)
dimensions, e.g. the dimensions of the GLOBE study. Wiengarten et al. (2011) note that similarities between
the studies of Trompenaars (1993), Schwartz (1999), the GLOBE study (2004) and the dimensions of
Hofestede (1980) exist. A detailed comparison of the Hofstede’s (1980) dimensions with the dimensions of the
GLOBE study can be found in House et al. (2004).
46
UNDERSTANDING EMERGING MARKETS
 Uncertainty avoidance (UAI) is the degree to which the members of a nation
feel threatened and uncomfortable by ambiguous or unknown situations.
 Individualism/collectivism (IDV) describes the extent to which people of a
society are oriented towards acting as individuals versus being part of an ingroup.
 Masculinity/femininity (MAS) describes the extent to which tough values like
aggressiveness, performance and success (masculine values) are valued versus
tender, feminine values like personal relationships, solidarity and the quality of
life.
Hofstede’s (1980) dimensions are measured with an index score that provides a
ranking of the surveyed countries. From Table 2.10 it is evident that emerging markets
are characterized by high power distance and low individualism; the latter results in
collectivist cultures. Triandis and Suh (2002, p. 136) add that “[p]eople from
collectivist cultures, such as those of Asia, Africa, and South America, tend to sample
mostly elements of the collective self.” In other words, whereas developed countries
emphasize a culture of autonomy and egalitarianism, emerging markets are often
dominated by an embedded and hierarchical culture (Schwartz, 2004).
Table 2.10 compares an adapted sample of seven pharmerging markets with selected
advanced countries.
Table 2.10: Hofstede’s cultural dimensions: emerging vs. advanced markets (Hofstede, 2014)
PDI
UAI
IDV
MAS
Brazil
Russia
India
China
South Africa
Turkey
Mexico
Average
62
88
71
74
41
59
75
67.1
65
84
31
21
39
74
71
55.0
38
39
49
16
69
36
28
39.3
49
34
57
68
64
44
71
55.3
USA
Germany
Switzerland
Average
31
26
25
27.3
37
55
48
46.7
100
72
73
81.7
63
68
72
67.7
UNDERSTANDING EMERGING MARKETS
47
In such a culture of embeddedness people are seen as part of a collective group. Social
aspects like social relations, group identification and pursuing the goals of one’s group
as well as participation of an individual in a shared way of life are valued highly and
constitute the meaning in life. Another characteristic of an embedded culture is the
discouragement of behaviors that will disrupt the solidarity within the group and
maintenance of the status quo. Likewise, the hierarchical culture is affected by
responsible behavior. Often this behavior is supported by legitimizing an unequal
allocation of power, resources, and roles within the hierarchical system (Burgess and
Steenkamp, 2006).
Considering the results of the masculinity index and the uncertainty avoidance index,
there seems to be no significant difference between emerging and advanced countries
that would allow generalizations like those for power distance and individualism.
Therefore, the respective countries and their characteristics have to be assessed
individually on these dimensions.
Implications from ‘Cultural Dimensions’
Imp. 2.16: Emerging markets differ culturally from advanced markets in terms of
Hofstede’s ‘power distance’ and ‘individualism/collectivism’. ‘Masculinity/
femininity’ and ‘uncertainty avoidance’ cannot be generalized on a regional level.
Imp. 2.17: Emerging markets can be further specified as collectivist and highly
hierarchical cultures stressing high power distance within their society.
Imp. 2.18: Although South Africa 25 is considered an emerging market, it scores lower
on ‘power distance’ and higher in ‘individualism/collectivism’ than the other
emerging markets in the considered sample.
2.5 Summary & Conclusion
The term ‘emerging market’, which constitutes an integral part of this dissertation, was
defined and the characteristics of emerging markets summarized in a broad literature
review. The literature-based analysis of the current status of emerging market
manufacturers and the relevance of manufacturing for these markets underline the
current attractiveness of the topic for science and practice.
Reviewing the concepts and dimensions of ‘culture’, it became clear that both
mindsets and attitudes of people in emerging markets differ from those in advanced
25
Littrell (2011) found a significant difference between black and white South African people and their
orientation regarding ‘power distance’ and ‘individualism/collectivism’.
48
UNDERSTANDING EMERGING MARKETS
countries. These differences have to be taken into account when implementing OPEX
programs in pharmaceutical manufacturing sites in emerging markets.
Chapter 3 will use the outcomes of this chapter to analyze the barriers to OPEX as well
as cultural hindrances and benefits while implementing the concept. Furthermore,
outcomes of the current chapter are utilized in Chapter 5, to design the requirements
for the OPEX Architecture, and in the discussion in Chapter 6.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
49
3 Operational Excellence in Pharmaceuticals
“The world as we have created it is a process of our thinking.
It cannot be changed without changing our thinking.”
Albert Einstein
Following the review of what is currently known about emerging markets and the
introduction of cultural dimensions in Chapter 2, this chapter will elaborate on the
elements of modern Operational Excellence (OPEX) approaches.
Starting with the determinants of Operational Excellence (Section 3.1) that (should)
shape the structure and purpose of any OPEX initiative, the chapter goes on to present
the elements of Operational Excellence (Section 3.2) that translate strategic
requirements into operational activities and defines the author’s understanding of
OPEX. Thereafter, OPEX is brought into the context of pharmaceutical manufacturing
(Section 3.3). Challenges that arise with initializing OPEX in emerging markets are the
objective of Section 3.4. The chapter ends with a short summary (Section 3.5).
3.1 Determinants of Operational Excellence
3.1.1 Manufacturing Strategy
The research on manufacturing strategy as it is today known and accepted has its roots
in mid-20th century Harvard (Voss, 1995). However, it was not until Skinner
publicized his two seminal works Manufacturing – missing link in corporate strategy
(1969) and The focused factory (1974) that manufacturing strategy finally hit
academics’ agenda. In the following years, the topic gained growing interest as an
academic discipline, (Kathuria, 2000) but also among practitioners (Malhotra et al.,
1994).
Despite the interest in research on manufacturing strategy, a commonly accepted
definition of the term itself is still lacking; the number of definitions is as manifold as
the number of studies (Dangayach and Deshmukh, 2001b, p. 886). Yet, manufacturing
strategy can be regarded as “[…] a sequence of decisions, that over time, enables a
business unit to achieve a desired manufacturing structure, infrastructure and set of
specific capabilities […]” (Hayes and Wheelwright, 1984, p. 32) in order to utilize its
manufacturing strengths effectively as a competitive weapon (Skinner, 1969;
Swamidass and Newell, 1987).
50
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
In general, literature on manufacturing strategy can be divided into literature focusing
on either the content of a strategy or its formulation process (Platts et al., 1998;
Dangayach and Deshmukh, 2001b; Barnes, 2002). The formulation perspective deals
with procedures and patterns which are applied for the development and
implementation of an organization’s manufacturing strategy (Dangayach and
Deshmukh, 2001b). Wheelwright (1984) and Vickery (1991) were among the first to
analyze such formulation processes. Their work set the stage for Kim and Arnold
(1996) and Platts et al. (1990) who expanded previous concepts (Miltenburg, 2009).
Ultimately, manufacturing strategy is realized in a sequence of actions, starting with
the definition of competitive priorities in the pursuit of competitive advantage as
derived from the overall business strategy. The capabilities of the manufacturing
function determine the realization of the competitive priorities (Section 3.1.2). To
achieve this end, the decision categories, well-known as manufacturing levers (Section
3.1.3) of the manufacturing system have to be framed and adjusted. The adjustment of
these manufacturing levers is supported by a set of infrastructural practices (Section
3.2.1).
The content-related literature examines the composition and elements of a
manufacturing strategy (Deflorin, 2007). Literature has not yet reached a consensus
regarding these elements (Thomas, 2013) 26, but typically names costs, quality,
flexibility, delivery speed, and innovation (Dangayach and Deshmukh, 2001b). 27
Along the lines of Hayes and Wheelwright’s (1984) above quotation, Hill (1993)
distinguishes between competitive priorities of order winners and qualifiers. Order
winners are the attributes or characteristics of competitive priorities that might set one
company apart from its competitors and thus lead to winning an order. In contrast,
qualifiers refer to the performance that is required to draw customers’ attention to a
company so that customers will consider that company in their selection process. Both
order winners and qualifiers vary between industries and markets, and their level of
importance changes over time (Hill, 2000).
Excursus 3.1: In industries like automotive, apparel, or tourism, companies compete among others
regarding the quality of their products. That is, customers include product quality in their decision
process and might eventually decide in favor of a product’s superior quality. In the pharmaceutical
industry, a distinctive quality level of products is already defined at early stages by regulatory bodies,
i.e. the products which companies manufacture for European and US markets have to fulfill the
26
Thomas (2013) refers to Slack and Lewis (2002) who argue that authors in their discussion on competitive
priorities either follow an external or an internal perspective which leads to a diverging perception of priorities’
attributes.
27 Deflorin (2007, pp. 41ff.) and Thomas (2013, p. 56) provide detailed analyses on the composition of
competitive priorities.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
51
requirements set by EMA or FDA. Thus, product quality in the Western pharmaceutical industry is
seen as a qualifier that has to be met for market access. Customers usually do not consider product
quality in their decision process.
In other markets, however, it is not mandatory to meet quality requirements of, for example, the FDA
to be granted market access. Some emerging markets have quality standards (far) below (US) FDA
requirements. This paves the way for competition on quality as an order winner (see also Section
3.3.1).
3.1.2 Manufacturing Output & Capabilities
Similar to the accepted number of strategic priorities – the elements to define the
manufacturing strategy, scholars support different dimensions and terms for a factory’s
manufacturing output. 28 Most researchers consider the four basic dimensions cost,
quality, delivery, and flexibility, others have a more differentiated view. These
discrepancies stem from insufficient definitions and differing levels of analysis
(Miltenburg, 2008).
Table 3.1: Manufacturing outputs & capabilities, adapted from Miltenburg (2008)
and Mundt (2012)
Manufacturing output
Cost
 … control financial inputs to manufacture the product
(e.g., material, labor, overhead, and other resources)
Quality
 … provide products whose features meet or exceed
customers’ specifications and expectations, and
 … assure on-going conformance to meet assured
specifications
Delivery speed and
reliability
 … meet or exceed the expected delivery speed and
 … keep delivery promises on-time and in-full
Product range and
design flexibility
 … produce a wide range and mix of products, or
 … conduct design changes quickly
Order size and delivery
flexibility
 … change order sizes or delivery times quickly
Innovativeness
28
Manufacturing capability to …
 … introduce innovative and novel products, processes, or
products which enable the customer to be innovative
For a detailed discussions on number and terminology see (Mapes et al., 1997; Ward et al., 1998; Colotla,
2003; Miltenburg, 2008).
52
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
Initially defined in the manufacturing strategy by ranking a set of competitive
priorities, it is specified and measured to what extent a factory is ultimately capable of
producing the required output. Obviously, the same dimensions are applied to control a
manufacturing function’s output and to assess its performance (Colotla, 2003). In turn,
a factory’s manufacturing capability is the ability to deliver output in accordance with
a defined strategy (Kim and Arnold, 1996; Miltenburg, 2009). 29 The level of
manufacturing capability influences a factory’s ability to improve or change. Existing
capabilities build the foundation for new manufacturing capabilities. The larger the
existing basis, the more opportunities exist to build on (Miltenburg, 2008). A list of
manufacturing outputs and appropriate capabilities as commonly discussed in the
literature is illustrated in Table 3.1.
3.1.3 Shaping the System: Manufacturing Levers
Decisions derived from the manufacturing strategy have both structural and
infrastructural implications on the manufacturing system. However, a mere dichotomy
between structure and infrastructure is too crude to sufficiently describe how decisions
are translated into actions (Slack and Lewis, 2002). Several scholars have introduced
categorizations of these decision areas (Hayes and Wheelwright, 1984; Platts et al.,
1998; Slack and Lewis, 2002; Mills et al., 2002; Hallgren and Olhager, 2006).
Miltenburg (2008) rephrased the term ‘decision area’ as ‘manufacturing lever’ in order
to emphasize that managerial decisions shape the entire system. Each of these
manufacturing levers is equally important and must not be marginalized or
disregarded. The particular position of any lever is the result of several decisions that
have been made in the respective area over the course of time. The current positions of
all levers that are used for adjustments determine the type of the manufacturing
system, its manufacturing capability, and finally its performance (Miltenburg, 2008).
Table 3.2 illustrates these levers as understood by Mills et al. (2002).
29
Mundt (2012) argues that some scholars have diluted the terminological precision of a site’s capabilities and
strategic priorities due to the legacy of research.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
53
Table 3.2: Structural and infrastructural levers of a manufacturing site (Mills et al., 2002)
Structural levers
Capacity
Capacity flexibility, shift patterns, temporary subcontracting policies
Facilities
Size, location and focus of manufacturing resources
Manufacturing process
technology
Degree of automation, technology choices, configuration of
equipment into lines, cells, etc., maintenance policies and potential
of developing in-house processes
Vertical integration
Strategic make versus buy decisions, supplier policies
Infrastructural levers
Organization
Structure, accountabilities and responsibilities
Quality policy
Quality assurance and quality control policies and practices
Production control
Production and material control systems
Human resources
Recruitment, training and development, culture and management
style
New product introduction
Design for manufacture guidelines, introduction stages,
organizational aspects
Performance measurement
and reward
Financial and non-financial performance measurement, recognition
and reward systems
It is these manufacturing levers that comprise the elements for which the derived
Architecture has to provide practical design guidelines as laid out in Chapter 6.
3.2 Elements of Operational Excellence
3.2.1 Infrastructural Practices
3.2.1.1 Total Productive Maintenance (TPM)
TPM is a manufacturing program designed to maximize the effectiveness of a
manufacturing site’s equipment and to improve its overall efficiency throughout the
equipment’s lifetime by motivating and involving the entire workforce across all
hierarchies (Nakajima, 1988; Suzuki, 1994; McKone et al., 1999; Cua et al., 2001). To
achieve maximum effectiveness of its production system, a manufacturing site has to
prevent failures, defects, and dysfunctions of its equipment, i.e. completely eliminate
wastes and losses during operations (Nakajima, 1988; Suzuki, 1994). A manufacturing
54
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
site may utilize the TPM philosophy and its strong positive influence on various
performance dimensions 30 to strengthen a facility (McKone et al., 1999).
Maintenance management within TPM programs is usually divided into short-term
activities and long-term efforts. The latter typically involve different departments
throughout the organization and comprise the design of new equipment and stepwise
reduction of sources of equipment downtime. Short-term maintenance elements are
focused on site level and comprise autonomous and planned maintenance tasks.
Autonomous maintenance is focused on the manufacturing department and involves
four elements: (1) cross-functional teams of manufacturing and maintenance people,
(2) housekeeping elements like the five S’s – seiri (organization), seiton (tidiness),
seiso (purity), seiketsu (cleanliness), and shitsuke (discipline), (3) cross-training of
operators, and (4) involvement of operators in maintenance activities to increase
equipment reliability. Planned maintenance primarily addresses the maintenance
department and includes the three elements information tracking, disciplined planning,
and schedule compliance (McKone et al., 1999, 2001).
McKone et al. (2001) found that managerial contextual factors such as TQM, JIT and
employee involvement have a larger influence on the realization of TPM programs
than organizational variables or environmental factors like country and industry.
3.2.1.2 Total Quality Management (TQM)
The concept of Total Quality Management (TQM) is considered as one of the most
popular and dominating paradigms of quality management in both theory and practice
(Ghobadian and Gallear, 2001; Prajogo and Sohal, 2001; Schroeder et al., 2008). Since
the 1920ies, the concept passed through several phases and has evolved from mere
quality control (QC), over quality assurance (QA), to a system of total quality control
(TQC) into today’s widely recognized management model (Ghobadian and Gallear,
2001). This evolution was accompanied – and considerably affected – by the work of
‘quality gurus’ (Ghobadian and Speller, 1994) such as Crosby (1979), Deming (1986),
Feigenbaum (1983), Groocock (1988), Ishikawa (1985), Juran (1974), and Taguchi
(1986).
The quality concept emerged from controlling and inspecting the final product, which
was processed along the value stream. At the end, final product quality was inspected
into the product by sorting out defective units by a separate quality department (Juran,
1989). The institutional separation of manufacturing and quality departments had its
30
The performance dimensions as being applied in Operations Management have been discussed in Section
3.1.2.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
55
roots in the Taylor system’s (2007) division of labor which led manufacturing
departments to abdicate their responsibility for quality and to the function’s
diminished understanding of product quality (Gronauer, 2012).
Modern approaches focus on process quality and the prevention of failure, and
incorporate the entire company instead of only focusing on an organization’s
manufacturing function. Seghezzi et al. (2013) argue that the superior quality
capabilities of organizations result in the provision of service offers of consistent
quality, at a defined quality level which persistently meets the stakeholder’s
requirements. Thus, customer needs are seen as the key input to TQM (Reed et al.,
1996) in order to manufacture products that meet customers’ expectations. The holistic
approach of TQM can be summarized as “[…] a manufacturing program aimed at
continuously improving and sustaining quality products and processes by capitalizing
on the involvement of management, workforce, suppliers, and customers, in order to
meet or exceed customer expectations […]” (Cua et al., 2001, p. 676). In their research
on the implementation of manufacturing programs, Cua et al. (2001) find nine
practices that are integral parts of TQM programs; these are cross-functional product
design, process management, supplier quality management, customer involvement,
information and feedback, committed leadership, strategic planning, cross-functional
training, as well as involvement and empowerment of employees.
Implementing TQM is also seen as an enabler for competitive and operational
performance advantages through the pursuit of product-design and process efficiencies
and the increase of product reliability (Reed et al., 1996; Prajogo and Sohal, 2001;
Colotla, 2003). In this context, continuous (process) improvement is regarded as the
main lever for an increase in efficiency (Reed et al., 1996).
Modern concepts like business excellence models, the EN ISO 9000 series and the Six
Sigma approach have contributed to the evolution of TQM. Especially the latter
concept, Six Sigma, and its autonomy are discussed controversially (Gronauer, 2012).
The approach is either seen as a comprehensive management model, translating the
quality concepts of TQM into a concrete quality model, or as a tool box providing
tools like the DMAIC 31 cycle or SIPOC analyses 32 to achieve its ultimate goal of zero
failures and to reduce process variation. As such, the approach strives for process
stability which is needed for a later implementation of Lean (Friedli et al., 2013c).
31
The acronym DMAIC stands for D-efine, M-easure, A-naylze, I-mprove, and C-ontrol – see Friedli et al.
(2013c) for detailed explanations.
32 The acronym SIPOC stands for S-upplier, I-nput, P-rocess, O-utput, and C-ustomer – see Friedli et al. (2013c)
for detailed explanations.
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3.2.1.3 Just-in-Time (JIT)
The concept of Just-in-Time (JIT) manufacturing was developed and brought to
perfection by Taiichi Ohno in the Toyota Motor Cooperation in the middle of the 20th
century (Imai, 1986; Holweg, 2007). At this time, the production systems deployed by
Ford and GM relied on mass production, which was suboptimal for Toyota’s low and
diverse production volume. To fit the Japanese market requirements, Toyota had to
achieve low cost, high quality, flexibility and short lead times at the same time (Liker,
2004).
In a nutshell, Just-in-Time “[…] basically means to produce the necessary units in the
necessary quantities at the necessary time.” (Monden, 1994, p. 5). To achieve this end,
Ohno relentlessly tried to reduce costs by eliminating all forms of waste 33 (Holweg,
2007) through empowering individual skills and team work (Ohno, 1988). Today’s
Just-in-Time was revolutionized by the introduction of the Kanban system (Liker,
2004). Inspired by the control of the material replenishment processes of American
supermarkets, Ohno enhanced the Just-In-Time material flow by implementing a pull
system and leveling Toyota’s production (Ohno, 1988). This concept constitutes one
of the pillars of the Toyota Production System (TPS) (Liker, 2004). The second pillar
of TPS is Jidoka – or Autonomation, automation with human touch – which led to
built-in quality, and supports the JIT system by stopping the production whenever a
defect has been detected. This ensures the defect-free and continuous processing of
units from one process step to another (Monden, 1994; Liker, 2004).
Although the philosophy of Just-in-Time had been studied by academics even before
Womack and Jones’ (1990) ‘world-changing’ publication, it found little interest in
Western manufacturers. This changed with the 1970ies’ oil crises – domestic
manufacturers faced a drastic increase of imports from Japanese competitors and
where forced to increase their efficiency (Holweg, 2007).
Cua et al. (2001) identify nine practices that are usually cited in the research on
implementing JIT. These are the reduction of set-up time, pull system production, JIT
delivery by supplier, functional equipment layout, daily schedule adherence,
committed leadership, strategic planning, cross-functional training, and employee
involvement (Cua et al., 2001). Implementing a JIT system leads to increased
interdependencies among intra-organizational units which propose several challenges
for the implementing organization (White et al., 1999).
33
See Section 3.2.1.5 for a definition of waste and value.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
57
3.2.1.4 Human Resource Management (HRM)
Modern approaches of human resource management (HRM) are seen as an enabler to
increase operational performance (Ichniowski et al., 1995). Employees’ knowledge
about a company’s products, processes and customers, rooted within the organization’s
routines and social interactions, can yield a competitive advantage (Macduffie, 1995).
Cua (2000) found that the concept of human resource management permeates TPM,
TQM, and JIT, and thus constitutes an integral part of these programs’
implementation.
Practices that are covered by HRM include teamwork, flexible job assignments,
employment security, incentive payment, and training in multiple jobs (Ichniowski et
al., 1995). Multiskilling requires extensive training but facilitates problem-solving and
subsequently allows for job rotation within or across working teams (Macduffie,
1995). Cua (2000) later added a strategic perspective and referred to committed
leadership, strategic planning, cross-functional training and employee involvement as
important elements of HRM. She argued that implementing such practices is expected
to create the requisite environment and motivation that is essential for organizational
learning (see Section 3.2.3).
In order to ultimately contribute to an organization’s performance, Macduffie (1995)
lists three conditions that innovative human resource practices have to conform with:
 employees must possess knowledge and skills that managers lack,
 employees have the motivation to apply their knowledge and skills through
discretionary effort, and
 the company’s business or production strategy can only be achieved due to its
employees’ contribution of discretionary effort.
3.2.1.5 Lean Manufacturing
Lean Production has its origin in the Toyota Production System (TPS), and the terms
Lean Production and TPS are frequently used synonymously (Shah and Ward, 2007).
In times of increasing global competition, manufacturing companies strive to improve
their site level performance. Therefore, it has become more important to understand
how to achieve lean operations (Narasimhan et al., 2006).
The application of Lean approaches has influenced both academics and practitioners
(Hines et al., 2004). Emanating from the Japanese automotive industry, the concept
has spread rapidly in many other industrial sectors around the globe, thereby proving
its value (Hines et al., 2004; Scherrer-Rathje et al., 2009). It could be expected that an
58
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
established production concept as popular as Lean has been precisely defined over
time (Pettersen, 2009). Surprisingly, it has not.
Reviews of the actual Operations Management literature reveal considerable confusion
over the paradigms of Lean, their content as well as any temporal dependencies
occurring in their implementation (Narasimhan et al., 2006; Pettersen, 2009).
Shah and Ward (2007) argue that this lack of clarity has its origin in the multitude of
descriptions and terms referring to Lean Production and the fact that the concept has
evolved over a long lapse of time (Parker, 2003; Shah and Ward, 2007; Pettersen,
2009).
The often assumed equivalence of Lean and Just-In-Time (JIT) manufacturing
(Section 3.2.1.3) results in a misconception of the terms, and often these terms will be
– wrongly – used interchangeably (Narasimhan et al., 2006; Shah and Ward, 2007).
Hines et al. (2004) argue that such ambiguities are the source of confusion and have
led to fuzzy boundaries with other management concepts. Narasimhan et al. (2006)
report that in their fervor to enrich the Lean concept, academics often included every
tangible and popular practice and performance metric. Thus, not only did they dilute
the concept itself but also their potentially unique attributes. Moreover, practitioners
contributed to the weakening of the concept – in a rush to become Lean, they often
misapplied existing Lean practices due to an inadequate understanding of practices’
real purpose (Pavnaskar et al., 2003).
Excursus 3.2: PharmCo_OPEX_RESTRUC, a Western European multinational pharma company has
initiated its OPEX initiative about ten years ago. The OPEX team designed the initiative from scratch,
structured it well and put a lot of effort in partially translating and adapting TPS into their own
specific context. In the year 2012 the team engaged in restructuring and refurbishing the entire
initiative. One of their major problems was that they had introduced a multitude of Lean tools and
over the years they had lost sight why single tools had been included in the initiative, where to
allocate them in their framework and especially when to apply them.
According to Shah and Ward (2007), such managers often lacked a holistic
consideration of the system and an understanding of its invisible and highly interdependent links, solely focusing on a single and visible aspect of a process.
Lean can be looked at from different perspectives. Shah and Ward (2007) and
Scherrer-Rathje et al. (2009) classify Lean into two distinctive streams, i.e. Lean as a
philosophy, and Lean as viewed from a practical perspective, that is, a set of
management practices, tools or techniques.
Lean Production as a philosophy deals with the interrelation and synergy between
Lean practices used to increase productivity, improve product quality, the reduction of
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
59
waste outside traditional manufacturing, etc. (Scherrer-Rathje et al., 2009). It can
therefore be summarized as overarching goals and guiding principles as introduced by
Womack et al. (1990), Womack and Jones (1996b; 1996a) and Spear and Bowen
(1999), cited from Shah and Ward (2007) and Shah et al. (2008). Lean as viewed from
a practical perspective comprises a set of practices and tools aiming at the reduction of
waste as examined in the studies of Pil and MacDuffie (1996), Ichniowski and Shaw
(1997), Shah and Ward (2003; 2007), Liker (2004), Hopp and Spearman (2004), Li et
al. (2005), Narasimhan et al. (2006), de Treville and Antonakis (2006), cited from
Shah and Ward (2007), Shah et al. (2008) and Scherrer-Rathje et al. (2009).
Drawing a definition that not only comprises all dimensions of Lean but also finds
general approval seems an extraordinary challenge (Pettersen, 2009; Wong et al.,
2009). Shah and Ward (2007) observed a shift from previously precise definition of
TPS and the identification of its underlying components towards a present focus on
defining and simply describing specific components of the system. This has led to a
substantive disagreement about the integral parts of Lean Production and how to
operationalize them (Shah and Ward, 2007). On the contrary, Doolen and Hacker
(2005) consider the principles of Lean as relatively constant but enriched by a
multitude of underlying different practices. Whereas Hopp and Spearman (2004)
narrowed Lean down to Pull Production as its sole underlying element, McLachlin
(1997) broadens this perspective to encompass management initiatives, flow elements
and quality elements. Others see Lean as the combination of Just-In-Time (JIT)
manufacturing, Total Preventive Maintenance (TPM), Total Quality Management
(TQM), and Human Resource Management (HRM) (Flynn et al., 1995; Cua et al.,
2001; McKone et al., 2001; Shah and Ward, 2003; Narasimhan et al., 2006; Shah et
al., 2008). De Treville and Antonakis (2006) enhanced the perspective by including
elements such as Kaizen, Design for Manufacturing and Assembly, and Supplier
Management. Following the proposition “[…] that these practices can work
synergistically to create a streamlined, high quality system that produces finished
products at the pace of customer demand with little or no waste […]” (Shah and Ward,
2003, p. 129), the constituents of Lean as understood in this thesis are summarized in
Table 3.3.
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OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
Table 3.3: The constituents of Lean Production
Element
Total Preventive Maintenance (TPM)
Total Quality Management (TQM)
Just-In-Time (JIT) manufacturing
Human Resource Management (HRM)
Not only is there no general consensus on the elements of Lean; definitions of the
management concept itself differ widely34. A look at the contemporary body of Lean
literature reveals a frustratingly long list of definitions (Volkmer, 2010). Thus, for the
purpose of this thesis, and to examine Lean in the context of OPEX, it is in the
following understood as “[…] an integrated socio-technical system whose main
objective is to eliminate waste by concurrently reducing or minimizing supplier,
customer, and internal variability.” (Shah and Ward, 2007, p. 791). Thus, Lean may
lead to significant reductions of human effort, manufacturing space, investments,
engineering hours, inventory and defects (Womack et al., 1990).
According to Taiichi Ohno (1988) the fundament of Toyota Production System (TPS)
is the absolute elimination of waste. By defining value from an end customer’s
perspective before applying Lean techniques, a company can be prevented from being
highly efficient in providing the wrong product (Womack and Jones, 1996b). To start
with such a value definition, an organization has to question the customers’
expectations of the process. Accordingly, customers can be both internal and external
customers; internal, regarding a subsequent process step in the production line, or
external, in finally purchasing the product. From a customer’s perspective, one can
distinguish value-added from non-value-added steps of a process (Liker, 2004). In
Lean Thinking, value creation and cost reduction are often equated and hence a
representation of Lean as a sole mean to cutting costs is “[…] a common yet critical
shortcoming of the understanding of lean.” (Hines et al., 2004, p. 995). Ohno (1988)
has identified seven major types of waste, namely overproduction, waiting (time on
hand), unnecessary transport or conveyance, over- or incorrect processing, excess
inventory, unnecessary movement and defects. Liker (2004) added ‘unused employee
creativity’ as an eighth form of waste.
34
For the diversity of elements and definitions of Lean see, e.g., Womack et al. (1990), Liker (1997; 2004, p.
25), McLachlin (1997), Shah and Ward (2003; 2007), Hopp and Spearman (2004), Li et al. (2005), de Treville
and Antonakis (2006) or Narashimhan et al. (2006).
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
61
Value is created if waste is reduced. According to Hines et al. (2004), value is not only
created by internal reduction of wasteful activities and thus by the associated costs, but
also by additional features or product-related services which are valued by customers.
Womack and Jones (1996a; 1996b) identified five principles as fundamental for waste
elimination: (1) Define precisely what is value-added from the customer’s perspective
and what is not; (2) identify the entire value stream and assess the three critical
activities to bring a product on its way: product definition, information management
and physical transformation; (3) make the value creating actions flow without waiting
or downtime, or scrap; (4) design and provide products just in time pulled from
customers; (5) pursue perfection and continuously reveal and reduce waste by iterating
steps 1 to 4.
3.2.1.6 World Class Manufacturing (WCM) 35
The World Class Manufacturing (WCM) project was initiated in order to identify
successful practices of ‘best’ performing manufacturing sites. By comparing several
manufacturing sites in advanced economies, Hayes and Wheelwright (1984)
established the commonalities and manufacturing patterns which are common to
successful sites. They argued that building competitive strength is dependent on a set
of manufacturing practices summarized in six world class dimensions (Flynn et al.,
1999) as illustrated in Table 3.4.
Table 3.4: The six world class manufacturing practices (Flynn et al., 1999, p. 250)
Dimension
Rationale
Practices
Workforce skills and
capabilities
U.S. firms have neglected
development of workforce
skills and capabilities; this
should not be left to the
schools
 Apprenticeship programs
 Cooperative arrangements with vocational
technical institutes
 Internal training institutes
 Extensive advanced training and retraining
beyond entry level, focusing on skills,
work habits and motivation
Management technical
competence
U.S. firms experience
 Ensure a significant number of managers
have engineering or technical degrees
technical weakness among
 Train potential managers, early in their
their managers
careers, in a variety of technologies
important to the firm
 Rotate managers through various
functions, to broaden their experience
35
This section shows some overlaps with the chapter “OPEX Defined” in Friedli and Bellm (2013c, pp. 21–24).
62
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
Dimension
Rationale
Practices
Workforce skills and
capabilities
U.S. firms have neglected
development of workforce
skills and capabilities; this
should not be left to the
schools
 Apprenticeship programs
 Cooperative arrangements with vocational
technical institutes
 Internal training institutes
 Extensive advanced training and retraining
beyond entry level, focusing on skills,
work habits and motivation
Management technical
competence
U.S. firms experience
 Ensure a significant number of managers
have engineering or technical degrees
technical weakness among
 Train potential managers, early in their
their managers
careers, in a variety of technologies
important to the firm
 Rotate managers through various
functions, to broaden their experience
Competing through
quality
U.S. firms need to focus
on what is important to
customers
 Seek to align products and processes to
meet needs that are important to customers
 Long-term commitment to quality
 Strong attention to product design
 Involvement of all functions in product
design and quality improvement
Workforce participation
Real participation is more
than simply putting
employees into teams
 Develop a culture of trust between workers
in various departments and between
workers and management
 Routine, close contact between
management and workers
 Develop participation policies to ensure
that ‘We’re all in this together’
Rebuilding manufacturing Unique capabilities of
engineering
equipment can’t be copied
 Invest in proprietary equipment
 Bolster ability to perform sophisticated
maintenance, process upgrades and
continuous improvement of existing
equipment
Incremental improvement
approaches
 Continuous improvement in small
increments
 Continually adapt to changes in customer
needs
Win the race by creating a
constantly escalating
standard
Hayes and Wheelwright (1984) found that successful companies differ from less
successful ones in the emphasis they put on competitive priorities, thus creating their
own and unique strategic profile (Flynn et al., 1999). They argue that it is not desirable
to pursue each competitive priority with equal emphasis as “[i]t is difficult (if not
impossible), and potentially dangerous, for a company to try to compete by offering
superior performance along all of these dimensions simultaneously, since it will
probably end up second best on each dimension to some other company that devotes
more of its resources to developing that competitive advantage.” (Hayes and
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
63
Wheelwright, 1984, p. 41). Instead, companies should focus on specific dimensions to
develop their unique capabilities. This led to the idea of tradeoffs that has been widely
discussed in the literature (Friedli and Schuh, 2013) and can be traced back until
Skinner (1969).
The WCM perspective was also taken up by other authors having their own
descriptions of the concept focusing on manufacturing practices like TQM and JIT.
Schonberger (1986) listed 16 manufacturing principles that accounted for WCM, some
of which are in line with the principles of Hayes and Wheelwright (1984), cf. Flynn et
al. (1999). Giffi et al. (1990) summarize the attributes of various world class
organizations which are also in accordance with the work of Hayes and Wheelwright
(1984), cf. Flynn et al. (1999). Hall (1987) defined manufacturing excellence as a
system that comprises JIT production, employee participation, standardized tools and
machinery, supplier integration, and design-for-manufacturability (Friedli and Schuh,
2013). Hayes and Pisano (1994) conclude that excellent companies consider their
capabilities early on to set the right focus on practices that pave the road to a long-term
success. The focus on superior organizational capabilities that have to be developed
over time provide a sustainable competitive advantage to surpass competitors (Hayes
and Pisano, 1994).
3.2.1.7 Summary & Discussion 36
The above sections introduced and shortly summarized the relevant infrastructural
practices of a manufacturing site. Even though both Lean Production and World Class
Manufacturing (WCM) are considered standalone concepts, they rely to some extent
on TPM, TQM, JIT and HRM. Both Lean and WCM contributed to the evolution of
modern approaches of Operational Excellence (Friedli and Schuh, 2013).
Nevertheless, these OPEX activities constitute only one part of a set of continuous,
corporate improvement concepts and cannot be viewed as new methods; rather, they
rely on a broader set of already established manufacturing concepts (Gronauer, 2012).
Friedli et al. (2010b) argue that the success of an OPEX program depends on
leadership and behavior skills rather than on technical capabilities; this is in line with
Krafcik (1988) who sees only a minor influence of a plant’s technology level on its
operational performance.
Spear and Brown (1999) broadened the perspective on excellence in manufacturing by
bringing attention to the importance of management and cultural aspects as vital
constituents in a manufacturing environment. Therefore, the following sections will
36
Similarities of this section with the chapter “OPEX Defined” in Friedli and Bellm (2013c, pp. 21–24) do exist.
64
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
analyze the contributions of Organizational Culture (Section 3.2.2), Organizational
Learning (Section 3.2.3) and Change Management (Section 3.2.4) to the evolution of
Operational Excellence.
3.2.2 Organizational Culture
Culture, as conceptualized in Section 2.4.2, has been a vital constituent of Toyota’s
success on its way to Operational Excellence; it is seen as the enabler for the evolution
of people’s behavior to fix problems when they occur and to produce quality right the
first time 37 (Liker, 2004). If the culture of an organization is valuable, rare, and
imperfectly imitable it can be the source of a sustainable competitive advantage or
superior performance (Barney, 1986). Establishing such a culture is a management
task (Hofstede, 1994b).
The different types of organizational culture can be described along various
dimensions 38. Although organizational culture is usually defined by the shared beliefs
of the members of an organization and assumed to form a monolithic-like culture, in
most companies there is more than one common set of beliefs which determines the
behavior of employees (Nahavandi and Malekzadeh, 1988). Bleicher (2004) and
Seghezzi et al. (2013) term this phenomenon sub-cultures.
Organizational cultures are influenced by the nationality and demographics of
employees at all hierarchies, as well as by industry, market, organizational structure
and the company’s control system. Nevertheless, organizational practices, such as the
tools and approaches of OPEX, are learned through employees’ socialization at the
workplace, at a time when their values are already firmly in place (Hofstede et al.,
1990).
Organizational cultures are complex and inert. Therefore, changes 39 within an
organizational culture constitute a considerable challenge (Schein, 1992; Hofstede,
1994b; Seghezzi et al., 2013) that requires a long-term learning process of all
members 40 of the organization (Pümpin et al., 1985) and demands visible leadership
(Hofstede, 1994b). Behaviors which result from a strong organizational culture and
have evolved over years cannot be extorted by financial means or scientific methods
37
38
Liker (2004) describes the organizational culture of Toyota as a quality and efficiency-obsessed culture.
Hofstede (1994b) describes organizational cultures along six dimensions: (1) process-oriented vs. resultsoriented, (2) job-oriented vs. employee-oriented, (3) professional vs. parochial, (4) open system vs. closed
system, (5) tightly vs. loosely controlled, and (6) pragmatic vs. normative. Pümpin et al. (1985) describe
organizational culture according to the significance of its basic orientations regarding customers, employees,
results, performance, innovation, costs, organization, and technology.
39 See Section 3.2.4 for change management / organizational change.
40 See Section 3.2.3 for organizational learning.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
65
(Pümpin et al., 1985). Moreover, every single employee must be motivated to align his
or her mindset to the organization’s objectives. Since ‘people do quality’, cultural
changes require a quality-related development of behavior – employees need to be
trained and must constantly learn; beyond that, the organization as a whole must
engage in a continuous learning process (Seghezzi et al., 2013).
3.2.3 Organizational Learning
Organizational learning and the creation of new knowledge are prerequisites for the
improvement of processes (Choo et al., 2007). The complexity of processes and a
constantly changing environment increase the need for organizations to adapt and to
learn to strike new paths. Learning itself is considered as one of the highest forms of
adaption; its costs occur immediately but in the long run, learning has its merits
(Dodgson, 1993). In addition, learning facilitates high operational performance (Hayes
et al., 1988) and increases the probability of organizational survival (Dodgson, 1993).
Therefore, organizations should support their employees and provide an environment
that enables the creation of such knowledge (Nonaka and Takeuchi, 1995).
Organizational knowledge is stored in norms, rules, forms, and procedures (March,
1991), and the process of learning is seen as a key to organizational competitiveness
(Dodgson (1993) citing Garratt (1987)).
Organizational learning is a dynamic concept (Dodgson, 1993; Crossan et al., 1999)
that plays a central role in building organizational capabilities (Teece et al., 1997) and
competences (Prahalad and Hamel, 1990). The process of learning requires a balance
between exploration and exploitation 41 in order to sustain or create a new competitive
advantage (March, 1991; Levinthal and March, 1993). To achieve this end, a learning
organization “[…] is continually expanding its capacity to create its future […]”
(Senge, 1990, p. 14), “[…] facilitates the learning of all its members and continually
transforms itself.” (Pedler et al., 1989, p. 2).
The coordination and encouragement to learn is an organizational task; learning in
organizations occurs throughout all activities, including mistakes, and is based on the
individual employees of a company (Dodgson, 1993). The transformation towards a
learning organization is a milestone in an organization’s way to OPEX (Liker, 2004;
Wright, 2013). Pedler et al. (1989, pp. 3–4) describe the characteristics of the learning
organization as:
41
Levinthal and March (1993) describe the development of new knowledge as exploration and exploitation as
the utilization of available competencies.
66
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
 a climate which encourages its members to learn and to advance their skills and
potentials,
 extending its learning culture to also include significant stakeholders, like
customer, suppliers, etc.,
 its human resource development strategy constitutes a central aspect of the
organization’s business policy, and
 continually undergoing a process of organizational transformation.
Organizational learning is a reaction to uncertainties and changes in the environment
(Dodgson, 1993; Edmondson and Moingeon, 1998). Moreover, an organization’s
feasibility to learn is enhanced by costly potential errors, employees’ level of
professionalism, and a distinct leadership commitment to learning (Popper and
Lipshitz, 2000). Senge (1990) discusses the positive effects of systems thinking 42 and
the consideration of interrelationships on organizational learning. However, the
learning capability of an organization is substantially mitigated by departmentalization
(Levinthal and March, 1993) and hierarchical cultures which are often described as
barriers to learning and training (Wang and Ahmed, 2003).
Productive organizational learning is supported by an appropriate organizational
culture (see Section 3.2.2). Leadership commitment and sufficient resource allocation
enable continuous learning which in turn requires organizational values such as
transparency, issue orientation, valid information, and accountability (Popper and
Lipshitz, 1998, 2000).
42
As equally important cornerstones of organizational learning Senge (1990) suggests the ‘disciplines’ personal
mastery, mental models, building of a shared vision, and team learning.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
Individual
Intuiting
Individual
Organizational
Feed forward
Organizational
Interpreting
Feedback
Group
Group
67
Integrating
Institutionalizing
Figure 3.1: The dynamic process of organizational learning (Crossan et al., 1999)
The process of organizational learning can be visualized by Crossan et al.’s (1999) 4I
framework which describes the four learning processes intuiting, interpreting,
integrating, and institutionalizing (see Figure 3.1). The processes occur over three
levels, i.e. individual (intuiting & interpreting), group (interpreting & integrating), and
organization (integrating & institutionalizing) and thus define the structure of
organizational learning. In this framework, ideas are conceptualized as coming from,
and being shared by, employees (Crossan et al., 1999).
3.2.4 Change Management
Change management is an ever-present element of modern OPEX programs (Gronauer
et al., 2010; Friedli and Werani, 2013b; Seller and Davis, 2013; Starke and Kumor,
2013; Wright, 2013; Werani et al., 2013) and affects all organizations (By, 2005).
However, the vast majority of all change efforts fails (Burnes, 2009) due to
organizational resistance (Pardo del Val and Fuentes, 2003).
Organizational change pursues either the adaption to changes in the external
environment (Burnes, 1996; Kotter, 1996, p. 101), to cope with deficits in the system
(Kotter, 1995), or to improve organizational performance in general (Pardo del Val
and Fuentes, 2003).
Burnes (2009), citing Lewin (1952a; 1952b), describes the status quo of an individual
or a group in dependence of driving and restraining forces (see Figure 3.2). Change is
brought about if any force is attenuated or strengthened relative to others.
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OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
Driving forces
Restraining forces
Present state
or
desired state
Figure 3.2: The ‘quasi-stationary’ equilibrium 43 of change, adapted from Burnes (2009)
Resistance to change is equivalent to inertia, the maintenance of the status quo and the
persistence to avoid change in the first place. Yet, neither inertia nor resistance are
necessarily negative attitudes or behaviors “[…], since change is not inherently
beneficial for organizations.” (Pardo del Val and Fuentes, 2003, p. 149). Friedli et al.
(2010b) argue that inertia is often found in formerly successful organizations, where
managers missed the right time to initiate change. Resistance to change can thus occur
at the formulation stage due to distorted perception, interpretation barriers and vague
strategic priorities, low motivation, or a lack of creative response; during the
implementation stage, inertia is predominantly evoked by political and cultural
deadlocks (Pardo del Val and Fuentes, 2003).
Change can either be planned or emergent 44 (Burnes, 2009). Planned change is usually
driven top-down and thus best suited to a stable and predictable environment (Burnes,
1996). In unpredictable and fast-changing situations, the model of emergent change is
more appropriate (Burnes, 1996). The need for change in such cases is often
unpredictable, reactive and discontinuous (By, 2005). This sort of change occurs
locally and incrementally in order to adapt the organization to the threats and
opportunities of its environment (Burnes, 1996).
According to the literature, benefits from discontinuous change efforts do not last.
Therefore, organizations need to develop the capability to change continuously in
order to keep up with their volatile environment (By, 2005). Continuous change is also
rooted in the fundaments of the Japanese Kaizen philosophy, which pursues an “[…]
43
Lewin (1952a) describes this status as a quasi-stationary equilibrium since behavior and processes of groups
and individuals are in a constant flux and depend on changes in the forces which impinge on them (Burnes,
1996).
44 Pardo del Val and Fuentes (2003) use the terms “first and second order changes” instead. First order changes
are evolutionary and incremental; these are small changes that improve an organization’s current situation
without interrupting its general working framework. Second order changes are strategic and revolutionary; they
transform an organization and change its working framework fundamentally.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
69
ongoing improvement involving everyone – top management, managers, and workers.”
(Imai, 1986, p. xxix).
Burnes (2009) argues that the success of organizational change is promoted or
obstructed by the structure and culture of an organization, as well as its ability to learn,
managerial behavior and the distribution and dynamics of power and politics. In order
to change effectively, the change process must address these potential barriers well
(Kotter, 1996). Kotter (1996) suggests an eight-stage process 45 for major change
efforts and emphasizes the need to follow all these steps, since “[s]kipping steps
creates only the illusion of speed and never produces a satisfying result.” (Kotter,
1995, p. 59).
3.2.4.1 The General Management Navigator – a Guideline for Transformation
The following section introduces a tool that is borrowed from strategic management
literature and which will be utilized in Chapter 6 to structure an organization’s
individual transformation to OPEX.
Müller-Stewens and Lechner (2005) argue that every organization is continuously
interacting with its environment. This environment can be classified as (1) general
environment, according to a classification system as applied in Section 2.2, and as (2)
functional and competitive environment, comprising all relevant stakeholders like
suppliers, competitors, customers, governments, etc. The impact these environmental
factors have on any organizations will differ, and it is up to individual organizations to
judge the relevance of each factor. It is this rating of environmental factors that
distinguishes the perceived from the relevant environment of an organization. Thereby,
an organization’s scope of action is determined by its capabilities (see Figure 3.3a).
45
The stages as suggested by Kotter (1996) are: (1) establish a sense of urgency, (2) create the guiding coalition,
(3) developing a vision and strategy, (4) communicating the change vision, (5) empowering broad-based
action, (6) creating short-term wins, (7) consolidating gains and producing more change, and (8) anchoring
new approaches in the culture.
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OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
Perceived
environment
4
OPEX program
Organization/
manufacturing site
a
Relevant
environment
Perceived
environment
1
2
b
relevant
environment
3
Figure 3.3: Scope of action of an organization before and after launching OPEX
With the implementation of an OPEX initiative, i.e. the intent to improve
organizational capabilities, an organization’s scope of action needs to be further
adapted as it is illustrated in Figure 3.3a. Though an OPEX program can – but does not
have to – extend to every department or function of an organization (1), it can also
reach beyond organizational frontiers, e.g., during joint customer or supplier
improvement projects (2). Such tighter relationships, vertically along the value chain,
can thus also increase the perceived (3) and relevant (4) environment of the OPEX
implementing organization. Similarly, the relevant environment can be diminished due
to a newly set focus on organizational activities. The adapted scope of an
organization’s environment after launching an OPEX program is sketched in Figure
3.3b.
It is the management’s role to shape the organization’s scope of action. MüllerStewens and Lechner (2005) argue that this active and purposeful design process
comprises the two elements strategy work and change. Whereas strategy work
concerns the positioning of the organization or an organizational entity in relation to
its environment, change work deals with the implementation of strategies and the
adaption of organizational capabilities. The entire transformation process is based on
the analysis of the system’s current status (as-is) and its stepwise approach to the
organization’s vision (to-be).
In order to structure and guide this transformational process, Müller-Stewens and
Lechner (1999; 2005) provide a framework, the General Management Navigator
(GMN), which allows the integration of strategy work and change. The GMN may act
(1) as a compass to structure available knowledge, (2) as a toolbox and repository of
theories, (3) as a platform for communication, (4) as a heuristic as to develop new
ideas, (5) as a pattern for problem-solving, or finally (6) as a structured strategy and
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
71
change process. The generic framework supports all organizational levels and different
process types, and provides a structure that is independent of organizational size.
Quadrant 1
Project
Work
Development
Performance
Quadrant 2
Positioning
Work
Process
How?
Content
What?
Measuring
Dramaturgy
Work
Quadrant 4
Change
Value Creation
Work
Quadrant 3
Figure 3.4: The General Management Navigator (Müller-Stewens and Lechner, 2005)
The four fields of the GMN span along two axes (see Figure 3.4). The vertical axis
covers the interplay of development and change of strategic initiatives. The horizontal
axis is based on the differentiation of strategy content and process (see Section 3.1.1).
Thus, quadrants 1 and 2 of the GMN deal with the strategy work of the organization –
separated into its content (how?) and process (what?). Similarly, quadrants 3 and 4 are
aligned at the horizontal (how/what) axis but deal with the organizational change.
 Quadrant 1 – Project Work: The general set-up for the subsequent strategy
and change work is determined. Questions regarding participants of the
endeavor, timing, availability and provision of instruments and resources, the
procedure, and behavior guide the discussions in the first quadrant (MüllerStewens and Lechner, 1999).
 Quadrant 2 – Positioning Work: The second quadrant aims to decide how the
organization (or a respective organizational entity) should be positioned in
contrast to its environment. This process is grounded in an as-is analysis of
the organization and its context. The comparison of as-is with to-be leads to
the definition of current gaps and the formulation of strategies to improve the
organization’s situation (Müller-Stewens and Lechner, 1999).
 Quadrant 3 – Value Creation Work: During the third phase of the GMN, the
changes which are necessary within the organization in order to achieve the
set strategic objectives are determined (Müller-Stewens and Lechner, 1999).
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OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
 Quadrant 4 – Dramaturgy Work: After the definition of content in quadrant 3,
this phase concentrates on the process of implementing the changes within the
organization or entity. All of these changes need to be orchestrated to ensure
an internal consistency (Müller-Stewens and Lechner, 1999).
Though Müller-Stewens and Lechner (2005, p. 40) suggest several trajectories to
navigate through the GMN, launching an OPEX program from scratch is not
sufficiently covered within the given set-ups. Whereas Müller-Stewens and Lechner
(2005, p. 40) suggest to start with each strategic initiative in Quadrant 1, the launch
process of an OPEX program starts in Quadrant 2.
The program – as new to the organization – is initiated as a response to an
organization’s current positioning within its environment. Visions like “best supplier”
or objectives like “zero defects”, “inventory optimization”, or “increase of service
level” ignite the programs’ launches and act as first guidance. Thus, with regards to
setting up a new program serving as an umbrella initiative the positioning work as part
of the new program’s development has been accomplished already 46. After the
definition of the entity’s future positioning, the sequence passes through Quadrants 1,
3, and 4. Serving as a framework of initiatives within an already established OPEX
program the GMN does not require further adaptions.
3.2.5 Summary & Discussion
This section started with a review of the most common infrastructural practices which
can be used to adjust the manufacturing levers of a system 47 and which are applied in
contemporary concepts of Lean and World Class Manufacturing. The concepts of
organizational culture (3.2.2), organizational learning (3.2.3), and change management
(3.2.4) are to some extent already incorporated in programs like TPM, TQM, and JIT.
Nevertheless, for the purpose of this dissertation – conceptualizing an architecture to
successfully implement OPEX in emerging markets – the relevance of the aspect
“human being” and “employee/people” within the corporation instead of a pure
reliance on technical aspects was worked out in this section.
As shown, OPEX is influenced by a multitude of interrelated concepts which all come
with their own definition. This raises the justified question whether this convergent
validity of definitions makes any difference – does it really matter how OPEX is
defined (Pettersen, 2009)?
46
This procedure is similar to Friedli’s (2000) adaption of the GMN to fit the requirements of inter-company
cooperation. He changed the sequence of Quadrant 1 and 2.
47 See Section 3.1.3 for the discussion of manufacturing levers.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
73
Organizational science argues that concepts are the fundaments of science. Scientific
knowledge may only exist if propositions are organized systematically so that their
interrelations can be perceived. Ill-defined and imprecise concepts may lead to dead
ends and make it difficult to create cumulative knowledge. Well-defined concepts, on
the other hand, assist scientists in the continuous development of their field of research
as a true science (Osigweh, 1989). Thus, the need to clearly define the author’s
understanding of OPEX with the intent to improve organizational research and theory
building is evident.
OPEX is regarded as the balanced management of cost, quality and time, combined
with an indispensable focus on customer needs. Therefore, OPEX contains structural
and behavioral changes thought to provide an optimal support for all on-going
activities on a manufacturing site. OPEX is meant to provide and maintain an
organization with sustainability, also in fast-changing and volatile environments. To
achieve this end, OPEX has to be pushed by an organization’s top management and
engage every single employee across all hierarchies. Indisputably, OPEX is not only
about performance – rather, it encompasses the way which leads to such superior
organizational performance and the practices allowing an organization to engage into
continuous improvement (Friedli and Bellm, 2013c). In this dissertation, Operational
Excellence is understood as: 48
Operational Excellence constitutes the continuous pursuit of improvement
of a production plant in all dimensions. Improvement is measured by
balanced performance metrics comprising efficiency and effectiveness,
thus, providing a mutual basis for an improvement evaluation.
Based on this definition, it is apparent that OPEX is not limited to the manufacturing
function. In fact, it concerns all activities at a manufacturing site; this will be
acknowledged in the Chapters 5 and 6.
48
This definition was first given in Friedli and Bellm (2013c, p. 24).
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OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
3.3 Pharmaceutical Operational Excellence
3.3.1 Challenges in Pharmaceutical Manufacturing
3.3.1.1 Regulations inhibit Innovativeness
The pharmaceutical industry is a highly regulated industry whose rules, guidelines,
regulations and laws must be followed meticulously by manufacturers. This need for
regulation stems from an information asymmetry between the manufacturers on one
side, and the consumers on the other side. Both consumers and medical practitioners
are not able to assess the products’ safety, quality and effectiveness themselves, and
thus have to rely on regulatory bodies to do so (Brhlikova et al., 2007).
In the late 1960ies, the World Health Organization (WHO) prepared its first version of
Good Manufacturing Practices (GMP) (Närhi and Nordström, 2008). Specifically,
GMP “[…] is that part of quality assurance which ensures that products are
consistently produced and controlled to the quality standards appropriate to their
intended use and as required by the marketing authorization.” (WHO, 2007, p. 17).
The WHO’s GMP guidelines have been adapted by individual countries, e.g., US
FDA-GMPs, EU-GMP (Brhlikova et al., 2007) and regions, e.g., the areas of ASEAN
and Mercosur (Närhi and Nordström, 2008). GMPs have also been acknowledged in
the norms of the International Organization for Standards (ISO) and the International
Conference on Harmonization (ICH). The enforcement of GMP standards, however,
rests on individual national forces (Brhlikova et al., 2007). These standards govern the
entire lifecycle of drug production; moreover, several regulatory bodies from the West
are involved in the development of international guidelines (see Table 3.5). In this
dissertation, the focus lies on the manufacturing of drugs and the associated
challenges.
Table 3.5: Pharmaceutical adaption standards, adapted from Brhlikova (2007)
Drug lifecycle
Guidelines
WHO
ICH
EU
UK
US
x
x
x
x
x
x
x
x
x
Drug discovery
Good Laboratory Practice
Clinical trials
Good Clinical Practice
Manufacturing
Good Manufacturing Practice
x
x
x
x
x
Distribution
Good Distribution Practice
x
x
x
x
x
Post-marketing surveillance
Pharmacovigilance
x
x
x
x
x
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
75
Regulations impact on the pharmaceutical industry’s innovativeness and improvement.
Compared to other industries where processes are improved on a continuous basis, the
regulatory constraints within pharma inhibit innovation and freely conducted
improvement activities (Basu et al., 2013). Thus, “[…] many manufacturing
procedures are treated as being frozen and many process changes are managed through
regulatory submissions.” (FDA, 2004, p. 2). The fear of getting stuck in long and
costly regulatory approval procedures causes many pharmaceutical manufacturing
organizations to refrain from any changes throughout their processes’ lifecycles, and to
stick to inefficient operations and out-of-date processes (Basu et al., 2013).
3.3.1.2 GMP in Emerging Markets
The WHO’s Good Manuacturing Practices have also been implemented in emerging
markets’ regulatory systems. However, the standards in emerging markets are often
less strict than those enforced by US and European regulatory bodies, and so
enforcement mechanisms and sanctions across a drug’s production cycle vary. The
national differences in the jurisdiction and strength of regulatory codes reflect the
interests and power of the various stakeholders and regulating authorities (Brhlikova et
al., 2007).
The WHO suggest sanctions against manufacturers in emerging markets that fail to
comply with GMP; however, it is in the hand of individual governments to monitor
and enforce these guidelines (Brhlikova et al., 2007).
China, for instance, had enforced a policy requiring the country’s pharmaceutical
manufacturers to pass the GMP certificate by July 2004 at the latest. About 40% of
Chinese manufacturers failed to pass the certification within time, leading to a
significant reduction in the number of domestic pharmaceutical manufacturers. The
remaining companies’ competencies have since been lagging behind those of
multinational manufacturers (Chan and Daim, 2011). Discussing country-specific
GMP standards, Mrazek and Fidler (2004, p. 337) argue that with regard to some
emerging markets, and especially Russia, “[…] it is important to note that these
standards are less stringent than the GMP standards defined by WHO or those of the
European Union.“ Brhlikova et al. (2007) researched GMP in India and found that
some Indian companies try to acquire GMP certificates on the black markets; the
introduction of GMP caused a significant barrier to market entry and growth to
domestic manufacturing organizations. Achieving GMP compliance also poses a series
of challenges to African pharmaceutical manufacturers, as summarized in Table 3.6.
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OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
Table 3.6: Challenges for African manufacturers towards achieving universal GMP
standards, adapted from UNIDO (2012)
Technical expertise
 Access to know-how for
design-ing, upgrading to and
running GMP compliant
facilities
 Access to skilled human
resources
Financial considerations
Infrastructure requirements
 Access to export markets and
their current fragmented nature
 Reliable utilities (implications
for cost as well as compliance
with GMP)
 Competitive production given
cost structure
 Variability in quality amongst
market players
 Uncoordinated and/or vertical
approaches to developing the
sector
 Access to bioequivalence
centres
 Market context
 Lack of market data
 Policy incoherence
 Access to affordable investment capital
 Regulatory oversight
 Underdeveloped supporting
industries
Focussing on multinationals from emerging markets, Bartlett and Goshal (2000) argue
that multinationals usually enter the global marketplace at the lower end of an
industry’s value curve 49 and have difficulties in moving upwards. Depending on
companies’ position in the value chain 50, and respectively their position in the global
value curve, they have differing capabilities to manufacture their products compliant to
international standards (UNIDO, 2012).
3.3.1.3 Global Drug Quality
Despite (some) country-level efforts to monitor and enforce GMPs, drugs
manufactured by companies from emerging markets are known for their inconsistent
quality. Not only is the quality of products occasionally poor, but China and India are
also responsible for the vast majority of counterfeits that end up on the international
health market (Lewis, 2009). Problems of product quality and product counterfeiting
are not limited to these two countries – they affect all BRIC nations and a long list of
Latin American nations (Bate, 2008).
Bate (2010) analyzed 1,838 drug samples of various pharmaceutical manufactures
from advanced and emerging countries (see Table 3.7). He found a substantial
disparity in drug quality between large and small domestic Indian manufacturers. The
highest variability in product consistency was found in African producers, followed by
49
According to Bartlett and Goshal (2000), any certain industry consists of several product market segments.
They use the value curve as a tool to differentiate these segments along the dimensions ‘gross margin’ and
‘technological and marketing complexity’.
50 For a detailed description of the term ‘value chain’ see Porter (1985).
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
77
drugs made in China and Vietnam (Bate, 2010). Assessing quality risks at offshore
sites in emerging markets, Gray et al. (2011) found that also Western multinationals in
emerging markets face difficulties in achieving similar quality risk levels compared to
manufacturing in their home countries.
Table 3.7: Tested drug quality – emerging vs. advanced countries,
adapted from Bate (2010)
Total samples tested
Total samples failing
raman spectrometry 51
Percent failed
Large Indian producersa
471
6
1.3%
b
327
29
8.9%
169
13
7.7%
69
4
5.8%
438
1
0.2%
302
28
9.3%
62
7
11.3%
1,838
88
4.8%
Small Indian producers
Chinese producers
c
Southeast Asian producers
d
Western producers
African producers
e
Producers in mid-income nations
TOTAL
a. more than $300 million in annual revenue; b. less than $300 million in annual revenue; c. countries include
Thailand and Vietnam; d. countries include those within European Union, as well as Switzerland and United
States; e. countries include Brazil, Turkey and Russia
Bate (2010) argues product quality is least consistent in drugs that are made by small
pharmaceutical manufacturers for their domestic market and concludes that many
domestic pharma companies of emerging markets are not able to manufacture drugs
compliant with the standard of Western GMP. It is, however, important to note that
while product quality may be found to be poor by international standards, it is often
seen as relatively good in comparison with other local manufacturers and regarded as
sufficient within an emerging market context (Bloom et al., 2013).
Quality defects in pharmaceutical products put patient lives at risk. From an economic
perspective, quality defects entail a number of severe problems for an affected
organization, e.g., loss of revenue, remediation costs, legal charges and fines etc.
which can threaten business survival (Calnan, 2013).
51
See Bate (2010) for an explanation of Raman spectrometry.
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OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
3.3.2 Current Status of OPEX in Pharma
Today’s pharmaceutical environment is characterized by declining R&D productivity,
painful patent expirations, overcapacities, and an increasing competition and
complexity. These challenges pose a major constraint on pharmaceutical operations
and the design of OPEX initiatives (Friedli and Bellm, 2013b).
In order to cope with changing competitive conditions, almost all pharmaceutical
manufacturers have launched initiatives to improve their operational performance
(Werani et al., 2010). Whereas the industry’s first programs, mostly initiated at the
turn of the millennium, still tried to copy established approaches from other
industries 52 (Gronauer, 2012), the pharmaceutical industry quickly learned that
initiatives need to be adapted to company-specific requirements (Friedli and Bellm,
2013a). Thus, relying on proven concepts, the majority of pharmaceutical
manufacturers started their first steps towards OPEX by applying selected tools and
methods like Value Stream Mapping, Process Stability Studies or SMED 53 workshops
in order to reduce machine setup times (Gronauer, 2012; Chowdary and George,
2012), before they started to customize their own programs. As such, big researchdriven pharmaceutical organizations like, e.g., Abbott (Starke and Kumor, 2013),
Amgen (Wright, 2013), Merck Serono (Caloz and Wedemeyer, 2010), Novartis
(Dreamer, 2010; Dreamer and Niewiarowski, 2013), Novo Nordisk (Mejlvang, 2013),
Pfizer (Kickuth and Friedli, 2006a; Migliaccio et al., 2010; Seller and Davis, 2013),
and Roche (Griffith et al., 2010) started their initiatives – often with different
intentions 54 – and developed their OPEX initiatives continuously to fit the programs’
purposes with their organizational challenges and thus supporting other ongoing
corporate or on-site programs. Despite all efforts, in comparison to other industries,
pharmaceutical organizations are seen as rather slow in adopting the principles of
OPEX which might also be dramatically influenced by regulatory constraints (see
Section 3.3.1.1) (Friedli and Werani, 2013b).
Based on the work of Cua (2000) and Cua et al. (2001), Kickuth (2005) developed a
framework to assess the level of implementation of OPEX within the pharmaceutical
industry. The concert of the manufacturing programs TPM, TQM and JIT with their
52
Pfizer’s Right First Time (RFT) initiative has significant commonalities with General Electric’s approach to
Six Sigma and the program launched by Novartis (Innovation, Quality, Productivity (IQP) Program) was
closely related to TPS which was also manifested in Novartis’ vision as being the ‘Toyota of Pharma’
(Gronauer, 2012).
53 SMED is the acronym for Single Minute Exchange of Die.
54 Pfizer focused on the stability of its system by adopting a Six Sigma approach (Seller and Davis, 2013), Novo
Nordisk embarked on increasing capacity while maintaining quality and cost (Mejlvang, 2013), Amgen
pursued the imperative of cost reduction (Wright, 2013), Novartis aimed at introducing Pull Production and a
continuous product flow (Dreamer and Niewiarowski, 2013), etc.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
79
underlying practices builds the technical sub-system of the framework; HRM practices
are integrated as a second, self-contained social sub-system (see Table 3.3). In a
European-wide questionnaire-based survey, Kickuth (2005) collected data from 95
manufacturing sites and found a strong interrelation of TPM, TQM, and JIT. Kickuth’s
(2005) dissertation later set the stage for the St.Gallen Benchmarking on Operational
Excellence (see Chapter 4).
3.4 OPEX in Emerging Markets
Womack et al. (1990) suggested that their philosophy is applicable all around the
globe. Manufacturing organizations in emerging markets too have a need to improve
their operations, and some of them have already implemented the concepts and
constituents of OPEX at their manufacturing sites. Although academics have started to
document these achievements and published studies on emerging markets, e.g., Brazil
(Saurin and Ferreira, 2009), India (Singh et al., 2010; Ghosh, 2013), China (Taj,
2008), Mexico (Jun et al., 2006; Lawrence and Lewis, 1993) and Thailand
(Laohavichien et al., 2011), empirical studies dealing with OPEX at emerging market
manufacturers are rather scarce (Eid, 2009; Taj and Morosan, 2011; Bollbach, 2012).
The following sections are based on a literature review of (1) barriers to OPEX
programs in emerging markets and (2) the cultural influences on these initiatives
considered in Section 2.4. Prior to the discussion of the literature on emerging markets,
barriers to OPEX without a regional focus are introduced. This is because
manufacturing sites in emerging markets generally have to deal with similar
challenges compared to their counterparts in advanced nations; the prevailing
conditions of emerging markets, however, give rise to additional factors which
influence the manufacturing sites’ OPEX programs and complicate their
implementation (Mersha, 1997). As stated in Chapter 1, contingency theory argues that
organizational performance depends on a fit between an organization’s external
environment and its internal operations (Drazin and Van de Ven, 1985). Following
these premises, the barriers to OPEX are structured into external and internal barriers.
3.4.1 Barriers to an OPEX Implementation
Literature holds numerous examples of why OPEX initiatives have failed. ScherrerRathje et al. (2009) reason that a multi-faceted concept like OPEX requires
considerable effort along various dimensions at a time, making a successful
implementation a complex task. Bhasin (2012), for instance, analyzed the
implementation and obstacles of Lean initiatives in 68 manufacturing plants in the UK.
His findings reveal that managers of smaller companies see major barriers in the need
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OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
for (1) upfront high investments, (2) insufficient internal funding for Lean activities
and (3) implementation skills. In contrast, medium- and large-sized companies lack
skills at a senior management and shop floor level, as well as adequate attitudes among
employees (Bhasin, 2012). Achanga et al. (2006) evaluated critical determinants of a
successful implementation of Lean in small- and medium-sized companies in the UK.
They found leadership and management commitment as the most critical success
factor, followed by sufficient financial resources to support such an initiative.
Organizational culture and employee skills were also mentioned as critical and equally
influential in a successful transformation. Achanga and colleagues’ (2006) results were
later confirmed by Scherrer-Rathje et al. (2009), who found that a bottom-up
implementation of a Lean initiative provokes a series of challenges (referred to as a
lack of team autonomy and corporate communication of the organizational purpose of
Lean) and concluded that a top-down (senior) management commitment is a vital
source of Lean success. For Narasimhan et al. (2006), the environment of a plant too is
a challenge for implementing Lean. They argue that there is no right solution for all
systems. It is the challenge of Lean to compose the right mix of practices that best fit a
particular environment. In order to realize the full potential and benefits of Lean
Manufacturing, plants have to overcome “[…] factors such as changing economic
conditions, high levels of demand uncertainty, high-mix, low-volume product
portfolios, and rigid organizational structures […]” (Doolen and Hacker, 2005, p. 56)
limiting the applicability of Lean. With a focus on pharmaceutical manufacturing sites,
Friedli and Bellm (2013a) describe a set of barriers to OPEX programs. They
distinguish between the initiation and the maintenance of an OPEX initiative.
3.4.1.1 External Barriers
Seth and Tripathi (2005) argue that a successful implementation of the constituents of
OPEX, like TPM and TQM, requires a sufficient education of employees. Low literacy
levels of the workforce in India (Seth and Tripathi, 2005) or only basic educational
skill levels in Mexico (Lawrence and Lewis, 1993; Kenney and Florida, 1994; Mefford
and Bruun, 1998), Argentina, Uruguay (Bello-Pintado and Merino-Díaz-de-Cerio,
2013) and China (Brown and O’Rourke, 2007; Lee et al., 2011) complicate and
hamper the introduction of OPEX at those manufacturing sites.
The high involvement of governmental organizations in economic activities is a legacy
of emerging markets. Large state-controlled organizations and the governmental
influence on, e.g., hiring practices and labor regulations, constitute a barrier to a
smooth OPEX transformation (Mersha, 1997; Seth and Tripathi, 2005) and the
participation of employees in general (Brown and O’Rourke, 2007). Due to the
intervention of governments in emerging markets’ organizations, a mere commitment
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
81
to OPEX from the organizations’ top executives often might not be enough. Moreover,
protectionist policies in these countries sustain lax attitudes towards some of the core
aspects of OPEX, quality and productivity (Mersha, 1997).
OPEX programs underline, promote and are in the need of a long-term perspective on
organizational operations (Liker, 2004). Mersha (1997) argues that political instability
counteracts the long-term planning of executives. This results in a managerial focus on
short-term activities and quick-wins in favor of pursuing long-term objectives.
Bollbach (2012) names predictable product quality and predictable delivery as
determinants of supplier performance. A high supplier performance is a basic principle
for the realization of OPEX in general, and JIT in peculiar (Cua et al., 2001).
According to Philipsen and Littrell (2011), citing Meyer (2008), Chinese supply chains
tend to be very long and extensive subcontracting often leads to unforeseen (and
undesirable) results. Well-known product quality issues and lengthy supply chains
make Chinese manufacturers unreliable partners (Meyer, 2008; Lockström et al.,
2010). Bollbach (2012) concluded from case studies with a German, China-based
automotive company that local suppliers could not fulfill orders with regards to
required quality, flexibility, and JIT delivery. These could be some of the reasons why
Chinese companies rely to some extent on overseas deliveries (Comm and Mathaisel,
2005). With respect to Mexico, manufacturing companies face similar challenges –
with a lack in local qualified supplies, it is hard for them to meet the quality standards
and delivery times that international customers who operate with modern
manufacturing principles require (Lawrence and Lewis, 1996; Mefford and Bruun,
1998). Weak hard infrastructure 55 impedes the realization of JIT 56 (Lawrence and
Lewis, 1993; Kenney and Florida, 1994; Lawrence and Lewis, 1996). Besides,
Lawrence and Lewis (1996) argue that the critical order quantity from international
suppliers does rarely justify JIT deliveries. To conclude, supplier performance in
emerging markets constitutes an additional external barrier to the realization of OPEX
that local organizations have to cope with.
3.4.1.2 Internal Barriers
Due to the influence of Lean Manufacturing, OPEX has a philosophical perspective as
well as a practical perspective that for the most part relies on practices and tools. 57
55
56
For “hard infrastructure” see Section 2.2.3.
Infrastructural deficits were analyzed as having a noticeable influence on a manufacturing site’s operations.
Metters et al. (2010) argue that JIT strategies cannot be transferred easily from one country to another since
infrastructure and environmental conditions allow or prevent a functioning JIT strategy deployment.
57 See Section 3.2.1.5 for the two perspectives of Lean.
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Investigating Chinese mainland manufacturing companies, Chen and Meng (2010a;
2010b) concluded that Chinese managers’ mere focus on Lean tools, their incorrect
application (Aminpour and Woetzel, 2006), and their negligence of the managerial and
people aspects of the concept (Shang and Pheng, 2012), represents a considerable
barrier to the implementation of OPEX.
Chen and Meng (2010a; 2010b) also criticized that many of the manufacturers they
investigated lacked a clear link of the applied tools with the organization’s strategy.
Even worse, they found that executives and employees were not aware of the
company’s strategy, which often resulted in a random trial and error approach for
selecting new Lean tools without a holistic consideration of the entire process.
Emerging markets still rely on low labor cost as a competitive advantage. This
becomes evident in the quality approach of manufacturing companies in these markets.
Kenney and Florida (1994) found little evidence for quality practices known from
Japanese paradigms. Instead, they suggested that companies in Mexico tend to rely on
inspection rather than a built-in quality by workers from scratch. Similar attitudes have
been witnessed in a Chinese context; low labor costs allow extensive ex post quality
controls that inspect quality into the product. Instead of manufacturing quality
products in the first place, defective products are repaired or scrapped at a later stage
of the process (Aminpour and Woetzel, 2006; Philipsen and Littrell, 2011; Bloom et
al., 2013). Lee et al. (2011) found a lacking commitment to quality improvements
among Chinese managers. Consequently, poor quality practices constitute a significant
barrier to the implementation of OPEX.
Poor inventory management constitutes another barrier; needless work-in-progress and
the excessive storage of finished goods are forms of waste that ought to be avoided
(Ohno, 1988). Yet, literature holds examples of deficient inventory management
practices and outcomes in Mexico (Kenney and Florida, 1994; Mefford and Bruun,
1998), India (Kumar et al., 2006), and China (Martinsons and Tseng, 1995; Aminpour
and Woetzel, 2006; Bollbach, 2012). Additionally, high inventories in emerging
markets are occasionally a reaction of weak supplier performance, poor infrastructure
and inadequately maintained equipment (Martinsons and Tseng, 1995).
Chen and Meng (2010b) and Lee et al. (2011) argue that executives in some Chinese
manufacturing sites are faced with resource constraints that prevent them from finding
either the time or money to support on-going OPEX activities. Brown and O’Rourke
(2007) mention that the introduction of Lean Manufacturing in a Chinese site also
required safety and health training for all employees for compliance reasons.
Financing such training confronted the manufacturer with serious problems.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
83
Manufacturing sites in emerging markets often have to rely on poorly educated
workforce that needs substantial vocational training. Seth and Tripathi (2005) argue
that training in India is still seen as luxury and managers consider training expenses as
an annoying symbol of modernity. Scarce and insufficient employee training has also
been documented for Mexico (Kenney and Florida, 1994; Mefford and Bruun, 1998),
Argentina, Uruguay (Bello-Pintado and Merino-Díaz-de-Cerio, 2013), Sub-Sahara
Africa (Mersha, 1997), and China (Lee et al., 2011; Bollbach, 2012).
Several authors have pointed to only a very basic and rudimentary understanding of
the constituents and the philosophy of OPEX while conducting their case studies in
emerging markets (Mefford and Bruun, 1998; Mersha, 1997; Kumar et al., 2006;
Abdullah et al., 2009; Chen and Meng, 2010b). Yang and Yu (2010) found that some
managers considered Lean as a particular technology that is only applicable in specific
industries or just realizable by spending high amounts of money.
Especially in the case of China, a significant emphasis on short-term achievements and
a lack of following a long-term strategy was found (Chen and Meng, 2010a, 2010b;
Philipsen and Littrell, 2011; Lee et al., 2011; Bollbach, 2012). The principles of OPEX
are based on long-term efforts to reach their pay-off (Liker, 2004), which Chinese
manufacturing sites are not accustomed to (Aminpour and Woetzel, 2006). This
impatience is seen as a barrier to the implementation of OPEX.
Whether it is an emerging or advanced market, management is often seen as a
hindrance to an OPEX transformation of a manufacturing site. However, several
authors describe managerial behaviors in emerging markets for which their colleagues
in advanced economies are not known for and which clearly prevent the emergence of
continuous improvement efforts. Seth and Tripathi (2005) found that some Indian
managers occupy themselves more with their appearance as ‘grand strategists’ than
acting according to the requirements of their function. Further, they claim that Indian
companies epitomize bureaucracy and top-down management approaches; their
managers’ status consciousness and hierarchical behavior poses a bottleneck to any
improvement initiative. Lamba (2013) citing Chandra and Sastry (1998) adds that
Indian executives consider manufacturing as a support function and seldom focus on
shop floor activities. Thus, Kumar et al. (2006) consider the persuasion of executives
for these programs an arduous task. Brown and O’Rourke (2007) argue that the
command and control management approach in Chinese manufacturing sites thwarts
the involvement and ceding of responsibility to people on the shop floor. Moreover,
they reported supervisors and department managers who stolidly followed their
production targets at the expense of required employee training or safety measures.
This is in line with Shang and Pheng (2012) who observed a lack of soft skills among
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Chinese managers, and Lee et al. (2011) who questioned Chinese management’s
intention and ability to implement continuous improvement programs. Status
differences and hierarchy between workers and managers as well as managerial
resistance to employee participation are also reported to be intense in Mexican
companies (Lawrence and Lewis, 1993; Kenney and Florida, 1994; Mefford and
Bruun, 1998).
Mefford and Bruun (1998) see the attitudes of workers in emerging markets as a
significant barrier to OPEX. Kenney and Florida (1994) complain about high rates of
absenteeism among the Mexican workforce which impede the realization of stable
operations. Lawrence and Lewis (1996) and Mefford and Bruun (1998) argue that the
hierarchical Mexican culture poses an obstacle to employee participation. Low
involvement of employees was also found in the case of Argentina and Uruguay
(Bello-Pintado and Merino-Díaz-de-Cerio, 2013). Employee resistance to OPEX
practices is reported from Chinese (Yang and Yu, 2010) and Indian (Kumar et al.,
2006) case studies alike. Seth and Tripathi (2005, p. 269) argue that Indian workers’
perception of training “[…] as the next best thing to a paid vacation [...]” leads to a
certain reluctance of Indian executives to train their employees. Lamba (2013) holds
the Indian company hopping mentality responsible for the struggle of achieving a
world class manufacturing status. For Philipsen and Littrell (2011), the averseness of
Chinese employees to feel personally responsible for success and their low
empowerment for autonomous work styles is another facet of an OPEX-preventing
work attitude.
Brown and O’Rourke (2007) see the high rate of employee turnover as one of the
biggest challenges for Chinese manufacturing sites. They argued that the constant
influx of new employees makes substantial resources necessary to train workers and to
make them acquainted with the employer’s culture. Lee et al. (2011) and Lamba
(2013) argue that companies in emerging markets face the problem that well-trained
people are a scarcity in these booming economies and companies have difficulties in
retaining their talents. Mefford and Bruun (1998) and Kenney and Florida (1994)
argue that high employee turnover hampers the introduction of continuous
improvement activities in Mexico.
3.4.1.3 Summary and Discussion
The above describes barriers to the implementation of OPEX in emerging markets and
thus contributes to the relativization of the mixed findings of successful programs in
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
85
emerging markets in the literature 58. Eid (2009, p. 992) concludes that “[…]
companies need to understand how to identify the critical factors that affect the
implementation process and address them effectively to ensure that the promised
benefits can be realised and failures can be avoided.”
Table 3.8 summarizes external (Section 3.4.1.1) and internal (Section 3.4.1.2) barriers.
58
In the early years of the emergence of OPEX practices, Ebrahimpour and Schonberger (1984) argued that the
simplicity of the JIT philosophy makes it attractive to implement in emerging countries. Later, Ghosh (2013)
analyzed the implementation of Lean in 79 Indian plants and reasoned that many of these plants have reached
an already advanced level of Lean implementation leading them to superior operational performance. This
conflicts with the predominant opinion. Singh et al. (2010) argue implementing Lean is not a simple task and
that the Indian industry struggles with the implementation of Lean Production and the philosophy. With a
glimpse to China, these manufacturing sites also seem to lag behind. Taj (2008) analyzed 65 manufacturing
plants and concludes that there is a significant gap between actual and targeted levels of Operational
Excellence.
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OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
Yang & Yu (2010)
Chen & Meng (2010a)
Chen & Meng (2010b)
Lee et al. (2011)
Philipsen & Littrel (2011)
Bollback (2012)
Shang & Pheng (2012)
Seth & Tripathi (2012)
Kumar et al. (2012)
Bello-P.& Merino-D. (2013)
Lawrence & Lewis (1993)
Kenny & Florida (1994)
Lawrence & Lewis (1996)
Mefford & Bruun (1998)
C
N 59
C
N
C
N
C
N
C
N
C
N
C
N
C
N
I
N
I
N
A
R
M
X
M
X
M
X
M S
X SA
Mersha (1997)
Brown & O’Rourke (2007)
Table 3.8: External and internal barriers to OPEX in emerging markets
External barriers
Poor education of
employees
Government
involvement
x
x
x
x
x
x
x
x
x
x
Political instability
Weak supplier
performance
x
x
x
x
x
Internal barriers
A mere focus on Lean
tools
Missing link to business
strategy
x
x
x
x
x
Poor quality practices
x
Poor inventory
management
Lack of resources
x
x
x
x
Working attitude
x
Staff turnover rate
x
x
x
x
Short-term thinking
Management behavior
x
x
x
x
x
Lacking understanding
of Lean
x
x
Poor employee training
59
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
CN: China; IN: India; AR: Argentina; MX: Mexico; SSA: Sub-Saharan Africa.
x
x
x
x
x
x
x
x
x
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
87
3.4.2 Cultural Influences on the Implementation of OPEX
Hofstede (1993) pointed out that national cultures are highly resistant to change.
Building on Hofstede’s (1993) conclusion, Flynn and Saladin (2006) argue that
although manufacturing practices might be changed comparatively easily, the
fundamental values that underlie these practices are hard to change and thus impede a
fast and sustainable success. Therefore, it seems that some organizations tend to
quickly abandon learned improvement practices if times get rough, and return to their
usual, more “natural-feeling” mode of operation. Cagliano et al. (2011) add that
cultural influences outweigh factors like economic development when it comes to
impeding or favoring the adoption of such improvement activities.
The following sections are structured along Hofstede’s (1980) four cultural dimensions
(see Section 2.4.3) and address the empirical findings on the effect of national culture
on practices and their implementation in OPEX initiatives.
3.4.2.1 Power Distance
Given that emerging markets are seen as maintaining high power distance (Table
2.10), Cagliano et al. (2011) found that empowerment of employees, as a vital
constituent of TQM (Section 3.2.1.2), works less well in such cultures. In order to
increase operational performance in high power societies, Eylon and Au (1999)
suggest creating disempowered conditions with structured tasks, limited information
and only a few but explicit responsibilities.
Since power needs less legitimization in cultures with high power distance (Pagell et
al., 2005), it is seen as an enabler for larger spans of control and management of larger
numbers people than it is in cultures with a rather balanced distribution of power
(Cagliano et al., 2011).
Lawrence and Lewis (1993) found that hierarchical cultures that promote
responsibility and authority, such as the Mexican culture, pose several obstacles to
achieving sufficient employee participation. Thus, they argue that typical workers are
unlikely to consider continuous improvement and problem-solving as part of their
daily work. Furthermore, Newman and Nollen (1996) and Philipsen and Littrell (2011)
found that companies in, e.g., Eastern Asian cultures have to deal with less employee
participation in decision-making – which, for instance, is seen as an element of an
autonomous maintenance program (see Section 3.2.1.1). Cagliano et al (2011) see this
lack of participation as a major obstacle to teamwork and add that organizations in
high power distance societies often value coercive and referent power over the
balanced power structures of teams.
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Vecchi and Brennan (2011) found that low power distance countries, like Japan or
most of the Western European and North American countries, tend to invest more in
external quality costs and preventive maintenance, while investments made in high
power distance countries like China, Brazil and Venezuela predominately result in ex
post corrective maintenance and inspection costs. This, however, can be regarded as an
indicator of old-fashioned quality approaches (see Section 3.2.1.2) to withstand longer
in high power distant cultures and is also in line with Section 3.4.1.2 that found poor
quality practices in China and Mexico to be a hindrance to an implementation of
OPEX.
Kull and Wacker (2010) argue that quality management, as long as it is implemented
in high power distance countries, will have similar effects on product quality as in low
power distance countries. Furthermore, Vecchi and Brennan’s (2011) analysis claims
that organizations in high power distance countries consider product quality and
reliability as desirable improvement goals. Despite this ascribed importance of quality,
such cultures more often rely on inspection-driven quality management practices
(Vecchi and Brennan, 2011) which contradict modern quality approaches that promote
built-in quality (see Section 3.2.1.2) and are considered as enabler for a functioning
JIT manufacturing system (see Section 3.2.1.3). In addition, high power distant
cultures disclose a greater proportion of quality-related costs with costs for inspections
in opposition to cultures that are low in power distance and regard the deliberate
selection of suppliers as crucial (Vecchi and Brennan, 2011).
3.4.2.2 Individualism vs. Collectivism
The implementation of quality practices has a positive effect on organizational
competitiveness regardless of company size or a nation’s economic development (Kull
and Wacker, 2010). Nevertheless, several authors argue that investments in quality
practices and team-based improvement programs 60 are more likely to better
operational performance in collectivist cultures like Mexico, China, South Korea and
Taiwan compared to individualistic 61 cultures (Galperin and Lituchy, 1999; Power et
al., 2010; Wiengarten et al., 2011; Netland et al., 2013). This is because such
programs require the individual to partly postpone personal goals for engaging in
organizational improvement activities which are amenable for teamwork (Cagliano et
al., 2011), an approach that rather suits collectivist cultures (Wiengarten et al., 2011).
60
Power et al. (2010) analyzed the impact of manufacturing programs like cellular manufacturing, just-in-time,
manufacturing throughput time reduction, setup time reduction, TQM, and statistical process control on (1)
quality performance, (2) delivery performance, (3) flexibility performance, and (4) cost performance.
61 See Table 2.10.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
89
According to Luo (2007), people from collectivist cultures prefer narrow and focused
training and are less likely enthusiastic about broad learning concepts like continuous
learning. Earley (1994) suggests fostering group-based learning in collectivist cultures.
In combination with their own findings, Cagliano et al. (2011) assume that formal
training is typically more disseminated in collectivist cultures.
Finally, it is the individualistic cultures that are more concerned with allocating
resources to preventive maintenance programs (Vecchi and Brennan, 2011).
3.4.2.3 Masculinity vs. Femininity
People in masculine cultures are more apt to focus on their personal success than
minding job practices and their social relationships, which is seen as a hindrance to
teamwork. Moreover, feminine cultures, valuing the quality of life and work, are
believed to be the better recipients of manufacturing practices known for high job
rotation and autonomy (Cagliano et al., 2011).
Though Wiengarten et al. (2011) found that masculinity has no moderating effect on
investments in site and equipment practices on operational performance, low
masculinity positively influences investment in quality practices and their effect on
operational performance. Besides, with a focus on quality programs, organizations in
feminine countries show a tendency to rely more extensively on knowledge from
external information (Vecchi and Brennan, 2011).
3.4.2.4 Uncertainty Avoidance
In their study of cultural influences on the effectiveness of quality management
practices, Kull and Wacker (2010) found that high uncertainty avoidance has a
positive influence on quality practices. They argue that people who feel threatened by
unpredictability are more amenable for programs like Six Sigma and ISO 9000, which
rest on standardization, process controls, and systematic approaches (see Section
3.2.1.2). In contrast, organizations in low uncertainty avoidance countries are less
concerned about deviations from set processes (Kull and Wacker, 2010; Metters et al.,
2010). This might be a reason for China and India’s poor quality performance. Despite
the implementation of manufacturing improvement programs in some companies,
enforced by management, desired results do not show since people might be less
motivated to follow strict guidelines and protocols.
Excursus 3.3: The operators of a Western European (high uncertainty avoidance country)
pharmaceutical manufacturer have changed the sequence of workflow against licensing of FDA.
Based on their experience, the change made perfect sense and improved the manufacturing process
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efficiency. They were aware of violating FDA licensing but were not concerned about it. The
management, however, was.
How will operators in a country with a low level of uncertainty avoidance that is not as formally
structured as the country described behave? (See, e.g., Excursus 3.4)
Wiengarten et al. (2011) argue that employees in low uncertainty avoidance cultures
feel comfortable with ambiguity and the lack of structure. Such behavior could easily
lead to confusion on the shop floor when employees decide for themselves how
specific work is to be done and do similar and repetitive work in numerous different
ways. The investment in quality practices thus introduces structure and standardization
to these organizations. Not surprisingly, Wiengarten et al. (2011) found that this sort
of investment has a positive effect on operational performance in low uncertainty
countries.
In their study on the relationship of TPM and TQM in India, Seth and Tripathi (2005)
asserted that Indian organizations are not data savvy. Since they usually rely on past
experience, it is difficult to obtain maintenance data from manufacturing companies.
This is in line with Vecchi and Brennan’s (2011) finding that countries with low levels
of uncertainty avoidance like India tend to allocate their resources to corrective
maintenance work.
It is more natural for organizations from countries with low levels of uncertainty
avoidance to treat their customers unequally and to put more emphasis on their most
important customers (Lagrosen, 2003). Furthermore, Cagliano et al (2011) found that
low uncertainty avoidance negatively affects empowerment and promotes job rotation;
on the other hand, people in high uncertainty avoidance countries prefer to know what
they are expected to do and therefore try to maintain stable tasks and relationships with
colleagues and refrain from multiskilling, delegation and autonomy (see Section
3.2.1.4). Lagrosen (2003) adds that people from low uncertainty avoidance cultures are
more amenable for flexible and frequent changes of business processes and structures.
3.4.3 Failure Culture
Töpfer (2007) argues that failure depends upon its definition. He suggests the
framework illustrated in Figure 3.5 and distinguishes internal from external influences
on the definition and occurrence of failure.
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
91
Failure is always …
… a question of defined
quality standards
Strategy
… a question of customer
requirement
… a question of
performance and value
creation
Process
Market
research
Figure 3.5: The definition of failure, adapted from Töpfer (2007)
Internal failure occurs if quality standards deviate from their original definition as set
out in an organization’s strategy. External failures arise due to a misalignment of
product characteristics and critical customer requirements. Both scenarios result in
unintended deviations and hence a failure in the value-added process that may raise
costs for ex post defect corrections or initiated preventions, unsatisfied customers, and
substantial destruction of value due to revenue loss (Töpfer, 2007).
The framework in Figure 3.5 seems to follow a ‘universal approach’ (see Section
2.4.1) without responding to cultural differences and challenges.
Section 3.4.2 discussed cultural influences on practices and behaviors that are part of
an OPEX philosophy. Several of the found cultural characteristics are considered as
enablers for the introduction of OPEX. Surprisingly, despite these positive findings in
emerging market cultures, the markets are still very well-known for poor product and
quality practices (see Sections 2.3.3 and 3.3.1.3). This suggests that even if the values
defined by cultural studies are regarded as consistent with OPEX values, the
implementation of such practices in emerging markets may be more difficult than
initially anticipated (Philipsen and Littrell, 2011).
Price-based competition in many emerging market industries results in diminutive
profit margins and raises the incentive for opportunistic behavior; it ends, however,
most commonly in cost-cutting that is sometimes even achieved through diminishing
agreed quality levels (Enderwick, 2009).
In the case of China, Philipsen and Littrell (2011) argue that organizations
occasionally do not stick to contractual agreements on product specifications.
Moreover, Chinese managers tend to have a high tolerance for breaking rules, as long
as they can save their face. This deliberate, incremental product degradation against
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agreed quality standards is termed ‘quality fade’ 62 and appears to be deeply rooted in
Chinese culture (Midler, 2009). Though China has many great leaders who are
considered to be morally unblemished, some leaders are very competent but morally
dubious. If difficult tasks are at hand, it is performance, not morality, which
determines the good leader 63. As such, occasional guile and underhandedness is
accepted among Chinese managers, which allow a leader to “[…] sometimes display a
certain level of moral “flexibility” or expediency coupled with high performance
orientation.” (Philipsen and Littrell, 2011, p. 28). The normal moral constraints which
are expected in advanced markets do not appear as present in emerging markets like
China (Enderwick, 2009). Lacking quality awareness, intended or unintended, might
deter Chinese workers from classifying minor quality parts as defective in contrast to a
Western mindset. Though Chinese manufacturers might report a low internal defect
rate, the parts classified as free and ready to process cause quality issues downstream
(Bollbach, 2012). However, such problems are not restricted solely to China. They
also commonly appear in other emerging markets which suffer vast institutional voids
(Enderwick, 2009).
Lamba (2013) argues that the integrity of management and managers’ failure culture
poses a challenge to Indian companies. He assumes that recent quality issues of Indian
pharmaceutical companies represent an unfortunate result of this behavior 64.
Excursus 3.4: A retired senior manufacturing manager of an Indian pharmaceutical company
reported on a company’s handling of contaminated and non-compliant batches. Instead of scrapping
the batches and depreciating the costs, the company incrementally fed the material into newly
manufactured batches.
62
Midler (2009) describes cases where Chinese companies quietly reduced the amount or quality of input
materials. Such changes are gradual and almost imperceptible to customers. The quality fade is a calculated
risk and an economic decision of Chinese manufacturers that is possible due to the existence of industrial voids
(see Section 2.2.3). Normally, factory owners have a ‘Plan B’, i.e. if the customer notices the quality
manipulation, agents would help to move the product to some other growing markets.
Due to the characteristics as seller markets, this seems to be a minor problem (see Table 2.8).
63 Philipsen and Littrell (2011) refer to the ‘thick face, black heart’ theory to explain Chinese business morality.
Although this theory was first published in 1911, it still is valid in modern Chinese society (Low, 1997). In
particular, the theory suggests six steps towards the achievement of an official appointment as a government
bureaucrat, an eminently respectable position in Chinese society: (1) emptiness, (2) boring in, (3) self-praise,
(4) flattery, (5) threats, and (6) bribery. Low (1997, pp. 222–223) continues and lists six steps to maintain the
position: (1) emptiness, (2) be obsequious, (3) be imperious, (4) be ruthless, (5) be deaf and blind, and (6)
harvest.
64 In May 2013, Indian generic drug-maker Ranbaxy Laboratories pleaded guilty to several federal criminal
counts. The drug-maker was accused with selling adulterated drugs and the intent to defraud since the company
failed to report the non-compliance of its drugs with specifications, and additionally making intentionally false
statements to the government (Eban, 2013). The case was brought to court when an employee discovered the
firm’s non-compliant practices (The Economist, 2013).
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
93
The autocratic Indian culture that values the solidarity of the in-group (i.e. the
company) might lead to non-admittance of personal failure that deteriorates such
group solidarity rather than the open communication of failure and bearing the
consequences (Lamba, 2013).
Excursus 3.5: The Indian manufacturing manager continues and explains widely-spread behavior of
Indian production managers and CEOs on benchmarking practices. These results could be used to
determine the status quo of own capabilities in comparison to other competitors. Since most
pharmaceutical companies are family-owned businesses with CEOs not being part of the family but
being appointed, most CEOs will praise a company’s capabilities to the skies regardless of the
organization’s true performance. A benchmarking which indicates room for improvement would thus
expose the lies of the CEO, since room for improvement is not the best – and contrary to other
cultures’ benchmarking attitude on indicators for improvement, too many Indian CEOs consider the
glass still as half empty rather than half full.
In a collectivist culture lying is a more acceptable behavior than it is in individualist
cultures, especially if it safes face or maintains in-group solidarity (Triandis and Suh,
2002, p. 144). Moreover, highly assertive cultures such as the Indian and Chinese are
characterized by people trying to avoid taking responsibility for their actions
(Philipsen and Littrell, 2011); it is individual errors rather than systemic failures that
are sought to be corrected (Kull and Wacker, 2010).
Excursus 3.6: The global OPEX coordinator of a German automotive supplier stated on the culture of
the company’s Mexican offshore site that the Mexican production manager and his team continuously
reported of being in total control of the site’s manufacturing procedures. At the end of the reporting
season, the headquarter found significant deviations from agreed targets. In the following reporting
season, the headquarter started to tightly control the Mexican manufacturing site. As a result, the
Mexican team started to blame its local suppliers for delivery delays or quality issues the site was
made responsible for. The team was never short on excuses. Another reporting season later, the
headquarter sent an OPEX team to Mexico to detect the root of the problems, which turned out to be
the site workers’ attitude.
In the case of Africa, Blunt and Jones (1997) found that societies tend to have a great
capacity for tolerance and forgiveness. They argue that such tolerance, the acceptance
of human weaknesses, works against Western work attitudes. This, however, could
also be an indicator for a more tolerated handling and acceptance of manufacturing
defects and inconsistent product quality.
The discussion reveals that the prevalence of a misunderstanding of advanced quality
practices and of lacking quality commitment among managers and workers (Zhao et
al., 1995) prevents the delivery of quality products despite financial investment in
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OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
these programs (Kull and Wacker, 2010). Thus, the originally suggested framework by
Töpfer (2007) (see Fig. 3.3) has been adapted to an emerging market context in order
to accommodate the cultural findings of this section (see Figure 3.6).
Failure is always …
… a question of morality and
business ethics
… a question of defined
quality standards
Strategy
… a question of customer
requirement
… a question of
performance and value
creation
Process
Market
research
Figure 3.6: The definition of failure in emerging markets, adapted from Töpfer (2007)
This extended framework considers morality and business ethics of managers and
workers as an equally important condition for the definition of failure, in addition to
compliance with defined quality standards and correctly evaluated and integrated
customer requirements. Morality and business ethics also influence the process of
value creation and the acceptance of its outputs, i.e. it is the management and workers
who classify the output as either defective or free to use. Products or product parts may
deviate from strategically set quality standards and thus ought to be classified as
defective – yet they may be declared as flawless/faultless, in a breach of contractual
agreements.
3.5 Summary & Discussion
This chapter discussed the constituents of Operational Excellence (Sections 3.1 and
3.2), the pharmaceutical perspective (Section 3.3) and the prevailing situation of
OPEX in emerging markets (Section 3.4).
Corporate strategy sets the direction for an organization and defines its manufacturing
and operations strategy. Slack and Lewis (2011) argue that many are not aware of their
organization’s operations strategy and if asked, indicate to use modern manufacturing
OPERATIONAL EXCELLENCE IN PHARMACEUTICALS
95
principles as substitutes; some do not even know what an operations strategy is.
However, the manufacturing principles introduced in Section 3.2 are not strategies in
themselves, but represent strategic decisions and thus are – at most – a part of an
organization’s operations strategy (Slack and Lewis, 2011).
It is the author’s understanding that the determinants of OPEX, i.e. manufacturing
strategy, output, and manufacturing levers, define the general conditions of what an
organization does and what it is supposed to accomplish. This, however, is strongly
influenced by external contextual factors. Recalling the contingency theory (Drazin
and Van de Ven, 1985; Donaldson, 2001) as an anchor of this research process,
aligning organizational strategy with the organization’s environment strives for an
external fit. The elements of OPEX support and facilitate the fulfillment of the defined
strategic requirements generating the internal fit. Therefore, an organization relies on
its own resources and applies its capabilities to align its operations according to its
strategic guidelines – this is in line with the postulate of Wernerfelt (1984) to
concentrate on and utilize the company’s own resources. Internal (Section 3.4.1.2) and
external (Section 3.4.1.1) barriers to the implementation of OPEX hamper the pursuit
of fit.
Mixed findings exist on the influence of cultural dimensions on OPEX. In fact,
similarities between OPEX practices and cultural preferences and behaviors of
emerging markets exist and can to some extent explain successful implementations
(Netland et al., 2013). However, as many sub-cultures can exist within a culture, it is
insufficient to solely rely on “culture” to explain how individuals react to the
implementation of OPEX (Philipsen and Littrell, 2011).
The following chapter will build on the current and previous chapters and use six case
studies and the results of two workshops to examine the challenges, barriers and
shortcomings in the implementation of OPEX in an emerging market environment.
This will set the stage for the requirements of the Architecture in Chapter 5, and the
discussion of the Architecture in Chapter 6.
96
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
4 Understanding the Reality: Studies in the Field
“Give me the fruitful error any time, full of seeds,
bursting with its own corrections.
You can keep your sterile truth for yourself.”
Vilfredo Pareto
While Chapters 2 and 3 reviewed the literature on emerging markets and OPEX more
generally, this chapter aims at merging both theoretical and practical streams. Section
4.1 analyzes a broad data set of pharmaceutical manufacturing sites from different
regions and compares regional clusters. Section 4.2 discusses case studies that were
conducted in six manufacturing sites in Sub-Saharan Africa and is rounded up by two
extensive roundtable discussions with African pharma experts. Section 4.3 conducts a
cross-case analysis and summarizes findings, extending the current theory and
providing the stage for the next chapters.
4.1 OPEX Benchmarking
Quantitative data were collected in the research project “Operational Excellence in the
Pharmaceutical Industry”. This project is an on-going benchmarking project at the
Institute of Technology Management of the University of St.Gallen and was started in
2003. Its focus lies on the implementation of manufacturing practices which are
summarized under the umbrella of Operational Excellence, as well as on a set of key
performance indicators (KPIs) in order to determine the manufacturing performance of
a pharmaceutical production site. The database comprises 267 datasets from a
multitude of globally dispersed pharmaceutical manufacturing sites from more than
110 pharmaceutical organizations.
The basis of the research project is an Excel-based questionnaire. This questionnaire
was already used 65 in the dissertation of Kickuth (2005) to assess the status quo of the
pharmaceutical industry with regard to OPEX. Answers in the questionnaire are either
given as directly measurable information (e.g., KPIs) or by indicating agreement with
65
See Kickuth (2005) for a detailed description of the development process of the questionnaire and its
underlying model.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
97
a statement on a 5-point 66 Likert scale. The latter is, for instance, used to assess the
implementation of OPEX practices.
4.1.1 Building the Data Samples
Out of the 267 data sets available in total, only those were included which provided
sufficient data, resulting in a final sample of 254 data sets. The sample was then split
into (1) data sets from advanced and (2) emerging countries (see Table 2.3).
The sample of (1) advanced countries comprises 217 data sets. Based on a set of
KPIs 67 associated to one of the programs TPM, TQM or JIT, a performance score was
calculated for each data set. On the one hand, the score takes into account the
effectiveness of a site, such as a low percentage of unplanned maintenance (TPM),
high yield (TQM), or high turns of work in progress (JIT). On the other hand, the score
includes KPIs reflecting the efficiency of a manufacturing site by applying KPIs like
maintenance cost per direct employee (TPM), quality cost per batch (TQM), or
changeover time and material management (JIT). This procedure ensures that a
manufacturing site is only regarded as a high performing site if it uses its resources
efficiently. A manufacturing site whose management blindly pursues high
effectiveness without a balanced consumption of its funds will thus not be considered
a high performer in the following. The high performers of this sample are the 10 best
performing manufacturing sites, making up about 5% of all data sets. The geographic
distribution of the “advanced” and “top-10” sample is illustrated in Figure 4.1.
US 4.6%
UK 5.1%
The Netherlands
6.5%
Austria 2.3%
Belgium 3.2%
Canada 3.7%
Denmark 2.8%
Switzerland 13.8%
Spain 6.0%
Sweden 0.9%
Portugal 0.5%
Norway 0.9%
Japan 0.5%
Italy 7.4%
Greece 0.5%
Ireland 5.1%
Finland 4.6%
France 5.5%
Germany 26.3%
top-10
Belgium
10%
Germany
30%
Canada
Italy
The Netherlands
US
10%
20%
10%
20%
Figure 4.1: Geographic distribution of the advanced and top-10 sample
66
The Likert scale ranges from 1 = “strongly disagree” to 5 = “strongly agree”. A sixth option “don’t know”
exists.
67 See Appendix C for a detailed description of the used KPIs.
98
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
The sample of (2) emerging markets comprises 37 data sets and is illustrated in Figure
4.2. In the following, it is labeled as “emerging” sample. Section 2.3 argued that
domestic manufacturing organizations in emerging markets deviate in some aspects
significantly from Western standards. It was also established that cultural influences
impact the implementation of OPEX in emerging markets (Section 3.4.2). In order to
assess the differences between pharmaceutical manufacturing sites of multinational
organizations and domestic manufacturers, the sample is split into two groups
accordingly: The sample of offshore sites run by multinational manufacturers in
emerging market comprises 18 data sets (labeled “offshore”) and the sample of
domestic pharmaceutical manufacturers in emerging markets covers 19 data sets
(labeled “domestic”).
Sub-Saharan
Africa 11%
Czech Republic 5%
Estonia 3%
India 3%
Poland 13%
Malaysia 8%
Romania 3%
China 11%
Taiwan 14%
Slovenia 8%
Brazil 11%
Puerto Rico 5%
Mexico 5%
Figure 4.2: Geographic distribution of the emerging market sample
The pharmaceutical manufacturing sites in the advanced and emerging samples are of
different sizes (employee counts), indicating that implementing OPEX is relevant for
companies regardless of their size and geographic region. Table 4.1 provides an
overview of the employee distribution.
Table 4.1: Size of manufacturing sites in the advanced and emerging sample
Number of employees
<100
100-300
301-500
501-1,000
>1,000
% advanced
n=217
18%
41%
23%
13%
5%
% emerging
n=37
8%
26%
38%
21%
7%
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
99
Table 4.2 compares the production structure of the pharmaceutical manufacturing sites
of advanced and emerging samples. In both samples, the majority of sites focuses on at
least two dosage forms (mixed sites) instead of manufacturing a single dosage form
only.
Table 4.2: Production structure of sites in the advanced and emerging sample
Production structure
API
Solids
Semi Solids
Liquids
Sterile Liquids
Mixed
% advanced
n=217
16%
21%
1%
3%
7%
52%
% emerging
n=37
23%
16%
3%
0%
6%
52%
Differences between the samples are also observable in the applied business model.
The majority of domestic manufacturers produces generics, whereas multinationals in
emerging markets and sites in advanced countries are predominantly research-driven
and manufacture IP-protected drugs (Table 4.3).
Table 4.3: The applied business model of the data samples
Business model
% advanced
n=217
% offshore
n=18
% domestic
n=19
Research driven
47%
50%
27%
Generics
30%
39%
68%
Contract manufacturer
23%
11%
5%
4.1.2 Enabling the Manufacturing Sites
For each manufacturing program assessed in the questionnaire (i.e. TPM, TQM, JIT,
and HRM) 68 the commonly cited manufacturing practices in literature were assigned to
the respective program. Therefore, the practices ‘preventive maintenance’, ‘technology
assessment and usage’, and ‘housekeeping’ were summarized under TPM. TQM
comprises the practices ‘process management’, ‘cross-functional product
68
See Sections 3.2.1.1 to 3.2.1.5 for a description of the manufacturing programs.
100
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
development’, ‘customer integration’, and ‘supplier quality management’. The
implementation of the infrastructural practice JIT is assessed by the practices ‘setup
time reduction’, ‘pull production’, ‘layout optimization’, and ‘planning adherence’.
The social component is assessed by practices cited with HRM, these are ‘direction
setting’, ‘management commitment and company culture’, ‘employee involvement and
continuous improvement’, and ‘functional integration and qualification’. According to
Kickuth (2005), the practices ‘visualization’ and ‘standardization’ constitute basic
elements of the three manufacturing programs TPM, TQM, and JIT. Due to their
importance for the successful implementation of OPEX, these two practices are
assessed separately. 69
Each practice is structured by a comprehensive set of statements which were rated on a
5-point Likert scale 70. An implementation score (in %) was calculated for each
practice. A comparison of the implementation scores of the four samples ‘top-10’,
‘advanced’, ‘offshore’ and ‘domestic’ is given in Table 4.4.
69
See Kickuth (2005) for the detailed description of the research process of selecting and assigning a set of
Operational Excellence practices to the respective manufacturing program.
70 Before the survey participants filled out the questionnaire, the procedure was either discussed in person or via
telephone to ensure answers to all questions were given correctly. During the fill-out phase, telephone support
was provided on request. The participants were instructed to discuss the statements in a team in order to avoid
a single person’s perspective and subjectivity. After questionnaires were returned, a sanity check was done.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
101
Table 4.4: Implementation scores of OPEX practices
top-10
advanced
offshore
domestic
TPM
Preventive maintenance
Technology assessment & usage
Housekeeping
79%
64%
87%
75%
60%
83%
75%
60%
84%
75%
61%
82%
TQM
Process management
Cross-functional product development
Customer integration
Supplier quality management
73%
76%
75%
75%
72%
68%
73%
69%
72%
73%
73%
69%
73%
63%
73%
68%
JIT
Setup time reduction
Pull production
Layout optimization
Planning adherence
69%
62%
73%
76%
63%
49%
64%
71%
60%
47%
63%
71%
66%
51%
66%
71%
HRM
Direction setting
Management commitment & company culture
Employee involvement & continuous improvement
Functional integration & qualification
88%
76%
71%
71%
80%
73%
67%
66%
83%
74%
70%
64%
77%
72%
64%
67%
Basic elements
Standardization
Visualization
69%
56%
73%
60%
71%
62%
76%
59%
Table 4.4 shows only small differences in the implementation of OPEX practices
between domestic and offshore sites. There are also only a few differences between
these two samples and the cluster representing manufacturing sites in advanced
markets. A remarkable difference, however, was found in the implementation of the
TQM practice ‘cross-functional product development’; both advanced markets and
offshore sites report a higher implementation of this practice compared to the domestic
sample. It is evident from Table 4.3 that the domestic sample comprises a lower
percentage of research-driven pharmaceutical companies which might be more
experienced with product development and might have more invested in practices
facilitating smooth development processes than domestic emerging markets, which
mostly manufacture generics.
Apart from the basic elements ‘standardization’ and ‘visualization’, manufacturing
sites of the top-10 sample show an at least as high as or even higher implementation of
manufacturing practices than domestic emerging market sites. For the better
understanding of the differences of OPEX practice implementations between the
samples, a more differentiated analysis is conducted.
102
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Figure 4.3 illustrates the implementation of preventive maintenance practices.
Domestic sites have a lower implementation level of formal maintenance programs
(D01) and put less emphasis on the identification of bottleneck machines (D04) than
offshore and top-10 sites.
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
D01
D02
D03
Top-10
D04
Offshore
D05
Domestic
D06
D07
D08
Figure 4.3: Comparison of preventive maintenance implementation 71
The advanced top-10 use new technology more efficiently (D11) than sites from
emerging markets, which also spend slightly more internal capabilities for the
selection new machinery (D12). Moreover, to achieve a competitive advantage
advanced top-10 rely more strongly on proprietary process technology (D14) than
emerging market sites, which might utilize their cost advantage instead (see Figure
4.4).
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
D09
D10
Top-10
D11
Offshore
D12
Domestic
D13
D14
Figure 4.4: Comparison of technology assessment and usage 72
Differences between the clusters also exist in the frequency with which they measure
process quality (E01) and the linkage between site objectives and process measures
(E03). Domestic sites report employing dedicated process owners for planning,
managing and improving their processes (E04) to be more popular in domestic
71
72
See Appendix C for a detailed description of all items.
See Appendix C for a detailed description of all items.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
103
companies than in companies represented by the offshore or top-10 sample (see Figure
4.5).
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
E01
E02
E03
Top-10
E04
Offshore
E05
Domestic
E06
E07
E08
Figure 4.5: Comparison of process management 73
While the top-10 manufacturing sites outperform offshore and domestic sites in nearly
all KPIs, their excellence/superiority is most striking when it comes to the use of
cross-functional product development as a means to improve quality performance
(Figure 4.6). However, although the sites have the highest implementation level
regarding the involvement of engineers in the development process (E09), the low
implementation level of 3.60 reflects the prevalent silo thinking within the
pharmaceutical industry regardless of its geographic dispersion (Friedli and Ziegler,
2013). Furthermore, a higher level of combined product and process development
(E10) and better collaborations between R&D and manufacturing (E11) lead to
significantly less delays in new product launches (E12) at the top-10 manufacturing
sites compared to sites in emerging markets.
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
E09
Top-10
E10
Offshore
E11
Domestic
E12
E13
Figure 4.6: Comparison of cross-functional product development 74
Figure 4.7 illustrates the implementation level of the practice ‘setup time reduction’. It
shows that the top-10 sites are more successful than emerging market sites in
73
74
See Appendix C for a detailed description of all items.
See Appendix C for a detailed description of all items.
104
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
scheduling their machine setups without affecting the regular uptimes of their
equipment (F05).
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
F01
F02
Top-10
F03
Offshore
F04
Domestic
F05
F06
Figure 4.7: Comparison of setup time reduction 75
Implementing a functioning Pull Production is a challenging task and dependent on a
multitude of variables (see Figure 4.8). The ability of domestic sites to better catch up
the production schedule once production was stopped (F07) shows the higher
flexibility and responsiveness of these sites but might also be an indicator of a less
tightly scheduled and less optimized production program. This is emphasized by the
top-10 sites due to the implementation level of the pull system (F08) and high
integration of suppliers into the sites’ supply and replenishment processes (F10) which
require an orientation on forecasts (F09) for an accurate demand planning. A reliable
forecast is best supported by contractual agreed demand volumes to provide stability at
the expense of a true customer pull (F14).
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
F07
F08
F09
Top-10
F10
Offshore
F11
Domestic
F12
F13
F14
Figure 4.8: Comparison of Pull Production 76
The top-10 pharmaceutical manufacturing sites are more likely to group products with
similar processing requirements (F16) and processes with similar routing requirements
(F17) to either reduce setup times or transportation times. Although domestic sites
75
76
See Appendix C for a detailed description of all items.
See Appendix C for a detailed description of all items.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
105
pursue neither a high implementation of a pull system nor a high supply integration
(see F08 & F10 in Figure 4.8), they are more convinced in running highly
synchronized processes than the top-10 sites in advanced countries (F20). This is
particular interesting since tools to create within-process transparency and enabling a
synchronized takt along the process chain like Value Stream Mapping (F23) are less
used by domestic sites (see Figure 4.9).
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
F15
F16
F17
Top-10
F18
Offshore
F19
Domestic
F20
F21
F22
F23
Figure 4.9: Comparison of layout optimization77
As Figure 4.10 shows, pharmaceutical managers of offshore sites and those from the
top-10 manufacturers report to meet their daily production schedule better than
domestic emerging market sites (F24). This might be the result of better forecasts and
a higher implementation of a pull system (see Figure 4.8), which also supports a
smoothly levelled production capacity throughout the entire production process (F27).
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
F24
F25
Top-10
F26
Offshore
F27
Domestic
F28
F29
Figure 4.10: Comparison of planning adherence 78
Implementing OPEX is a management task (Section 3.2) that thrives on a balanced
direction setting (Figure 4.11). Such direction setting is less implemented at emerging
market domestic sites, i.e. an exposed and broadly communicated site vision and
77
78
See Appendix C for a detailed description of all items.
See Appendix C for a detailed description of all items.
106
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
strategy (G01 & G02), assignment of site objectives to team or personal objectives
(G04), or managers’ understanding for strategy formulation (G05) and its
understanding (G06).
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
G01
G02
Top-10
G03
Offshore
G04
Domestic
G05
G06
Figure 4.11: Comparison of direction setting 79
In order to improve operations, the site management of top-10 companies is highly
involved in on-going improvement projects (Figure 4.12); it is noteworthy that such
involvement is high in all samples (G08). Moreover, in domestic emerging market
sites internal competition between departments appears to be slightly higher (G09)
compared to the top-10 sites and information flow beyond official channels (G010)
hampers timely employee information (G12) and an open communication culture
(G11). Another fact that might affect the sites’ open communication culture is the
more pronounced command-and-control approach in emerging market sites (G16).
Surprisingly, in contrast to the OPEX philosophy of built-in quality and in contrast to
the practice at emerging market sites, the top-10 manufacturers put the primary
responsibility for the achievement of high quality standards on their QA/QC
department instead of single employees (G14). Due to an uncompromising pursuit of
compliance with regulatory requirements (see Section 3.3.1.1), QA/QC enjoys a high
level of independence at companies of the advanced and top-10 sample.
79
See Appendix C for a detailed description of all items.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
107
4.00
4.50
5.00
G07
G08
G09
G10
Top-10
G11
Offshore
G12
Domestic
G13
G14
G15
G16
Figure 4.12: Comparison of management commitment and company culture 80
Figure 4.13 shows that domestic emerging market sites involve their employees to a
lesser extent than the top-10 pharmaceutical sites in advanced markets (G18) and
suggestion programs are not very popular (G19). Moreover, building cross-functional
teams for problem-solving (G24) is a method which is primarily used by the top-10
and pharmaceutical offshore manufacturing sites. All three samples’ sites stated to take
care of their employees (G25), with the highest value being reported by the top-10
sites.
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
G17
G18
G19
G20
G21
G22
Top-10
Offshore
Domestic
G23
G24
G25
Figure 4.13: Comparison of employee involvement and continuous improvement 81
Figure 4.14 illustrates that the top-10 pharmaceutical manufacturing sites put more
emphasis on cross-trained people within working teams (G28) compared to emerging
market sites, and that they are also more engaged in developing their workforce’s
flexibility by rotating people between function, e.g., as part of a formal program
(G29).
80
81
See Appendix C for a detailed description of all items.
See Appendix C for a detailed description of all items.
108
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
G28
Top-10
G29
Offshore
G30
Domestic
G31
G32
Figure 4.14: Comparison of functional integration and qualification82
Surprisingly, domestic emerging market manufacturers report the highest
implementation of standardization within their operations for all assessed items
(Figure 4.15). Offshore sites, however, reported to use standardization to a similar
degree as the top-10 pharmaceutical sites. Thus, domestic sites higher prioritize
standardization as strategy for continuous improvement (H01) and rely more heavily
on documented operating procedures for process standardizations (H02), which are
also used as broadly communicated best practices (H03). Moreover, they appear to
benefit more from standardization in form of reduction of vocational training time for
new employees (H04) and high machine uptime and material cost due to standardized
machines and equipment (H05 & H06).
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
H01
H02
Top-10
H03
Offshore
H04
Domestic
H05
H06
Figure 4.15: Comparison of standardization83
Figure 4.16 illustrates the implementation of tools and methods for visualizations.
Again, the domestic sites from emerging markets reported a higher implementation of
performance charts (H07 & H09), accessible technical documents (H08), or charts
visualizing takt time and current schedule compliance (H10) than the top-10 sites.
82
83
See Appendix C for a detailed description of all items.
See Appendix C for a detailed description of all items.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
109
4.00
4.50
5.00
H07
Top-10
H08
Offshore
H09
Domestic
H10
Figure 4.16: Comparison of visualization84
The review of OPEX practice implementations (Figure 4.3 to Figure 4.16) allowed for
an in-depth analysis of the differences between top-10 manufacturing sites in advanced
markets and domestic and offshore sites in emerging markets. In combination with the
following case studies, these findings are used in Section 4.3 to draw conclusions for
the development of an OPEX Architecture.
4.1.3
Performance of the Manufacturing Sites
The efforts a manufacturing site has already undertaken to improve its operations can
be measured by respective key performance indicators or KPIs. KPIs provide insights
into a site’s operational performance, and the following selected KPIs contribute to the
understanding of emerging market pharmaceutical sites’ manufacturing capabilities.
Comparing the top-10, advanced, offshore and domestic samples, it is evident that
domestic emerging market sites have the lowest level of production schedule accuracy
(Table 4.5). Several points are noteworthy. Firstly, their counterparts, offshore sites of
multinational organizations, reach a higher accuracy, close to that of the top-10
manufacturing sites. Secondly, the average pharmaceutical site in an advanced market
has a low production schedule accuracy that is akin to domestic sites. This suggests
that it is less the emerging market per se that is causing a low production schedule
accuracy. Rather, it is the capability of the site’s management to provide the
production department with an adequate level of stability that seems to be driving
production schedule accuracy.
Table 4.5: Comparison of production schedule accuracy
84
top-10
advanced
offshore
domestic
96.0%
85.3%
92.2%
81.9%
See Appendix C for a detailed description of all items.
110
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
One way to create planning stability is the introduction of a production freeze 85. Table
4.6 shows that it is only the top-10 sites that provide their customers with high
production flexibility. Though a shorter production freeze period is less prone to
external shocks and thus lowers the probability of disruptions, it requires a tightly
controlled supply chain as it does not allow for long delivery times for supplies. Thus,
the accuracy of the production schedule is not directly influenced by the length of the
freezing period, but rather by how strictly the site adheres to it.
Table 4.6: Comparison of production flexibility upside (in days)
top-10
advanced
offshore
domestic
13.9
21.9
26.9
21.3
Adherence to the schedule is affected by a belated acceptance and inclusion of
additional or substituted orders. These orders are measured by the proportion of
priority orders 86 which was found to largely deviate between the investigated samples
(Table 4.7). It is obvious that such disturbances of the planned system will negatively
affect its stability and the accuracy of the production schedule.
Table 4.7: Comparison of priority orders
top-10
advanced
offshore
domestic
10.4%
10.8%
14.5%
41.1%
The availability of equipment that is dedicated to a single product alleviates scheduling
of manufacturing machinery. Less changeovers and higher planning flexibility also
positively affect the accuracy of the production schedule. Domestic sites in emerging
markets have the lowest percentage of dedicated equipment among the surveyed
samples (Table 4.8). On the one hand, this might stem from a lower availability of
resources at these sites, preventing investments in a broad machine portfolio. On the
other hand, the manufacturers’ product portfolio is less characterized by high volume
and therefore does less justify equipment solely dedicated to one product.
85
Freezing period is the ‘frozen’ time within the production schedule in which the production department
normally does not allow any changes in order to maintain a stable and balanced production system.
86 Priority orders are those orders which are included in the already fixed production schedule during its freezing
period and which are handled with higher priority than other orders.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
111
Table 4.8: Comparison of dedicated equipment
top-10
advanced
offshore
domestic
Formulation
46.7%
24.8%
24.3%
10.9%
Packaging
54.3%
22.1%
29.9%
5.9%
On average, domestic pharmaceutical manufacturers in emerging markets have longer
production lead times than offshore sites of multinational organizations or sites in
advanced economies (see Table 4.9). The comparatively low production lead time of
the top-10 sites is seen as an indicator of their efforts in implementing OPEX at their
sites. It is in line with their implementation level of, e.g., a pull system (see F08 in
Figure 4.8) and the use of purposeful tools for disclosing process inefficiencies (see
F23 (Value Stream Mapping) in Figure 4.9).
Table 4.9: Comparison of average production lead time (in days) (pharm. manuf.)
top-10
advanced
offshore
domestic
6.3
11.2
7.6
16.5
Nevertheless, it is domestic emerging market sites that have the shortest lead time for
quality tasks like validations, batch review and the final release (Table 4.10) of all
investigated samples.
Table 4.10: Comparison of average production lead time (in days) (QA/QC)
top-10
advanced
offshore
domestic
10.7
20.5
18.0
7.5
Though the Right-First-Time (RFT) rate (Table 4.11) of domestic emerging market
sites is in congruence with the RFT rate of the samples’ high performing and offshore
sites, it is remarkable that both emerging market samples outperform the average and
high performers of the advanced market sample.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Table 4.11: Comparison of Right-First-Time
top-10
advanced
offshore
domestic
92.4%
75.3%
96.3%
92.8%
The comparison of the manufacturing sites’ process stability in Table 4.12 shows that
the top-10 sites have a better control of their processes than pharmaceutical
organizations in emerging markets. Interestingly, this is true no matter whether the site
belongs to a Western-based multinational company or whether it is a domestic
emerging market company. Low process stability and deviating product quality is seen
as a root cause for occasionally poor drug quality (see Section 3.3.1.3).
Table 4.12: Comparison of deviations per batch
top-10
advanced
offshore
domestic
0.120
0.155
0.330
0.292
Not only have emerging market sites – whether offshore or domestic – more
deviations per batch, but they need also more time to close such deviations than the
top-10 sites and sites of the advanced sample (the latter applies for the offshore sites
only) (Table 4.13). Since there is no value added, this constitutes a large potential for
waste reduction at emerging market sites.
Table 4.13: Comparison of deviation closure time (in days)
top-10
advanced
offshore
domestic
13.4
26.6
29.3
22.4
The highest service level is demonstrated by emerging market offshore sites (Table
4.14), whereas domestic sites display the lowest level. Since both samples’ sites
operate in a similar environment, this difference can hardly be boiled down to poor
infrastructure, as inadequate road conditions, for example, would affect both offshore
and domestic sites. Rather, the KPI service level is composed of the dimensions time,
quantity and quality (on time in full (OTIF)); thus, domestic sites could improve on
this KPI by addressing above mentioned quality deviations.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
113
Table 4.14: Comparison of service level (delivery)
top-10
advanced
offshore
domestic
90.1%
91.7%
94.7%
87.6%
The level of functional integration – that is, the percentage of trained employees who
can work in three or more functions – differs between domestic emerging market sites
and multinational offshore sites by more than 15% (Table 4.15). Since a high level of
functional integration is a result of training, this observation concurs with the finding
that sites in emerging markets are characterized by less purposeful training than their
counterparts in or from advanced nations (cf. Sections 2.3.3 and 3.4.1.2).
Table 4.15: Comparison of functional integration
top-10
advanced
offshore
domestic
56.0%
45.0%
44.5%
29.5%
Comparing selected KPIs across the four samples provides mixed findings. From the
reported levels of implementation of OPEX practices, one might be led to believe that
domestic emerging market sites are already operating at a rather high level of OPEX;
however, this is not supported by the investigated KPIs. These findings contribute to
the cross case analysis in Section 4.3.
The following section represents the studies that have been conducted in several
pharmaceutical manufacturing sites in emerging markets. These studies are used to put
findings on emerging markets in general (Chapter 2) and OPEX in particular (Chapter
3) into a pharmaceutical emerging market context.
4.2 Investigation in the Field
4.2.1 Explanation of the Cases
The preceding analyses of the implementation of OPEX practices and selected key
performance indicators (KPI) revealed some incongruities with previous findings: On
the one hand, the reported implementation of practices is in contrast with the OPEX
level of domestic emerging market sites. This incongruity denotes a scarce
understanding of OPEX, or at least a lack of decent benchmarking that would allow
comparing site capabilities against objective criteria. Such a lack of comparison is a
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
lost learning opportunity – it could be used to contribute to a better reflection of own
achievements and shortcomings of practice implementations. On the other hand, the
comparison of KPIs showed values at level with or even exceeding the top-10
manufacturing sites, or far below the industry average. Combined, the divergence of
KPIs raises questions that cannot be answered solely with survey data 87.
As an in-depth analysis of all surveyed companies is beyond the scope of this thesis, a
subset of cases was selected to answer open questions using a theoretical selection
process (Eisenhardt, 1989). The companies that will be discussed in the following
participated in the survey and are based in the same geographic region (Sub-Saharan
Africa) although in different countries. All of these countries can be considered
emerging markets (see Table 2.3). With some of the selected companies being based in
highly developed countries but others in a country that only recently transitioned from
a least developed country to a growing emerging market, the case studies allow for a
comparison of sites in a set of large, heterogeneous emerging markets (see Imp. 2.5).
This dissertation aims at supporting domestic pharmaceutical manufacturers in
implementing and continuously improving their OPEX program. Following Eisenhardt
(1989), manufacturers with the highest learning potential for the case studies were
selected. The current literature on Lean Manufacturing and OPEX is full with
successful practices (see, e.g., Ohno, 1988; Womack et al., 1990; Liker, 2004 or
Friedli et al. 2006; 2010a; 2013a). That is, there is a strong tendency in current
literature to describe successful organizations as best practices. However, this focus
may lead to an undersampling of failure, which may bias organizational theory since,
for instance, risky practices might appear as related positively to performance in a best
practice sample of survivors, even if those practices were actually unrelated to
performance in general (Denrell, 2003). Failures or deficiencies of organizations can
serve as wake-up calls for companies and encourage them to search for new activities
by identifying behaviors that should be imitated or avoided (Kim and Miner, 2007).
Therefore, it can be argued that stories about failure are often more informative than
those about success (Williamson, 1999; Danneels, 2011).
Thus, this thesis refrains from contributing yet another set of successful practice cases
demonstrating on “how to do it best” 88. Instead, the subsequent case studies will
describe the shortcomings, failures, and challenges of domestic pharmaceutical
87
As an advocate of engaged scholarship Van de Ven (2007, p. 5) argues that the problem of knowledge
production in science partially stems from “[…] the research design [which] relies on statistically analysing
questionnaire or secondary data files […] without the researcher talking to any informants or respondents in
the field […]”.
88 Although there is an abundance of examples available of how to do it the best way, many companies are not
able to apply this knowledge to their own site.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
115
manufacturing sites in implementing OPEX. This will provide the context to discuss
available approaches to OPEX, and, finally, it will allow deriving an architecture to
support domestic manufacturers in the successful implementation of OPEX.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
4.2.2 The Case of PharmCo A
4.2.2.1 Company Profile
The first case examines a pharmaceutical company in a northern Sub-Saharan African
country. The company’s sole manufacturing site is situated in an industrial area about
20km outside the capital. The site was established in the 1980ies and was later
acquired by the government. The company was renamed after its acquisition but
continues to be under governmental control. With its product portfolio covering
generics for human and veterinary use, the company supplies more than 300 customers
that are spread over about half of all Sub-Saharan African countries 89. The company
has passed several on-site audits and inspections by the health and pharmaceutical
boards of their customers’ countries. Nevertheless, the organization has not yet been
accredited with GMP certification by its local authorities.
In contrast to its competitors, the organization was able to significantly increase its
market share and sales growth within the last years. Additionally, the company
strengthened its market position with the launch of several new products. The largest
share of the company’s cost – 70% – is down to manufacturing, followed by
expenditures for R&D, Administration, and Sales & Marketing with less than 10%
each.
Direct Production Labor
PharmCo A
55%
4% 2%3% 4%
Direct Quality Control
32%
Indirect Quality Control
Quality Assurance
EM-TOTAL
n=37
45%
9%
2% 4%
10%
Maintenance
31%
Other Functions
0%
100%
Figure 4.17: Headcount structure PharmCo A
In total, the company employs about 340 people of whom only 58% are permanently
employed. The largest proportion (55%) of the company’s employees is involved in
direct production labor such as pharmaceutical production (14%) and packaging
(41%). The high percentage of staff in packaging results from the high number of
workforce dedicated to secondary packaging, which is mostly done manually (see
Figure 4.17). This is low-skilled manual work, for which people are literally hired
89
Customers are based in Benin, Burkina Faso, Burundi, DR Congo, Guinea Conakry, Ivory Coast, Kenya,
Madagascar, Malawi, Mozambique, Rwanda, Senegal, Somalia, Sudan, Togo, Uganda, and Zambia.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
117
from the street depending on the company’s order inflow. Such procedure provides the
company with a lot of staff flexibility.
The organization follows a strategy to increase its flexibility and in particular to tie in
with its successful introduction of new products. As such, the company works on the
acceleration of new product introductions. Following its strategic direction, the
company puts less emphasis on improving its product quality, which contradicts its
(starting) engagement in OPEX – the improvement of final product quality (see Figure
4.18).
Manufacturing Strategy
Flexibility
Reduce cycle time
Quality
Service
Level
-
0
+
++
Reason for launching OPEX
Reduce set-up time and cleaning time
To meet FDA regulations
Increase flexibility to respond to market needs for
broad product mix
To change from functional organization to process
organization
Increase flexibility to respond to demand changes
in volume
Increase flexibility to respond to shorter product
lifecycles and higher number of product launches
Increase supplier quality performance
To reduce lead times and inventory
Reduce lead time
To initiate a cultural change for continuous
improvement
To change the quality focus from final product to
process quality
Increase on-time delivery rate
To introduce standardized methodologies for
problem solving
Increase employee productivity
Increase capital investment productivity
0
+
++
To increase employee empowerment
Reduce scrap rates
Increase asset utilization
-
To increase cost awareness
To increase employee involvement
Reduce process variance through statistical
process control
--
To implement Process Analytical Technology
(PAT)
Accelerate new product introductions
Reduce stock
Cost
--
To launch a broader cost cutting program
To improve final product quality
To fulfill site targets between corporate and plant
management
Figure 4.18: Manufacturing strategy & reasons for launching OPEX of PharmCo A
Comment: The characteristic of PharmCo A’s strategic direction is in line with findings that the
management of emerging market sites tends to put low priority on efforts for quality in favour of other
achievements (see Imp. 2.9). Furthermore, as Figure 4.18 shows, the company initiated its OPEX
program without the fulfillment of site targets between corporate and plant management being a clear
objective. This shows that PharmCo A’s misses a link between its business strategy and its OPEX
initiative. In contrast, the top-10 sample reported clearly to pursue the fulfillment of site targets
between corporate and site management (average of 4.4 on 5-point Likert scale) 90.
90
PharmCo A indicated ‘–’ (see Figure 4.18) which equals ‘2’ on a 5-point Likert scale.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
4.2.2.2 Structural Levers
PharmCo A manufactures a wide range of pharmaceutical products like syrups,
creams, tablets, and capsules for human and veterinary use. The nearly 300 million
tablets per annum are mainly packed in blisters and partly also as extracts into bottles.
Liquids are filled into bottles and creams into tubes. All labelling and secondary
packaging is done manually. The nearly 2,500 formulation batches are transferred into
the packaging area batch by batch, without aggregation or splitting. Further, the
management currently does not consider varying batch sizes to increase the site’s
manufacturing flexibility (as indicated in the manufacturing strategy). However, in
order to increase the capacity and flexibility of the site, the company is in the process
of establishing a new manufacturing and packaging facility on its property. Both
pharmaceutical production and packaging staff work six days a week in a two shift
model. Although each shift is only eight hours, people in the night shift spend twelve
hours on site – there is no public transportation at night, and the site’s entry and exit
gates are locked over night due the high crime rate in the area. Therefore, the company
provides its workforce with a place to rest until the gates re-open in the morning and
public busses resume their service.
The company has no dedicated machinery. The equipment in use is not very old, with
nearly 80% being younger than five years. About 90% of the used equipment is only
manually operated without proper IT support. While the management is aware that the
used technology is outdated, it does not seek to replace it with newer technology. The
management also reports that the company does not use new technology very
effectively. The company does not have internal knowledge when it comes to the
acquisition of new machines but relies on external vendors.
In total, the company has more than 110 suppliers. Nearly 40 of the suppliers for API
are based in India and China, and no representatives of these have been met in person;
nor have the suppliers’ manufacturing site been audited by PharmCo A. Overseas
supplier relationships are confined to phone calls, e-mails, and internet portals. Due to
the long delivery times and high costs, PharmCo A strives to completely fill a booked
container before sending it from India or China to its manufacturing site – even when
API is urgently needed and its lack causes a stop of production. The shipment on sea
takes about 30 days and the delivery from the closest port to the site including customs
takes another 10 days. Customs are, however, unpredictable and the CEO complained
about cases where customs held back required raw materials without any reason.
Although the goods are always clearly and correctly declared, customs often undertake
detailed examinations of imports in order to stop contraband goods, thus stretching
already long delivery times. Apart from API, other raw materials like excipients and
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
119
packaging materials are mainly sourced from local suppliers and only 8% are sourced
in Europe or the US.
Comment: Long order lead times and unreliable delivery dates constitute a challenge for PharmCo
A’s business activities. During the site visit, the CEO and Production Manager noted that a KPI like
Service Level, which combines the dimensions quality, quantity and timely delivery, might not
adequately reflect the company’s situation. This is because while both quality and quantity are usually
within PharmCo A’s expectations, delivery times deviate significantly and are often out of the
suppliers’ control.
In order to cope with long and unreliable delivery times, the company maintains a
large safety stock of raw materials to ensure that all products can be manufactured at
any time.
Comment: With raw material turns of less than 3.0, PharmCo A is far below the top-10 sample (26.1),
the average of advanced markets (8.1) and also domestic emerging market manufacturers (6.2).
4.2.2.3 Pharmaceutical Manufacturing Environment
As already mentioned, the company is currently in the process of installing a new
building to add capacity. The construction site is directly across the older facility’s
entrance and although the management has arranged a sign to advice correct behavior
to ensure cleanliness, builder’s dust contaminates the entire changing room. Thus, a
partial contamination of the adjacent manufacturing area cannot be ruled out. Within
the manufacturing area there are some defective and broken transfer hatches, and in
some places plaster on the walls is crumbling. The site’s utility building is adequately
maintained but outside the building there is a big pile of rubbish comprising old
cartons, foils, plastic canisters, boxes etc.
The site management explains that the employees of the company are very eager to
maintain the manufacturing site in a neat and clean status. The company also has a
housekeeping checklist to continuously monitor the condition and cleanliness of
machinery and equipment. Tools are rare on the shop-floor and those that are
necessary are stored haphazardly in a rusty tool case. Besides, some indirect
manufacturing equipment is covered with dust and rust and an outdated but wellfunctioning primary packaging machine in use is not in a GMP-compliant status of
cleanliness.
Comment: Apparently the author’s understanding of pharmaceutical cleanliness differs considerably
from the understanding of PharmCo A’s management. The company takes only 8% of the scheduled
time for the setup and cleaning of formulation machinery (25% for packaging machinery) – for
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
formulation, the top-10 take 10.6%, advanced average 19.7%, and domestic emerging markets 21.9%,
for packaging the top-10 take 16.5%, advanced average 21.3%, and domestic emerging markets
30.3%.
In order to increase machinery’s uptime, the company has a formal program to
continuously maintain all equipment. Every Saturday, the maintenance crew runs the
company’s formal maintenance program and operators are supported to perform small
preventive maintenance work independently. Guidelines like technical documents for
maintenance or workplace information are very rare and not easily accessible or
visible. The company only employs 4% of its workforce as maintenance crew, of
which 60% are responsible for the site’s preventive maintenance program (see Figure
4.17). The focus on preventive maintenance results in low unplanned maintenance
work (as part of all maintenance work) for both formulation and packaging equipment.
Despite these efforts regarding preventive maintenance, the company does not monitor
the associated costs.
Comment: PharmCo A spends about 10% (5%) of its maintenance work on unplanned maintenance of
formulation (packaging) equipment. The top-10 spend 21.4% (16.7%), advanced average 28.8%
(28.8%), and domestic emerging markets 13.3% (17.6%) on formulation (packaging).
The company currently is neither aware of its bottleneck machines, nor is it
sufficiently equipped with spare parts. The maintenance program is not continuously
updated to take into account reasons for frequent breakdowns. If major breakdowns
occur and the machinery cannot be repaired by the maintenance crew, the company
has to request a specialist, costly flown in from overseas since pharmaceutical
equipment OEMs do not maintain a service hub in the country.
Comment: During the site visit, the author saw a machine that was under maintenance. He learned
that the machine had been under maintenance for at least one month, but no further actions had been
taken.
The company uses standardization of operating procedures and documentations but
standardization is only marginally used as a tool for process improvements. So far, no
best practices have been documented as guidelines for maintenance and machine
setups. Since machines and equipment are often bought second hand, this complicates
their standardization and harmonization, which makes it harder to achieve high uptimes and increases the variety of spare parts.
On the shop-floor there is no visualization of daily, monthly or even yearly
performance objectives, nor does the company communicate any other performancerelated KPIs to its workforce. The knowledge of the actual shop-floor performance is
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
121
reserved to management and supervisors only; the company does not try to motivate
its workforce in this respect.
4.2.2.4 Processes
The company operates in a highly dynamic market, which is difficult to forecast. This
is why the CEO argues that it is impossible to conceive of a reasonable short- or midterm planning for the production department that could serve in the following as a
stable basis for a fixed manufacturing schedule. As the company depends on
governmental drug orders and its activities in the tender business, the lacking
transparency and governance in the decision process of which drugs ought to be
manufactured further contribute to the unpredictability within PharmaCo A’s planning
process according to the site management.
Comment: At the time when PharmCo A applies for the tender order, the decision of what drug is to
be manufactured has not been made. In 2012, PharmCo A received a large order of solid drugs (such
as tablets). Due to the large order, it employed new people and trained them. Ready for large solid
orders in 2013, the country’s Minister of Health then decided to manufacture a special liquid drug
(due to a previous personal illness) for which the company was again not sufficiently equipped.
Another significant influence on planning stability is the company’s business niche
and its competitive environment. Since it is not the only pharmaceutical manufacturing
organization in the country that manufactures a certain generic product, range
competition is very high. Thus, it is part of PharmCo A’s strategy to win its (potential)
customers with a high flexibility (see Figure 4.18). The manufacturing site completely
relies on its sales forecast which is frequently updated and changed on a short-term
basis. Therefore, the company does not have a freezing period where no changes in the
production planning are allowed. Moreover, the planning department tries to schedule
orders in chronological order and manages somehow to squeeze new jobs in between.
This flexibility leads to non-conformity with the company’s roughly set production
schedule and the production department classified nearly 100% of all orders as priority
orders that perturbed the schedule and were not manufactured as originally planned.
PharmCo A has only limited experience and knowledge of improving internal
processes. The Production Manager regards all processes within the manufacturing
area as highly synchronized and believes the site is operating in accordance with a
continuous flow principle. In fact, the layout of the shop-floor provides short distances
between the workstations that facilitate low in-process inventories. Nevertheless, the
company has never made an attempt to map its value stream from order intake to final
product delivery and nobody at PharmCo A is aware of the value of the work in
progress.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Comment: During the visit, the CEO claimed the facility was running at the edge of its capacity. And
yet, none of the equipment of the formulation process was in use – it was only at the primary and
secondary packaging area that all lines were occupied. Both primary and secondary packaging areas
were full with in-process inventories and finished goods. Thus, it seems that packaging is the
bottleneck within PharmCo A’s manufacturing processes.
The main storage of PharmCo A provides a similar picture. All shelves and even the
ground floor are full with raw materials or finished products ready to dispatch. The
CEO reported that the company needs a certain safety stock of finished goods to win
orders. According to the CEO, it is a regular occurrence that customers from other
countries arrive with trucks and a briefcase full of US Dollars at the gates of PharmCo
A and request to buy as many drugs as possible without any notice. If PharmCo A runs
out of stock, the customers will take their business to another company.
Comment: The Lean philosophy endorses the elimination of all forms of waste. One of these is excess
inventory (Section 3.2.1.5). Inventory that is declared as a safety stock for unexpected customer sales
is neither excessive nor waste. However, stocks should be meticulously inspected and it should be very
clearly defined what qualifies as safety stock (and what as waste).
Apparently, the company is in close contact with its customers. Though the CEO
mentioned that the company strives to improve its timely delivery (see Figure 4.18),
the Production Manager reported that PharmCo A does not pursue an on-time delivery
philosophy. Neither customer surveys nor joint improvement projects with the
customers are conducted to improve the organization’s delivery performance. In
addition, suppliers and vendors are not integrated into the system. The CEO reported
that the company is strongly dependent on the supplier’s on-time delivery, but bases
this conclusion more on the fact that delivery times are unreliable and long rather than
a JIT-oriented approach.
Comment: During the discussion of the site visit at PharmCo A it was apparent that the site
leadership team had an insufficient understanding of the Lean philosophy, its underlying tools and
how these tools should be applied. The CEO mentioned that the management had heard of Gemba
Kaizen but was only at the beginning of its implementation. Without a good understanding of Kaizen,
however, its implementation will hardly be successful.
Furthermore, from the case description above it is evident that the management’s actions are not in
line with the strategic objectives. It appears that site objectives are not sufficiently linked to strategic
directions as given by the management.
With regards to process and product quality, problems are neither always traced back
to their root causes, nor do employees on shop-floor level feel responsible for
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
123
manufacturing quality into the products. Instead, it is the responsibility of the QA/QC
department to achieve high quality standards. Despite this big responsibility and the
organization’s reliance on inspected product quality, the company only employs 9% of
its people in quality-related tasks (see Figure 4.17). To develop new products, the
company does not pool specialists from different departments to utilize their shared
knowledge in cross-functional teams. In addition, product- and process-related
communication between departments is not standardized, although both Production
Manager and the Head of Quality emphasize the use of standardization. Launches of
new drugs are often delayed.
Table 4.16: Quality-related KPIs of PharmCo A in comparison
KPI
top-10
advanced
domestic
PharmCo A
Complaint rate customer
1.01%
2.09%
1.17%
1.20%
Yield
97.99%
96.11%
97.79%
97.50%
RFT
92.38%
75.25%
92.83%
90.00%
Rejected batches
0.53%
1.52%
1.24%
0.30%
Scrap rate
0.80%
3.08%
2.56%
1.50%
0.121
0.155
0.292
0.034
Deviations per batch
It is the objective of PharmCo A to produce high quality drugs to supply the market.
Reviewing the KPIs in Table 4.16, PharmCo A appears to meet this objective.
Comment: Apart from raw material and final product inspection, PharmCo A has no distinctive
quality practices. Nonetheless, the selected KPIs in Table 4.16 show a highly positive image of
PharmCo A compared to the three benchmarking samples. In emerging markets it is not only the
quality understanding of manufacturing organizations that differs from that in advanced markets, but
also the expectations of customers (see Table 2.7). This could explain the comparably low customer
complaint rate. Furthermore, as long as customers desperately buy as many drugs as possible directly
from the site there is hardly a reason to complain about or even to reject the scarce goods.
Though the site is not accredited with GMP from local authorities yet and the witnessed
manufacturing procedures and areas deviate considerably from Western standards, the site has a
fairly good Right-First-Time rate compared to the advanced market samples of which all sites at least
are accredited with one certification of either EMA or US FDA. The same applies for the indicated
deviations per batch which suggest a truly excellent performance. But with regards to Figure 3.6, a
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
deviation at a batch is always a question of pre-defined quality standards, customer requirements, and
morality and business ethics.
4.2.2.5 Management & Culture
The CEO is a charismatic, very well educated man who graduated from a known
Western university. He and his Production Manager are both African-Indians; the
remaining members of the site leadership team are native African people. The
management team strives for a collaborative management style and prefers an open
culture instead of a command and control approach. Nevertheless, one employee of the
company indicated that the open culture is perceived differently among the workforce
and that information travels too slowly between departments and management. This
leads to a competition between the departments instead of the aspired cooperation
within the company.
Although the employee turnover is only average, PharmCo A faces the problem of
high absenteeism. As a reaction to this, the company pays the workforce on a weekly
basis. Management found that workers would not attend work until running out of
money if they received a full month’s pay the month before. In addition to the local
workers’ attitude, the CEO complained about the scarcity of well-educated and trained
domestic workers, and the costly alternative of hiring, e.g. Indians, to work abroad.
The company is not yet fostering its continuous improvement and only the rudiments
of a feedback culture exist. This feedback is hardly used to improve the company’s
training processes, which currently focus on mere manufacturing procedures and the
setups of machines. As of today, PharmCo A has no standardized functional
descriptions or training documents of its processes to fasten vocational trainings for
new employees. Moreover, training does not yet comprise tools and methods out of the
OPEX tool box. In order to push the site’s improvement, the management team is
partially involved in the few improvement projects. Employees are encouraged to
make suggestions, but the company has no established suggestion system.
Roughly 40% of PharmCo A’s shop-floor workers are cross-trained, which allows the
company to assign the employees to the manufacturing lines in a flexible fashion. The
site does not maintain a formal program to rotate employees systematically between
tasks to increase workers’ motivation and to maintain their qualification. Despite the
availability of multi-skilled workers, employees’ chance to improve is very limited.
Solving problems is the tak of supervisors, although supervisors are urged to also
include workers on the shop-floor in these procedures.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
125
In general, the company takes care of its employees and the management is concerned
with its people’s welfare. Nonetheless, the company faces about three reportable
incidents a month caused by accidents or safety reasons – safety practices at PharmCo
A still differ from those at pharmaceutical companies in advanced markets.
Comment: During the visit of PharmCo A’s storage warehouse, workers heightened a shelf to a new
level. To do so, four workers climbed on top of the shelf and worked about 5 meters above ground
without any safety device. The Production Manager did not intervene, although the visitors from
overseas saw and commented on the incident. For the production manager, this seemed to be a very
familiar practice. To say it with Imai’s (1986, p. 1) words: “There is no management if they don’t care
about the workers’ safety.”
4.2.3 The Case of PharmCo B
4.2.3.1 Company Profile
The second case study is a privately owned pharmaceutical manufacturer that was
founded in a northern Sub-Saharan African capital in the mid 1970ies. About a decade
later, the company moved into a newly built manufacturing site which conformed
better to the company’s prosperous business. Today, the company is situated close to
the city next to a nearby shanty town, and the roads to the manufacturing site are lined
with piles of rubbish which are searched for recyclables and food by people and
animals. Providing nearly 800 customers in Sub-Saharan Africa 91, the company’s
largest customer is the local government. The products for human and veterinary use
are marketed to public institutions such as ministries of health or district and
provincial hospitals, as well as to private health care institutions, doctors, pharmacies,
and non-governmental organizations. The manufacturing site is approved by the
country’s national drug authority and is accredited with local GMP as laid down by the
WHO. Moreover, the site is subject to regular quality audits by its customers.
During the last years, the company saw an average development of its market share
and sales growth, but significantly improved its return on sales compared to its
competitors. PharmCo B’s launch activities of promising drugs are behind its
competitors’ activities; this is in line with a low (single digit percentage) reported
R&D investment and the company’s manufacturing strategy (see Figure 4.20). As a
pure generics organization, manufacturing costs make up nearly 70% of the company’s
cost structure; investments in sales and marketing are very low.
91
Customers of PharmCo B are located in Burundi, Congo, Rwanda, South Sudan, Tanzania, Uganda and
Yemen.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Direct Production Labor
PharmCo B
30%
5% 4% 4% 3%
Direct Quality Control
55%
Indirect Quality Control
Quality Assurance
EM-TOTAL
n=37
45%
9%
2% 4%
10%
Maintenance
31%
Other Functions
0%
100%
Figure 4.19: Headcount structure PharmCo B
The manufacturing site employs nearly 400 people of which only 30% are involved in
direct production labor. The main percentage of employees (55%) was not assigned to
any of the provided job descriptions (see Appendix C).
Comment: The company has no automated packaging lines and all secondary packaging is done
manually. At the site visit, all packaging lines were fully staffed and running. This suggests that the
majority of employees who were assigned to ‘other functions’ actually work in the packaging
department.
About 65% of PharmCo B’s workforce is permanently employed. A large percentage
of the workforce is hired through temp agencies. People hired on a temporary basis are
employed for a three week period, and after a fourth week of unpaid, unemployed time
they are re-employed depending on the company’s order situation.
The company’s manufacturing strategy seeks to increase the responsiveness to demand
changes in volume and product mix, and the company is about to initialize activities to
improve its launch capability (Figure 4.20). In contrast, the management of PharmCo
B focuses less on improving the company’s capabilities to produce a higher drug
quality – rather, room for improvement of quality performance is seen at the suppliers’
end. Though less of a focus in its manufacturing strategy, implementing OPEX at
PharmCo B is meant to improve overall drug quality. Primarily, efforts aim, however,
at a broad reduction of cost and to support the fulfillment of set targets by corporate
management.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Manufacturing Strategy
Flexibility
Reduce cycle time
Quality
Service
Level
-
0
+
++
Reason for launching OPEX
Reduce set-up time and cleaning time
To meet FDA regulations
Increase flexibility to respond to market needs for
broad product mix
To change from functional organization to process
organization
Increase flexibility to respond to demand changes
in volume
Increase flexibility to respond to shorter product
lifecycles and higher number of product launches
Increase supplier quality performance
To reduce lead times and inventory
Reduce lead time
To initiate a cultural change for continuous
improvement
To change the quality focus from final product to
process quality
Increase on-time delivery rate
To introduce standardized methodologies for
problem solving
Increase employee productivity
Increase capital investment productivity
0
+
++
To increase employee empowerment
Reduce scrap rates
Increase asset utilization
-
To increase cost awareness
To increase employee involvement
Reduce process variance through statistical
process control
--
To implement Process Analytical Technology
(PAT)
Accelerate new product introductions
Reduce stock
Cost
--
127
To launch a broader cost cutting program
To improve final product quality
To fulfill site targets between corporate and plant
management
Figure 4.20: Manufacturing strategy & reasons for launching OPEX of PharmCo B
Comment: Although the management stressed during the interview that PharmCo B pursues highest
product quality, the case company does not have a distinctive focus on improving its product quality.
While the intention of implementing OPEX as a cost cutting initiative might not be the right focus to
gain a broad acceptance among the company’s workforce (Friedli and Bellm, 2013a), it is in line with
PharmCo B’s strategic orientation
4.2.3.2 Structural Levers
With the beginning of the new century, the management of PharmCo B decided to
extend its capacity and established a new building on its campus over the following
years. With the newly added manufacturing capacity, the company received voluntary
product licenses from two Western pharmaceutical organizations to supply its market
with affordable medicine. Since then, PharmCo B has been manufacturing nearly 300
generic drugs for its own purpose, without offering its capacity to other
pharmaceutical organizations. The product range covers pharmaceutical products like
tablets, capsules, liquids, and ointments, but also consumables like vitamins,
sweeteners or syrups. The company manufactures nearly 500 million tablets and
capsules, and more than 100,000 liters of liquids in 1,500 formulation batches per
year. Without varying the batch size to, e.g., gain flexibility (see Figure 4.20),
PharmCo B processes these 1,500 batches through its packaging department. For
manufacturing liquids, the company’s capacities are very limited. Therefore,
manufacturing, filling, packaging, and storing of finished liquids is confined to one
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
room only, whereas the manufacturing and handling of solids is split between different
rooms. As a reaction to PharmCo B’s capacity constraints, the company started to
build a new manufacturing facility on its campus in late 2012. People work in two
eight-hour shifts from Monday to Friday and a day shift on Saturday. Due to security
reasons and poor public transportation services, the workforce of the night shift spends
twelve hours on site; the company provides its workforce with a possibility to rest until
the next shift begins.
Though the majority of PharmCo B’s equipment is at least ten years old and most of it
(70%) is manually operated, the CEO argues that the plant is at the forefront of its
industry. Fully automated equipment is not available at the company, and the
percentage of equipment that is considered as newer technology is not used very
effectively. New, affordable equipment is very scarce on the market but the local
government aims to develop its pharmaceutical sector to support domestic companies.
Due to local governmental efforts, PharmCo B is currently supported by a Western
pharmaceutical organization for a couple of years and has signed a technology transfer
agreement to take over the organization’s replaced equipment.
PharmaCo B has about 200 suppliers of which more than 70% constitute the
company’s source for API and are based in China or India. Due to long and costly
overseas delivery in a 60-days rhythm, the company maintains a large stock of raw
material. Other sources for excipients or packaging material are Europe, the US, and
northern countries of the African continent.
4.2.3.3 Pharmaceutical Manufacturing Environment
At first sight, the manufacturing area is in a good and well-maintained condition. All
rooms are labelled according to the processes that are performed inside and basic GMP
requirements (washing hands, taking of jewelry, no eating, etc.) are signed on entry
doors and walls. However, no colored signal markings can be found on the ground of
the shop-floor to indicate distinctive production or equipment storage areas. In the
manufacturing area, equipment and tools stand around without noticeable purpose
although the Production Manager mentioned the workforce would be urged to put all
tools and equipment away and to keep the site in a clean state. Each room on the shopfloor has a dedicated two-person team which is responsible to keep the room clean.
Nevertheless, so far 5S has neither been introduced on the shop-floor nor in the
laboratories and at the sample storage. Utilities are located in an adjacent building
close to the manufacturing facility. The lighting in this area is very poor and the floor
is partially covered with leaking black oil.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
129
Comment: Within the granulation area, some equipment’s rack was covered with several layers of old
and yellowed granulation dust in its angles. Addressing this finding, the Production Manager
persisted to manufacture compliant to GMP which requests that “[a] high level of sanitation and
hygiene should be practised in every aspect of the manufacture of drug products. The scope of
sanitation and hygiene covers […] equipment and apparatus, production materials and containers
[…], and anything that could become a source of contamination to the product. Potential sources of
contamination should be eliminated through an integrated comprehensive programme of sanitation
and hygiene.” (WHO, 2003, p. 48).
PharmCo B has only few people (3%) working in the maintenance department, with
the lowest percentage employed for basic care works (Figure 4.19). The Production
Manager reported to run a rudimentary maintenance program for the company’s
machines, which comprises maintenance plans and some checklists but lacks an
approach of continuous improvement. Therefore, the management is not aware of its
bottleneck machines and is not yet fully convinced of the benefits of a proper
maintenance program to improve final product quality and to achieve a resilient
manufacturing system. Operators are hardly involved in maintenance work, which is
primarily done by the few designated maintenance workers. The maintenance crew is,
however, only trained to perform smaller maintenance work. For bigger repairs, the
company has to request service technicians from the Italian and Indian equipment
manufacturers; technicians must be flown in since the machine providers do not
maintain a service hub in Africa. This is a costly and time-consuming matter for
PharmCo B.
Comment: During the site visit, the Production Manager stated that PharmCo B does not have any
cases of unplanned maintenance.
To improve its operations, PharmCo B partially employs standardization. Standard
operating procedures are used to improve the company’s processes. Moreover, the
management pursues the standardization of the company’s equipment and machinery.
Comment: Though the company has signed a technology agreement and thus has the benefit of access
to machines which would hardly be affordable under normal conditions, it uses many different
machines at various ages. This might cause difficulties in pursuing a high level of standardized
machinery as it is known from Western manufacturers.
Currently, PharmCo B does not include any visualization methods to inform its
employees about their current performance and conformity with set targets. The most
important technical documents are stored outside the respective manufacturing area,
directly at the entrance door.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
4.2.3.4 Processes
At PharmCo B, achieving high product quality is primarily the responsibility of the
company’s QA/QC department. To improve quality, the company usually traces back
problems to identify their root causes. However, the use of specific tools for such
analyses is rather limited due to employees’ ignorance of suitable methods. Given that
PharmCo B relies on inspected product quality, the percentage of people responsible
for indirect quality work is rather low, although it is in line with domestic companies’
average (see Figure 4.19). In general, the company does not separately monitor its
costs of quality nor is it aware of its rework or destruction costs. Currently, no key
performance indicators (KPIs) to control product or process quality have been
implemented.
In fact, transparency of manufacturing and support processes at PharmCo B is limited.
The CEO argued that the company does not measure manufacturing-related KPIs
except volume produced. Though the sales department provides manufacturing with a
forecast, this forecast is frequently updated and does not allow a product-specific
breakdown for a more detailed planning. The same applies for the production schedule
which is under a constant flux and shaken by nearly 50% of orders classified as
priority orders that are integrated in the schedule after it was theoretically fixed. Due
to this lacking transparency, the company is not aware of its production lead time
which is thus based on assumptions and experience.
Comment: Although the CEO emphasized that the company does not yet measure any process KPI
except the production volume, KPIs were reported in the survey. The given values were contradictory
and seemed hardly possible. However, the Production Manager, in an attempt to save face, insisted on
the reported values to be correct, even when the CEO addressed the rather unrealistic picture these
numbers drew.
As of today, PharmCo B has not used methods like Value Stream Mapping to strive
for a better understanding of its processes. Therefore, the company is currently far
from a continuous product flow on its shop-floor with processes out of sync, and has
visibly high in-process inventories. The current status of the company’s production
system does not allow working in a pull-oriented way on the shop-floor and suppliers
are not integrated in the supply chain. Moreover, the company has high inventories of
raw material as a safety stock because of long delivery times of, e.g., API. Due to an
unstable and sometimes low market demand, the company often faces the expiry of
stored material. On the shop-floor, people strive for reducing setup and cleaning times
but these efforts are not supported by regular trainings. Thus, relatively long machine
setups impede manufacturing and contribute to delays in the production process.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
131
PharmCo B has not yet considered joint improvement projects with its suppliers or
customers to improve its supply chain. Though the company receives feedback from
both parties, it does not actively survey it in a pursuit of a better levelling of its
inbound and outbound logistics.
PharmCo B aims at accelerating new product introductions (see Figure 4.20).
Nevertheless, it has often faced delays in its launching activities. Cross-functional
teams comprising pharmacists and engineers alike are hardly built for the company’s
development and launching processes. Although standardization is pursued in general,
there are only a few standardized procedures to facilitate a smooth communication
between involved departments.
4.2.3.5 Management & Culture
PharmCo B is a successfully family-run business and the founder of the company is on
site every day, despite his advanced age. Today, the company is led by his son who is
very interested in Japanese management philosophies and ways to improve the
company’s operations.
Comment: Before visiting the manufacturing site, the research team was asked to visit the founder of
the company as a gesture of gratitude and respect. Moreover, the research team was requested to
formally address the founder in the local language as ‘very old man’.
Working teams need the permission of middle management before changes on the
shop-floor are implemented. Supervisors constitute a powerful hierarchical layer
which must be consulted before solving any problems or taking any considerable
action on shop-floor. In fact, at PharmCo B the leadership style is characterized by a
true command-and-control approach and the distribution of information is rather
scarce.
Comment: Although the CEO is interested in Japanese philosophies like Kaizen, he did not invite his
management team – except for the Production Manager – to the discussions of OPEX nor did he ask
about the research team’s impressions of the site visit afterwards.
On the contrary, in the CEO’s office there is a large TV screen displaying the pictures of about 20
security cameras which are distributed in the entire manufacturing site.
Although according to the CEO a target, the philosophy of continuous improvement is
not yet implemented in the PharmCo B’s operations. Feedback is rarely collected and
the company barely invests in trainings or further qualifications of its employees. Only
a minority of the company’s workforce is cross-trained to allow flexible staffing.
Moreover, the company does not run a specific program to maintain both its
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
employees’ qualification and its flexibility on labor flexibility. However, PharmCo B
runs its own library which is open for all employees of the company.
In the past, the company faced high rates of absenteeism of its workforce. In order to
cope with this problem, PharmCo B introduced a bonus for people on shop-floor for a
constant and regular appearance at work.
Comment: Again the case company resorts to financial incentives to counteract its employees working
attitude and high rate of absenteeism.
4.2.4 The Case of PharmCo C
4.2.4.1 Company Profile
The manufacturing site of the third case study is situated in an outskirt area of a
northern Sub-Saharan African country. Founded in the mid-1990ies by two locals, the
company started with a small manufacturing site with very limited capacity which was
then gradually increased. By the turn of the millennium the small company received
foreign direct investment from a Western funding organization that has since then
acted as a third owner of the company. In the early days, the company concentrated on
supplying its home market only; with an increase of capacity it later started its first
exports into an adjacent country. Today the organization manufactures human
medicine for a broad customer base in 19 African countries 92. Besides the GMP
accrediting and ISO 14001 certification of its local authorities, the generics
manufacturing site has also received qualification by regulatory authorities of its
customers’ countries and obtained European PIC/S 93 certification. Due to the
achievement of WHO pre-qualification for one of PharmCo C’s major products, the
company has access to international drug biddings. Without doubt, being the first
African pharmaceutical manufacturer having achieved WHO pre-qualification is a
substantial benefit for PharmCo C’s business.
92
Most of PharmCo C’s customers are based in Angola, Burundi, Congo, DR Congo, Ethiopia, Kenya, Malawi,
Mozambique, Rwanda, Sierra-Leone, Somalia, Tanzania, Uganda, and Zambia.
93 www.picscheme.org.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
133
Direct Production Labor
PharmCo C
67%
4%
10% 1% 6%
Direct Quality Control
13%
Indirect Quality Control
Quality Assurance
EM-TOTAL
n=37
45%
9%
2% 4%
10%
Maintenance
31%
Other Functions
0%
100%
Figure 4.21: Headcount structure PharmCo C
Most of the company’s 300 employees are engaged in direct production (see Figure
4.21) of which two thirds work in the packaging department. To maintain a high level
of flexibility, only 30% of the workforce is permanently employed, leaving a high
percentage of workers in a state of uncertainty regarding their next well-paid job
opportunity.
Comment: The majority of temporarily employed workers work either at the secondary packaging
area or at the storage. It constitutes a challenge for every company to develop a common mindset and
employees’ sense of belonging to the company if people have only short-term contracts.
PharmCo C does not name one clear goal in its manufacturing strategy or in its
motivation for setting up an OPEX program (Figure 4.22). Rather, the management
sees room for improvement in flexibility, quality, speed, and cost and tries to tend to
all four dimensions equally. The efforts in OPEX aim at a broad scope covering all
aspects of changing employees’ mindset and work behavior.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Manufacturing Strategy
Flexibility
Reduce cycle time
Quality
Service
Level
-
0
+
++
Reason for launching OPEX
Reduce set-up time and cleaning time
To meet FDA regulations
Increase flexibility to respond to market needs for
broad product mix
To change from functional organization to process
organization
Increase flexibility to respond to demand changes
in volume
Increase flexibility to respond to shorter product
lifecycles and higher number of product launches
Increase supplier quality performance
To reduce lead times and inventory
Reduce lead time
To initiate a cultural change for continuous
improvement
To change the quality focus from final product to
process quality
Increase on-time delivery rate
To introduce standardized methodologies for
problem solving
Increase employee productivity
Increase capital investment productivity
0
+
++
To increase employee empowerment
Reduce scrap rates
Increase asset utilization
-
To increase cost awareness
To increase employee involvement
Reduce process variance through statistical
process control
--
To implement Process Analytical Technology
(PAT)
Accelerate new product introductions
Reduce stock
Cost
--
To launch a broader cost cutting program
To improve final product quality
To fulfill site targets between corporate and plant
management
Figure 4.22: Manufacturing strategy & reasons for launching OPEX of PharmCo C
Comment: PharmCo C is the only case company that clearly states to strive for highest quality in its
manufacturing strategy. Nevertheless, lacking a clear focus in the company’s manufacturing strategy
is potentially dangerous since the company might end as good in all dimensions but missing
excellence in at least on dimension as a competitive advantage (see Section 3.2.1.6).
4.2.4.2 Structural Levers
PharmCo C manufactures and packs about 150 different products comprising tablets,
capsules, suspensions, syrups, creams, and ointments. All manufacturing capacity is
used for the company’s own product range and does currently not permit an entrance
into a contract manufacturing business. The company has a yearly output of about 800
million tablets and capsules which are primarily packed in blisters and bottles. Its more
than 700,000 liters of different liquids are filled into bottles. Employees on shop-floor
work in two shifts five days per week. The dayshift lasts for nine hours and the
nightshift for eleven. Due to the location of the manufacturing site and limited public
transportation after nightfall, it is impossible for workers to directly leave the site after
finishing very early in the morning.
With the entrance of the Western investor, PharmCo C received not only financial
support but also access to an excellent network of pharmaceutical manufacturers in
advanced economies. It was through these contacts that PharmCo C was able to take
over the equipment of a Western manufacturer, which had to close its facility due to
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
135
high operations costs. Thus, the site is today equipped with relatively young, wellmaintained machinery at a rather low technological level – 80% of PharmCo C’s
equipment is manually operated. Additionally, 20% of the site’s production equipment
is dedicated to specific products; there is no dedicated equipment in the packaging
area. The Production Manager commented that with the acquisition of new machinery
the site counts now as one of the most modern manufacturing site in the country.
Moreover, the company uses the new technology very effectively and gains a
competitive advantage through the adopted Western equipment.
PharmCo C has only a few suppliers for drug substances of which all deliver either
from China or India. The majority of excipients and packaging is delivered from
Chinese or Indian suppliers too, thus leaving in total only 20% of supplies to be
sourced locally. Although the CEO complained about long delivery times and
unpredictable customs procedure, like fussy inspections, the company calculates a
supplier service level of 90%.
Comment: The respective country is far more corrupt than countries like China, India, or Mexico (see
Table 2.6). The CEO of PharmCo C reported that imports are often deliberately labelled wrong to
smuggle goods into the country. Thus, customs check overseas imports meticulously and sometimes
keeps raw material up to 30 days.
4.2.4.3 Pharmaceutical Manufacturing Environment
The manufacturing site is in a well-maintained and clean state. A large poster at the
entrance to the shop-floor states the site’s vision, mission and company values, clearly
visible to all employees. Right after the entrance, various bulletin boards inform
employees about PharmCo C’s OPEX initiative, selected tools, performance targets
and deviations to the current achievements. On the shop-floor, respective areas for
equipment storage, machinery, etc. are clearly labelled with colored signal markings
on the ground.
Comment: The company trains its employees to put tools and equipment back at their designated
place after use. Nevertheless, a few containers and barrels containing raw materials and semi-finished
products stood around ownerless in the manufacturing area while no dedicated intermediate storage
was marked on the ground.
All tools were at their respective fixtures or designated areas on the shop-floor and laboratories.
At the doors of manufacturing and adjacent utility rooms, project descriptions of 5S
projects are attached. These inform workers of what has been done inside and display
pictures of before and after the project. Moreover, the information sheets advise
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
workers on how the room is supposed to be maintained. The company has a formal
program to maintain all equipment and machinery. The Production Manager
commented that he pursues good maintenance as a strategy to increase the site’s
quality in manufacturing. Most of the site’s bottleneck machines are identified and
supplied with spare parts. The spare part storage is well-organized and orderly.
Comment: The Production Manager explained that before introducing 5S to the spare part storage,
PharmCo C had not had any overview of type and number of spare parts. By now, every type of spare
part, like screws, nuts, cartridge seals, tubes, etc. is in a clearly labelled box and the supervisor of the
storage maintains an off-line list with machine type, respective spare part and location within the
storage. For critical spare parts PharmCo C holds more than one spare part and orders new ones as
soon as a critical level is reached in a Kanban-oriented way.
Maintenance work at the site is usually done by the company’s own maintenance crew,
which makes up about 6% of the company’s total workforce (Figure 4.21).
Comment: Though at 6% of workforce PharmCo C runs the proportionally largest maintenance
department among the case companies, this value is still below the averages of the domestic (8%),
offshore (12%), advanced (10%) and top-10 (9%) samples.
At the maintenance department itself, about 30% of the employees are responsible for
preventive and reactive maintenance work respectively.
Comment: PharmCo C spends about 15% of its maintenance work for unplanned maintenance of
formulation equipment and 0% for its packaging machinery. In comparison with other pharmaceutical
manufacturers’ percentage of unplanned maintenance for packaging equipment this value seems to be
unrealistically low. However, given the fact that PharmCo C only spends 5% of its scheduled time for
setting up and cleaning its packaging lines (sample comparison: domestic (30.2%), offshore (20.4%),
advanced (21.3%), top-10 (16.1%)), puts a lot of effort in its maintenance program and in addition is
running low-tech machinery such failure rate can be reached.
To increase efficiency, PharmCo C uses standardization not only at documents and
functional descriptions for, e.g., vocational trainings but also at its tools, machinery
and spare parts. The company has documented several best-practice processes and
utilizes them to continuously improve its operations. Due to its standardization efforts
in the manufacturing area, the company shortened its machine downtimes. Likewise,
PharmCo C already expanded its Gemba Kaizen program to selected administrational
offices and introduced standardization and 5S there, too.
Comment: The research team visited a QA office and the Production Manager presented the outcome
of PharmCo C’s 5S and standardization workshop. He mentioned that in the past, his team needed
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
137
more than a day to find a formulation’s particular bill of material or recipe. He then asked the
research team to select a formulation at random and within less than 30 seconds the QA employee
proudly presented the requested documents.
4.2.4.4 Processes
Though PharmCo C does not directly participate in the ups and downs of the global
pharmaceutical market, the volatility of the African customers’ demand constitute a
planning challenge for the company. To provide stability, the company solely forecasts
its market for 60 out of the 150 available products. Moreover, PharmCo C aims at
avoiding excess inventories and expiries of costly raw materials and therefore has only
raw materials on stock for its ten most demanded products. The raw materials required
for the remaining 140 products are ordered upon request. This leads to a comparatively
long freezing period of the company’s production schedule and makes the company
partially dependent on timely delivered overseas supplies. Sticking to the fixed
schedule, the company usually meets its daily production plan which is also designed
to catch up with minor delays within the production process. The Production Manager
noted that PharmCo C has a smoothly leveled production capacity and that most of the
processes are highly synchronized, leading to an almost continuous product flow
within the facility.
Comment: While the product flow might be continuous for the site’s formulation processes, it is not
regarding packaging activities. Again, the packaging area was full with primary packed drugs waiting
for secondary packaging, and finished goods to be transferred into the company’s storage.
This impression was supported by the Production Manager’s statement that the design of the shopfloor hampers a production with low in-process inventories.
Dedicated process owners take care of all direct and indirect processes, most of which
are documented and continuously measured to prevent quality deviations.
Comment: Documented processes mean pure manufacturing processes according to standard
operating procedures. The company has not yet used tools like Value Stream Mapping or Process
Mapping for visualizing its product flow from station to station.
Nevertheless, in order to stabilize the company’s processes PharmCo C usually uses
tools to detect the root causes of variance. In doing so, the company is aware of the
most common issues within manufacturing and strives to eliminate these in a stepwise
approach.
PharmCo C does not share production-related data with its suppliers or customers to
improve both inbound and outbound logistics. Though the company is in frequent
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
contact with its customers, joint improvement projects to increase the company’s
performance are limited to selected large customers, e.g., tenders or NGOs only.
Furthermore, an improvement of PharmCo C’s on-time delivery rate is neither actively
managed (see Figure 4.22) nor is on-time delivery a vital constituent of the company’s
philosophy. Although PharmCo C is highly responsive to its large customers due to a
focused forecast, it does not deliver the drugs in a JIT-oriented way.
Comment: PharmCo C has a service level (delivery) of 90% and thus scores in the respective KPI
better than the average of domestic emerging market sites (see Table 4.14).
The Production Manager mentioned that he aims to establish a JIT-oriented manufacturing, but large
demand uncertainties, unreliable delivery times and the company’s long freezing period restrict
PharmCo C’s agility.
The pursuit of high quality output is stated in the company’s manufacturing strategy
(Figure 4.22). To achieve this end, the company not only relies to some extent on
cross-functional teams at early stages of the development process, but also puts
emphasis on product inspections. As such, 10% of the company’s workforce is
concerned with indirect quality control (Figure 4.21). Arguably, at PharmCo C it is the
responsibility of QA/QC to assure the achievement of the company’s quality target.
Comment: PharmCo C has the highest percentage of indirect quality control compared to the other
sites of the domestic emerging market sample.
To better control product quality, the company prioritizes quality in selecting suppliers
– PharmCo C ranks its suppliers and has validated most of them. Moreover, the
company runs a few joint projects with suppliers to increase both parties’ performance.
Comment: Basically all companies of the domestic sample report that quality is the most important
criterion when selecting suppliers (level of OPEX implementation: domestic: 4.32; offshore: 4.22;
advanced: 4.40) 94. But in order to keep costs low, all case companies source their API and most of
their excipients in China and India.
At the site visit, the CEO complained about the low supplies quality PharmCo C sees itself often
confronted with. Especially the high variance in locally sourced packaging material (color,
grammage, stiffness, etc.) is a problem for the company.
For new product development and launches, the company builds cross-functional
working teams. This, for instance, helped the company to significantly reduce the lead
94
The item (E20) is also assessed in the Operational Excellence survey but was not discussed in Section 4.1.2.
See Appendix C for a detailed description of the item.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
139
time for product launches. Yet, drug launches of PharmCo C are delayed time and
again.
4.2.4.5 Management & Culture
PharmCo C is a young organization which has benefited from a large growth rate for
the last two decades. This success has shaped the behavior of the people working at the
site, and serves as a motivation for management and workforce.
Though PharmCo C was founded by two local pharmaceutical managers, the
leadership team of the manufacturing site is truly multicultural. The CEO and
Production Manager are both African-Indians. Further board members are of African,
African-Indian or Indian descent. The COO of PharmCo C was assigned with the
Western investor’s entrance into PharmCo C’s operations. He is a European
pharmaceutical manager who gained experience in several Western pharmaceutical
organizations.
Using the funds of the Western investor PharmCo C did not only initiate structural
changes like newer production technology and larger capacities, but also started an
infrastructural transformation. The Production Manager was sent to Japan to
participate in a three-week Kaizen training academy in collaboration with Toyota. This
extensive training empowered the Production Manager to start the implementation of
several improvement projects like 5S on shop-floor and administrational offices,
visualizations at bulletin boards, etc. Moreover, the Production Manager and COO
started regular meetings on shop-floor. Every Tuesday, the shop-floor workforce holds
a short meeting with representatives from QA/QC and Engineering to discuss
PharmCo C’s current manufacturing situation. Every Friday, all employees of the
company assemble for a regular meeting and short speech by the CEO. These regular
meetings have contributed to the reduction of unintended competition between
departments and foster the company’s open communication culture.
Comment: To motivate its employees, PharmCo C has started a competition between its working
teams on shop-floor. Each team is rewarded with credit points for the perfect fulfillment of tasks. The
winning team of the week is officially announced at the Friday meeting and at the end of the year the
best three teams are rewarded with a financial bonus.
Though the company invests in trainings of its workforce and uses the feedback of its
weekly group meetings to continuously improve the training, the company has a rather
low percentage of cross-trained employees.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Comment: Only 10% of all workers are qualified to work in at least three functional areas. This
rather low value might stem from the company’s philosophy to employ 70% of all employees on a
temporarily basis only.
Employees at PharmCo C are limited in their freedom to initiate changes without the
approval of supervisors or middle management. In addition, they have only limited
authority to correct problems when they occur. Such interventions in the
manufacturing processes have to be approved by supervisors first and reflect
management’s tendency to an eased command and control approach. Nevertheless,
management seeks to empower its workforce to continuously improve the site’s
operations and is actively involved in ongoing improvement projects.
Comment: PharmCo C used to have a suggestion program which was driven by its shop-floor
employees. The management terminated the program arguing that it (1) took up too much of
employees’ working time to write the suggestions and (2) took too much time to evaluate all
suggestions.
Basically, the company was successful in creating a mindset to strive continuously for site
improvement among its employees. But due to resource restrictions and the lacking willingness to
engage in long-term improvement, the management nips improvement initiatives in the bud.
4.2.5 The Case of PharmCo D
4.2.5.1 Company Profile
PharmCo D is a newly established, greenfield pharmaceutical manufacturing site in an
industry park about 50km outside a metropolitan area in a northern Sub-Saharan
African country. In order to spur industrial growth and to create a business-friendly
climate, the country has granted the industry park stable water and electricity supply.
This provides the company with a stable environment to manufacture its sterile
products ranging from ophthalmic liquids to pharmaceutical and surgical supplies.
PharmCo D is a family-run business and it is the second manufacturing site the owner
has established. The site was set up to comply with latest regulatory requirements and
WHO requirements. In a first attempt, it is the objective of the management to supply
the entire African market and to increase its global reach step by step. The facility is
designed to be run by about 60 people, most of which will move from the company’s
older site to the new one.
Comment: PharmCo D was still under construction when the research team visited the manufacturing
site. Though the facility was already fully functioning, the company had not yet started its operations.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
141
The company was manufacturing its first batches and machine operators were still in their training
phase. Moreover, employees were about to write Standard Operating Procedures or to furnish
administrational offices. At the outer area of the manufacturing site, tiling of stairs and the finish of
the front of the building were still pending.
4.2.5.2 Structural Levers
The layout of the site is designed to keep subsequent process steps close together and
thus facilitate a smooth product flow. However, while the receipt of goods and the
adjacent cleaning room are close to the next process step, they are distant to the raw
material storage, requiring a lengthy transportation of raw materials.
The site is equipped with latest manufacturing and packaging equipment from
European and Indian manufacturers. The efficient packaging technology for primary
packaging, which is designed to recycle wastage and offcuts, supports the company’s
considerate resource consumption. Further, its fully automated secondary packaging
line saves the company from having to dedicate workforce to monotonous, low skill
tasks.
Comment: A fully automated packaging not only saves costs in terms of wages, but also because a
manned packaging line requires more space to accommodate personnel.
4.2.5.3 Pharmaceutical Manufacturing Environment
Comment: Since the company was about to ramp up production at the time the research team visited,
tools like standardization and visualization were not yet in place.
Visiting the site, the research team got the impression that process variables that are critical to a
sufficient quality output were orderly in place. Nonetheless, a few slip-ups such as blotted wall
paintings or small, installation-related damages of machines that were left unattended raise concerns
regarding the compliance with working regulations that ensure the sterility of the manufacturing site,
where even small lapses will have severe consequences.
4.2.5.4 Processes
Though the layout of the shop-floor facilitates fast throughput times and low inprocess inventories, a considerable area within the facility was dedicated as storage for
finished products.
Comment: During the site visit (the research team was guided by the owner of the company), the
research team met the engineer who was responsible for all manufacturing machinery. Although the
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
company had only produced a few small test batches and he had recently spent some weeks in
Germany to receive vocational training (on how to operate the machines), he claimed to already
handle the machinery properly, reaching a level of control of about 90%.
4.2.5.5 Management & Culture
The manufacturing site was set up by the company’s owner, who appeared to be a very
experienced, highly motivated and ambitious man. Recently, he had appointed his
daughter as CEO of the new facility, who had returned to the country after having
finished her master’s degree at a well-known European university.
Comment: Although the owner’s daughter was appointed CEO, she hardly participated in the
conversations. Discussions were left to her father, and she clearly respected his authority. Moreover,
maybe due to his long experience and authority within the company, the owner appeared to be
relatively resistant to new suggestions and preferring to tread known paths instead of being open to
innovation.
4.2.6 Workshop I
The ability to combine interviews and on-site discussions with a visit of the respective
manufacturing sites was very beneficial to this thesis, since it allowed reflecting on
and reconciling information from case companies with the author’s personal
impressions. Despite their usefulness, personal site visits are time-consuming and limit
the number of case studies that can be conducted. In order to cope with this limitation,
the research team set up a workshop in a northern Sub-Saharan African country that
was purely focused on the implementation of OPEX in African pharmaceutical
organizations. At the workshop, 13 pharmaceutical companies and two universities
were represented by two to four people from each organization. Among the company
representatives were CEOs, COOs, Heads of Quality or Production Managers; the
universities were represented by two professors each teaching pharmaceutical
manufacturing.
As part of the workshop, the participants discussed the primary challenges that
constrain their companies’ manufacturing operations. In a second, anonymous (to the
other participants) task, the participants were asked to note down the primary KPIs
they currently use to manage their company’s pharmaceutical manufacturing
functions. The results are shown in Table 4.17.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
143
Table 4.17: Manufacturing challenges and KPIs of Sub-Saharan African pharmcos
Organization
Challenges in pharm. manufacturing
KPIs used for monitoring
PharmCo 1




Energy costs
Productivity
Overall production costs incl. laboratory etc.
Efficiency of workers






Cross profit
Profit per employee
Sales growth
Quality systems
Product quality
Supplier quality
PharmCo 2

Huge differences between sales forecasts & actual
sales
Material resource planning for non-key products
High production costs for new products




Overall equipment effectiveness (OEE)
JIT meeting of sales requirements
Product quality
Production costs
Insufficient knowledge of the technical aspects of
manufacturing amongst the regulatory authorities
Lack of adequately trained and qualified people in
the local industry
Technological challenges (present day)





Operational efficiency (operational cost reduction)
Quality product achievement
Self-motivation of personnel
Level of team spirit
Level of management participation on the shop-floor





Breakdowns & sabotage
Company requirements vs. managers’ perception vs.
what is actually happening on shop-floor
Inefficiency due to silos, unions, action (or inaction)
Deliberate slowdowns by employees
Infrastructure & layout hamper output

Yield
(Beginning to measure) constraint machine
effectiveness
Time 95 vs. finished goods vs. expected output
PharmCo 5



Inadequate tools for data capture
Inadequate tools for data analyses
Competing targets





Actual production vs. planned production
Percentage stock outs
Inventory turns
Customer complaints & market returns
Quality deviations & failures
PharmCo 6

n/a








Profit (overall)
Quality improved
Rejection of raw material and products
Delivery time
Customer satisfaction
Reduced cost of machine maintenance
Compliance with the established system (e.g. # of
audits and follow ups)
Employee satisfaction


PharmCo 3



PharmCo 4


PharmCo 7





Lack of clear policy and company direction
Management challenges
Obsolete equipment and technology
Lack of qualified personnel
Planning challenges



Daily productivity
Availability of raw/packaging materials
Personnel costs
PharmCo 8




Time adherence
Culture of people
Staff motivation
Productivity output





No. of change control raised
No. of planned / unplanned deviations
No. of out of specification (OOS)
Machine breakdowns
Staff attendance per day
PharmCo 9

n/a





% quality related market complaints
% OOS of batches produced
% completed CAPAs 96
% machine down time for unplanned maintenance
Customer satisfaction with products and services
PharmCo 10



Planned & autonomous maintenance of equipment
Manufacturing quality
Planning

n/a
95
96
Total production lead time (incl. lead time for pharmaceutical manufacturing and QA/QC).
CAPA is the acronym for ‘Corrective And Preventive Actions’.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Organization
Challenges in pharm. manufacturing
KPIs used for monitoring


Reduction of setup time
Reduction of wasted time
PharmCo 11



Trained personnel
Staff turnover
Raw material supplies




Reworks
OOS
Kanban (stock management)
Deviation management
PharmCo 12




Good people (managers and workers) with technical
knowledge
Weak technical support from the local market
Lack of material management system
Lack of proper preventive maintenance





On time delivery
Efficient materials management
Machine breakdowns
Reduction in product and production cost
Minimizing lead time from manufacturing to delivery
PharmCo 13





Procurement of (costly) equipment
Personnel availability
Cost of power
License fees
Registration hiccups



Turnover periods
Increase of range
Expansion into the return
University



Production costs
Lack of specialized staff, e.g. formulation scientists
Competition from cheaply imported generics





Production costs
Profit per annum
Staff satisfaction and retention
Quality of products
Industry growth (volume & number of new products)
4.2.7 The Case of PharmCo E
The following case study is based on a three-hour round table discussion at the
manufacturing site and a two-hour site visit. The company did not participate in the
OPEX survey and was added to the sample after the research schedule had already
been fixed.
4.2.7.1 Company Profile
PharmCo E is one of the largest pharmaceutical contract manufacturing organizations
situated in a southern Sub-Saharan African country. The site had about ten years of
experience in pharmaceutical manufacturing before it was acquired and renamed by a
consortium of several holding companies. With its broad product and service portfolio
of human and veterinary manufacturing capabilities, more than 600 people at the site
manufacture and provide R&D services for more than 30 pharmaceutical
organizations. Among these customers are some of the most well-known multinational
research-driven pharmaceutical organizations which supply the entire African market
with products manufactured at PharmCo E. Currently, the company is accredited with
GMP of local authorities but strives to expand to the Middle East in the near future.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
145
4.2.7.2 Structural Levers
The company provides its customers with contract manufacturing capabilities for a
wide range of products. It is accredited for manufacturing sterile liquids like, e.g.,
parenteral and ophthalmic drugs, creams and ointments, liquids, and solids like tablets,
capsules or granules. As one of the very few African veterinary API manufacturing
organizations, the company currently manufactures nearly 200 different products.
Whereas most products are produced with PharmCo E’s own equipment, some of
PharmCo E’s customers have their own equipment at the company’s shop-floor that is
dedicated to those single customers. Overall, the manufacturing equipment is not very
old and is operated with IT support. The packaging departments, in contrast, rely on
manual work for secondary packaging.
Capacity constraints, especially in the warehouse, led PharmCo E to increase its
storage capacity for finished products.
4.2.7.3 Pharmaceutical Manufacturing Environment
The entire manufacturing site is in a clean state and the equipment is well-maintained.
On the site’s shop-floor, areas for equipment storage, machinery, etc. are labelled
respectively with colored signal markings on the ground.
Comment: The signal markings and their meaning are noticed by employees on the shop-floor but not
everybody adheres to them as whished for by the management.
Four years ago, PharmCo E started its first approach to implement selected concepts of
OPEX on the shop-floor. At that time, the concept was completely new for the
company, and it could not revert to internal know-how. Thus, the company
commissioned an external institution from abroad to introduce selected tools and
methods of OPEX to the manufacturing site as a foundation for its aspired
transformation. The external institution set up several trainings focusing on the
introduction of the seven types of waste and tools like the Deming Circle 97 or 5S.
Despite the managements’ efforts, the initiative did not get the desired buy-in from
people of the shop-floor, and slowly came to naught.
In a second attempt, the site started collaborating with a local Lean institution to
implement OPEX – or at least its very basics – at the shop-floor.
97
The Deming Circle is an iterative process for problem solving. The process steps follow the acronym PDCA,
which stands for “Plan – Do – Check – Act”.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Comment: The CEO complained about the lack of people trained in Six Sigma, Lean Manufacturing
or ‘Black Belts’ in his country. This scarcity extends to the site – nobody is solely dedicated to OPEX.
It is left to the Department Managers to get the initiative started.
The manager of the production department, a white male in his mid-30ies and responsible for about
250 people at the packaging department (mostly black women of different ages), commented that
though he tries get a buy-in from his workforce, he does not perceive a change in mindset.
To get people more familiar with the tools, the company put up various information
sheets explaining tools and approaches like the Ishikawa Diagram, 5S, 5 Whys,
Deming Circle, or the seven types of waste at bulletin boards. In addition, the
company communicates KPIs on quality and delivery performance to its employees. In
the manufacturing area, digital Andonboards inform the workforce about idle
production lead time, current output, scrap rates as well as up- and downtimes of
machines.
4.2.7.4 Processes
Though the company has started its first steps towards OPEX some years ago, it has
not yet mapped its value streams to isolate the bottlenecks of its manufacturing
processes and to implement a Pull Production. Moreover, PharmCo E is dependent on
its customers who store their raw materials in its warehouse occupying costly storage
space for longer times without a manufacturing order. Since the clients do not
communicate the value of their stored raw materials, PharmCo E is not aware of its
inventory’s value.
Comment: Compared to other companies the author has visited who are fully aware of their takt time
and bottlenecks along the process, the research team observed not only raw material and in-process
inventories waiting for further processing at PharmCo E, but also high inventory levels of finished
products.
Another challenge for PharmCo E is that it receives unstable formulations for
production from its clients. Neither the costly R&D efforts for adjusting the process
parameters to manufacture the formulations nor the time needed are always
compensated by PharmCo E’s clients.
Comment: By explaining the formulation issue, the CEO commented that he looks for initiatives to
avoid the production of ‘bad batches’ especially since destruction costs in the country have increased
by nearly 500% in recent years.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
147
Building of cross-functional teams to accelerate process adjustments and necessary
scale-ups is also hampered by the limited availability of engineers and people with
other qualifications than pharmacists.
Comment: The CEO of PharmCo E explained that the country’s law requires a high percentage of
pharmacists working at pharmaceutical companies. Thus, the company has often not enough people
with an engineering background.
4.2.7.5 Management & Culture
The site leadership team is committed to implement OPEX at PharmCo E. Although it
has not yet been successful in this respect, PharmCo E tries to create a pleasant
atmosphere for the people working at the site. The company has set up several training
campaigns, created a company song to increase people’s identification with the
company, and has established a small hospital on site to take care of its less solvent
employees.
Comment: The CEO mentioned that it is a challenge for the company to keep good people and their
knowledge within the company. Further, though the company has financed several trainings, it was
not yet successful in disseminating know-how among employees.
4.2.8 The Case of PharmCo F
4.2.8.1 Company Profile
The manufacturing site of PharmCo F is situated in a suburban area of one of the
country’s largest cities in southern Sub-Saharan Africa. Established and run for several
years by a Western multinational pharmaceutical organization, the site was acquired
by PharmCo F’s holding at the turn of the millennium. Manufacturing both human and
veterinary drugs, the site provides manufacturing capacity for other pharmaceutical
organizations and supplies the entire African market with its own branded products,
too. In recent years, the site has undergone a number of inspections by several
regulatory bodies and customers. As of today, the site is accredited with ISO 9001 &
14001; further, it operates according to and is accredited with GMP by local
authorities.
Over the past three years, PharmCo F has launched nearly 300 drugs that were new for
the company and thus significantly set itself apart from its competitors. A stronger
growth and return of sales additionally improved the company’s financial cushion and
led to its positive development at the stock exchange. About 20% of PharmCo F’s cost
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
incur for the company’s sales and marketing activities, whereas its manufacturing
function contributes with 65% the highest proportion to the company’s cost structure.
Direct Production Labor
PharmCo F
49%
9%
4% 4%0%
Direct Quality Control
35%
Indirect Quality Control
Quality Assurance
EM-TOTAL
n=37
45%
9%
2% 4%
10%
Maintenance
31%
Other Functions
0%
100%
Figure 4.23: Headcount structure PharmCo F
PharmCo F has a growing employee base of more than 200 people working at the site
of which 80% are permanently employed. Nearly 50% of the workforce is engaged in
direct production labor. The majority of these workers is enlisted in the packaging
department and workers manually perform secondary drug packaging. Moreover, 10%
of the company’s employees are engaged in support functions of the production
department such as production and materials management or manufacturing
engineering (12%) which is summarized under ‘other functions’ in Figure 4.23.
The company’s strategic priority is a focus on costs and, in particular, a productivity
increase of invested capital. The improvement of the company’s quality performance
has rather low priority, although the pursuit of quality improvement is seen as a key
reason to initiate an OPEX initiative at PharmCo F. Furthermore, the manufacturing
strategy deemphasizes the reduction of production lead times or the site’s inventories –
two objectives which were, too, seen as drivers for the company to deal with OPEX.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Manufacturing Strategy
Flexibility
Reduce cycle time
Quality
Service
Level
-
0
+
++
Reason for launching OPEX
Reduce set-up time and cleaning time
To meet FDA regulations
Increase flexibility to respond to market needs for
broad product mix
To change from functional organization to process
organization
Increase flexibility to respond to demand changes
in volume
Increase flexibility to respond to shorter product
lifecycles and higher number of product launches
Increase supplier quality performance
To reduce lead times and inventory
Reduce lead time
To initiate a cultural change for continuous
improvement
To change the quality focus from final product to
process quality
Increase on-time delivery rate
To introduce standardized methodologies for
problem solving
Increase employee productivity
Increase capital investment productivity
0
+
++
To increase employee empowerment
Reduce scrap rates
Increase asset utilization
-
To increase cost awareness
To increase employee involvement
Reduce process variance through statistical
process control
--
To implement Process Analytical Technology
(PAT)
Accelerate new product introductions
Reduce stock
Cost
--
149
To launch a broader cost cutting program
To improve final product quality
To fulfill site targets between corporate and plant
management
Figure 4.24: Manufacturing strategy & reasons for launching OPEX of PharmCo F
Comment: Until today, the company has not yet put a lot of effort in a distinctive OPEX program.
Rather, the company is just at the beginning of its journey and the management team is about to get
familiar with the new philosophy. This rudimentary knowledge of OPEX might be the reason for a
partial discrepancy between PharmCo F’s manufacturing strategy and its reasons to launch an OPEX
program.
The research team experienced a kind of euphoric attitude towards OPEX, which was primarily driven
by the Operations Director.
4.2.8.2 Structural Levers
The technological capabilities of PharmCo F include the manufacture of a broad
product portfolio such as tablets, powders, granules, syrups, suspensions, gels, creams
and ointments. With its yearly production of about 100 million tablets, 80,000 liters of
different liquids and more than 150 tons of ointments and creams, the company is
close to the limits of its potential manufacturing capacity. During the week, people
work in two shifts. Both shifts, night and day, last for 7.5 hours each; a third shift on
Saturday is of the same length.
Comment: At the site visit, the Operations Director mentioned that PharmCo F’s manufacturing
capacity is currently running at its maximum. Since the site was acquired by PharmCo F, the positive
market development and rising customer demand have led to a constant increase in the company’s
production volume. The anyway insufficient volumes of the company’s process vessels deter the
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
company from additionally reducing batch sizes for flexibility gains. The Operations Director
commented that the company would, if possible, rather increase their batch sizes than reduce it.
On average, PharmCo F uses rather old equipment; more than 60% is older than ten
years and roughly 25% is between six and ten years old. Due to the age of equipment
and the requirements of the African manufacturing environment, about 70% of the
company’s machines are manually operated. The company is aware of its prevalently
outdated manufacturing equipment, but has no intention of replacing or retrofitting its
current machines. The few new machines that came with the latest technology are the
company’s only dedicated equipment and are not used very effectively. In general, it is
not proprietary process technology that brings the company a competitive advantage.
PharmCo F has in total about 120 different suppliers of which most deliver to the
company on a daily basis. More than 50% of its supplies are sourced in Western
Europe and another 30% of the supply value is divided between China and India.
These supplies primary comprise API and excipients. Packaging material is sourced
locally.
Comment: Though PharmCo F receives daily replenishment, its suppliers are not integrated in the
company’s system but deliver at ramp.
4.2.8.3 Pharmaceutical Manufacturing Environment
Although the rather old equipment PharmCo F uses requires thorough maintenance
with increasing age, the company runs only a basic care program for its machinery.
This program is rarely optimized and good maintenance of equipment is not
incorporated in the company’s strategic objectives. Due to the lack of an own internal
maintenance crew, all maintenance work is either done by operators or outsourced to
external service providers. At the moment, the company is not yet fully aware of its
bottleneck machines and thus cannot make sufficient arrangements for a broad spare
part supply.
Comment: With a proportion of 20% of unplanned maintenance of all maintenance work done for
formulation equipment at site, PharmCo F does not significantly deviate from other organization’s
manufacturing sites (top-10: 21.4%; advanced average: 28.8%; domestic emerging markets: 13.3%).
In contrast, PharmCo F’s unplanned maintenance for packaging equipment is at 80% far above the
industry average (top-10: 16.7%; advanced average: 28.8%; domestic emerging markets: 17.6%) and
might be the result of deficient equipment maintenance.
The company only scantily uses housekeeping checklists to support employees in
maintaining the site and all machines in a neat and clean state. Since no proper 5S
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
151
training for shop-floor workers has been conducted yet, people are not advised to put
tools and fixtures back in their place after use. Thus, keeping the site in order currently
strongly depends on each workers personal attitude rather than on procedures trained
by the company.
Standard operating procedures as required by GMP are used to further standardize and
to partially improve the company’s manufacturing processes. Nevertheless,
standardizations and optimized operating procedures are not used as best practice
examples to continuously improve operations. Machines that were taken over from the
site’s first owner had been already standardized, which today enables the company to
work with relatively low costs for spare parts. Surprisingly, according to the
Operations Director and the Production Manager these standardizations do not
contribute to achieving a high up-time of PharmCo F’s manufacturing equipment. The
site does not use any forms of visualization. It neither communicates performance
charts, takt times or schedule compliance, nor is technical information easily
accessible to workers on shop-floor. An absence of colored signal markings on the
ground complicates the maintenance of an orderly state of shop-floor, and makes it
hard to find adequate intermediate storage areas for tools and equipment.
4.2.8.4 Processes
In order to increase its planning stability and smoothly level the production schedule,
PharmCo F shares relevant data backwards and forwards with its large suppliers and
customers. The Operations Director commented that despite this procedure, the
company hardly meets its daily production schedule and is it not fully aware of the
root causes of disturbances.
Comment: During the site visit the Operations Director complained about the difficulties in providing
an accurate planning and sticking to the agreed production schedule. Compared to the benchmarking
samples in Tables 4.5 and 4.7, however, with a production schedule accuracy of 90% and priority
orders of 10% PharmCo F’s performance on these KPIs does not markedly differ.
In an effort to increase its product and process quality, PharmCo F has documented
most of its direct and indirect processes. Further, it continuously assesses the quality of
its processes with different process measures. These measures are, however, not linked
to the objectives of the site.
Comment: Documented processes means pure manufacturing processes according to standard
operating procedures. The company has not yet used tools like Value Stream Mapping or Process
Mapping for visualizing its product flow from station to station, nor does it use tools for structuring its
root cause analyses (e.g., DMAIC cycle).
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Though PharmCo F’s quality department (direct & indirect quality) is comparatively
large (in total 16% of the company’s workforce, see Figure 4.23), the Operations
Director mentioned that achieving the aspired product quality is not solely the
responsibility of the company’s QA/QC department. Rather, the company sees every
employee as responsible for delivering a high quality output. In opposition to a shared
quality responsibility, the development of new products is primary the task of
PharmCo F’s R&D department. The company has no cross-functional teams and does
not involve manufacturing engineers in the development process for a new drug
formulation. Nevertheless, the company has not had any delays in launching new
products for the last couple of years.
Production at PharmCo F is based on a push system. Although process steps are
located closely together and arranged according to the product flow, the layout of the
shop-floor does not abet a fast throughput of material with low in-process inventories.
The Production Manger stated that PharmCo F’s manufacturing processes are
currently not in sync and do not allow a smooth product flow from raw material to
finished products. Further, employees do not feel responsible for reducing any type of
waste within the manufacturing processes.
Comment: Currently, PharmCo F does not consider its process landscape from end-to-end. This
became obvious when the Production Manager mentioned that the company does not work on
achieving a continuous flow between its manufacturing processes.
Nevertheless, PharmCo F focuses on smaller but not less useful process improvements. For example,
the company takted its manually operated secondary packaging lines as to support workers in
counting the right number of blisters for large size packs.
To ensure sufficient raw material supply, the company relies to a large extent on its
permanently updated sales forecast and daily deliveries from its suppliers.
Comment: The Production Manager stated that the company is dependent on on-time deliveries of its
suppliers. But considering the rate of raw material turns (2.2), the company maintains a rather large
inventory of raw materials compared to other companies (top-10: 26.1; advanced average: 8.1;
domestic emerging markets: 6.2).
PharmCo F has validated all of its suppliers, but still inspects almost 100% of all
incoming shipments. In selecting adequate suppliers, the company’s primary criterion
is the quality of goods, followed by price.
Comment: The Operations Director stated that due to PharmCo F’s focus on high quality raw
materials, in this case API, the company also sources its API in Europe instead of only drawing on
lower cost alternatives from India and China.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
153
The company does not run joint improvement programs with its suppliers, yet the
Operations Director complained about the quality of locally sourced material.
Comment: In the packaging area a team of engineers was about to assess defective plastic bottles
from a local supplier. The problem was the bottle’s body, which was cone-shape instead of cylindrical
as specified. Thus, it was not possible to glue the labels on the bottles and the production was delayed.
In order to meet its customers’ requirements, the company constantly surveys their
needs and conducts satisfaction surveys. Besides, to improve its on-time delivery rate
– PharmCo F does not deliver in a JIT-oriented way – the company emphasizes the
importance of on-time delivery in its manufacturing strategy (see Figure 4.24) but has
not launched any joint improvement programs with its customers. Generally, goods are
made to stock and customers are delivered directly from inventories.
Comment: At the site visit, the research team also visited the storage of PharmCo F which was fully
packed with finished goods. Even some of the corridors were blocked with finished products ready to
ship. The Operations Director complained that some customers would not to pick up their goods at the
agreed time.
Nonetheless, with more than 180 days of reach, PharmCo F has a significantly higher DOH than
other companies of the benchmarking samples (top-10: 54.3; advanced average: 49.2; domestic
emerging markets: 62.9).
4.2.8.5 Management & Culture
At PharmCo F the site leadership team is equally staffed with black and white
executives. The CEO of the company is a black South African and gained intercultural
competence at his work and studies abroad. The Operations Director who is ambitious
and interested in actively driving the site towards OPEX is a white female executive;
the Production Manager who is directly reporting to her is a black female. Overall, the
staff at PharmCo F comprises about 70% black and 30% white employees.
PharmCo F’s manufacturing function is not designed as a strong contributer to the
company’s competitiveness. Though the company has a formulated vision and misson,
neither are broadly communicated to employees. Furthermore, the company’s startegy
is neither closely tied to the overall mission, nor is it visibly communicated to
employees. The Operations Director mentioned that although manufacturing managers
have a good technical expertise, some of them lack a profound understanding of how
the company’s strategy is formulated.
Comment: During the interview with the site leadership team, the Operations Director raised the
question of how other companies have organized their approach towards OPEX and if they have
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dedicated people driving the initiative. The Operations Manager was at that time in discussion with
the CEO to establish a new function to accompany PharmCo F’s way towards OPEX.
At the manufacturing site, command and control is seen as the prevalent and most
effective leadership style and employees are not empowered to drive the site’s
improvement. This becomes obvious in the very limited authority employees have to
correct emerging problems or to take actions – if an issue arises that deviates from
standard working procedures, approval from a higher hierarchical level is needed to
deal with it. Fixing problems is therefore primarily the task of supervisors.
Likewise, the communication between departments at PharmCo F is quite limited
which leads to an information asymmetry and causes more competition between the
departments than is beneficial for the company. The Operations Director stated that the
company normally uses official channels for communication, which are often too slow
for her liking.
Comment: The management of PharmCo F is aware of its corporate culture and is eager to create an
intimate atmosphere. To positively contribute to this development, the company hosts a yearly
‘wellness day’ for its personnel which basically is an extra holiday. All employees spend this day at
PharmCo F’s campus and participate in a cooking competition celebrating the company’s success.
Investments in training and other qualification events are rare at PharmCo F, and only
a few people are cross-trained to allow for flexible staffing on shop-floor. Currently,
there is no program in place to foster job rotation on shop-floor.
Comment: In the packaging department, the Operations Director was hugged and warmly welcomed
by an older black female worker who was visibly happy to see her superior. The Operations Director
later explained that she had offered the worker a job a year after the worker had retired since
PharmCo F needed qualified personnel and the former employee missed her work at PharmCo F.
Nevertheless, the management team is determined to create a mindset of continuous
improvement among PharmCo F’s employees and partly participates itself in the
company’s improvement programs to do so. Occasional feedback meetings are used to
assess people’s opinion on the company’s procedures. Though PharmCo F has started
to implement some basic tools to create such a mindset, not all of these tools have
been accepted.
Comment: The Operations Director and Production Manager mentioned that employees on shopfloor are hesitant to use PharmCo F’s suggestion program.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
155
4.2.9 Workshop II
Following the site visits in the different Sub-Saharan African countries, the research
team conducted a second workshop as an integral part of the SAGMA 2013
conference 98. About 25 people of different hierarchical levels such as CEO, COO, VP,
Head of Supply Chain or Head of Operations etc. participated. The research team
started the workshop with introducing latest concepts and approaches of successful
implementations of OPEX at various pharmaceutical manufacturing organizations.
After introducing these concepts, the workshop participants discussed the contents and
objectives of distinctive manufacturing programs (TPM, TQM, and JIT) which are
summarized under the umbrella of OPEX. In a subsequent discussion, the participants
evaluated the major challenges their organizations currently face in realizing these
manufacturing programs. The challenges are summarized in Table 4.18.
Table 4.18: Major challenges to the implementation of TPM, TQM, and JIT at African
pharmaceutical manufacturers
Manufacturing program
Major challenges to the implementation
Total Productive Maintenance
(TPM)
 Employees’ general manufacturing process understanding
 Employees’ insufficient education and skills to maintain
machines and equipment
 Employees’ awareness for and understanding of the effects of
machine breakdowns
 Local availability of experts for maintenance work (hiring
experts is very expensive and most companies lack financial
resources, technicians have to be flown in)
Total Quality Management
(TQM)
 Building a relationship or collaboration and maintaining close
contact to customers and suppliers
 Geographical distance to suppliers impedes the regular faceto-face contact
 Expensive vendor qualification (done by third party
organizations)
 Quality of raw material supplies
 Unreliability of local infrastructure (electricity, water)
Just-In-Time
(JIT)
 Integration of suppliers due to a very low delivery
performance
 Unstable and volatile market demand
 Integration and collaboration with customers
 Safety stock policies due to supplier reliability and market
fluctuation antagonize JIT philosophy
 Self-maximization: make-to-stock policy to increase delivery
flexibility
98
The SAGMA (South African Generic Medicines Association) conference took place in Johannesburg on June
26th-27th, 2013.
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The precedent sections gave practical insights into the field that the author has
gathered as part of a research team visiting different pharmaceutical manufacturing
sites in Sub-Saharan Africa. These findings will be summarized in the subsequent
cross-case analysis with the intent to improve the current literature on manufacturing
in emerging markets by providing a distinct focus on the pharmaceutical industry.
4.3 Cross Case Comparison
The single case studies in Section 4.2 gave valuable insights into operations of
domestic pharmaceutical manufacturing sites in emerging markets in Sub-Saharan
Africa. Moreover, the case studies documented the challenges of starting OPEX
programs and how companies deal with these challenges. Two workshops broadened
the scope of the limited number of case studies and extended the research perspective
with insights from managers from additional pharmaceutical manufacturing sites.
During the iterative process of gathering data and elaborating on the single case
studies, the author received a first impression of the support that is needed for setting
up an OPEX initiative at these companies. The subsequent cross-comparison of the
single cases aims to determine which aspects are commonly impeding a successful
implementation of OPEX in emerging markets. Once these barriers are identified, the
dimensions of an OPEX Architecture can be designed.
The cross-comparison of the single cases requires a new perspective. This is because a
second discussion along the initially used framework would most likely not lead to
new findings, whereas a discussion along another framework forces the researcher to
take a new perspective. This makes it possible to find new peculiarities which were not
revealed by the single case studies (Eisenhardt, 1989).
Table 3.8 provides the ‘new’ framework for this cross-comparison. It has to be noted
that while this framework is based on a broad literature review that summarizes the
external and internal barriers to the implementation of OPEX in emerging markets, it
still lacks the pharmaceutical perspective.
4.3.1 External Barriers
Poor Education of Employees
The effective implementation of the constituents of OPEX depends, among other
factors, on a high degree of employee education (Crawford et al., 1988; Arnheiter and
Maleyeff, 2005). Moreover, it is not only widely accepted that education plays a
special role in economic growth (Barro, 1991) but also that a higher level of education
provides a better access to information (Wozniak, 2010) and positively affects
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
157
productivity (Jones, 2001). The better employees are educated, the faster they grasp
and adopt innovations (Bartel and Lichtenberg, 1987) and new production techniques
(Lin, 2011).
The scarcity of well-educated employees presents a specific challenge for the case
study companies. PharmCo A, for instance, follows a hire and fire policy for ordinary
manual secondary packaging work. While the management deliberately relies on lower
educated people for this work, it is aware that developing a shared mindset and a sense
of loyalty towards the company is rather unlikely with such a policy. The company’s
demand for higher educated people for administrative, white-collar work is not
satisfied by the local job market and forces the company to hire costly professionals
from abroad. This lack of sufficiently qualified personnel within the Sub-Saharan
African pharmaceutical industry was also raised during Workshop I (PharmCo 3, 7,
11, 12, 13) and can to some extent be traced back to a low level of collaboration of
local companies with universities (see Table 4.17). The scarcity of sufficiently
educated people also extends to functions that require higher levels of education. As
such, PharmCo E has trouble to find and employ people with acceptable knowledge in
diverse OPEX tools. Low levels of education impinges employees’ understanding of
maintenance issues and hampers a proper implementation of TPM, which might
eventually influence an entire pharmaceutical manufacturing site’s operations (see
Table 4.18).
In summary, the low level of education is regarded as a barrier to the implementation
of OPEX in an emerging market pharmaceutical manufacturing site.
Government Involvement
Governmental involvement was identified as a barrier to OPEX for state-owned
companies. These companies are characterized as less likely to be open to external
know-how and contemporary management styles. Moreover, state-owned
organizations are often less experienced in understanding the context of their business
and slow in adapting to their changing environment (Woetzel, 2008). In the sample of
case companies, only PharmCo A is a state-owned organization. However, PharmCo A
can act very freely and thus operates as if it was a privately owned organization. Thus,
the government was not observed to complicate the implementation of OPEX in the
case study.
Nonetheless, governmental intervention in the functioning of the market does have a
strong influence on case companies’ operations. In the case of PharmCo A, the
arbitrariness of governmental decisions contradicts organizational behavior. For
example, based on the personal preferences of one official, the government decided
that donations should be no longer used to manufacture solid drugs but liquids. Such
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behavior conflicts with the planning of companies that have built up specific
capabilities. Obviously such a change of course also affects other companies operating
in the same market under similar conditions.
In summary, governmental influence and intervention is seen as a barrier to OPEX in
domestic pharmaceutical manufacturing organizations in emerging markets.
Political Instability
Emerging markets are prone to political risk like civil disorder, embargos, labor
shortages, trade and tariffs barriers etc. (Friedmann and Kim, 1988). Accordingly, it is
not surprising that political instability is adversely related to investments and
economic growth (Barro, 1991). The countries in which the described manufacturing
sites are situated look back at a rather turbulent history, marked by political shakeups,
riots and ethnical conflicts. Though this is partially reflected in the organizations’
policies like maintaining a balance between black and white employees or hesitations
in investing in new manufacturing capacity, a direct impact of political instability on
the implementation of OPEX was not observed.
Thus, while political instability may influence pharmaceutical OPEX in an emerging
market environment, it is not further considered in this dissertation.
Weak Supplier Performance
The single case studies show that an unpredictable supply chain constitutes a
considerable barrier to a smooth implementation of OPEX. All case companies rely on
overseas API deliveries. Long delivery distances, critical order quantities and lengthy
procedures at customs make planning difficult for the companies independently of
suppliers’ performance. Unreliable delivery times of overseas imports affect PharmCo
C’s manufacturing schedule and planning adherence significantly. As a consequence
of unreliable and long delivery times, all case companies maintain excessive
inventories of raw materials like excipients and API. Consequently, case companies
are often confronted with expiries of costly raw materials on stock.
In the case of locally sourced excipients and packaging materials the situation hardly
differs from overseas supplies. An unstable local hard infrastructure does not only
affect the product quality itself (see Table 4.18) but also the timely delivery of goods.
At Pharm Co B, the improvement of local suppliers’ quality of raw materials is seen as
a potential lever to increase the overall quality of the final product. At PharmCo C,
inconsistent color, grammage or stiffness of packaging materials delay operations at
the packaging and quality department time and again. At PharmCo F, inconsistent
quality of locally sourced products led to stops of the production line.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
159
High supplier performance is seen as a central element in the realization of OPEX
(McKone et al., 2001; Cua et al., 2001). Since the elimination of buffers within a
company’s internal value chain does not allow for a delay of supplies or defective
products, companies pursuing OPEX depend on timely and high quality product
supplies.
In summary, various problems along the supply chain – whether related to delivery or
the consistency of product quality – diminish the performance of organizations that
supply domestic pharmaceutical companies in emerging markets. Weak supplier
performance is thus considered as a barrier to pharmaceutical OPEX at domestic
manufacturers in emerging markets.
4.3.2 Internal Barriers
A mere Focus on Lean Tools
Tools to improve an organization’s operations are a vital part of the OPEX philosophy.
Nevertheless, “[…] tools and techniques are no secret weapon for transforming a
business […]”, rather a company’s “[…] continued success at implementing these
tools stems from a deeper business philosophy based on its understanding of people
and human motivation.” (Liker, 2004, p. 6). An analysis of the case companies reveals
that their approaches to improving their pharmaceutical operations differ significantly.
Though PharmCo A and PharmCo B have already heard of the concept of Gemba
Kaizen, they have not yet started an attempt to implement this or any other tool of the
OPEX tool box. PharmCo C has successfully applied several tools like 5S and
Visualization but its suspension of the newly launched suggestion program shows that
the company still prevalently focuses on tools instead of creating a culture. However,
initializing a competition between several departments, PharmCo C motivates its
employees to constantly improve and excel. According to Hofstede (2014), the country
PharmCo C is based in is considered a masculine society. Though such a society is
characterized by an emphasis on competition and performance (Hofstede, 1983,
1994b), PharmCo C still relies on financial incentives to raise the competition.
PharmCo E has also tried to implement selected tools and set up dedicated trainings.
The first trainings were conducted with an external institution from a Western country,
and only a few employees were asked to participate.
In summary, the case companies are still at a very early stage of implementing OPEX.
If improvement programs are pursued, the case companies strongly focus on tools
while neglecting the philosophy behind OPEX, and they fail to link improvement
efforts to the business strategy (see next section). Furthermore, tools are selected and
used in an unstructured way, thereby disregarding the holistic picture of the
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
manufacturing site’s challenges and potential for operational improvement (Friedli et
al., 2013b). Therefore, a mere focus on Lean tools is seen as a barrier to OPEX at an
emerging market pharmaceutical manufacturing site.
Missing Link to Business Strategy
A purposeful OPEX program is designed to fit an organization’s specific challenges.
Although each OPEX initiative has a different character, successful programs have in
common that they are aligned with the organization’s business strategy on a corporate
level, and that they contribute directly to the site strategy on a plant level (Friedli and
Bellm, 2013a; Seller and Davis, 2013).
The assessment of the implementation level of OPEX practices in Section 4.1.2
indicated already that domestic pharmaceutical manufacturing sites lag behind their
competitors in industrialized countries in terms of strategy communication and their
managers’ skills in strategy formulation. Developing and communicating both vision
and strategy is a vital part of Kotter’s (1996) eight-stage change process and should
not be treated as trivial for a successful OPEX initiative (see Section 3.2.4). Yet,
reviewing the case companies’ approaches to OPEX, no clear link between
improvement efforts and their strategy could be found. PharmCo A, for instance, does
not design its (inchoate but evolving) on-site improvement efforts to be in line with
corporate requirements. Furthermore, the company managers’ understanding of
strategy formulation is insufficient for the company’s purposes. This was also
observed in the discussions with PharmCo B and PharmCo F. Similarly, managers of
PharmCo 7 (Workshop I) complained about their company’s unclear strategy, and an
absence of a distinctive company direction. In a nutshell, none of the companies’
managers could name a recently started project that supports the strategic direction of
their company. Furthermore, all companies lack a clear structure in addressing
improvements within their operations. At the time of data collection, improvement
projects were initiated rather loosely and not as part of a dedicated OPEX model
designed to support the site’s corporate strategy.
One of the biggest challenges for the case companies are capacity constraints in
production areas and final product storages. PharmCo F runs its machinery at the
capacity limit and seeks to increase invested capital productivity. However, the
company has not yet attempted to improve its understanding of processes end-to-end
or how to eliminate waste along the value chain.
The case companies PharmCo A, PharmCo B and PharmCo E face similar challenges.
Limited manufacturing and storing capacity led them to establish new facilities
providing more space for machines and storage. This phenomenon has previously been
discussed in the literature as the improvement of an organization’s performance
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
161
Manufacturing performance
frontiers (Schmenner and Swink, 1998; Vastag, 2000). The performance of a
manufacturing site is determined by its asset frontier (structural inputs) and the
underlying operational frontier (infrastructural inputs) 99. Whereas the asset frontier
follows a step function, e.g., due to the investment in new technology or equipment in
order to increase the production output, the underlying operating frontier is represented
by a concave function. Figure 4.25 illustrates an organization’s performance as a
function of the interplay of these two frontiers, which are subject to manufacturing
inputs, investments and the choices made in the manufacturing function. Since the
operating frontier follows the asset frontier, investments in new technology result in
‘jumps’ of the operating curve. This operating frontier can be bettered by applying
OPEX practices that aim at improving organizational capabilities 100 (Schmenner and
Swink, 1998; Vastag, 2000).
Asset frontier
Operating frontier with
better operational
capabilities and with no
additional investments
Operating frontier
Manufacturing input, investments and choices
Figure 4.25: Performance frontier depending on asset and operating frontiers, adapted from
Vastag (2000)
With regard to the single case companies, investments in manufacturing facilities and
equipment had been made without exploiting the full potential of the organizations’
processes. Purposeful process improvements could have been achieved by reducing
waste, leading to an increase of the companies’ manufacturing output. That is, the site
leadership teams of the case companies had not fully considered all possibilities of
process improvement, and process improvement was not part of their business
strategies which aim at increasing the sites’ manufacturing outputs.
99
See Table 3.2 for an overview of structural and infrastructural elements.
See Section 3.1.2 for manufacturing/organizational capabilities.
100
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Another lever to influence the capacity of a manufacturing site is its underlying shift
pattern (see Table 3.2). Comparing the shift patterns of domestic emerging market
pharmaceutical manufacturing sites with those of offshore sites of multinationals or
sites in advanced countries, it appears that the former run less shifts on weekdays and
Saturdays (see Table 4.19). Remarkably, no site of the domestic sample runs a shift on
Sundays, leaving the manufacturing function with substantial opportunity costs.
Table 4.19: Shift model of the data samples 101
advanced
offshore
domestic
Shift-model Mo-Fr
2.80
2.50
2.00
Shift-model Sa
1.57
2.25
1.33
Shift-model So
1.25
1.75
0.00
In the case of PharmCo A, the Head of Quality explained: “In our country the law
allows us to work 52 hours per week and requests us to rest at least one day. So it
depends on how the company will arrange for the same. On a day-to-day basis Sunday
is the day at which we go to church; we are a religious society so these are the cultural
differences. Furthermore, for running our production we need our suppliers who also
close on Sundays. There would be no one to trade with.”
In summary, some of the single case companies run sporadic projects to improve their
sites’ operations but lack a clear focus on supporting strategic direction. As the above
examples illustrate, even high-impact decisions are not sufficiently backed up with
options that result from linking an OPEX initiative with a manufacturing site’s
strategy. Therefore, the identified missing links between domestic emerging market
pharmaceutical manufacturing sites’ business and manufacturing strategies and their
efforts in OPEX are considered as barriers towards a successful program.
Poor Quality Practices
Quality practices constitute a central aspect of OPEX (see Section 3.2). Moreover, the
implementation of stringent quality assurance programs leads to reduction of rework
and finally results in more stable and reliable process time (Shah and Ward, 2007).
Though all case companies have a working quality assurance department, these
operate at different levels. Whereas PharmCo C, for instance, uses Statistical Process
Control at selected machines to improve the stability of manufacturing processes, none
101
Shifts are normalized at a length of eight hours per shift.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
163
of the remaining case companies do. Furthermore, tools like the DMAIC cycle or
SIPOC analyses which are core elements of the Six Sigma quality approach (see
Section 3.2.1.2) are neither used at PharmCo A, PharmCo B nor PharmCo F to better
process management. Besides, the case companies do not use quality circles to
improve organizational processes and final product quality by making better use of
employee experience. Lacking involvement of suppliers and customers leaves the
companies’ manufacturing isolated. This becomes especially critical if companies do
not have access to adequate tools for data capture and its later analyses (PharmCo 5,
Workshop I). Scarce technical expertise, limited financial means and poor
infrastructural conditions impede the realization of practices necessary to reach
universal GMP standards (see Table 3.6). Nevertheless, deficient work practices like
an only occasional retracing of quality problems in order to avoid making the same
mistake twice (PharmCo A & PharmCo F) or shifting the full responsibility for
reaching a high quality output solely to QA/QC (PharmCo A, PharmCo B, PharmCo
C, PharmCo D, and PharmCo E) are independent from these constraints to reach GMP
and rather result from misaligned management priorities.
In summary, amendable quality practices at emerging market manufacturers do not
stop at pharmaceutical organizations. Thus, poor quality practices are regarded as a
barrier to reach pharmaceutical OPEX at domestic emerging market manufacturers.
Poor Inventory Management
Excessive inventories were observed at almost every case company. None of the
companies uses a proper IT support for inventory and material handlings; all goods
movements are tracked via Excel sheets or offline applications. Although the order
policy of PharmCo C prevents excessive inventories of raw materials and partially
finished products, high in-process inventories were found along the company’s
internal operations. No conclusion can be drawn for PharmCo D, as the company is
just about to ramp up its operations. The remaining case companies, however, are
characterized by high inventories of raw materials, final products as well as high inprocess inventories at various stations along the process chain.
The case studies confirm the hypothesis stated in Section 3.4.1.2 that excessive
inventories at emerging market manufacturers partially result from weak supplier
performance, poor infrastructure and inadequately maintained equipment. For the
investigated companies, high inventories also result from poorly known and poorly
coordinated processes, unreliable market forecasts and an urge of self-maximization.
The latter in turn results in high inventories due to a make-to-stock policy to increase
the companies’ delivery flexibility in their unstable market condition.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
In summary, poor inventory management at domestic pharmaceutical manufacturing
sites in emerging markets is seen as another barrier to the successful implementation
of OPEX.
Lack of Resources
Launching and maintaining an OPEX initiative requires sufficient resources and
dedicated investments (Seller and Davis, 2013; Hampton, 2013). Although the
pharmaceutical industry in Western countries is regarded as rich in financial and
qualified personnel resources (Calnan, 2013), the situation in emerging markets is
different. In contrast to their Western counterparts, the case companies face very
limited financial resources 102 that hardly allow generous spending for comprehensive
trainings or time-consuming improvement activities on the job. Another restricted
resource at the case companies is the knowledge of OPEX and its philosophy and
underlying constituents.
Last but not least, case companies are confronted with a lack of well-trained and
educated employees (discussed in this section).
Thus, the lack of resources (financial, knowledge, personnel) is considered to be a
substantial barrier to pharmaceutical OPEX at domestic emerging market
manufacturers.
Poor Employee Training
Table 4.15 showed that the functional integration of employees is significantly lower
for domestic emerging market pharmaceutical companies than for the other samples.
Since functional integration is a result of employee training, this indicates that the
training at these sites is insufficient. This is supported by the single case studies. The
case companies PharmCo A, PharmCo B and PharmCo F hardly invest in employee
training. Though PharmCo A seeks to stabilize its manufacturing processes by training
its employees in basic manufacturing procedures or machine setups, the company
offers no training that goes beyond such ‘hard’ practices. Similarly, PharmCo B lacks
adequate training practices for its employees; the company provides no specific
training to improve operators’ skills in setting up machines; these skills are developed
on the job. Training and qualification of employees is also scarce at PharmCo F.
Although the company provides its employees with basic trainings on how to maintain
and setup the machines, PharmCo F does not use well-established tools like 5S for
training. As an exception of the single case companies, PharmCo C has not only sent
its Production Manager to a very purposeful off-the-job training, but the company also
102
Exceptions are PharmCo C, which is supported with FDI, and PharmCo E, which has reached a company
size and market position that allows additional investments in training and improvement activities.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
165
invests in improving employees’ skills in housekeeping practices and Six Sigma
methodologies like the DMAIC cycle. Predominantly relying on external support,
PharmCo E has trained its employees in several OPEX practices. Despite doing the
right things, the company has failed in developing a shared culture and mindset of its
employees to continuously improve the organization’s operations. Employees did not
embrace the offered tools and maintained their old habits and work styles.
In summary, the case companies distinguish in their approach to employee training:
While some have recognized the benefits of training, which might go far beyond solely
improving a company’s processes, most companies’ training practices are rather poor.
Thus, poor employee training is seen as a barrier to pharmaceutical OPEX in domestic
emerging market manufacturing organizations.
Lacking Understanding of Operational Excellence
Insufficient understanding of the concept of OPEX is neither new to literature nor
limited to emerging markets (Pavnaskar et al., 2003). Nevertheless, increasing
competition and a continued need for companies to improve their site level
performance raise the relevance for OPEX and require that managers understand the
concept of leading a successful implementation (Narasimhan et al., 2006).
Domestic manufacturers in emerging markets report the highest implementation of
standardization (see Table 4.4 and Figure 4.15). On-site discussions with the managers
of those case companies whose managers also reported very high implementation of
standardization showed that managers are often not aware of the mere endless
possibilities of which definition processes can be standardized, and to what extent.
Furthermore, the discussions with the case companies and the two workshops showed
that many managers confuse Lean with JIT. Due to nescience of a precise definition of
JIT, Lean and both concepts’ contribution to OPEX some managers of domestic
pharmaceutical companies had doubts about the usefulness of the concept. Moreover,
not all managers were aware of the concept’s other constituents as discussed in Section
3.2. Introducing them to the full concept of OPEX increased managers’ awareness for
applicability and usefulness of OPEX.
In summary, a poor understanding of the concept of OPEX is still prevalent in most of
the case companies. Such rudimentary knowledge of the concept leads to an
unstructured initiation of improvements. Thus, the poor understanding of the concept
constitutes a barrier to OPEX in domestic emerging market pharmaceutical
manufacturing sites.
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
Short-term Thinking
The case companies’ business environments are highly unstable and thus require great
flexibility from the manufacturers. This means that organizations often lack a clear
long-term planning. The JIT perspective of OPEX is critical since it puts the company
at higher risk – any hiccup will stop production immediately. The companies’ current
philosophy of operating with a large safety stock ensures a stable return. However,
while this keeps short-term risks relatively low, it also minimizes manufacturers’
potentials for long-term performance gains (Krafcik, 1988). Instead of following a
clear long-term perspective that includes close relationships with customers, the single
case companies build high inventories of finished products to be able to quickly react
to any sales that come up. Therefore, the companies accept unstable production
schedules and higher internally created complexity. Although this affects the planning
stability of operations, the site leadership teams are not worried about such partial loss
of control. This contradicts Liker’s first principle of successfully realizing OPEX, to
base “[…] management decisions on a long-term philosophy, even at the expense of
short-term financial goals.” (Liker, 2004, p. 37).
In summary, the single case companies’ pursuit of quick wins antagonizes a long-term
perspective and is in conflict with the realization of OPEX. Thus, short-term thinking
in emerging markets is seen as a barrier to pharmaceutical OPEX at domestic
manufacturing organizations.
Management Behavior
Though managers of the single case companies are open-minded about OPEX, some
of their actions create a barrier to OPEX. While visiting the manufacturing sites and
advising the managers of apparent deficiencies and improvement potentials, nobody
was short on excuses. In fact, there was an excuse for everything – whether it was high
inventories, unclean machinery and equipment, messy laboratories, or long-lasting
maintenance works.
In Section 4.1.2 it was shown that domestic emerging market sites in general lag
behind manufacturers in advanced countries in terms of a timely information flow and
the openness of the companies’ communication culture. The single cases drew a
similar picture. PharmCo A, PharmCo B and PharmCo F mentioned that information
spreads too slowly throughout the company. At the moment, communication in all
companies is rather top-down even though managements work on an open
communication culture. However, regular feedback meetings that provide workers
with a stage to speak up are scarce at the case companies, with the exception of
PharmCo C. Furthermore, the prevalent management style at the case companies is a
command-and-control approach, leaving managers with a certain distance to the shop-
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
167
floor. This is, for example, reflected in PharmCo 4’s (Workshop I) comment that
managers lack understanding of their company’s requirements and the events on shopfloor.
In general, the managers of the single case companies strongly focus on marketing and
sales activities, neglecting the potentials of the manufacturing functions. Since most
manufacturing departments still struggle with the manufacture of a compliant product
and newly launched improvement activities yet miss a clear scope, the manufacturing
functions can be regarded as ‘internally neutral’ (Hayes and Wheelwright, 1984) 103.
Another evidence for the managers’ minor consideration of their manufacturing
function is their management style which is more based on experience than data 104.
This attitude becomes apparent by the quote of a case company’s CEO: “We are not
really aware of our tableting lead times. Pressing small tablets is fast, the larger ones
need longer.”
In summary, behavior and attitude of the single case companies’ managers are not
always conducive for implementing OPEX. Therefore, management behavior is seen
as a barrier to OPEX at domestic emerging market pharmaceutical manufacturing
organizations.
Working Attitude
The realization of OPEX requires employees who are committed to their tasks and to
the organization, and who do not shy away from taking responsibility for quality
(Monden, 1994). Based on the single case studies, a mindset which antagonizes OPEX
was detected. PharmCo B and PharmCo 8, for instance, face the problem of high
absenteeism among their workforce. People simply do not show up for work although
they have an active employment contract. In order to cope with this problem, PharmCo
B pays its workforce an incentive for appearance at work. PharmCo A mentioned a
similar issue: the company pays people’s salary on a weekly basis since employees
would fail to show up if paid a monthly salary. Given that people are absent and put
their jobs at risk without valid excuses, they do not seem concerned about future
employment. In fact, the countries of the single case studies are characterized as “low”
in Hofstede’s (2014) uncertainty avoidance, which leads to the assumption that people
comfortably cope with ambiguous or unknown situations (see Section 2.4.3). Clugston
et al. (2000) found that uncertainty avoidance is positively associated with continuance
commitment to the organization, and that employees high on uncertainty avoidance do
103
In their research on the development of Operational Excellence in the pharmaceutical industry Gronauer et
al. (2010) used the framework in order to assess pharmaceutical manufacturing function’s contribution to their
organizations’ Operational Excellence programs.
104 For similar findings at Indian companies see Seth and Tripathi (2005).
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UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
not risk their job due to the fear of unemployment or sacrificing pensions, seniority
etc.
Another contribution to employees’ working attitude that counters the realization of
OPEX was identified in Workshop I. The CEO of PharmCo 8 complained about his
workforce’s lack of motivation and a culture in which people hardly feel responsible
for the outcome of their work. Even worse, PharmCo 4 reported virtually criminal
behavior. Employees deliberately decelerate processes and sabotage machinery and
equipment if they are not satisfied with their working situation.
In summary, the attitude of the single case companies’ staff towards their work and
their employer goes far beyond the often cited resistance of workforce towards change
(see Section 3.2.4). Working attitude as anecdotally described by the case companies
is thus seen as a significant barrier to OPEX at domestic pharmaceutical
manufacturing sites in emerging markets.
Staff Turnover Rate
All single case companies and PharmCo 11 complained about a high employee
turnover. This constitutes a considerable challenge for the companies, since the
education and training level of potential employees make an adequate replacement of
qualified workers difficult. As high levels of employee turnover lead to a drain of team
and tacit knowledge, it puts companies into an unfavorable competitive situation
(Miller et al., 2009) and decelerates organizational learning (see Section 3.2.3).
For these reasons, the high turnover rate of employees is seen as a barrier to OPEX at
domestic pharmaceutical manufacturing organizations in emerging markets.
4.3.3 Summary
Building on the OPEX Benchmarking in Section 4.1 and the single case studies in
Section 4.2, this section discussed whether and to what extent barriers to OPEX in
emerging markets that were previously identified in literature independent of a specific
industry context also apply to the pharmaceutical context. With the exception of
‘political instability’, all barriers were also found to exist in the pharmaceutical
industry, and are summarized in Table 4.20.
UNDERSTANDING THE REALITY: STUDIES IN THE FIELD
169
Table 4.20: Barriers to pharmaceutical OPEX in emerging markets
External barriers
 Poor education of employees
 Government involvement
 Weak supplier performance
Internal barriers











A mere focus on Lean tools
Missing link to business strategy
Poor quality practices
Poor inventory management
Lack of resources
Poor employee training
Lacking understanding of
Operational Excellence
Short-term thinking
Management behavior
Working attitude of people
Staff turnover rate
Apart from confirming barriers to OPEX in a pharmaceutical context, the cross-case
analysis disclosed that the case companies lack a clear guidance as to how to
holistically implement OPEX initiatives. Such need for guidance and structure is
obvious whether
 the companies are at a very early stage of taking operational improvements into
consideration in order to provide such structure from the beginning, such as
PharmCo A and PharmCo B, or
 the companies recently completed their site construction and start their
operations, such as PharmCo D, or
 the companies have initiated various improvement initiatives more or less
successfully already, gained experience, and built distinctive know-how among
their employees, such as PharmCo C and PharmCo E, or
 the companies still have the legacy of a multinational organization, yet left
alone with challenges that come along with dragged-in pharmaceutical
manufacturing processes and a resistance to change, such as PharmCo F.
In summary, the case companies in particular, and other domestic pharmaceutical
manufacturing sites in emerging markets in general – regardless their status quo and
progress within the implementation of selected OPEX concepts – might lack a
customized and tailored process as to how to transform their operations towards
OPEX. Therefore, the following chapter will derive the requirements on and the
elements of an architecture that enables these companies to design their own
distinctive model to reach OPEX.
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5 Requirements for an Emerging Market Site
Transformation
In designing an OPEX program, an organization has to build on its existing structures.
Principles of to how to successfully implement OPEX might be borrowed from other
organizations, but need to be put into the transforming company’s business and
technical context (Liker, 2004; Taj, 2005).
In order to make the OPEX transformation of a manufacturing organization a success,
the specific initiative must be developed by the leadership team of the manufacturing
site in a joint effort. Kotter (1995; 1996) argues that although a change initiative might
initially start with only three to five people involved, the team will have to grow soon.
Burnes (1996) adds that a change model that fosters continuous improvement and
organizational learning considers change as being driven bottom-up rather than being
enforced top-down. Following Burnes (1996) and Kotter (1995), the team in charge of
developing a manufacturing site’s distinctive model to pursue OPEX comprises also
members outside the normal organizational hierarchy.
During this design process, the OPEX Architecture serves as a discursive anchor for
the development of a company-specific model. The Architecture involves the members
of this development team and provides a guideline of what needs to be addressed,
while leaving room to tailor the program to the company’s specific environment. It is
important to note although several OPEX models are in existence, a mere copy-andpaste approach will not lead to the intended results. Rather, it is important that the
members of the respective organization develop their own model for their initiative in
its unique setting. Therefore, the case studies and the subsequent cross-case analysis
have confirmed the practical utility of an OPEX Architecture.
Following the identification of practical challenges and barriers in implementing
OPEX at emerging markets’ domestic pharmaceutical organizations in Chapter 4,
Section 5.1 summarizes the requirements an architecture has to meet to suit the
respective companies’ environments. These requirements have been established
through discussions in previous chapters or have been derived from more generic
literature on architectures. Section 5.2 builds on these derived requirements to describe
the generic elements of such an OPEX Architecture.
5.1 Requirements for a Transformation
According to Friedli (2000), citing Fox et al. (1993), the literature is rich on criteria to
evaluate the quality of models, but lacks a well-defined and universally accepted
REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION
171
standard for such an evaluation. This still holds true today, since “[t]o date, there are
[no] sound scientific principles for elaborating enterprise architectures.” (Chen et al.,
2008, p. 649). Since the later Architecture serves as a discursive anchor to develop a
company-specific model, it is mandatory to meet these criteria in order to ensure that
the model is designed with the intended quality. This chapter summarizes these
requirements. Firstly, Section 5.1.1 introduces relevant requirements derived from the
literature. Secondly, the requirements identified in Chapters 2, 3 & 4 that need to be
considered to ensure the practical utility of an OPEX Architecture are compiled in
Section 5.1.2.
5.1.1 Requirements Derived from Literature
Since evaluation criteria for models, frameworks and artefacts are diverse and used in
various disciplines, the selection of relevant requirements in this thesis follows the
summary of Friedli (2000). Designing an architecture that provides guidance while
developing a framework for intercompany cooperation, Friedli (2000) condensed the
requirements and evaluation criteria found in enterprise modelling literature into six
dimensions (Figure 5.1). He based his research on the work of Fox et al. (1993),
Vernadat (1996), Weston (1999), and the ISO/DIS 15704 (1999).
Architecture
Holistic model
Applicability
Consistency
Completeness
Competency
Identification
of processes
structure &
content
Identification
of object &
mission
Efficiency
Reusability
Clarity
Accuracy
Transformability
Genericity
Separation of
behavior &
functionality
Conformity
Evolutionary
approach
Complexity
handling
Separation of
areas
Functional
decomposition
Visualization
Extendibility
Scalability
Modularity
Figure 5.1: Requirements for an architecture Mundt (2012), adapted from Friedli (2000)
Following Mundt (2012), who used Friedli’s (2000) criteria to design his own
architecture for intra-company manufacturing networks, the criteria illustrated in
Figure 5.1 will be utilized in this thesis. This seems appropriate due to the similarity of
the research stream. Besides, the review of newer contributions to evaluation criteria
and requirements on enterprise models do not significantly interfere with Friedli’s
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REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION
(2000) selection. Fettke and Loos (2007) regard best practices, universal applicability
and reusability as central validation characteristics of enterprise-specific models. Their
set of evaluation criteria is refined by the contribution of Matook and Indulska (2009)
who list understandability, generality, flexibility, completeness, and usability as the
relevant quality criteria of models after their review of design science literature. They
argue that the presented criteria are interrelated, although each criterion focuses on a
distinctive area of a model. Since architectures can be either specific or generic, Chen
et al. (2008) advice to follow the principle-of-fitness for purpose, i.e. meeting the
architecture’s purposeful level of detail thereby embracing an overall system
perspective. Obviously, also newer criteria are in line with Friedli’s (2000) selection.
5.1.2 Requirements Derived in Chapters 2, 3 & 4
Special attention needs to be drawn to the very nature of OPEX. OPEX is not a single
practice, but combines various elements which themselves merge multiple concepts
(Section 3.2). Each element has its own characteristics and poses its own demands on
the implementing organization; many organizations struggle launching only a single
element.
 Requirement 1: Acknowledge the facets of Operational Excellence
While the Architecture needs to be dynamic in nature to conform with unforeseen
changes (see Section 5.1.1, requirement of conformity), it also needs to allow for
planned adaptions of a model. Since improving a site’s operations by transforming it to
OPEX represents a process that gradually pushes the organization from one
performance level to another, the focus of the initiative might move away from aspects
that were addressed at an early stage of the OPEX implementation. This development
needs to be backed by the underlying OPEX model. “[L]ean manufacturing is a system
approach. Each approach builds on the previous one, anchoring the system as a whole
[…]” Bhasin and Burcher (2006, p. 62), cited from Allen (2000, p. 2). Thus, the
pharmaceutical industry’s low pace in changing and adapting to its environment
(Section 3.3.1.1) needs to be accommodated by the Architecture.
 Requirement 2: Facilitate continuous development of the model
The role of a manufacturing strategy is to provide manufacturing processes that clearly
differentiate the company in its market place. Moreover, it coordinates manufacturing
support to provide a competitive advantage over the manufacturing functions of its
competitors (Hill, 2000). Based on a company’s manufacturing strategy, its OPEX
REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION
173
program is designed to provide target-oriented support also in the long-term. The
OPEX Benchmarking and the cross-case analysis revealed domestic emerging market
sites’ deficiencies in formulating corporate and manufacturing strategies (Figure 4.11,
Table 4.17, and Section 4.3.3) and resulting problems in establishing a credible link to
OPEX initiatives.
 Requirement 3: A stronger focus on strategy development and alignment of
OPEX activities
OPEX is about the continuous improvement of organizational processes. Merely
focusing on a clear separation of processes’ structure and content (Section 5.1.1) is too
short-sighted. Holistic process optimization begins at the lowest organizational level,
including primary and support activities, before extending across all hierarchies
(Achanga et al., 2006; Riehle, 2010).
 Requirement 4: Focus on continuous process optimization
As a holistic concept, the Architecture must be applicable to all pharmaceutical
companies (Section 5.1.1). With regard to emerging markets, domestic organizations’
resources and capabilities differ extremely. As such, the Architecture must on the one
hand suit companies that suffer from very scarce resources (be they financial,
personnel, or knowledge), and, on the other hand accommodate companies that
flourish and/or benefit largely from FDI.
 Requirement 5: Better handling of varying resources and capabilities
As quality is one of the central aspects of pharmaceutical manufacturing, compliance
with the highest quality requirements is crucial and consistently communicated to
customers. Nevertheless, requirements regarding quality, how to reach it or at least
how to display compliance with regulations differ between emerging markets and
advanced economies with a tight regulatory apparatus (Section 3.3.1.2). A
demonstrably low product quality (Table 3.7) and the markets’ failure culture (Section
3.4.3) might be considered a consequence of the institutional voids in emerging
markets. In emerging markets, infrastructure and education levels can be very poor
(Table 2.8), which means companies will have to compensate with above-average
organizational quality in order to achieve the same performance as companies
operating in advanced economies (Seghezzi et al., 2013).
 Requirement 6: Producing quality is not a given
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REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION
National culture influences organizational culture (Section 3.2.2); the dimensions as
suggested by Hofstede (Section 2.4.3) have diverse impacts on the concept of OPEX
(Section 3.4.2). The Architecture has to respect local customs, values, behaviors and
attitudes. That is, the way forward is to move away from standardized and crafted
solutions, and towards customization.
 Requirement 7: Inclusion and consideration of cultural concepts
The pharmaceutical industry is highly regulated and most emerging countries require
manufacturers to comply with local GMP in order to be granted market access.
Supplying Western markets is even more demanding. Meeting these requirements is
usually prioritized at the expense of efficiencies 105. A model to support a
pharmaceutical manufacturing site’s OPEX transformation has to accept and
accommodate these prerequisites.
 Requirement 8:
requirements
Recognize
and
meet
institutional
and
regulatory
The mere transfer of proven concepts from advanced economies to emerging market
organizations is most likely unsuccessful. The heterogeneity and disparities of
emerging markets constitute a challenging setup with considerable influences on a
site’s manufacturing activities (Table 2.8). Moreover, the uniqueness of emerging
markets raises several barriers to the implementation of OPEX at pharmaceutical
manufacturers (Section 4.3.1).
 Requirement 9: Inclusion of respective market characteristics and barriers
Figure 5.2 summarizes the requirements derived in the above section. They are
classified into two groups, i.e. ‘OPEX-related assumptions’ and ‘Emerging market
perspective’. These two groups are not mutually exclusive. The continuous
development and enhancement of an OPEX model is required by both an OPEX
perspective and by the reality of emerging markets, which are in a constant flux.
105
See Section 3.4.3 for constraints in meeting regulatory requirements and increasing efficiency/profit.
REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION
Acknowledge the facets
of Operational
Excellence
A stronger focus on
strategy development
and alignment of OPEX
activities
Producing quality is no
implicitness
Facilitate continuous
development of the
model
Inclusion of respective
market characteristics
and barriers
Focus on continuous
process optimization
175
Inclusion and
consideration of
cultural concepts
Better handling of
varying resources and
capabilities
Recognize and
support institutional
and regulatory
requirements
Emerging market
perspective
OPEX-related
assumptions
Architecture
Figure 5.2: Summary of requirements
5.2 Elements of a Transformation
The following section discusses the first layer of the OPEX Architecture. Chapters 2
and 3 introduced the characteristics and idiosyncrasies of emerging markets as well as
the facets of OPEX and the challenges that come along with its implementation in a
pharmaceutical environment. Thus, these two chapters provide the basic elements of
the Architecture’s first layer.
5.2.1 Overview
The Architecture’s first layer comprises three main elements (illustrated in Figure 5.3),
which can be subdivided into smaller entities:
(1) Emerging Market Environment
(2) Organization/Manufacturing Site
(3) Operational Excellence Program
REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION
Suppliers
Organization/Manufacturing Site 2
Fit 5
People
OPEX 3
Technics & Tools
Structural Levers
1
Dynamic 4
Customers
Infrastructural Levers
176
Dynamic
Figure 5.3: First level elements of an Operational Excellence Architecture
Within the scope of this Architecture, the emerging market sets the scene for all
organizational activities. It provides the framework in which the organization operates
in. Emerging markets display unique characteristics which are distinctly different from
those of advanced economies and thus these characteristics constitute the prerequisite
for subsequent considerations. Both suppliers and customers can either be based in or
outside the emerging market.
Though the Architecture specifically aims at the design of an OPEX model to support
organizational activities, it is relevant to look at the organization or manufacturing site
in particular. Changes along an organization’s value chain are realized by adjusting
structural and infrastructural levers. Further, the organization significantly determines
the outcome of the OPEX program. The case studies described various organizations
and their resources and capabilities. Although, for instance, PharmCo A and PharmCo
C operate in a similar environment, the companies’ initial positions for launching a
holistic OPEX program are markedly different, and so are the models underlying the
implementation.
The Operational Excellence Program is the core of the Architecture. The definition of
its elements and adaption towards organizational requirements sets the stage for the
later fulfillment of its objectives.
All three described elements of the Architecture are highly dynamic, visualized by the
black arrows in Figure 5.3.
REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION
177
All actions, within the organization in general or regarding the OPEX program in
particular, must aim at creating a fit between the program, the organization and its
environment. This fit is symbolized by grey arrows in Figure 5.3.
5.2.2 Description of the Elements
The main elements of the Architecture’s first layer are summarized in Table 5.1 and
are discussed in the subsequent sections.
Table 5.1: Generic elements of the Architecture (first layer)
Element
Required Description
Emerging Market Environment






Market Characteristics
Suppliers
Customers
Competitors
Regulatory Environment
Cultural Dimensions
Organization/Manufacturing
Site
 Resources
 Capabilities
Operational Excellence
Program
 Strategic Direction & Intention
 Resources
Dynamic
 Probability of Change (planed & emergent) of all Elements
Fit
 Creating a Fit between the Elements
Elements of the Architecture’s second layer, which constitute integral parts of the first
layer’s elements, are discussed in Section 6.2.
5.2.2.1 Emerging Market Environment
Any industry’s organizational activity is subject to a set of different forces (Porter,
1985). Awareness of suppliers, customers and competitors is crucial regardless of the
market’s level of development. Due to the opening of emerging markets, the business
landscape has changed dramatically. Not only are companies faced with increased
competition from foreign companies but also have customers a broader product range
to select from.
Emerging markets substantially differ from advanced economies in terms of the
described characteristics (economic, technological, infrastructural, sociocultural, and
political characteristics, as well as the nature of the business system). On top of this,
emerging markets also differ from each other. Large emerging markets normally have
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REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION
highly industrialized regions that are similar to advanced economies, yet they also
exhibit social and infrastructural inequalities. When a company-specific model is
developed, these market-specific characteristics need to be considered in the early
design phase. Additionally, the markets’ barriers and challenges of implementing such
a model need to be considered (Mefford and Bruun, 1998).
Over the last years, the number of requirements set by regulatory authorities has
increased, and requirements have become more demanding. Authorities are aware of
the need of high quality products and, at least in large emerging markets, these
requirements are rigorously enforced.
In addition, the markets’ cultural peculiarities affect individual attitudes towards work
and behavior in organizations. A society’s preferences for certain practices, modes of
communication, or simply what people like (and what not) needs to be assessed,
considered and included in a design approach. The literature shows that the inclusion
of such cultural factors paves the way for a fit between national and organizational
culture. However, usually it is not the personal values of employees that an
organization can change, but the practice of how things are done – it is only the latent
values that can be activated (Hofstede, 1994b).
5.2.2.2 Organization/Manufacturing Site
The successful implementation of OPEX at organizations or manufacturing sites
depends on various contextual factors, such as unionization, age, and size (Shah and
Ward, 2003). Furthermore, resources, capabilities, management’s attitude to
Operational Excellence and access to both internal as well as external know-how need
to be analyzed and balanced. The availability and stability of hard infrastructure also
determine a site’s operations. In the case of multi-site organizations, a pilot site is
needed where the implementation can be tested. The assessment of the site’s status quo
allows identifying which areas need to be improved. Starting with a pilot site provides
the opportunity to learn, and to adapt a program to an organization’s specific culture
and needs. Subsequently, the program can be incrementally rolled out to the remaining
manufacturing sites 106.
5.2.2.3 Operational Excellence Program
OPEX programs can either emphasize technical or social aspects (Kickuth and Friedli,
2006b). The former approach comprises dimensions like technology, automation and
106
One of the interviewed Brazilian manufacturing sites in Chapter 6 was the pilot site of a multinational
pharmaceutical organization when it first started its Operational Excellence transformation.
REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION
179
organization of both procedures and an organization’s supply chain; the latter focuses
on communication and people (Riehle, 2010). The implementation of the program
creates interdependencies among organizational subareas, which require an open
communication between management and employees (White et al., 1999). The scope
of the program – which areas of the organization will be involved and to what extent,
the focus on technical and/or social aspects, a holistic initiative to transform the entire
site or solely selective improvement projects – follows a defined purpose.
The composition of a company-specific OPEX program is solving a design problem.
Based on the strategic direction of the manufacturing site, the program’s direction and
intention are derived in order to support the site’s objectives. The availability of
resources and capabilities constitute the constraints along which the program is
designed and the underlying model is based on.
5.2.2.4 Dynamic
The world is not free from dynamic and change is everywhere. Dynamic is a defining
characteristic of emerging markets. Therefore, (fast) changes in the competitor base, in
customers’ requirements regarding product characteristics (market segments), in the
markets’ level of development and hence the total market size are typical of emerging
markets, and, organizations have to adapt to these changes. Dynamic changes in a
company’s environment are going to entail changes in its mode of operation and
strategic direction, and eventually in direct and supporting processes. Similarly, a
company’s OPEX program might be influenced by dynamic. Over the course of a
program, its focus and prioritization within the company may change.
It is important to be aware of this dynamic. An organization must anticipate its own as
well as the market’s development. Thus, organizations need to develop coping
strategies that allow dealing with a future that is subject to continuously changing
dynamics (Friedli, 2000).
5.2.2.5 Fit
Following the contingency approach, an organization aims at being consistent with its
environment. Creating such a fit requires the OPEX program to be strategically reevaluated in an iterative fashion.
In a first step, the OPEX program is designed to fit the organization and its objectives.
In a second step, the organization or manufacturing site itself pursues a fit with its
environment. Needed adaptions are transferred from outside over the boundaries of the
organization to its OPEX program. Changes in the environment entail changes in the
organization, and eventually in the OPEX program. Thus, to maintain the balance
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between an organization and its environment, the OPEX program needs to be
continuously aligned with both, the organization and its environment.
TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE
181
6 Transformation of a Pharmaceutical Emerging Market
Site
“You will simply be the best in your business because you will be using
operational excellence as a strategic weapon.
Good luck on your journey!”
Jeffrey K. Liker (2004, p. 307)
This chapter synthesizes the findings, implications, and requirements derived in the
preceding chapters. Section 6.1 provides a general overview of the Operational
Excellence Architecture. Section 6.2 describes each element of the Architecture in
detail. The description of these elements is backed up with insights from practitioners
of pharmaceutical organizations and industry experts from emerging markets.
Furthermore, findings from various research projects are used to highlight the needs of
organizations on their way to OPEX while simultaneously providing practical
approaches towards individual solutions. Finally, in Section 6.2.8 the Architecture
breathes life with the introduction of the General Management Navigator (GMN) as a
transformational guide to OPEX.
The OPEX Architecture as it is introduced in this chapter serves as a backbone of a
structured discussion about how to implement OPEX at a pharmaceutical
manufacturing site, and how to derive a customized model to support the
implementation. The Architecture introduces the elements at a high level of abstraction
to facilitate its communication, while its discussion is enhanced by insights into
practice (Chen et al., 2008).
6.1 Overview
The OPEX Architecture is illustrated in Figure 6.1. It is based on the first layer
elements as introduced in Section 5.2, on which the second layer elements build.
The actual Architecture is schematically drawn as an arrow, and its second layer
elements are arranged alongside. This design was chosen deliberately, to emphasize an
OPEX program’s target-oriented character. Each OPEX program should start from an
inspiration, from a vision to improve an organization’s operations holistically, in every
dimension.
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Organizations starting their transformation to OPEX can use this arrow as a guideline
to bridge initially scarce knowledge by merely following it along its elements. By
following this arrow, companies can be sure to consider all relevant aspects on their
way to OPEX.
Management Commitment
Strategy
People
Pharm. Manuf. Environment & Quality
Product Portfolio
Processes
Transparency
Figure 6.1: The Operational Excellence Architecture
OPEX-advanced organizations can also follow the arrow in a stepwise control
approach to make sure that all relevant aspects have been addressed. The later
introduced GMN (see Chapter 3.2.4.1) provides a tool to navigate between the second
layer elements and emphasize elements as needed. This accentuates the continuous
character of OPEX programs, which can be considered a never-ending effort.
In both cases, the GMN serves as a tool to form each element’s characteristic
individually.
The sequence of the second layer elements was determined in several expert
interviews. Management Commitment was chosen as the element an organization has
to start with. Only if the management creates an environment that allows the pursuit of
OPEX, the program can be a success in the long run. This becomes especially
important at the launch of the program, as first it is an investment that will (hopefully)
pay off in the future.
The remaining elements of Figure 6.1 are:
 Strategy
 People
 Pharmaceutical Manufacturing Environment
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 Product Portfolio
 Processes
 Transparency
The Architecture introduced in this section follows the understanding of Ulrich (1984)
and the limited design space of the social system. The other dimension constraining
the design of the system is omnipresent change.
6.2 Description of the Elements
An overview of the second layer elements of the OPEX Architecture is illustrated in
Table 6.1. In the course of this section, the elements are described in detail. Comments
of both practitioners and industry experts stress the relevance of the discussion and at
the same time provide design suggestions for followers.
Table 6.1: Second layer elements of the Operational Excellence Architecture
Element
Required description
Management Commitment




Leadership & Communication
Resources
Responsibilities & Delegation
Culture of Continuous Improvement
Strategy
 Strategic OPEX Alignment
 Roadmap & Communication
People
 Empowerment vs. Command & Control
 Knowledge Retention & Training
 Quality Awareness
Pharmaceutical Manufacturing
Environment & Quality
 Maintenance Policy
 Housekeeping, Standardization & Visual Management
 Quality System
Product Portfolio
 Portfolio Clustering
Processes
 Creating the Process Landscape
 From Push to Pull and Inventory vs. Waste
 Launching
Transparency
 KPI System
6.2.1 Management Commitment
Management commitment sets the foundation for any organizational initiative and is
positively correlated with employee job satisfaction (Rodgers et al., 1993).
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Furthermore, high commitment of top management facilitates the implementation of
quality-related practices and finally results in higher product quality (Ahire and
O’Shaughnessy, 1998). Whether it is a top-down driven action or whether it has been
initiated by employees at lower hierarchies, without sufficient support from
management any program will be nipped in the bud.
The particular focus on clearly demonstrating management commitment is especially
relevant in hierarchical cultures which are characterized by high power distance and
people who unconditionally follow their superiors. Last but not least, a prosperous
OPEX initiative thrives from the ideas and engagement of people, rather than their
pure obedience.
China (CN_DC1): “If our management level decides to implement anything, everybody on the shop
floor level will comply – but will they comply voluntarily, I don’t know.”
China (CN_MNC1): “If the department leader is engaged, his or her subordinates most probably will
be also very engaged. Chinese people are influenced a lot by their leaders.”
As such, the management needs to create an organizational culture which supports the
philosophy of OPEX. The approaches introduced in Section 2.4.2 may help to better
understand the functioning and interrelations of organizational culture.
For employees at all hierarchical levels to perceive management commitment as a vital
constituent of OPEX, this commitment needs to be defined by various dimensions.
‘Leadership & Communication’, ‘Resources’, and ‘Responsibilities & Delegation’
have been identified as the most relevant dimensions in previous examinations.
Moreover, the management has to pave the way for a ‘Culture of Continuous
Improvement’.
6.2.1.1 Leadership & Communication
Leading a successful OPEX program requires from leaders to be present where things
are happening. Therefore, they have to be present on the shop floor, interacting with
people and understanding their needs (Friedli and Werani, 2013a). Since many
emerging market cultures are characterized by a high power distance which entails that
people take their hierarchical role for granted and comply (Burgess and Steenkamp,
2006), and especially the “[d]ifferences in cultural beliefs, values, and norms moderate
leader-follower relations […]” (Bass, 1997, p. 137), one should not mistake leading for
managing. In this regard, Schein asserts “[…] that leaders create and change cultures,
while managers and administrators live within them.” (Schein, 1992, p. 5).
To describe leadership in general, the taxonomy of Pavur (2012) is utilized. He
distinguishes three broad categories of leader behavior:
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(1) the initiation of structure: a leader’s attention is paid to all activities that are
related to productivity, efficiency, and quality
(2) consideration: a leader’s attention is paid to the members and stakeholders of
the organization and specifically to all activities that concern their welfare,
needs, and aspirations
(3) change: a leader pays attention to innovation, creativity, and research. Beyond
that he promotes new ideas that advance organizational adaption to a changing
environment.
The three categories are further divided into various functions that provide a useful
overview of a leader’s responsibilities. However, these are still too general to guide a
leader’s individual development. Therefore, this layer has been further subdivided,
now outlining the skills and activities a leader has to provide in order to fulfill his
function. The taxonomy is illustrated in Table 6.2. It has to be noted that this table
does only summarize leaders’ responsibilities, and not their personal attributes (Pavur,
2012).
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Table 6.2: Leadership skills and activities: A taxonomy of General Management, adapted
from Pavur (2012)
Skills & activities
Functions
Broad categories
Plan, organize, command,
coordinate, control (Fayol, 1917)
Organize, improve, monitor
(Taylor, 1911)
Initiation of structure
(Stogdill, 1974)
Clarifying
Planning &
organizing
Problem solving
Informing
Monitoring results
Supporting
Consulting
Delegating
Recognizing
Rewarding
Participation,
motivation,
support
Developing,
empowering,
motivating
Managing conflict,
building teams
Developing teams
Consideration
(Stogdill, 1974)
Achievement, constructive conflict
(Follett, 1941)
Representing
Networking,
interfacing
Communicating a
vision of the future
Taking risks for the
organization
Promoting open
systems analysis
External liaison anticipating future
needs adjusting to new
conditions
Adapting in open systems (von
Bertalanffy, 1950)
Understanding the environment
(Emery, 1965)
Change (Ekvall and Arvonen, 1991;
Yukl et al., 2002)
Environmental
scanning
Making system
decisions as a team
Attributes of leadership are condensed into different theories and styles of leadership.
It is beyond the scope of this thesis to provide a full overview of all the prevalent
leadership styles that are currently discussed in the literature 107. Rather, the most
107
A summary of leadership styles can be found in Iszatt-White and Saunders (2014).
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relevant attributes of leadership in OPEX are highlighted as to provide an orientation
to develop an individual style that fits both the leader and its current environment.
The different leadership styles liaise in a certain hierarchy in terms of effectiveness,
effort, and satisfaction of their outcomes. The transformational leadership style tends
to add to ‘hierarchically lower’ styles like the transactional style (Bass, 1997) and is
regarded as the superior style in general (Bass, 1990). Finally, it is the aspired form in
pharmaceutical OPEX for future leaders (Crossman, 2013).
Singapore (SG_MNC1): “The challenge lies in observing. As long as I am standing there, people are
behaving correctly. And people behave the way I like them to behave. But the moment I leave – will
they continue to do it this way?”
Constant surveillance is required if reward or coercive power are used (Raven, 2008).
The latter is often found in high power distant organizations (Cagliano et al., 2011)
and leads people only to comply if they feel that they are observed, measured, and
consequently punished (Raven, 2008). Though an authoritative leadership style is
often seen as very effective in such cultures, followers expect leaders to use their
authority sparingly and in a considerate way (Blunt and Jones, 1997).
Authentic transformational leaders understand the need to motivate their followers in
aiming for goals that go beyond an individual’s self-interests, i.e. for the good of the
group or organization (Bass, 1997). This objective is in line with the characteristics of
the collectivistic societies of emerging markets. Nevertheless, transformational
leadership is multifarious and may either be democratic and participative or autocratic
and directive (Bass, 1997).
Taiwan (TW_DC1): “We have no consistent way of problem solving. A colleague does a lot of system
improvement and he is also the trainer for Six Sigma and has trained almost 100 people, but in all the
meetings or when solving a problem hardly anybody is using the methods we have learned. We always
have to push people to use the tools, and changing their way of working is very hard. They always
jump to the conclusion.”
Transformational leaders are charismatic and inspiring their followers and they aim to
meet their employees’ emotional needs (Bass, 1990).
Singapore (SG_MNC1): “But it does not need a tighter control in Singapore than in other Asian
plants. The difference in US and Europe, which are kind of developed countries, is that people are
more outspoken, whereas in Asia you have to make an effort to pray the reason out, you really have to
investigate the reason. People are not coming out openly and speak about it. People are more
diplomatic. So it is difficult to tailor the initiative directly to people. Asians are very shy people, they
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don’t like to raise their hands and say ‘I have a problem’. You have to investigate it. You have to
become a people detective.”
In such cultures, a leader has to directly approach employees and engage with them in
order to overcome barriers from social structures like hierarchies and an individual’s
position in society. This is a challenging task.
Brazil (BR_MNC1): “I like to make people think outside of the box. I like to challenge people and
make them forget the process and procedures and instead making them think about how to make
things better. Don’t be tied to your processes, procedures and rules. […] But the problem is to
stimulate people, to make people to engage in it.”
As shown, it is crucial that leaders develop a broad set of personal attributes 108 to
fulfill their role as credible and successful leaders. The OPEX program relies on its
leaders’ skills and their personalities to enhance instead of limit the program’s
development.
Bass (1997) showed that transformational leadership is not only the most effective
leadership style in Europe and the US, but also in many countries regarded as
emerging markets. Nevertheless, leaders have to mind cultural and organizational
characteristics and align their behavior accordingly.
Transformational leaders take a vital role in implementing and sustaining OPEX at a
pharmaceutical manufacturing site. They are in the driver seat on the way to a site’s
transformation to OPEX, by controlling various success factors. Crossman (2013, p.
358) summarizes these as:
 Setting stretch aspirations and new expectations for performance with a clear
view of “what great looks like”
 Aligning everyone to the future state and building energy behind it
 Communicating openly and honestly, using a compelling “Change Story”
 Leaders make the change personal by modifying their own behaviors
 Focus and intolerance of losses (e.g. waste, variability, inflexibility)
 Demonstrated focus on “narrow but deep” transformation with a clear
structure for change
 Innovation for purpose that is behavioral based with an understanding of
strategic business opportunities
108
A list of personal attributes and characteristics of successful leaders can be found in Walkhoff (2013).
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As Crossman (2013) points out, the success of the implementation of an OPEX
program depends substantially on an open and honest communication. This comprises
two main aspects; first, the necessity and acuteness as to why to launch the program at
the beginning. Employees need to be informed and involved what the program is about
and what the set objectives are. Second, communications and instructions to
employees also need to be clear during the progress of the program.
India (IN_MNC1): “When we launched our site’s Operational Excellence program, we explained to
people from the management level and shop floor that it is not a one-person job, that a single leader
cannot drive the program and that it is a cross-functional job. First, we only communicated it at the
management level, but it felt incomplete until we communicated it to the people on the shop floor.
At the beginning it was an investment being done. In many situations, people thought that the program
is not giving any quick results – because everybody expected these quick results. Management told
people that it will take time. Since we operate in an industry that is driven by regulatory requirements,
we cannot drive a change easily. Changes are very difficult. That is the problem in a highly regulated
industry like Pharmaceuticals. Over a period of one year, we kept a dialogue with the people,
explaining them to keep going on and telling them that they do good work. [At this early stage t]he
process is important, not the result. If you keep working on a good process with a good objective in
mind, you will get the result in time.”
6.2.1.2 Resources
A resource can be defined as the tangible or intangible assets that an organization
possesses at a certain point of time. Among these, one can usually find financial,
personal, and knowledge-related resources (Wernerfelt, 1984).
The availability of these resources is critical for the success of an OPEX program.
Depending on a program’s goals, the right resources must be provided in sufficient
quantities. For evaluating and later allocating the optimal quantity of resources, the
program’s focus on either technical or social aspects can serve as a first point of
guidance. Therefore, the organization has to get an idea of its actual resource pool.
Danneels (2011) emphasizes that it is not only the availability of resources but also
managers’ awareness of those. It is their cognition which in the following determines
the direction of resource renewal.
Thus, any organization needs an overview of the resources required and deployed. In
smaller organizations, Excel can be used for such an overview. Larger organizations,
which have to handle more complex resource allocations, better rely on professional
resource planning systems.
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Taiwan (TW_DC1): “We developed our own program and linked it to SAP, before that we had Excel
files only. People required the system, they knew what they needed and over the time we continuously
improved the system. […] Today, we also include portable equipment [in the overview of resource
availability and allocation] which we share between our sites and which is linked to our production
schedule.”
The provision of financial resources is of course depending on the company’s current
market situation, the industry’s welfare, and the company’s priority on OPEX. The
weaknesses of emerging economies’ financial markets do their bit to companies’
hindered access to new funds. As it was shown in the case studies, at PharmCo C, FDI
may put the company in a favored position.
China (CN_EXP): “Many Chinese manufacturers are preoccupied by other things with higher
priority, for instance meeting GMP requirements than investing in Operational Excellence. The
requirement of GMP certification has led to the fact that many manufacturers have disappeared and
the remaining ones have been certified or are still in progress of certification. This will at least take
another two years. […] But even in the last two years I think the companies should be interested in
Operational Excellence, but currently they are not.”
Personal resources are closely linked to the availability of knowledge. The course of
the initiative might need the appointment of senior managers as OPEX team leaders
who have the power to internally push and defend the program. Yet, it is not only the
numbers of appointed managers that is crucial but also their expertise. As one
European OPEX Leader pointed out, it is the quality and education of people rather
than their numbers. The initiative requires leaders with profound communication skills
who are not at the bottom of their learning curve and who are aware of the industry’s
benchmarks.
Close collaboration with local universities provides access to know-how and
methodological skills for companies in emerging markets. During the research process,
the author met with several professors from universities in emerging markets like
China, African countries, Caribbean countries etc. who engage in establishing a
stronger link between their countries’ local pharmaceutical industry and their students.
They reported mutual benefits for both parties, which well justify the efforts.
6.2.1.3 Responsibilities & Delegation
The implementation of OPEX requires moving the authority over decision-making
down the organizational levels. This requires new modes of communication and
coordinating policies, to allow for the new work practices across functional areas and
the organizational hierarchy (White et al., 1999).
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The strong hierarchical structures of emerging markets’ societies are reflected in the
structures of their organizations, and hinder open communication and the promotion in
higher social classes.
Brazil (BR_MNC2): “The Brazilians have a higher class and a lower class and the society is
characterized by many different social layers. In contrast to the US and South Africa, which
unfortunately both suffered a very aggressive racism in their past, Brazil suffers from a kind of subtle
racism. This subtle racism is even worse since it was never seen as a real problem.
So there are almost no black people who are promoted into a higher social class. That happens very
rarely.”
Nevertheless, OPEX requires the division of work and the delegation of authority. This
means that the described hierarchical barriers which are constrained by human mental
programming (Hofstede and Hofstede, 2005) need to be overcome even if this means
the indirect loss of power and a shrinking total overview.
Brazil (BR_MNC2): “The problem with these hierarchical structures and classes is that the higher
class is not interested in what the lower class thinks, and the lower class doesn’t speak up. […] That is
of course a huge challenge for managing a pharmaceutical site and its manufacturing activities.”
In order to select the right people for a task and to manage and lead employees in an
optimal fashion, Hersey and Blanchard (1977) suggest assessing both people’s skills
and their willingness to contribute to a task (see Figure 6.2).
Coach
Delegate
Direct
Excite
Will
Skill
Figure 6.2: Will / skill matrix, adapted from Hersey and Blanchard (1977, p. 170)
If lacking will and skill, people should be directed how and when to do a task and they
should be closely controlled. If people lack competence but are committed to their
work, the leader takes on a coaching role. This is in contrast to competent employees
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who lack motivation for their work and need a leader who excites and supports them.
Tasks should only be delegated to people who have sufficient will and skill (Hersey
and Blanchard, 1977).
India (IN_DC1): “There are challenges; people are in a resistance to change. We set up an incentivebased scheme, top management was involved, strategy teams and senior managers were involved. We
are very performance-driven, timeline-driven, we set objectives and goals, and put metrics in place.
We measure, time is limited, and some did not comply. So we let these people go. Others are very
smart, we don’t let them go.”
By delegating tasks, leaders transfer responsibility for decision-making to employees.
Especially in highly assertive cultures’ managers have to select the respective
employees carefully, as they tend to avoid taking responsibility for their actions
(Philipsen and Littrell, 2011).
China (CN_MNC2): “One typical mindset of people is if you do more you tend to do more mistakes.
So due to this mindset the default response is try not to do more and just do what is required by the
job.”
6.2.1.4 Culture of Continuous Improvement
The goal of Continuous Improvement is a company-wide focus on gradually
improving organizational processes (Deming, 1986; Imai, 1986). The entire
organization must be aligned to constantly question existing procedures and to create
solutions that transform the company towards a higher performance level. Though it is
on the leaders to create the culture of Continuous Improvement, it is the people who
live within it and have finally to drive it.
China (CN_MNC2): “Typically, the way of working is that when a leader lists the actions that need to
be done, everybody will follow. This kind of environment is helpful for any initiative not just for
Operational Excellence. The downside is that you typically find a top-down approach for
improvement. Most improvement projects are at a leadership level. However, it should be discovered
by the people who do the actual job.”
The mindset of Continuous Improvement provides the basis for further organizational
activities. The open-mindedness of employees for change is important to get their buyin and participation in new modes of operations. Friedli (2000) argues that if
employees’ participation at the early stages of defining the new modes of operations is
insufficient, they cannot be introduced successfully nor will they become the basis
future work procedures. This is especially true in cultures where subordinates follow
their leaders due to cultural obligations instead of their own conviction. Leaders have
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to act very sensitively to understand their followers’ attitudes towards and opinions on
the newly introduced working practices.
China (CN_MNC1): “In China people hesitate to ask questions. But since I live in this culture, I can
realize if they agree or disagree. They will not bring up their concern during a meeting verbally but I
can find out if employees buy-in in this idea. […] The challenge is that people always say that they
want to change but they just say it.”
Brazil (BR_MNC1): “What I see is that people change because it is a kind of obligation. Actually they
don’t believe in the change, but they do it because they have to do it. The mindset is very important
because if you want to have a very solid basis for your continuous improvement process in your
operations, you need to have people engaged in it. Otherwise you can make the change but it won’t
last for a long time.”
Initializing Continuous Improvement at a pharmaceutical manufacturing site is a longterm effort. In order to ultimately reach such a mindset, people need to be trained and
have to develop distinctive capabilities like, for instance, problem-solving. Their
active participation in finding new solutions and linking improvement activities to a
manufacturing site’s strategic goals fosters organization-wide learning (Bessant and
Francis, 2001).
China (CN_MNC2): “Often Operational Excellence projects are defined as a result of a problem that
has occurred. So, many people think just following these projects and solving the problem will lead to
any improvement within the organization. That’s not entirely true. The objective of Operational
Excellence cannot just be on solving the problem – it has to be a proactive approach. This needs a
certain level of maturity of the site to move from a reactive to a proactive mood.”
Singapore (SG_MNC1): “If people are given a certain space of time to brainstorm and come up with
ideas of how to continuously improve, that will have a different result than as part of an ongoing
program where you ask for improvement. It is how you focus on it. If I constantly emphasize ‘cost is
the challenge’ and focus on cost reduction, people come up with ideas but after a while you cannot
reduce cost any further. Whereas if you start to build the capability and you make sure that people
have the ability to continuously improve: now my end result skies the limit. I can save as much I want
to.”
Figure 6.3 illustrates the generic archetypes of stages which an organization has to
pass through on its way to a continuously improving learning organization. The model
can support leaders of OPEX to assess their manufacturing site’s maturity level and to
derive the next logical step as to how to support organizational development. Bessant
et al. (2001) state that companies differ in their organizational capability to
continuously improve, and so do their experiences during the transformation process.
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Nevertheless, the process moves from a pure learning phase to a phase of practicing,
and finally to mastering the behaviors which provide the foundation for the aspired
ability. In order to successfully manage this cultural change, the core set of the
organization’s basic assumptions 109 needs to be challenged (Trompenaars, 1996).
Level of Continuous Improvement
Level 5: Full CI Capability; the manufacturing
site becomes a model of a learning organization
Level 4: Proactive CI; attempt to empower and
increase autonomy of individuals and groups as
to manage and direct their own processes
Level 3: Goal Oriented CI; commitment to expand
CI behavior from a ‘local’ level to wider strategic
concerns of the site
Level 2: Structured CI; formal commitment to
build a system which will develop CI across the
organization
Level 1: Pre-CI; interest in the concept has been
triggered – implementation is on an ad hoc basis
Characteristic behavior patterns
 Learning behavior of the organization
 Systematic problem solving and building a
knowledge base
 Establishing a problem solving unit
 High levels of experimentation
 Etc.
 Formal deployment of strategic goals
 Monitoring and measuring the progress
 Etc.
+
+
+




Structured problem solving process
High percentage in staff’s participation
Training in basic CI tools
Etc.




Random problem solving
Informal & unstructured improvement approach
Solutions address short-term benefits
Etc.
Figure 6.3: Organizational stages towards Continuous Improvement,
adapted from Bessant et al. (2001)
Ultimately, leaders have to encourage people to speak up and voice their concerns.
Leaders have to create an environment in which suggestions for improvement are
regarded as favorable and desirable. These suggestions are no criticism of the actions
or behaviors of superiors. Such encouragement has to take place on an individual basis
which comes due to leaders’ high commitment to OPEX.
China (CN_MNC1): “During the greenbelt workshop where we taught people new concepts, tools,
and methods, people were so intent and interested in them. But when they came back to their
workplace, they changed back to their old habits. So it is about reaching individual people. But the
individual person alone cannot complete a project or change the process by themselves. They need the
cooperation of other people. And that’s the problem: Reaching the pilots. We cannot change 100% of
our employees. That is a very big problem at the beginning stage.”
109
See Section 2.4.2 for the relationship of basic assumptions and culture.
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6.2.2 Strategy
Though an organization’s very first steps in OPEX might be taken arbitrarily, a
purposeful implementation of the concept requires the alignment with a clearly and
consistently formulated strategy (Friedli and Bellm, 2013c). This allows the initiative
to support the strategy’s realization (Slack and Lewis, 2011). Thereby, the corporate
strategy constitutes the source for deriving the individual strategies of an
organization’s functions (Dangayach and Deshmukh, 2001b) which then act as a tie
between the organization and its environment (Dodgson, 1993).
China (CN_MNC2): “Our manufacturing sites in Asia have a strategic focus on manufacturing at low
cost, but of course our initiatives also aim at improving quality and motivating people – which is a
long-term effort. In contrast, for example, patent protection policies in our region require us to be
more flexible and agile to adapt to changing market requirements – which needs a short-term focus.
But a good Operational Excellence initiative needs a long-term focus. That’s the tradeoff.”
6.2.2.1 Strategic OPEX Alignment
In defining their strategy, local organizations respond to institutional processes and
voids in emerging markets (Oliver, 1991; Khanna et al., 2005). Despite the high
relevance of a defined (manufacturing) strategy, it is not the objective of this section to
provide a full concept of how to conceptualize an organization’s manufacturing
strategy or its supporting OPEX strategy.
A broad overview of manufacturing strategy formulation processes can be found in
Pun (2004). The stepwise explanation of the process of strategy development is
discussed in Friedli (2000). In a first step, the assessment of strength, weaknesses, and
strategic importance of the organization’s products leads to the company’s competitive
priorities. In a second step, the strategy is derived by utilizing Nalebuff and
Brandenburger’s (1995) PARTS analysis which is based on Porter’s (1985) five
forces.
In this section, the focus lies on identifying a company’s competitive priorities. These
are best evaluated in a well-prepared workshop in which the site leadership team and
the responsible leader 110 for OPEX participate. Depending on the site’s development
level, the preparation of the workshop might take longer than expected. Data needed to
evaluate a company’s manufacturing priorities are sometimes difficult to retrieve at
domestic manufacturing sites in emerging markets (Acquaah, 2005).
110
In a best case scenario the OPEX leader of a manufacturing site is part of the site leadership team (Werani,
2013).
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Figure 6.4 illustrates the results of a workshop that aimed at defining
PharmCo_COMPET-PRIO competitive priorities. After a thorough explanation of the
dimensions, each member of the site leadership team gave his/her estimate of the
manufacturing site’s current competitive priorities. To do so, the analogy of order
winners and qualifiers as described in Section 3.1.1 was used. Each symbol represents
the judgment of a team member. The results clearly show the misalignment of the
leadership team. In a next step, the site’s contextual situation was assessed and the
priorities were defined in a mutual discussion (Symbol: quadrat). Additionally, the
actual market requirements were assessed and visualized in the same framework
(Symbol: triangle). This allowed the site leadership team and the subsequently
appointed person responsible for OPEX to define the priorities of the site’s OPEX
initiative.
Flexibility
Quality
Conformance
Speed
Dependability
Product range /
design flexibility
Order size /
delivery flexibility
Strategic priorities
Strategic priorities
Delivery
Highest priority
order winner
High priority
order winner
Low priority
order winner
Price / cost
Price / cost
Quality
Important for
winning orders
Critical
order qualifier
Order qualifier
Insignificant
High priority
order winner
Low priority
order winner
Important for
not losing orders
Highest priority
order winner
Important for
winning orders
Critical
order qualifier
Insignificant
Order qualifier
Important for
not losing orders
Delivery
Flexibility
Conformance
Speed
Dependability
Product range /
design flexibility
Order size /
delivery flexibility
Innovation Product / process
Portfolio of technology
Innovation Product / process
Services
Services
Participants:
Portfolio of technology
Actual state (after discussion):
Market Requirement:
Figure 6.4: Defining the competitive priorities
Taiwan (TW_DC1): “Our focus is cost down. Cost down! Also reduce inventory and on-time
shipment.”
China (CN_MNC2): “Besides plant output, we include a lot of employee development and talent
training in our OPEX strategy. The OPEX projects are selected based on three very critical
objectives: quality, cost, and supply. These criteria help us to determine which projects will be
prioritized.”
Singapore (SG_MNC1): “Our priorities are defined by the functions and the objectives they have to
reach. Once we have these objectives in place, we start a critical-to-quality analysis to find out which
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197
OPEX tools will help us the best to comply with our strategy. As such, we change our initiative’s
priorities over the course of the program.”
India (IN_MNC1): “We align our strategy to our annual objectives. […] A first draft of objectives is
discussed […] with various teams and their leaders to come out with the defined annual objectives.
We then split them into priorities; these priorities are then assigned to one of the categories quality,
high safety standards, or COGS. Further we look that Continuous Improvement is aligned with all
these objectives.”
India (IN_DC1): “Within our initiative we have four priorities. The first is establishing a solid link
between sales and production forecasting with capacity utilization and product allocation [in one of
the manufacturing sites]. The second is a combination of quality manufacturing and supply chain, this
point is important because we always try to reduce cost but our quality is closely linked to our raw
materials, work in progress, semi-finished goods, finished goods, and the goods in shipping. So that is
a very critical aspect since a lot of money is involved. […] Our third dimension we are looking at is
our cost of operations (IT, finance, accounting, strategy). Finally, our fourth dimension is new product
development. This is important because currently 80% of our business is still contract manufacturing
but now we begin to be an innovator, so that’s a critical point to address and to achieve.”
Brazil (BR_MNC1): “Currently, my focus is on Continuous Improvement which is very much costdriven, and I also work on meeting our corporate global requirement. Our OPEX strategy is based on
our global OPEX strategy with some local adaptions to specifically meet the Brazilian market’s
requirements.”
Brazil (BR_MNC2): “My focus lies on our maintenance activities. That is very critical for us! […]
But I have to admit that is not very special for Brazil; that is our company’s focus at every site –
globally.”
As the above statements indicate, there is no ‘emerging market recipe’ for defining a
pharmaceutical manufacturing site’s OPEX priorities. Rather, priorities and ways to
realize them are derived as a logical sequence of the sites’ manufacturing strategies.
All the sites have in common that they have a defined strategy to which they can align
their OPEX initiative. This provides them with a structured and planed approach,
instead of starting some improvement activities at random.
6.2.2.2 Roadmap & Communication
Providing strong direction and giving guidance to the group is the first stage of
developing a high performance team. Further, it takes time to align people to set
objectives and to build an extraordinary team spirit (Blanchard et al., 2009).
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India (IN_MNC1): “We have open house forums with our employees. There, we communicate our
strategy at the beginning and we keep on reviewing and monitoring the strategy every quarter where
we assemble the full organization. Here we debate the performance, our successes and failures we
have observed. We also think about the reasons for the failures and how we cope with it in the next
quarters.”
Brazil (BR_MNC1): “For communication of our strategy we have regular meetings with all our
employees we call it ‘all employee meeting’. This happens every quarter. […] In all meetings we
discuss our Continuous Improvement strategy.”
The two examples show how the organizations engage with their employees. They ask
for people’s opinion and feedback. Moreover, they take care that everybody is aware
of the company’s priorities as to understand why certain actions have to be taken.
These quarterly meetings contribute to the development of the manufacturing sites
working culture.
India (IN_MNC2): [on describing the site’s first introduction of an Operational Excellence program]
“Once we had our strategy, we set up different events to engage people and explained them the
direction. It was much about the Six Sigma philosophy and all the new terms so that people really
understand it.”
During the restructuring phase of its OPEX program PharmCo_OPEX_RESTRUC
considered several adaptions to its already existing OPEX model. One of the key
outcomes of the work sessions with more than ten attendees (VPs, Senior Directors,
OPEX Site Leaders, etc.) was a summary of central aspects that need to be considered
while designing and communicating the new model:
 Clearly demonstrate the logic behind the model
 Visualize the program’s priorities within the model
 Show the causality of OPEX performance and business performance
 Develop a common language as a foundation to communicate, sell, and drive
the program.
 Develop a roadmap for the program to involve all employees, from shop floor
to top management
 Create an ownership structure for the roadmap for OPEX (tactic, strategic,
and operational level) to get the buy-in from people
The proposed list is not limited to the adaption of an existing OPEX model but is also
recommended considering when designing a new model. The development of an
OPEX roadmap supports a structured approach and serves as mindmap to define the
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199
necessary actions that need to be taken while implementing an OPEX program. Figure
6.5 illustrates an example of an action list which is based on a RACI 111-matrix and can
be used for maintaining an overview.
Action
RACI
To dos
Influences
Sub goals &
milestones
Deadlines
Miscellaneous
…
…
…
Figure 6.5: Action list for an OPEX roadmap
Figure 6.6 gives an example of a visualization of an OPEX roadmap. The illustrated
roadmap was designed for a medium-sized manufacturing site with nearly 300
employees. OPEX was a fairly new concept to the site and it was very busy working
off a long list of urgencies. Moreover, the site was occupied with ‘firefighting’ actions
and suffered a drop in its delivery performance. This resulted in a distinctive
consideration of the elements ‘urgent needs’ and ‘sensitization to OPEX’. The
roadmap is divided into three sections that follow the progress of a manufacturing site
on its way to an operationally excellent organization.
111
The RACI-matrix is a project management tool. It supports the definition of who is Responsible,
Accountable, Consulted, and Informed during a project.
Target
Transformation
Design high
performance
organization
Intermediate
target
Change
Realization
projects
Define strategy
Map
processes
Urgent
needs
Start
Design
Develop
implementation
plan
OPEX
philosophy
Review and
align plan
Design
process house
Propose OPEXstructure
Develop
action plan
Approve
action plan
Information
to
employees
OPEX
development
OPEX
alignment
Pilot task force „Delivery Performance“
Qualification of personnel
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Sensitization to OPEX
200
Kick-off
Figure 6.6: Visualization of an OPEX roadmap
6.2.3 People
It is the attitudes and working culture of an organization’s people that brings the
system to life (Liker, 2004). As an infrastructural lever (see Table 3.2), this dimension
provides substantial potential to increase organizational performance. ‘Empowerment
vs. Command & Control’ of people, ‘Knowledge Retention & Training’, as well as
people’s ‘Quality Awareness’ have shown to be the central dimensions of
pharmaceutical OPEX in emerging markets. These dimensions are discussed in the
following.
6.2.3.1 Empowerment vs. Command & Control
China (CN_EXP): “The corporate culture in China is more like a CEO culture. Managers of
multinational companies tend to pay more respect to their employees and they encourage people to
think independently and creatively. Unfortunately, that is not the case in most domestic
pharmaceutical companies in China. The big boss doesn’t really care; the big boss only wants to hear
a ‘yes, man!’”
China (CN_DC1): “They [people on shop floor] are supportive. That’s basically because they are
always supportive, if we decide something. It is not that they understand what we do in Operational
Excellence and that they want to take initiative. That’s not the case.”
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201
India (IN_MNC2): “Well, in emerging markets the top-down approach works. The expectation is
always ‘the leader will tell me what to do’. There’s a lot of empowering and change. But still, when
people look up, they want to get some direction. Having said that, all the tools which are simple tools
like 5Whys or 5S work. People can use the tools by themselves and do not need further direction from
the supervisor. But for example shift changing work, when the two shifts come together to discuss what
has happened and what needs to be done in the next shift – that’s not working well. In other plants it
does, but not at ours.”
Brazil (BR_MNC2): “Often it feels like people have a mentality to work around the problem instead
of facing it. Everything needs to be checked. That’s really challenging, especially in the pharma
industry where we strictly have to follow our guidelines. […] This makes empowering of people
difficult. I have to constantly repeat the tasks that need to be done. I will tell them to do it 100 times,
but if I don’t tell them the next time, they don’t do it. They always look for the line of least resistance.
[…] If we have summer and beach season starts, then it happens that shop floor people do not show
up for work.”
Though the OPEX philosophy suggests empowering people and providing them with
the freedom to work in a self-determined way, the above statements indicate that
empowering people in these cultures might be a challenge on leadership.
Individuals in high power distance cultures – like most emerging markets are – are
used to work in well-structured and formal environments that are characterized by topdown decision-making and autocratic leadership. Having grown up in disempowered
environments, individuals lack background or experience of coping with
empowerment situations. This might lead to unsatisfactory results when people are
confronted with autonomous work styles and are required to take more responsibilities
(Eylon and Au, 1999).
India (IN_MNC2): “So empowerment in this kind of culture is difficult to realize because all the
years people were used to look up to the leader and wait for directions. But this is also changing a lot.
When I look ten to 15 years back, the culture, the work culture, the qualification of people –
everything was different. Now people start to look for empowerment and they use it for organization.
But OPEX in emerging markets needs to be more structured; it needs to be designed to the
environment and local conditions. Leaders, middle management, and supervisors have to be on a
constant stand-by and they need to permanently communicate the success stories and more positive
talks to operators.”
Nevertheless, even if people in high power distance societies are not familiar and
experienced in dealing with empowered situations, they are more satisfied when being
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empowered (Eylon and Au, 1999). Especially when individuals feel powerless, leaders
have to consider empowering their followers (Conger and Kanungo, 1988).
Consequently, an organization’s first steps to OPEX in emerging markets need to be
very structured and people ought to be instructed what to do, how to do it, and when to
do it. Over the time this has to change. People have to be trained in taking
responsibility and working in empowered situations. For this kind of transformation
and changing behavior, Conger and Kanungo (1988) suggest a five stage process
(Figure 6.7).
The first stage evaluates the current situation of employees and the conditions that lead
to feelings of powerlessness among the workforce. In response to these deficiencies,
leaders start to change their behaviors and apply management techniques to change the
organizational environment. Within the third stage, barriers to powerlessness are
further removed and leaders continue to motivate and encourage their subordinates. In
stage four, followers’ perception of powerlessness starts to change into feelings of
empowerment which finally leads to changes in their behavior in stage five.
Stage 1
Stage 2
Stage 3
Stage 4
Stage 5
Conditions leading to
a physical state of
powerlessness
The use of managerial
strategies &
techniques
To provide selfefficacy information
to subordinates using
four sources
Results in
empowering
experience of
subordinate
Leading to behavioral
effects
Organizational factors
Supervision
Reward system
Nature of job
Participative
management
Coal setting
Feedback system
Modeling
Contingent/
competence-based
reward
Job enrichment
Enactive attainment
Vicarious experience
Verbal persuasion
Emotional arousal
Strengthening of
effort – performance
expectancy or
belief in
personal efficacy
Initiation/
persistence of
behavior to
accomplish
task objectives
AND
Remove conditions
listed under Stage 1
Figure 6.7: Five stages to people empowerment, adapted from Conger (1988)
Self-regulation of individuals or teams and their access to sufficient information leads
to superior results in turbulent environments (Eylon and Au, 1999). However, reaching
the fifth stage does not mark the end of the process described in Figure 6.7. Due to the
cultural legacy of some emerging economies, employees tend to fall back into their old
habits and mind-sets. Leaders have to be aware of this challenge and they have to keep
working to sustain achieved empowerment levels among their followers.
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China (CN_MNC2): “Empowerment of people has to be a continuous effort. It is definitely not a onetime event. It has to be driven by leaders every time they come to the shop floor and set up meetings. It
has to be a long-term, continuous effort.”
India (IN_MNC2): “The momentum as to sustain the initiative has to be a continuous message and
communication.”
India (IN_MNC1): “When we empowered people and gave them more freedom to report on a
monthly or quarterly basis only, we got better results. If there are failures – ok, we discuss this issue
but don’t be afraid of failures. Keep working, failures may happen but they give you the chance to
improve the next time.
People like to be empowered; senior management takes a back seat and people are driving the
program. But still people need the encouragement by management to act like that and to feel
empowered.”
6.2.3.2 Knowledge Retention & Training
The complexity of pharmaceutical manufacturing (Basu et al., 2013) can evoke
unexpected and non-routine events that need fast and target-oriented reactions. Coping
with these exceptions requires upfront preparation and the diffusion of explicit and
tacit knowledge within the organization (Nonaka and Takeuchi, 1995; Guzmán, 2003).
Training people across hierarchies is an appropriate means to disperse knowledge
within an organization. At this point it is referred to Crossan et al.’s (1999) process of
organizational learning (see Figure 3.1) which describes the interrelation of individual
and organizational learning. Transferring individual knowledge to the group and
passing it to the organization is a lengthy process (Crossan et al., 1999) and requires
provision of sufficient resources.
China (CN_EXP): “Most companies are not very serious about trainings. They may say they are, but
they hardly put any real effort into people. They do a basic training so that operators can work
according to SOPs but only very few companies would go beyond that. […] I do not see any
commitment from top management.”
WEST_OET: “Training in China is difficult: often employees have poor English skills and they tend
to read their notes while you talk to them. Further, they do not ask questions, not if they don’t
understand something, not to get more details. In Kuwait, we conducted a training and my colleague
turned to the flip chart to take some notes. Meanwhile, people left the room without him noticing; they
just felt it was enough training for the day. People there are simply too rich as to do anything they do
not like to do. In contrast, India is easy.”
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Designing a training module for an OPEX model that fits the purposes of emerging
markets, one should bear four aspects in mind:
(1) Balance training: technical vs. social – tools vs. philosophy
When setting up a training concept a company has to decide on what to focus on. Like
the OPEX initiative, the training concept can either focus on technical or social
aspects. Training employees in tools is an important element of the entire philosophy.
However, too much training might dilute the objective of OPEX to improve employee
behavior and organizational performance (Wright, 2013). Especially training in
sophisticated tools like Six Sigma requires to educate a critical mass of people within
the organization. Usually, the majority of the necessary improvement project can be
realized without statistical support (Werani et al., 2013).
Singapore (SG_MNC1): “Everything that is in OPEX is a bunch of tools. From Lean to Six Sigma –
all these are tools. It is like a carpenter. If he wants to produce a good table he needs the right tools. It
is not that he has a single tool for each piece of furniture he crafts but he knows what the furniture
should look like and uses the appropriate tools during the process to reach his goals. If we were able
to train employees in using the tools but giving not more importance to the tools than to the end result,
that would be a good start. We are too focused on tools, making sure that people have used the tools in
order to get the output. Rather than telling people, “if you use the tool, the output will be better”.
Tools are merely an instrument to make your end product good. The focus should be on telling people
how to make the end product good, instead of forcing people to use the tool. They should be told how
the end product should look like, and how it will look like if certain tools have been used. We
shouldn’t measure the application of tools but measure the end result where tools were used.”
(2) Pursue a contextual fit of training
Besides the focus on technical or social aspects, the decision which tools to train and
finally measuring their application, the training must fit trainees’ cultural background
and their individual experiences (Earley, 1994). Therefore, solutions that were found
to work in other companies or even in the same company but in a different region
cannot just be copied without local adaption.
India (IN_MNC2): “Our training philosophy follows our global standard but our examples are local
examples so as people can better understand the content of the training. This is better as to use
examples from a Western plant or products people are not familiar with.”
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China (CN_MNC3): “We have to adapt our corporate training program. A very simple example to
explain why is, for instance, the tool ‘SIPOC’. Chinese people do not understand the acronym, so it is
very difficult for us to teach them when to use the tool, how to use it and what it is good for.”
China (CN_MNC1): “Our training is a standardized corporate training and sometimes I wish it was
more adapted to our local culture. The first adaption is the translation in our local language but here
the challenge starts already. I have the budget but I have trouble to find the right person to translate
the training documents. Our local translation service cannot translate such highly technical
material.”
China (CN_MNC2): “The concept we use for training is from corporate but all our case studies are
customized to the local market.”
Brazil (BR_MNC1): “We have the training material from corporate and use it to design our own
training. […] My training was in English, I teach in Portuguese.”
India (IN_MNC1): “We set up a very comprehensive training program. It is loosely based on our
corporate objectives, but we designed our own training. We have our introduction program where the
new employee physically has to walk through the site and functions; our corporate mission and
strategy as well as important ongoing projects are visually explained. There is a cGMP training and
an explanation of how it is in line with corporate quality policy and our site’s objectives. Then
training is separated into three streams (1) quality training, (2) behavior training like leadership,
communication, business etiquette, and (3) productivity improvement, benchmarking with industry,
process yields, batches.”
(3) Train and sustain – it’s a leadership task
It was discussed earlier that management has to provide sufficient resources for the
initiative. Providing these resources is not a single event in time. After the training, it
is the job of leaders to take care that people apply the new knowledge. Newly learned
practices have to become standard behavior.
Singapore (SG_MNC1): [on training in safety standards] “As an Operational Excellence leader at a
manufacturing site, you are the one who is directly responsible for everything. In the case of safety,
you can train safety, you can preach safety, you can advocate safety but ultimately it is the
responsibility of the person who is doing the job over there, that they [people on shop floor] follow all
the rules and requirements. That they use the necessary personal protection in order to make sure they
are safe. Operational Excellence is no different. You can train them on various aspects. But it is the
people on the floor who have to use it. Therefore we have to make sure that Operational Excellence is
part of the result.
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It is not only training people, it is not only telling them to use personal protection, and it is not only
preaching them the way of doing things: it is being responsible for making sure that several actions
don’t happen. That means you walk the floor to see who is not wearing personal protection or who is
behaving unsafely. By doing so you bring in Operational Excellence steps to make sure that it is a
more pervasive culture of safety.
You can test people’s knowledge and they all answer the questions to the best of their knowledge and
so you can grade people in terms of knowledge retention and how much they have learned. But it is
not the same as demonstrating behavior.”
India (IN_MNC2): “Right after the training there is a lot of enthusiasm about implementing it. But
what happens is that the site leadership team, middle management and supervisors really have to give
people time to use the skills and tools in daily operations. Therefore, you need the mind-set and
involvement to encourage people, give them positive talks, and give them opportunities to apply the
tools. That’s something that does not always work well. There come in other priorities like cost,
getting the product delivered, production delays, etc. which impact the application of trainings. But if
people don’t use it, they forget it and then they go back to the firefighting mode and we have the same
issues again. So, it is very important to keep the same direction and to sustain the effort. Thus, the site
leadership team plays a vital role.”
(4) Maintain the knowledge in the organization
Successfully managing organizational knowledge in high-tech companies is seen as a
source of competitive advantage (Bruton et al., 2007). A structured approach in
training people is part of this organizational knowledge retention. As the following
statement indicates, no substantial investment in state-of-the-art management systems
is required in order to monitor the progress of employees’ education.
India (IN_MNC1): “When we started our training program, we monitored the training of each
employee first paper-based, then digitally in an Excel sheet. It was not until the beginning of this year
that each persons’ training is monitored and tracked in our company’s quality system in our specific
training track. There, we link the feedback and performance of employees to make sure they get the
right training.”
If the required knowledge is not yet internally available, a company has 112 to rely on
external support to build internal capabilities. After a first training cascade, basic
knowledge is available and should be shared within the company. The train-the-trainer
112
From what the author has experienced during three years of collaborating with manufacturing companies he
suggests relying on external experience.
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207
approach has shown to be a successful method to diffuse the knowledge internally.
According to a European OPEX Leader, this kind of training approach is on the one
hand a very effective tool to foster communication across organizational hierarchies
but on the other hand the hierarchical societies in emerging markets might constitute a
barrier to this approach. Thus, a company has to consider setting appropriate
incentives to encourage the exchange of knowledge. Since knowledge is power and
this kind of training approach encourages the diffusion of knowledge, it entails the loss
of a unique feature.
Singapore (SG_MNC1): “Our first training was with an external consultancy. The people who were
trained at that time work now as trainer for our people. So today we do our own training in-house.”
Brazil (BR_MNC1): “I received several trainings from corporate, we adapted the trainings and now I
train the people at our plant.”
6.2.3.3 Quality Awareness
China (CN_EXP): “Product quality in China is not very high, simply because quality is not really
rewarded in the marketplace. […] Quality expectation [of shop floor employees] is low.”
China (CN_DC1): [on lower product quality from emerging markets in general] “I generally agree.
The ones who build the product, their education level, the culture of the country they grew up in, all
that points to the fact that they do not understand what a high quality product is. They have no
medication; they are just out there to make money.”
Brazil (BR_MNC2): “Infrastructure is not working well. Overall, hardly anything is working as it is
supposed to. Of course people are used to it, but that influences their understanding of quality.”
The challenge for leadership in pharmaceuticals is to constantly remind employees of
their responsibility for manufacturing a high quality product. Pharma’s legacy of
relying on final product inspection to assure compliance counteracts a modern quality
organization and the understanding of OPEX. Seghezzi et al. (2013) warn that if the
responsibility for quality assurance is assigned to a specific function only, the
organization cannot build a general quality awareness; rather, half-heartedness evolves
among employees.
India (IN_MNC1): “Top priority on people’s mind in emerging markets is always cost. They try to
compete at cost. But what they often ignore is that they do not only compete on cost but on quality.
They should compete on quality. If you want to make a change in your project like OPEX or other
Continuous Improvement programs, you have to focus on quality and make sure to keep your quality
levels high. Improvements in productivity, yields, wastes, percentage of rejection etc. are second.”
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Obviously, pharmaceutical manufacturers have to work on maintaining or even
increasing people’s understanding of high product quality and its significance. As
customers’ awareness for high product quality is changing in emerging markets
(Anderson et al., 2009), so must the focus shift from cost to quality on a leadership
level to make these products available. Starting from the leadership level, the right
mind-set has to diffuse down the hierarchy to the shop floor.
To achieve this end, Seghezzi et al. (2013) suggest a framework to teach qualityrelated behavior within an organization. They argue that quality performance of each
employee – independent of a hierarchical level – is determined in a circular flow by
employee will and skill as well as personal attributes. Figure 6.8 schematically
illustrates the determinants of how to influence an employee’s quality performance. As
the above discussion about management commitment and people development has
already shown, central aspects which need to be addressed within the design of an
OPEX model have substantial influence on employees’ quality understanding and their
performance.
Will
Motivation
X
Skill
Capabilities
Performancerelated attributes
of personality
Job satisfaction
Behavior
training
+
Performance of
employee
Performance appraisal
Skill training
Rewards
(financial &
non-financial)
Figure 6.8: Quality-related employee behavior, adapted from Seghezzi et al. (2013)
Quality standards are set and enforced by management. Training employees, leaders
who are exemplifying the awareness for quality, and rewarding high quality can lead
to the sought employee behavior (Seghezzi et al., 2013).
China (CN_MNC2): “In emerging markets, the interpretation of what are acceptable quality
standards is very much up to the companies and how they interpret those requirements. In smaller
companies, there is no estimator and meeting minimum requirements is good enough for them. That
means there could be less robust QC checks to ensure the quality of the products and you could expect
more laboratory issues at these companies.”
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209
India (IN_MNC2): “Emerging market sites have to meet the requirements of their local FDA – and
most manufacturer do. Their quality is not designed to meet European or US standards. If they intend
to deliver to the Western world, they have to meet these requirements – which they do. Nevertheless,
when EMA or US FDA found noncompliance at those manufacturers, then that’s a fact, but this gets
always a very big publicity. It’s like in the US, when US car manufacturers have quality issues it is not
as broadly publicized as when Toyota has quality problems.”
6.2.4 Pharmaceutical Manufacturing Environment & Quality
The physical manufacturing facility and its organization constitute employees’
workplace where value is created. Regulatory requirements strive for establishing and
maintaining a compliant pharmaceutical environment (WHO, 2007) discussing the
‘whats’, but ignoring the ‘hows’.
Since employee behavior is interrelated with workplace conditions (Dufort, 1999;
Leivo, 2005), these are seen as a lever to reach OPEX. That said, like a superior
quality of the organization might be required to achieve acceptable results in emerging
markets (Seghezzi et al., 2013), the pharmaceutical manufacturing environment must
be meticulously kept in a neat and clean state to demand a compliant behavior from
employees.
The following outline discusses the dimensions that emerged as most relevant for
designing a model to support OPEX which addresses the ‘hows’ of reaching regulatory
compliance.
6.2.4.1 Maintenance Policy
A strong maintenance program does not only support the reliability of machines and
equipment but has also far-reaching strategic implications. The latter are often ignored
by companies that manage their maintenance program by budget instead of regarding
it as an investment (McKone et al., 1999). Considering adequate maintenance as
expenditure or even neglecting it in conjunction with an inferior status of
manufacturing equipment and the sites’ physical infrastructure, make the management
of equipment a critical success factor for emerging markets’ manufacturers (Seth and
Tripathi, 2005).
India (IN_DC1): “Maintenance of our machinery is the absolute core. Our team which is responsible
for maintenance is a joint taskforce comprising operators, people from planning and specifically
trained maintenance people. This ensures a good planning and a high level of ownership.”
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Brazil (BR_MNC2): “Regulatory requirements demand a proper maintenance anyways. Additionally,
our corporate program puts a lot of emphasis on maintenance aspects. Maintaining our machinery is
a very critical element in order to sustain our infrastructure and to guarantee its functioning in the
longer term.”
Maintaining the facility in a pharmaceutical compliant state goes beyond the shop
floor and comprises all premises (WHO, 2007). Rules and guidelines are set by
management and their adherence need to be regularly audited until they become
routine.
Singapore (SG_MNC1): “Maintenance is either done by operators or maintenance people. It is
clearly defined what the operator will do based on his education and knowledge. Based on the skill
level, an operator is given the charge.
We have started a maintenance assessment to check how maintenance is done, what behaviors do we
see, and what outputs do we get. Currently, the assessment is run on a monthly basis but we intent to
reduce it.” […as soon as the OPEX leader is convinced that maintenance is carried out
satisfactorily.]
Brazil (BR_MNC1): “We have a strategy or guidance for maintenance that we have to follow, and a
target to meet. This is measured and compared with our plants all over the world. One of the targets is
people development. This allows that operators are able to do small maintenance work by themselves
and that they can setup the machine without assistance.”
A maintenance policy that is to ensure stable running machines ought to comprise a
maintenance plan including schedules and people in charge; work orders, to clearly
define procedures and needs to comply with; a preventive maintenance schedule; as
well as inspections and audits as control mechanisms.
A comprehensive overview of the facets of contemporary maintenance management
can be found in Strunz (2012, pp. 37ff).
Taiwan (TW_DC1): “We have a defined maintenance plan where all activities are planned and
scheduled. We had it from the start of our operations. It’s strictly required by FDA.”
In geographic regions that do not enjoy widespread industrial activities and lag behind
in their economic and infrastructural development, maintenance programs have to put
a higher emphasis on aspects of preventive maintenance. This includes targeted
training of maintenance employees and the regular inspection of all machines and
equipment. This applies no matter whether a site is an ageing facility, or whether it is a
newly set-up and state-of-the-art plant. Since most machine OEMs do not run service
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hubs in less industrialized regions, asking for and relying on external maintenance
services might be a lengthy and costly procedure.
Though the technology level has only little influence on operational performance
(Krafcik, 1988), it significantly affects maintenance management. The older the
machines, the shorter are the maintenance intervals that need to be scheduled in order
to assure the stability of machines. If old machines are maintained with modern
diagnosis tools (e.g., feeler gauges, vibration meters, etc.), upcoming issues can be
detected in time.
In contrast, if companies rely on latest technology maintenance costs have to be
considered. Spare parts might be more expensive (although easier to procure), and ITbased machines require continuous software updates to be kept secure and running
smoothly.
6.2.4.2 Housekeeping, Standardization & Visual Management
Today, housekeeping elements like 5S are regarded as basic principles of a Total
Productive Maintenance program and are implemented in most manufacturing
organizations. Unfortunately, these elements are often implemented in a cursory and
unstructured manner (Nakajima, 1988).
Taiwan (TW_DC1): “Keeping people working in a 5S mode is not easy. Last week, people from shop
floor hid some tools in a small room. It happens sometimes.”
Thus, Nakajima (1988) suggests a seven-step process to educate shop floor employees
in autonomous maintenance. Besides the seven elements of the process – (1) initial
cleaning, (2) antagonize the source of issues, (3) standards for cleaning and
lubrication, (4) general inspection, (5) autonomous inspection, (6) organization and
order, and (7) total autonomous maintenance – the approach covers guidelines for
training employees in inspections and provides support in the setup of an audition
process.
Further, aspects of visualization and the introduction of standardization need to be
considered. Unfortunately, this tool for employee involvement is too often ignored by
managers who just focus on numbers (Goodson, 2002). A flow of information within
the organization needs to be established to inform employees about ongoing
procedures in a timely fashion and to encourage their engagement in the initiative.
China (CN_MNC1): “We promote the utilization of visual boards. This process follows a two-step
approach. The first step is encouraging people to set up the board and visualize some KPIs on it. The
second step is to encourage people to continuously improve and update the board. We use the boards
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to highlight problems as soon as possible, but also to display content of our initiative as an
encouragement for people.
But to use the board very well is a big challenge, e.g., ensure timely updates, that people recognize
normal signals, and that they look at and rely on information displayed on the board. We are
changing people’s habits, which is not quite easy.”
India (IN_MNC1): “We display performance metrics and ‘before and after’ information of process
improvement on our boards. Further, we use print media and video to communicate with our people.”
Providing employees with the equipment and possibility to visualize information is
only a first step towards improved information sharing. At the beginning, it takes a lot
of encouragement and leadership; standardizations as well as establishing rules and
guidelines how to display information support the transformation from a practice to a
routine behavior.
Brazil (BR_MNC1): “At our site we have various boards to display information. […] People use it,
but I’m a continuous improvement guy – it could always be better!”
6.2.4.3 Quality System
China (CN_EXP): [only Chinese domestic organizations were discussed] “Most manufacturers [for
the Chinese local market] just try to get a GMP certificate for their site from the government which is
then valid for five years. But that does not mean that they are actually practicing GMP. Indeed, falling
back to their old manufacturing practices after receiving GMP would sometimes be even an ideal
scenario. The actual case is worse than that. In contrast, the [domestic] companies that export to the
European and US market are better performers. These are the companies who tend to do what they
say. But even for these companies the situation is not good.”
Though implementing a functioning quality system constitutes a basic requirement for
every manufacturing organization, modern quality systems that are implemented by
pharmaceutical manufacturers exceed the minimum standards as set by FDA’s cGMP
(FDA, 2014). The above statement, however, indicates that reaching GMP and
compliant manufacturing of drugs is not the same thing. As long as management is not
committed to manufacturing according to set standards and to implement
comprehensive quality systems, people on the shop floor won’t be either.
These quality systems comprise organizations’ quality policies and constitutions,
descriptions of the operational and organizational structure, quality-related tasks and
the responsibilities within an organization. Moreover, the system contains instructions
for processes, inspections and daily work. In order to fit an organization’s quality
system to its environment, Seghezzi et al. (2013) distinguish four characteristics – (1)
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documentation system, (2) quality controlling, (3) quality information system, and (4)
personnel management system – that can be used as levers to adapt the organization.
India (IN_MNC1): “Even if quality from emerging markets was good in the past, it was not
consistent. Quality is a culture and mindset. It has taken long for companies in the developed world to
enjoy innovation, especially for innovative drugs by multinationals where the source was never an
issue. It is always a struggle for manufacturers in emerging markets to balance the resources to fit the
high regulatory requirements in the developed world […]. Though there has been a lot of learning in
the past in countries like China, India, Eastern Europe, Brazil etc. there are still issues, and the
balance of quality and cost is not yet stabilized. The improvement is going on. Nevertheless, quality is
the only thing that can save them. Cost can only help to achieve a competitive advantage.”
Unless people on the shop floor enjoy full empowerment, OPEX programs in an
emerging economy environment benefit from a structured approach (see Section
6.2.3.1) which also bestrides the organization of quality departments. Kull and Wacker
(2010, p. 236) reason that “[…] it may on average take two to three times as many QM
resources in China to get the same results as in South Korea or Taiwan […]” and “[…]
these cultural characteristics suggest that QM will be less effective in India, requiring
on average more efforts to achieve quality goals.”
The quality staffing of a multinational’s offshore site in India is exemplarily illustrated
in Figure 6.9 and compared with two of the data samples described in Section 4.1.1.
The site’s strong emphasis on indirect Quality Control and Quality Assurance is rather
obvious; the reasons for this personnel management are commented on in the
subsequent statement.
Direct Production Labor
IN_MNC1
35%
7%
18%
13%
9%
19%
Direct Quality Control
Indirect Quality Control
EM-TOTAL
n=37
45%
9%
2% 4%
10%
31%
Quality Assurance
Maintenance
ADVANCED
n=217
46%
0%
10% 1%3%
10%
29%
Other Functions
100%
Figure 6.9: Quality staffing at a multinational’s Indian pharma site (OPEX Benchmarking)
India (IN_MNC1): [commenting Figure 6.9] “We have a high percentage of people in indirect
Quality Control and Quality Assurance; and we mainly deliver into markets outside India that are
very critical when it comes to product quality. In general, we feel that issues that come up in the
pharmaceutical industry today, which are more quality issues, are happening on a quality lab level,
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like deviations or human errors. So, it is very important to have an oversight from Quality Assurance
into even a q-lab itself. That means a Quality Assurance person works independently as a third party
overseeing the Quality Control operations just as in manufacturing. Unless we follow this approach,
getting consistent quality is sometimes a big, big challenge. […] I have the feeling that more people
are needed in QA/QC compared to developed markets in order to assure and sustain high quality
standards.”
Besides personnel management, implications for quality controlling need to be
considered in the context of emerging markets. Driven by cost, the realization of
ultimate process stability might be less focused at emerging markets’ pharmaceutical
manufacturers. As such, deviations within the processes can lead to non-compliance
with a company’s quality system and with regulatory requirements. Focusing on
process stabilization, an OPEX model can contribute to such deficiency.
Singapore (SG_MNC1): “Every product has its own specification. So emerging market
manufacturers produce within this specification, but due to cost pressures they are probably closer to
the lower control limit. If you are closer to the lower control limit and your process capability number
is low, than there is a chance of failure. I think it is more a kind of philosophy that these nations that
are now controlling their cost are doing so without looking at the ultimate benefits of reducing
variation. If you are closer to the lower control limit, you do not know if the next data point will be
outside the control limit or inside.”
Since product quality is influenced by both internal processes and the quality of
external supplies, quality efforts should also comprise the management of suppliers.
The definition of an interface, clear rules and guidelines, product specifications and
compliance in manufacturing are topics to be discussed – while mutually respecting
and developing each other (Liker, 2004).
Taiwan (TW_DC1): “We sent our people with the contaminated material to their [the supplier’s] site
to clean the batches and show the Chinese the procedures as we require them. When the Chinese had
picked it up, our people left the plant. They couldn’t stay there [and wait], there were too many
batches. When they sent it, it was obviously out of spec. […] So they on purpose ignored the procedure
and sent bad batches. […] We are not the biggest customer, they don’t care – in their eyes, we don’t
have to buy.”
India (IN_MNC1): [On vendors’ quality] “In the same country you will find a large difference on
companies at the low and high end. So the challenge is to find and work with those vendors who can
consistently deliver a good quality. […] You need to have a good oversight of quality. You cannot
leave it to a partner or vendor to deliver the quality at low cost. You have to continuously work with
them and train them. […] Two years before we started production, we started training our vendors. It
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took quite a long time to make them realize that we do not look for average but for outstanding
quality; we set very stringent specifications and kept them like that, also as a buffer, because we knew
we had to develop our suppliers over time. Though it was difficult, we could achieve it and are now
reaping the benefits. From the very beginning we made clear that only quality could sustain their
partnership with us, nothing else. Of course we kept auditing and training the people who work with
us.”
Quality culture has a substantial effect on successfully managing quality within a
manufacturing organization. The quality culture itself is influenced by employees’
attitudes towards quality, their values, norms and behavior (Seghezzi et al., 2013).
With the introduction of OPEX, a manufacturing organization commits to
continuously work on and improve its quality in all dimensions. The continuous
change also influences the understanding of quality and the permanent development of
a company’s quality culture. Based on the four characteristics of a quality culture – (1)
leadership behavior (see Section 6.2.1.1), (2) quality awareness (see Section 6.2.3.3),
(3) self-concept of employees (see Section 6.2.3.1), and (4) taking responsibility (see
Section 6.2.1.3) – Seghezzi et al. (2013) suggest a framework that provides support in
assessing the actual state of an organization’s quality culture and in transitioning it to
the aspired characteristic. The comparison of as-is and to-be defines which actions are
to be taken.
Leadership behavior
Exemplify
Taking responsibility
Direct
Active
Passive
Absolute
Function-related
Relative
Quality awareness
Company-related
Self-concept of employees
Figure 6.10: A framework to assess organizational quality culture,
adapted from Seghezzi et al. (2013)
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6.2.5 Product Portfolio
High customer proximity and frequent customer interaction affect an organization’s
entire process of value creation and lead by trend to larger product portfolios (Friedli
and Bellm, 2013b). Whereas the effective management of an organization’s product
portfolio is key to profitability, purely increasing product variety does not guarantee a
company’s long-term success. In fact, it can worsen its competitiveness (Ramdas and
Sawhney, 2001).
Thus, in a first draw, an organization’s entire product portfolio is categorized into
product families. These families can be based on products’ forms, functions,
technology platforms, takt times, or other characteristics; moreover, product families
can be adapted to specific customer requirements or market niches (Dai and Scott,
2007; Starke and Kumor, 2013). Along with a products demand profile and its bill of
material (BOM), product families set the foundation for material flow analyses and
process improvements (Irani et al., 2000; Braglia et al., 2006).
It is not the objective of this section to discuss in detail how to cluster products into
families. Rather, attention is drawn to the relevance of a clearly structured product
portfolio, as it is the basis for streamlining processes towards an operationally
excellent organization. This is important, because both products and processes which
are not sufficiently mastered may lead to excessive complexity which paralyzes the
organization.
Within the research project COMPLEXITY TRANSPARENCY at PharmCo_CT the
main drivers of internal complexity – the complexity an organization creates internally
as a reaction to its business and environment – were determined 113. The findings
illustrated in Figure 6.11 show that the number of products has the highest impact on a
manufacturing site’s internal complexity. This is true whether products are newly
launched or part of the existing portfolio. Besides, master data which were not
correctly generated and entered into the organization’s ERP system – providing the
basis for all documentation which is required for GMP compliant manufacturing (see
WHO (2007)) – emerged as a significant driver for internal complexity.
113
The focus within this project was on the company’s solid product family. At first, the entire process was
mapped from order intake, over production, to final product delivery. Then the sources of complexity and their
occurrence in the process were located.
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217
33
13
Total
#
New
products
& SKU
launches
#
Different
drugs
10
#
SKUs
9
7
6
Maintenance Layout of
#
of
building Changeovers
master data
21
Others
Figure 6.11: Internal complexity drivers 114
With regards to a product’s master file, similar challenges were also found at
PharmCo_END2END-SC in the research project End2End-SupplyChain (E2E-SC) 115.
Various employees were involved in the master data management and the process
lacked a clear ownership which led to incomplete and incorrect data. As a reaction to
inconsistent and unreliable data, the sales department occasionally accepted customer
orders and agreed on delivery dates before checking with production planning.
As a consequence, both organizations clearly defined process- and product-ownerships
for entering master data into the system and accompanying a product through its value
chain. Furthermore, the companies started a SKU housekeeping program to assess
SKU-profitability in order to adjust their product portfolio while eliminating
unprofitable SKUs.
6.2.6 Processes
Understanding an organization’s process landscape from scratch is seen as one of the
most essential prerequisites of any (process-related) improvement. At an
organizational level, this comprises, on the one hand, the general interdependencies of
direct and support processes and, on the other hand, the flow of material at an
operational level. Despite this necessity, there is a tendency in practice to generally
accept rather than challenge existing material flows and to regard this flow as given
when designing new facilities (Irani et al., 2000).
114
The numbers indicate how often a respective complexity driver was found to influence the value creation
process. The numbers do not indicate the reach of disturbance, e.g., financial consequences.
115 The focus within this project was on the company’s entire process landscape without focusing on a single
product. The process was mapped from order intake for API production, over production of API and
formulations, to final product delivery. While mapping the process, the bottlenecks were determined.
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This section introduces selected concepts which can be utilized to design and improve
an organization’s process landscape. As a distinct process orientation can lead to
superior operational performance (Liker, 2004), the following concepts can enrich and
act as clue in the discussion of this part of the OPEX Architecture.
6.2.6.1 Creating the Process Landscape: Stabilize the System
In order to manufacture compliant to GMP, all processes within pharmaceutical
manufacturing have to be written down and authorized “[…] giving instructions for
performing operations, not necessarily specific to a given product or material, but of a
more general nature.” (WHO, 2007, p. 65). Though these so-called Standard Operating
Procedures (SOPs) give clear instructions on how to work on shop floor and in
laboratories, they do not illustrate the interdependences of specific tasks or their
sequence. This kind of overview is not requested by pharmaceutical authorities and it
is left with the individual organization to use tools like Value Stream or Process
Mapping in order to visualize the sequence of process steps and the flow of material.
Such mapping of as-is value streams can either be grounded in product families
(research project COMPLEXITY TRANSPARENCY), or in an organization’s current
process landscape without a focus on a specific product (research project E2E-SC), or
they can specifically revert to a single product (research project LauchLeadTime, see
Section 6.2.6.3). Based on the created as-is process maps, processes can be aligned to
each other and optimized (draft of to-be processes). In doing so, it is important to
consider and understand all direct and support processes (end to end) and to include all
hierarchical levels (Riehle, 2010). Figure 6.12 schematically illustrates a process
landscape as it was designed in the research project E2E-SC. Although this process
map was drafted for the peculiarities of a specific manufacturing organization, its
generic nature provides several basic ideas for other manufacturing organizations
aiming at a robust process design.
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219
Global S&OP
Region B
Region C
Region …
Demand Management
Region A
Product A
Product B
Other Products
Planning
Fulfillment Tracking
Product Lifecycle Management
Master Data (Service Functions)
Inventory
Purchasing Pick/Pack/Ship
Planning
Fulfillment Tracking
Product Lifecycle Management
Master Data (Service Functions)
Inventory
Purchasing Pick/Pack/Ship
Planning
Fulfillment Tracking
Product Lifecycle Management
Master Data (Service Functions)
Inventory
Purchasing Pick/Pack/Ship
QA/QC
QA/QC
QA/QC
Figure 6.12: Process landscape as designed in the research project E2E-SC
In general, Figure 6.12 shows an overarching planning process and a set of
interconnected direct and support processes for value creation. The processes are
explained in the following. Emphasis is put on the planning process; the remaining
processes are only briefly explained:
 (global) Sales & Operations Planning (S&OP) Process
China (CN_DC1): “We sign the contracts with our clients at the beginning of the year. So we know
very early the entire production volume for the upcoming year with a monthly breakdown.
Unfortunately, the contract gives our clients plenty of leeway and so they shift production volumes on
a very short notice. This is a big problem for our capacity planning and schedule stability.”
The stability of an organization’s production planning is influenced by many different
external factors which are difficult to control. Especially those companies which
depend on every sale irrespective of its volume, or those which contract manufacture
and who are at the mercy of their large customer’s volume, are at the mercy of external
demand changes.
The research project COMPLEXITY TRANSPARENCY also assessed the external
complexity drivers and their effects on the organization’s internal operations. The
findings show that customers, and especially their behavior, constitute the largest
factor influencing a pharmaceutical manufacturer’s operations. The respective
dimensions, such as customers’ order behavior in general, short-term priority orders
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from markets, demand variability, as well as purchasing personnel’s lack of
understanding of the organization’s manufacturing function and how their order
behavior affects it, were summarized as ‘bargaining power of markets’. Other factors
that have emerged as external drivers of complexity are misaligned ‘steering market
behavior’, the ‘number of customer orders’, ‘supplier delivery reliability’ etc. (see
Figure 6.13).
40
8
Total
Bargaining
power of
markets
Steering
market
behavior
8
#
Customer
orders
6
Supplier
delivery
reliability
3
#
Customers
11
Others
Figure 6.13: External complexity drivers 116
Regardless of the difficulties in controlling these external factors, organizations can
prepare themselves to cope with such challenges. The design of a stable and
functioning planning process is a means to balance external influences with internal
organizational capabilities. The S&OP serves as a basis.
The S&OP is a planning process which balances aggregate supply with aggregate
demand. Monthly updates of the remaining planning period adjust the targets of the
annual business plan and determine the optimal level of manufacturing output. As
such, the process, on the one hand, constantly uses demand forecasts to update the
organization’s sales plan. On the other hand, the constantly updated sales plan serves
as a basis to adapt the company’s production plan. These adaptions affect the
company’s inventory and/or order backlog, and can lead to adjustments in capacity
(Olhager et al., 2001). Besides the balance of demand and supply, the S&OP bridges
an organization’s business or strategic plan and its underlying operational plans
(Tavares Thomé et al., 2012) 117.
116
The numbers indicate how often a respective complexity driver was found to influence the value creation
process. The numbers do not indicate the reach of disturbance, e.g., financial consequences.
117 An extensive literature review on S&OP can be found in Tavares Thomé et al. (2012).
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221
Establishing such a process provides an organization with a stable and continuously
adjusted planning to deduce further volume and investment decisions.
 Demand Management Process
The Demand Management Process consolidates the demands of single sales hubs.
Depending on organizational size, this happens based on regions at a global level (as
illustrated in Figure 6.12) or, for companies with a more limited geographic reach, on
a country basis. The aggregate demand is an input for the S&OP and its outcomes are
fed back to the sales hubs.
 Fulfillment Tracking Process
This process constitutes the link between customers and the organization’s value
creation processes. It passes order intakes on to the manufacturing function, if third
parties (CMOs) are involved, this process also bridges the coordination; further, it
communicates order confirmations and delivery dates to customers. After the product
is produced, fulfillment tracking coordinates internal dispatch processes and tracks
invoicing until final payment.
 Product Lifecycle Management Process
Product Lifecycle Management is the business activity of managing an organization’s
products throughout their entire lifecycle, from its first conception over a product’s
different lifecycle stages until the products are taken off the market (Stark, 2011).
Thus, during the marketing of the product, this process supervises the correct and
timely implementation of changes and adaptions of a product’s characteristics within
its master data; and ensures that new information is distributed to all relevant
stakeholders. With regards to pharmaceutical drugs, this comprises, e.g., new formats,
labelling and artwork changes, or creation of new article numbers.
 Service Function Process
This process ensures the complete and correct compilation of a product’s master data
(see Section 6.2.5).
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 Processes for Production Planning, Inventory, Purchasing, Pick/Pack/Ship
These processes describe scheduling of production to meet agreed delivery dates,
inventory management along the organization’s value chain in order to ensure raw
material supply, and preparing final products for dispatch.
 QA/QC
QA/QC processes comprise testing of incoming goods and materials, in-process
controls, product testing, batch review and release of intermediate and finished
products.
6.2.6.2 From Push to Pull and Inventory vs. Waste
The implementation of pull processes is a vital constituent of the ultimate
transformation towards an OPEX organization (see Section 3.2.1.3). Nevertheless, the
unique setup of emerging markets complicates the realization of smooth value creation
processes, with external influences dominating internal shortcomings.
Brazil (BR_MNC2): “Very often the country’s infrastructure is not working as it supposed to,
everything takes longer. […] It is a real challenge to design efficient processes at our facility. Often, I
do not see any kind of motivation of people to become more efficient. Even my own efficiency here
seems to be five times lower than it was back in my [western] home country.”
Clearly, it does not make sense to implement a Pull Production if no customer is
waiting for the product. Pulling the product through the internal value chain, reducing
in-process inventories but then putting the product in storage will hardly lead to a buyin among employees. Thus, the product portfolio needs to be clustered in slow- and
fast-moving goods, with only the latter being suited for the pull system.
Slow-moving goods continue to be manufactured in push-processes. For fast-moving
goods, which have a steady customer demand, the supply chain can be switched
towards a Kanban system as illustrated in Figure 6.14.
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Manufacturing /
purchasing
API
Manufacturing
brite stock
Release
brite stock
223
Packaging
Figure 6.14: Product pull with Kanban system
Within the research project E2E-SC, processes were designed to initialize a pull
system. Based on an analysis of customers and their demand, the organization could
determine the products which needed to be produced and supplied repeatedly. Interim
storages for API, ingredients, and brite stock 118 were designed and a replenishment
point for the storages was calculated. With the above described planning and inventory
processes the company’s markets and storages are constantly monitored to prevent
out-of-stock situations.
In the same way, the replenishment point serves as a signal for the manufacturing
function to refill empty storage capacity; the maximum reach of the storage needs to
be adapted to meet the organization’s delivery philosophy in terms of responsiveness.
Following the initially given definition of OPEX, the philosophy is characterized by
the relentless pursuit of improving organizational activities. This, however, does not
constrain the kind of final product inventory an organization requires in order to be
competitive or to even gain a competitive advantage. Nonetheless, in case a certain
level of inventory is determined as safety stock to increase delivery flexibility, a
company operating with push processes and in-process inventories needs to evaluate if
these inventories of unfinished products increase its flexibility.
6.2.6.3 Launching
Although from a general process perspective launch processes do not significantly
differ from established supply processes, they are specifically mentioned within this
section as part of the Architecture. Attention is drawn to launch processes because
product introductions are seen as an infrastructural lever of a manufacturing site (Table
3.2) and the introduction of products that are new to employees constitute a significant
complexity driver (Figure 6.11), which might slow down an organization’s
transformation to OPEX.
118
Brite stock is the drug which is already released by Quality Assurance but has not yet been packed.
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Findings of the research project LauchLeadTime show that employees tend to
underestimate the effort that is necessary to design the smooth launch of a new drug.
In fact, employees of PharmCo_LLT were not alarmed by the new drug’s launch;
rather, they had the mindset of ‘new product but going to be processed as usual’.
Though the employees theoretically knew what to do at each stage of the process, they
initially lacked a holistic view of the process and missed to define distinct milestones
as reference points for target achievement.
To prepare the organization for the drug launch, the entire process was mapped end-toend and milestones were defined. Based on the process map, it was exactly defined
which information and data were necessary at certain points in time, as well as where
at the same time the launched product and other physical documents had to be (process
steps, e.g., manufacturing, testing, packaging, shipping, etc.). Thus, it was determined
what could be prepared prior to reaching a certain process step to ensure a smooth
processing at each step.
Finally it is left with each individual pharmaceutical organization how to design and
tackle its launch processes. Without a clear and detailed preparation, bottlenecks in the
process might remain undiscovered and can later decelerate the process tremendously.
Know-how from other process improvements can be utilized in the design of the
processes for new drugs. Thereby, reverting to the knowledge of employees fosters
organizational learning and creates a sense of process ownership right from the start.
Notably, with the ‘go’ of regulatory authorities and the approval of the drug, time flies.
From a patient perspective each day a product is licensed but not yet available is a
waste of precious time with regards to a timely medical healing. Additionally, from an
organizational point of view, delayed drug introduction causes a loss in sales and a
wasted first mover advantage if it is an IP protected drug.
6.2.7 Transparency
“[O]ne can argue that the performance measurement system has to be consistent with
the organization’s culture.” (Neely et al., 1995, p. 102). Every OPEX program requires
a measurement system, a control approach, which traces and visualizes the progress of
the implementation, highlights its successes and shortcomings, and finally provides the
basis for further improvements (see Section 3.2.5). Though manufacturing
organizations can use already established performance measurement systems as
patterns or guidelines, they have to design their own measurement system as part of
their OPEX program to tailor it to their organization’s specific requirements.
Outcomes of the measurement system can be used to communicate employees’
performance within the organization and to visualize the program’s progress (see
TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE
225
Section 6.2.4.2). If the comprehensive assessment of employees’ performance is new
to the company, the management has to openly communicate the need and benefits of
why such a measure is being introduced. An organization has to acknowledge that a
constantly monitored and measured performance might lead to an increased stress
level for workers who are not yet familiar with this new mode of operations (Brown
and O’Rourke, 2007).
India (IN_MNC1): “One of our most important KPIs from a manufacturing perspective is ‘Batch
Right First Time’. We now started to introduce a new KPI in our quality labs called ‘Analytical Right
First Time’. This is because we see a lot of human error coming up in the labs across the
pharmaceutical industry. That’s becoming a major reason for deviations, OOS and also a lot of
warning letters have been given to those organizations by regulatory bodies. So we made it a major
objective to rightly control it [lab procedures] at the initial state itself.”
A KPI system which is used to create transparency within the organization has to
reflect its strategy (Kaplan and Norton, 2001) and has to strive to overcome issues
which stem from conflicting objectives that are pursued by companies’ differently
rewarded functions, e.g., manufacturing and marketing (Shapiro, 1977).
In order to develop a comprehensive KPI system, Parmenter (2010, pp. 37–103)
suggests a twelve-step model. This model guides an organization during the process of
creating, selecting and implementing meaningful KPIs to steer a company’s
operations. Therefore, Table 6.3 provides an overview of useful categories and
appropriate measures that can be utilized during the design process of the KPI
system 119.
119
A comprehensive list of performance indicators to assess pharmaceutical operations can be found in
Appendix C.
226
TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE
Table 6.3: A selection of typical monthly performance measures (Neely et al., 1995)
Category of measure
Measures used
Shipments
 Actual
 Performance-to-build plan
 Current backlog
Inventories




Total (weeks and $)
Scrap
Excess
Obsolete
Variances






Purchase price
Production burden
Materials acquisition
Materials burden
Materials usage
Labor
Labor performance







Efficiency
Utilization
Productivity
Overhead percentage
Overtime
Absenteeism
Indirect: direct radio
Capital
 Appropriations
 Expenditures
Spending
 Salaries and benefits
 Controllable expenses
 Non-controllable expenses
Headcount




Direct
Indirect
Total
By functional areas
However, measuring and visualizing performance indicators with a system that
combines a company’s external and internal perspective (Neely et al., 1995) is only
one part of creating transparency within pharmaceutical value creation. Highlighting
the accomplishments of teams and individuals, designating, e.g., an ‘employee of the
month’, can motivate people and may lead to increased performance.
TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE
227
6.2.8 A Transformational Guideline
The previous chapters have clearly highlighted the challenges of pharmaceutical
manufacturing organizations in emerging markets. High dynamics and uncertainties
determine operations and require organizations in emerging markets to act equally
flexible. Furthermore, the case studies which covered pharmaceutical manufacturers of
different countries, with different product portfolios, at a different maturity level, and
equipped with varying resources and capabilities, have shown that especially domestic
sites – even though they might already have taken their first steps towards OPEX –
lack a structured approach and an underlying model that suits their context and
supports their activities.
This section combines the introduced OPEX Architecture (Section 6.1) with the GMN
(Section 3.2.4.1) to provide an approach for pharmaceutical manufacturers to
designing their own OPEX program. Based on contingency theory, the GMN allows
an organization to develop an OPEX program that fits to an organization’s current
context. In this sense, the GMN works as a transformational guideline, which provides
a structure to an individual design process (Figure 6.15). As such, an organization can
detach itself from the sequential and stepwise implementing of the Architecture’s
elements and choose those elements where improvement is needed the most.
Quadrant 1
Project
Work
Dramaturgy
Work
Quadrant 4
Quadrant 2
Positioning
Work
Value Creation
Work
Quadrant 3
Management Commitment
Strategy
People
Pharm. Manuf. Environment & Quality
Product Portfolio
Processes
Transparency
Figure 6.15: The GMN as transformational guideline
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TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE
Deriving an OPEX program and its underlying model (both being based on the OPEX
Architecture), is a task best accomplished in a series of well-prepared workshops. By
engaging people from different functions, and – at a later stage of the process – also
from different hierarchies, the organization creates a sense of ownership among
employees. Friedli (2000) argues that people who are supposed to work with the model
have to participate in its development process. Otherwise, these models will never
become the foundation of their work, but will be met with disapproval instead.
The design process starts with the Positioning Work. This part of the process is guided
by visions of the top management and leads to general discussions about expectations
of the launch of the OPEX program. Where does the program lead the company to,
and what is the objective of the program: increase quality, lessen costs, motivate
employees, increase employees’ quality awareness, etc.? This evaluation of the
program’s scope carries on to a differentiation of internal and external requirements
and constraints to the organization and thus the future OPEX program. While
assessing the organization’s as-is situation, the general overview of typical external
influences on emerging markets’ manufacturing sites (Table 2.8) can be used as a basis
– arguably, the overview requires an adaption to a company’s individual challenges. In
a subsequent step, a company analyzes its internal capabilities and opposes these to the
requirements of the market (i.e., the to-be situation, also see Figure 6.4). Defining this
to-be situation is a strategic discussion; reaching the later defined strategic goals can
be supported by launching OPEX (Slack and Lewis, 2011). This decision will most
likely not only have proponents. Yet, conflicts within the leadership team need to be
resolved in this initial state as it is a prerequisite for the program’s needed
management commitment. Thus, the leadership team must have a common
understanding and a shared objective.
It is part of the Positioning Work to set the focus of the OPEX program. Whereas the
focus of the program’s scope lies within the boundaries of the organization, these
boundaries give directions but no restrictions. As the scope of selected OPEX projects
can be extended vertically along the supply chain, so can the boundaries of the
respective OPEX model. It is the opportunities and not the boundaries which guide the
process of Positioning Work (Friedli, 2000).
After the general factors determining the OPEX program have been identified, the next
step within the analogy of the GMN is the Project Work. Finally, a ‘project leader’, the
later manager of the OPEX program, is appointed. Depending on the size of an
organization and the dimension of the planned OPEX program, this can either be a full
time position or a part time / additional function. The selection process of the right
OPEX leader is supposed to be determined by the resources know-how and experience
TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE
229
(also seniority & power within the organization) rather than personnel or additional
headcount constraints. Although a lot of OPEX programs are led by managers in full
time positions, this is not decisive for the start of an OPEX program. Also part of the
Project Work is the decision of which organizational entity the program is focused on;
this can comprise selected entities or the entire organization/manufacturing site.
Subsequently, team members are recruited from these organizational entities to
support the OPEX leader.
After the roles and functions have been appointed, the Value Creation Work starts.
Based on the Positioning and Project Work, the project team derives the necessary
implementations, i.e., where changes are required within the company – how to get
from as-is to to-be. For this kind of work, structured workshops which pursue a clear
target are an appropriate means. These workshops can be structured along the elements
of the provided OPEX Architecture as the subsequent phase deals with their
implementation within the organization.
According to Friedli (2000), initializing and implementing the changes in the
organization constitute the most complex part of the development process. He
distinguishes technical and social aspects that need to be covered in this process. From
a technical perspective, the newly set-up OPEX team has to bring the Architecture’s
elements Pharmaceutical Manufacturing Environment & Quality (Section 6.2.4),
Product Portfolio (Section 6.2.5), Processes (Section 6.2.6), and Transparency (Section
6.2.7) into the organization. Though it was defined in an earlier process step on which
entities the program focuses on, it is recommended for some of the Architecture’s
elements to pick pilot areas first (e.g., housekeeping and standardization, product
portfolio, processes, etc.) in order to demonstrate functioning and usefulness for the
organization and to get employees’ commitment. On the contrary, upon the decision of
their implementation, the design of a maintenance policy or quality system is supposed
to be rolled out to the entire entity (i.e. organization or manufacturing site) for its farreaching influences on organizational activities and performance. In order to determine
the level of implementation of a single element (basic principles vs. deeply rooted
implementation), again, the methodology of the GMN might be utilized, but this time
following one of the traditional paths suggested by Müller-Stewens and Lechner
(2005, p. 40). With regards to the social aspects of the Architecture, the implementing
team can only make preparations for the later implementation of elements like
Management Commitment (Section 6.2.1), Strategy (Section 6.2.2), and People
(Section 6.2.3). The lion share of the element’s successful implementation lies with the
leadership team and how they continue with the launch of OPEX.
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TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE
During the Dramaturgy Work, it is one of the implementing team’s main tasks to
ensure timely and open communication of the program’s development and progress.
Especially at the program’s initial phases conflicts might arise and people might
question the directed changes. Besides the participation of people of different
functions and hierarchies, using them as change agents to overcome the ‘not invented
here’ syndrome, the team must use all means of communication. In order to spread the
information among employees, means such as, e.g., bulletin boards, flyers, tablet mats
in the canteen, or newspapers (also to inform other sites within the organization) can
be used. If the program is limited to a single site, the focus lies on these employees.
This is important because sooner or later all employees will get in touch with the
program. Therefore, a buy-in has to be achieved as soon as possible. The
communication to employees should include both benefits for the organization and
benefits for employees. A pure focus on cost reduction might be beneficial for the
company but might deter people to engage in the program as they fear job losses due
to efficiency gains.
Over time, the OPEX program will change the organization. People become more
familiar with new modes of operations and a mindset of continuous improvement
becomes noticeable. Due to an increased efficiency and effectiveness of both processes
and people, new areas for improvement open up. People will develop further, and the
entire organization is learning. As this requires a constant alignment of the OPEX
program with its context (organization & environment), the methodology of the GMN
provides a practical tool to assess the fit of the OPEX program and its underlying
model with current organizational requirements. The here introduced methodology
gives an example of how to bring the before introduced elements of the OPEX
Architecture into the organization using the GMN. Along the two axes of the GMN it
was shown how a structured approach to designing an organization’s individual
program works. Therefore, the design of a purposeful model is no longer merely
following a pre-defined sequence of implementation steps but a structured discussion
to fit the model to a company’s specific situation.
SUMMARY & OUTLOOK
231
7 Summary & Outlook
The last chapter builds on the previous analyses, findings and results and concludes the
dissertation by summarizing its implication for theory (Section 7.1) and practice
(Section 7.2). In addition, Section 7.3 reviews the limitation of this study and provides
an outlook for future research.
7.1 Contributions to Theory
This research was undertaken to investigate the current status of pharmaceutical
Operational Excellence (OPEX) at domestic manufacturing sites in emerging markets.
As such, it contributes to the multifaceted scholarly writings that discuss the transfer
and implementation of Lean from the automotive business to other industrial sectors.
Although the philosophy of OPEX is not new to the pharmaceutical industry, no
comprehensive theory has yet been put forth to advance the implementation of the
concept at domestic pharmaceutical manufacturing organizations in emerging markets.
Though various contributions by researchers and practitioners discuss either the
challenges on manufacturing organizations that emerging markets hold or the
transformation of pharmaceutical manufacturing sites towards OPEX, there is a clear
lack of research dealing what constitutes a comprehensive approach to pharmaceutical
OPEX of domestic manufacturers in emerging markets. Therefore, the current research
adds to the current literature basis by consolidating both research streams, and drawing
conclusions enhanced by empirical research.
The initial phase of the research process was characterized by two broad literature
reviews. A comprehensive understanding of what constitutes and characterizes an
emerging market as well as the markets’ influences on manufacturing was elaborated
on the first literature review. This literature review resulted in a summary of emerging
markets’ major influences on manufacturing sites. The second literature review
contributed to the understanding of the philosophy of OPEX in general, and under
pharmaceutical constraints in particular. The challenges for OPEX in emerging
markets were consolidated. Clustered into external and internal barriers towards
OPEX, into the markets’ cultural influences on the concept, and in how to handle
manufacturing failures, these challenges set the stage for the empirical research. Mixed
findings of the quantitative research on the implementation of OPEX in emerging and
western markets and the organizations’ performances provoked in-depth qualitative
studies. As an intermediate outcome, theory was enhanced by a set of external and
internal barriers towards pharmaceutical OPEX in emerging markets.
232
SUMMARY & OUTLOOK
In order to finally answer the main research question – how should an approach for the
transformation towards Operational Excellence of a domestic pharmaceutical
manufacturing site in an emerging market be designed – an Architecture to derive an
organization’s specific OPEX program and underlying model was designed. This
Architecture meets the requirements derived from literature and foregoing practical
findings. It considers all dimensions of a manufacturing site in a holistic fashion while
at the same time acknowledging the limited design space of a system. In fact, the
OPEX Architecture consists of two layers, whereby the first layer comprises the
organization’s general set-up and its anchoring within the value chain. The second
layer’s elements allow an individual design of an OPEX program to increase
organizational effectiveness and efficiency. An adoption of the General Management
Navigator (GMN) as a design tool for newly launched OPEX programs as an umbrella
initiative brings the Architecture to life.
In summary, this research provided a comprehensive perspective on pharmaceutical
OPEX in emerging markets. It followed and supported the pleading of other scholars
(1) not to regard emerging markets solely as lagging behind advanced economies and
(2) mistakenly applying concepts that function in western organizations without a
situational adaption to companies in the emerging world.
7.2 Contributions to Practice
The research was initiated as an answer to real problems observed at pharmaceutical
manufacturing sites in emerging markets. As such, it was meant to provide
considerable support for practitioners who face the daily challenges of improving their
sites’ operations by increasing effectiveness and efficiency. In order to build a solid
foundation and to antagonize practitioners’ often-cited scarce understanding of OPEX,
the broad literature review on OPEX contributed to filling this void and facilitated a
later accurate implementation of the program.
With the discussion of the implementation of OPEX practices and selected KPIs,
Chapter 4 provided practitioners with benchmarking data to compare their own site’s
situation with various samples of pharmaceutical manufacturing sites in emerging and
advanced countries. Experiences in the field supported the findings in literature that
mangers in emerging markets, though they are successful business people,
occasionally lack sound understanding of modern manufacturing principles. The
discussion in Chapter 4 and the attached appendices provided comprehensive
information on the levers to fine-tune pharmaceutical operations. The controversial
discussion in the case studies followed the philosophy that more knowledge can be
derived from learning what is not working well than from describing another set of
SUMMARY & OUTLOOK
233
successful practices. Although all of the described companies are successful in their
market and belong to their market’s leading pharmaceutical manufacturers, a neutral
view on these organizations with the knowledge of what is possible reveals several
deficiencies. Therefore, practitioners become sensitized for problems they might not
yet had considered when comparing their site’s operations with the described case
studies.
Finally, the OPEX Architecture provided practitioners with an approach to setting up
their own OPEX program from scratch. The dynamic character of such transformation
was acknowledged and with the introduction of the GMN as a design tool,
practitioners were supported in defining their own program along structured
discussions and a series of workshops. This approach encouraged deriving a practical
solution within a cross-functional team across several hierarchies to support the OPEX
philosophy of joint problem-solving and at the same time antagonizing the top-down
decision-making culture which is often prevalent in emerging markets. The theoretical
discussion of the Architecture’s elements was supported by anecdotal evidence from
practitioners in emerging markets, providing useful insights into how they deal with
specific challenges.
7.3 Limitations and Further Research
This research produced valuable insights into the current status and challenges of
OPEX implementations at domestic pharmaceutical manufacturers in emerging
markets. Though the research built on a comprehensive data set for quantitative
analyses, proceeded with qualitative findings derived from six case studies and two
roundtable discussions, and finally enhanced these findings with lessons from 16
interviews and various research projects, this dissertation was subject to several
limitations. In addition to some new findings which occurred during the research
process but could not be considered despite its iterative nature, these limitations may
be used to further advance research. Limitations and suggestions for further research
are interrelated and are therefore presented together:
 Sample size and geographic limitation of the empirical investigation: Though
the overall sample size for quantitative investigation was appropriate, the
sample size of domestic manufacturers was rather small. Thus, a few outliers
could have potentially distorted the research findings. Similar is true for the
qualitative case studies; although the number of case studies is in accordance
with literature, qualitative findings from on-site visits are limited to SubSaharan African countries. Therefore, further research should advance the
234
SUMMARY & OUTLOOK
sample size of domestic pharmaceutical manufacturers and expand the
qualitative research to other emerging markets’ domestic manufacturers.
Enlarging the quantitative sample size would allow for merging the data set
with empirical data of the studies of Hofstede (1980) or House et al. (2004)
and to draw conclusions analogous to the study of Kull and Wacker (2010)
who rely on manufacturing data from Whybark et al. (2009). Yet, before that,
the OPEX Benchmarking would need cultural adaptions to other geographic
regions outside its main focus (i.e. Western countries). Furthermore,
conducting qualitative case studies in other emerging markets would allow for
(1) broader generalizations and (2) the definition of country-specific
peculiarities. This makes sense because cultures differ markedly between the
BRICS countries and the second and third tier markets, even though they all
are emerging markets.
 Long-term expectation vs. short-term findings: This research aimed to support
domestic sites in their transformation to OPEX. Although the suggested
approach took into account the dynamic characteristics of such a process, the
limited time available for this research made it impossible to design the
approach and accompany an organization on its way to OPEX. The
development of the case companies’ OPEX initiatives was described by
interviewing people and resorting to their memories – findings might be
different when the researcher participates in the transformation process. This
pleads for further research utilizing the findings of this thesis as a basis for a
longitudinal study. Conducting such a long-term study with several domestic
emerging market manufacturers might be enlightening and may provide
abundant learning opportunities. Research findings are valuable not only for
domestic but also for multinational organizations which more and more rely
on emerging markets.
Emphasizing the long-term character of the study would also compensate the
shortcomings of the used benchmarking data. On the one hand, this thesis
relied on performance indicators which can be retrieved, e.g., from an ERP
system, in real time. On the other hand, the data used in this study comprised
the implementation level of OPEX practices. These were reported by
practitioners, based on personal judgment. However, the effect of a practice
implementation on a site’s performance might be temporarily delayed which
might lead to a high implementation level in a certain practice without a
directly noticeable effect on performance. As such, a longitudinal research
SUMMARY & OUTLOOK
235
setup which iteratively benchmarks the same manufacturing sites might
produce a more comprehensive picture.
 Focus shift from domestic manufacturers to Big Pharma: The current study
was designed to assess and advance the current OPEX level of domestic sites.
During the research, the interviews with Big Pharma affiliates indicated
different approaches to OPEX at these sites. Nonetheless, all these sites have
in common that they have to rely on standardized concepts from corporate
which often leave little room for a customized approach. Interviewees clearly
reported interest in further research on how to better include their markets’
cultural peculiarities within their standardized programs. As to now, this is
not yet reflected in the current literature on OPEX in emerging markets.
236
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APPENDIX A
Appendix A
Questionnaire: “Operational Excellence
An Architecture for Emerging Markets”
in
the
Pharmaceutical
Industry
–
Is the site an offshore site of a multinational company or a standalone domestic
company?
I.
Behavior
a. What is your first association when you hear “Operational Excellence (OPEX)”?
b. What were/are the challenges to implement OPEX at your site? (Leadership /
resources / taking of responsibility)
c. Do the challenges differ from today´s challenges of running the initiative? How?
d. What do you like about your OPEX initiative?
e. What do you not like about it?
f. How did people react on the implementation of OPEX? (Empowerment / selfdirected work teams)
g. What do you think about the widespread opinion: “Emerging Market = low product
quality”? (quality awareness)
h. Do you have a culture of continuous improvement (examples)?
II.
Activities
a. What kind of trainings do you have at your site?
b. Is there an improvement potential for the trainings? (local adaption – language)
c. What are the characteristics and content of your TPM program? (TPM strategy /
preventive / 5S / audits / who does maintenance)
d. Do you use tools for failure analyses? Which?
e. Do you work with standardization and visualization at you site (examples)?
III. Organization
a. What are the priorities at your OPEX initiative? Why?
b. How did you come up with your OPEX strategy? (corporate / freedom to adapt /
how is it communicated)
c. Can you influence your product portfolio? (Housekeeping of SKU & Formulations)
d. Is your production demand/order driven?
e. Do you have a replenishment point in your storage? Is it customer or cost
optimized?
f. What is your supplier strategy? Integrated supplier or stock driven?
g. What are your top-ten key performance indicators?
APPENDIX B
269
Appendix B
Emerging markets as developing countries and economies in transition.
Economies in transition (United Nations, 2012)
Commonwealth of Independent
States and Georgia
South-Eastern Europe
Albania
Bosnia and Herzegovina
Croatia
Montenegro
Serbia
The former Yugoslav
Republic of Macedonia
Azerbaijan
Belarus
Georgia
Kazakhstan
Kyrgyzstan
Republic of Moldova
Russian Federation
Tajikistan
Turkmenistan
Ukraine
Uzbekistan
Developing economies by region (United Nations, 2012)
Africa
North Africa
Algeria
Egypt
Libya
Morocco
Tunisia
Sub-Saharan Africa
Central Africa
Cameroon
Central African Republic
Chad
Congo
Equatorial Guinea
Gabon
Sao Tome and Prinicipe
East Africa
Burundi
Comoros
Democratic Republic of the
Congo
Asia
Latin America & the Caribbean
East Asia
Brunei Darussalam
China
Hong Kong SAR
Indonesia
Malaysia
Myanmar
Papua New Guinea
Philippines
Republic of Korea
Singapore
Taiwan Province of China
Thailand
Viet Nam
South Asia
Bangladesh
India
Iran (Islamic Republic of )
Nepal
Pakistan
Sri Lanka
Caribbean
Barbados
Cuba
Dominican Republic
Guyana
Haiti
Jamaica
Trinidad and Tobago
Mexico and Central America
Costa Rica
El Salvador
Guatemala
Honduras
Mexico
Nicaragua
Panama
South America
Argentina
Bolivia (Plurinational State of )
Brazil
270
APPENDIX B
Africa
Djibouti
Eritrea
Ethiopia
Kenya
Madagascar
Rwanda
Somalia
Sudan
Uganda
United Republic of Tanzania
Southern Africa
Angola
Botswana
Lesotho
Malawi
Mauritius
Mozambique
Namibia
South Africa
Zambia
Zimbabwe
West Africa
Benin
Burkina Faso
Cape Verde
Côte d’Ivoire
Gambia
Ghana
Guinea
Guinea-Bissau
Liberia
Mali
Mauritania
Niger
Nigeria
Senegal
Sierra Leone
Togo
Asia
Western Asia
Bahrain
Iraq
Israel
Jordan
Kuwait
Lebanon
Oman
Qatar
Saudi Arabia
Syrian Arab Republic
Turkey
United Arab Emirates
Yemen
Latin America & the Caribbean
Chile
Colombia
Ecuador
Paraguay
Peru
Uruguay
Venezuela (Bolivarian Republic
of )
APPENDIX B
271
Small island developing states (United Nations, 2012)
Small island developing states
American Samoa
Anguilla
Antigua and Barbuda
Aruba
Bahamas
Barbados
Belize
British Virgin Islands
Cape Verde
Commonwealth of Northern Marianas
Comoros
Cook Islands
Cuba
Dominica
Dominican Republic
Fiji
French Polynesia
Grenada
Guam
Guinea-Bissau
Guyana
Haiti
Jamaica
Kiribati
Maldives
Marshall Islands
Republic of Macedonia
Mauritius
Micronesia (Federated States of )
Montserrat
Nauru
Netherlands Antilles
New Caledonia
Niue
Palau
Papua New Guinea
Puerto Rico
Samoa
Sao Tome and Principe
Seychelles
Singapore
Solomon Islands
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Suriname
Timor-Leste
Tonga
Trinidad and Tobago
Tuvalu
U.S. Virgin Islands
Vanuatu
272
APPENDIX C
Appendix C
YOUR COMPANY
A. Corporate Level
How many production sites does your company have?
A01
Number
What was your total sales in the last year?
A02
In millions
Please fill in the cost structure of your company as a percentage of sales (approximate figures are
sufficient).
A03
R&D
A04
Manufacturing costs
A05
General & administration costs
A06
Sales & marketing costs
A07
Net profit
A08
Total
0%
Compared to your competitors, indicate the development of your company on the following dimensions
within the last 3 years.
Significantly
lower
A09
Market share
A10
Sales growth
A11
Return on sales
A12
Launches of new promising products
A13
Share price
Company type
Please indicate your company type (yes/ no). Multiple answers are possible!
A14
Pharmaceutical company with R&D
yes
no
A15
Generics manufacturer
yes
no
A16
Contract manufacturer
yes
no
A17
Biotechnology
yes
no
A18
Miscellaneous
Average
Significantly
higher
Don`t
know
APPENDIX C
273
Site Role
If your site is part of a manufacturing network , does the site have a specific role within this network ? Multiple
answers are possible!
A19
We have a manufacturing network.
yes
no
No
competence
A20
Launch site
A21
Special technology
A22
Special capacity size
A23
High packaging and production flexibility
A24
Access and entrance to markets
A25
Close to regional technology clusters
A26
Follow-the-customer
A27
Low cost site
A28
Securing of raw material sources
A29
Development site
A30
Back-up site (redundancy/ capacity)
A31
No special site role
yes
Average
High
competence
Don`t
know
no
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274
APPENDIX C
YOUR SITE
Structural Factors
Costs
Housekeeping
Planning
adherance
Pull-system
JIT
Layoutoptimization
Standardized processes Standardized replenishment
1 Stable running machines
B. Type of production site
Set-up time
reductions
TQM
Effective Cross-funct.
technology product
usage development
Standardized equipment
Self-directed
teams
Customer
integration
Supplier
quality
management
Process
management
TPM
2 Stable processes
High continuous
improvement rates
3 Low inventory
Low absenteeism
and fluctuation
Flexible
workforce
Effective Management System
Direction setting
Management commitment
&
company culture
Employee involvement Functional integration
&
&
continuous improvement
qualification
OPERATIONAL PERFORMANCE
Preventive maintenance
Planned improvements of the manufacturing strategy at your site
Indicate the degree of emphasis which your manufacturing plant places on the following future activities.
No activities
planned
Activities
planned
Key
activities
Don`t
know
Increase of flexibility
B01
Reduce cycle time
B02
Reduce set-up time and cleaning time
B03
Increase flexibility to respond to demand changes in volume
B04
B05
B06
Increase flexibility to respond to market needs for broad
product mix (concerning package size, concentrations,
flavors etc.)
Increase flexibility to respond to shorter product lifecycles
and higher number of product launches
Accelerate new product introductions (scale-ups)
Increase quality
B07
Reduce process variance through statistical process control
B08
Increase supplier quality performance
B09
Reduce scrap rates
Increase service level
B10
Reduce lead time
B11
Increase on-time delivery rate
(lead time: time from raw material to finished goods incl. all kinds of process steps)
Reduce costs
B12
Reduce stock
B13
Increase asset utilization (e.g. machines)
B14
Increase employee productivity
B15
Increase capital investment productivity
Indicate how your production site is organized.
B16
Cost-center
Profit-center
Indicate the proportion of products manufactured at your plant (%) in the last year.
Synthetic
products
B17 a-d
IP - protected products
B18 a-d
Not IP - protected products
B19 a-d
Contract manufacturing
Phytopharmaceuticals
Bio-technological products
Sum
Other
products
0.00%
APPENDIX C
275
Number of products in the last year
B20
Number of different market products produced at your plant
B21
Number of different formulations produced at your plant
B22
Number of different SKUs produced at your plant
B23
Number of different technologies/ platforms used at your plant
Procurement and supplier structure in the last year
Supplier count: number of active suppliers both internal and external
API
B24 a-c
Number of active suppliers for…
B25 a-c
Total amount purchased (in millions) of…
B26
Overall number of active suppliers in the supplier base
B27
Percentage of internal suppliers
B28
Percentage of suppliers that deliver your site frequently
B29
Frequently means on average every … days.
B30
Number of orders placed with your suppliers
Excipients
Packaging
material
Sourcing by regions (primary the location of production, not the registered office/ in %) in the last year
B31
Western Europe
B32
North America
B33
Eastern Europe
B34
South America
B35
Middle East
B36
India
B37
China
B38
Rest of the world
276
APPENDIX C
Production structure
Unit
B39
Amount of API produced at your site in the last year
Kg
B40
Percentage of API produced at your site that was processed for own production
%
Indicate the volume of bulk goods produced at your site in the last year.
Pieces
B41
Solid forms (tablets, capsules etc.)
B42
Liquids
Liter
B43
Sterile liquids
Liter
B44
Semi solid forms (creams etc.)
Kg
Indicate the total volume of bulk goods that was pack ed at your site in the last year.
Solid forms (tablets, capsules etc.)
Pieces
B45 a
- thereof packed in blisters
Pieces
B45 b
- thereof packed in bottles
Pieces
B45
B46
Liquids
Liter
B46 a
- thereof packed in amps
Liter
B46 b
- thereof packed in vials
Liter
B47
Sterile liquids
Liter
B47 a
- thereof packed in amps
Liter
B47 b
- thereof packed in vials
Liter
B48
Semi solid forms (creams etc.)
Kg
Indicate the number of pack ed units (boxes for sale) at your site in the last year.
B49
Solid forms (tablets, capsules etc.)
Packed units
B50
- average packaging size
Pieces
B51
B52
B53
B54
B55
B56
Liquids
- average packaging size
Sterile liquids
- average packaging size
Semi solid forms (creams etc.)
- average packaging size
Packed units
Liter
Packed units
Liter
Packed units
Kg
Measure
APPENDIX C
277
Batch & campaign structure in the last year
API
B57 a-c
Number of batches produced in the last year
B58 a-c
Number of campaigns in the last year
Formulation
Packaging
Indicate the batch size range min to max
B59 a/b
Formulation/ pelleting (in k g)
min
max
B60 a/b
Packaging units (in units )
min
max
Vertical integration of manufacturing in the last year
Indicate the number of different process steps performed at your site (e.g. granulate, pelleting, pack aging, etc. e.g. 20% of the products run through 1 process step, the remaining 80% of the products run through 4-8 process
steps, i.e. 20%/ 80%/ 0%)
B61
Less than 4 operating procedures
B62
4-8 operating procedures
B63
More than 8 operating procedures
Please name the single process steps executed at your site by adding or deleting steps in the list provided.
B64
Chemical API: Weighing, grinding, mixing, synthesis, filtration, crystallization, sieving, drying, centrifuging.
Solids: Weighing, dispensing, kit preparation, sieving, blending, granulation, drying, compacting, coating,
capsuling, primary packaging, end-packaging, labeling.
Liquids: Weighing, dispensing, kit preparation, dose WFI, solution preparation, mix, filtration, wash/sterilize, filling
& stopping, lyo-philization, capping, primary packaging, end-packaging, labeling.
Innovation structure
B65
Number of new drug introductions within the last 3 years ("new drugs"
should be understood in the sense of new for the site)
B66
Number of launched formats/ stock keeping units (SKU) at the site within
the last 3 years
…regulatory body
B67
B68
Number of inspections at site within the last 3 years from…
…headquarters
…customer
B69
Age of production technology in the last year
B70
Percentage of machines which are less than 3 years old
B71
Percentage of machines that are between 3 and 5 years old
B72
Percentage of machines that are between 6 and 10 years old
B73
Percentage of machines that are older than 10 years
Level of automation in the last year
B74
Percentage of machines that are manually operated
B75
Percentage of machines that are operated with IT-support
B76
Percentage of machines that are fully automated (without supervision)
278
APPENDIX C
Implementation of electronic batch records in the last year
B77
Completely
Not at all
Customer structure in the last year
B78
Overall number of customers
B79
Percentage of internal customers
B80
Percentage of customers delivered frequently
B81
Frequently means on average every … days.
B82
Number of orders received from your customers
Customers by regions (primary the location of delivery, not the registered office/ in %) in the last year
B83
Western Europe
B84
North America
B85
Eastern Europe
B86
South America
B87
Middle East
B88
India
B89
China
B90
Rest of the world
History of the plant
B91
The plant is an original plant and was founded by the company itself
yes
no
...within the last 3 years
B92
The plant was acquired during a merger or acquisition…
...within the last 3-10 years
...more than 10 years ago
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APPENDIX C
279
C. Cost and headcount structure of the plant
Structural Factors
Costs
Process
management
Effective Cross-funct.
technology product
usage development
Set-up time
reductions
Planning
adherance
Pull-system
JIT
Layoutoptimization
Standardized processes Standardized replenishment
Standardized equipment
1 Stable running machines
Self-directed
teams
Customer
integration
Supplier
quality
management
TQM
TPM
2 Stable processes
High continuous
improvement rates
Low absenteeism
and fluctuation
3 Low inventory
Flexible
workforce
Effective Management System
Direction setting
Management commitment
&
company culture
Employee involvement Functional integration
&
&
continuous improvement
qualification
To ensure the comparability of the production sites it is important that you just fill in the figures that
are related to the manufacturing part of your site. In case that you also have part of your R&D, Sales,
Marketing etc. at your site, please list costs related to those functions under "Other costs".
Please indicate the non-consolidated sales of your production site in the last year.
C01
In thousand
Cost of Goods Sold (COGS) in the last year
On the income statement, the cost of purchasing raw materials and manufacturing finished products. Equal to the
beginning inventory plus the cost of goods purchased during the last year minus the ending inventory.
C02
In thousand
Cost structure in the last year
C03
Please indicate the accounting principles on which the data is based (e.g. US GAAP).
The total of the following costs should add up to the COGS!
Name
Definition
Unit
Measure
Material costs
C04
Direct material
costs
Cost for raw materials and preliminary products.
thousand
C05
Indirect material
costs
Cost for operating supplies as well as services.
thousand
Labor costs
C06
Direct labor costs
Cost for employees directly involved in manufacturing and
quality labs (see also FTE structure below).
thousand
C07
Indirect labor
costs
Cost for plant employees whose time is not charged to
specific finished products (see also FTE structure below).
thousand
Plant, property and equipment costs
C08
Costs for
machines & tools
Cost for machines, equipment, tools, spare parts including
costs for depreciation, electricity for the machines etc.
thousand
C09
Costs for property
and plant
Cost for property and plant including costs of depreciation
and other costs for electricity, water etc.
thousand
Other costs
C10
Corporate
allocations
Cost for corporate expenses charged to the plant.
thousand
C11
Other costs
Cost for e.g. Sales & Clerical, Marketing, R&D located at
the dedicated plant.
thousand
Sum
Total maintenance cost includes both - internally and
externally- rendered services, also cost for spare parts and
consumables used for maintenance.
Cost for planned and condition-based maintenance
activities.
C12
Maintenance
costs
C13
Preventive
maintenance cost
C14
Cost of quality
Overall costs for quality assurance (usually the total
number from your cost center(s) QC/ QA).
thousand
C15
Rework cost
Cost due to rework.
thousand
C16
Destruction cost
Cost due to destruction.
thousand
thousand
thousand
0.00
OPERATIONAL PERFORMANCE
Preventive maintenance
Housekeeping
280
APPENDIX C
Headcount structure
Please include all FTEs work ing at your site independent from being on your payroll.
C19
C20
C21
C22
C23
C24
Production labor
C18
Direct labor
API production
Quality control
C17
Testing ("taking samples") incoming
C27
Quality control
C26
Quality
assurance
C30
Packaging
Testing ("taking samples") product testing
Batch review and approval
Testing ("taking samples") management
Laboratories management
Environmental monitoring
Validation of process, equipment and method
Quality planning
Reactive (Fire fighting)
C32
Basic Care (e.g. lubrication, cleaning)
C34
Maintenance
C31
C33
Preventive (calendar based exchange of parts)
Predictive (condition based exchange of parts)
Other
C36
Production management
C37
Materials management (procurement and logistics)
C39
C40
C41
C42
Other functions
C35
C38
0
Stability testing
C28
C29
Pharmaceutical production
Indirect labor
C25
0
Manufacturing engineering
EH&S (environment, health and safety)
IT-support
Miscellaneous (HR, finance, management)
Overall number of FTEs at the site
0
Employment structure
C43
Percentage of FTEs permanently employed by the company
C44
Percentage of FTEs temporarily employed by the company
C45
Percentage of FTEs temporarily employed by a temp agency
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APPENDIX C
281
D. Total Productive Maintenance System
Structural Factors
Costs
Housekeeping
Set-up time
reductions
Planning
adherance
Pull-system
JIT
TQM
Effective Cross-funct.
technology product
usage development
Layoutoptimization
Standardized processes Standardized replenishment
Standardized equipment
1 Stable running machines
Self-directed
teams
Customer
integration
Supplier
quality
management
Process
management
TPM
2 Stable processes
High continuous
improvement rates
3 Low inventory
Low absenteeism
and fluctuation
Flexible
workforce
Effective Management System
Direction setting
Management commitment
&
company culture
Employee involvement Functional integration
&
&
continuous improvement
qualification
OPERATIONAL PERFORMANCE
Preventive maintenance
Please indicate to which degree the following statements apply to your plant!
Preventive maintenance
The statement applies to our plant...
not at all
D01
We have a formal program for maintaining our machines and
equipment.
D02
Maintenance plans and checklists are posted closely to our
machines and maintenance jobs are documented.
D03
We emphasize good maintenance as a strategy for increasing
quality and planning for compliance.
D04
All potential bottleneck machines are identified and supplied
with additional spare parts.
D05
We continuously optimize our maintenance program based on
a dedicated failure analysis.
D06
Our maintenance department focuses on assisting machine
operators perform their own preventive maintenance.
D07
Our machine operators are actively involved into the decision
making process when we decide to buy new machines.
D08
Our machines are mainly maintained internally. We try to avoid
external maintenance service as far as possible.
Technology assessment and usage
Our plant is situated at the leading edge of new technology in
our industry.
D10
We are constantly screening the market for new production
technology and assess new technology concerning its
technical and financial benefit.
D11
We are using new technology very effectively.
D12
We rely on vendors for all of our equipment.
D13
Part of our equipment is protected by the firm`s patents.
D14
Proprietary process technology and equipment helps us gain a
competitive advantage.
Housekeeping
Our employees strive to keep our plant neat and clean.
D16
Our plant procedures emphasize putting all tools and fixtures
in their place.
D17
We have a housekeeping checklist to continuously monitor the
condition and cleanness of our machines and equipment.
Don`t
know
partially
completely
Don`t
know
The statement applies to our plant...
not at all
D15
completely
The statement applies to our plant...
not at all
D09
partially
partially
completely
Don`t
know
proceed
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282
APPENDIX C
E. Total Quality Management System
Structural Factors
Costs
Housekeeping
Set-up time
reductions
Planning
adherance
Pull-system
JIT
TQM
Effective Cross-funct.
technology product
usage development
Layoutoptimization
Standardized processes Standardized replenishment
Standardized equipment
1 Stable running machines
Self-directed
teams
Customer
integration
Supplier
quality
management
Process
management
TPM
2 Stable processes
High continuous
improvement rates
3 Low inventory
Low absenteeism
and fluctuation
Flexible
workforce
Effective Management System
Direction setting
Management commitment
&
company culture
Employee involvement Functional integration
&
&
continuous improvement
qualification
Please indicate to which degree the following statements apply to your plant!
Process management
The statement applies to our plant...
not at all
E01
In our company direct and indirect processes are well
documented.
E02
We continuously measure the quality of our processes by
using process measures (e.g. On-time-in-full delivery rate).
E03
Our process measures are directly linked to our plant
objectives.
E04
In our company there are dedicated process owners who are
responsible for planning, management and improvement of their
processes.
E05
A large percentage of equipment on the shop floor is currently
under statistical process control (SPC).
E06
We make use of statistical process control to reduce variances
in processes.
E07
For root cause analysis we have standardized tools to get a
deeper understanding of the influencing factors (e.g. DMAIC).
E08
We operate with a high level of PAT implementation for real
time process monitoring and controlling.
Cross functional product development
Manufacturing engineers (e.g. Industrial engineers) are involved
to a great extent in the development of a new drug formulation
and the development of the necessary production processes.
E10
In our company product and process development are closely
linked to each other.
E11
Due to close collaboration between the R&D and the
manufacturing department, we could significantly shorten our
time for product launches ("scale-ups") in our plant.
E12
For the last couple of years we have not had any delays in
product launches at our plant.
E13
For product and process transfers between different units or
sites standardized procedures exist, which ensure a fast,
stable and complied knowledge transfer.
Customer involvement
We are frequently in close contact with our customers.
E15
Our customers frequently give us feedback on quality and
delivery performance.
E16
We regularly survey our customer`s requirements.
E17
We regularly conduct customer satisfaction surveys.
E18
On time delivery is our philosophy.
E19
We jointly have improvement programs with our customers to
increase our performance.
Don`t
know
partially
completely
Don`t
know
The statement applies to our plant...
not at all
E14
completely
The statement applies to our plant...
not at all
E09
partially
partially
completely
Don`t
know
OPERATIONAL PERFORMANCE
Preventive maintenance
APPENDIX C
283
Supplier quality management
The statement applies to our plant...
not at all
E20
Quality is our number one criterion in selecting suppliers.
E21
We rank our suppliers, therefore we conduct supplier
qualification and audits.
E22
We use mostly suppliers that we have validated.
E23
For a large percentage of suppliers we do not perform any
inspections of the incoming parts/ materials.
E24
Inspections of incoming materials are usually performed in
proportion to the past quality performance or type of supplier.
E25
Basically, we inspect 100% of our incoming shipments.
E26
We jointly have improvement programs with our suppliers to
increase our performance.
partially
completely
Don`t
know
proceed
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284
APPENDIX C
F. Just in Time System
Structural Factors
Costs
Process
management
Housekeeping
Effective Cross-funct.
technology product
usage development
Set-up time
reductions
Planning
adherance
Pull-system
JIT
Layoutoptimization
Standardized processes Standardized replenishment
Standardized equipment
1 Stable running machines
Self-directed
teams
Customer
integration
Supplier
quality
management
TQM
TPM
2 Stable processes
High continuous
improvement rates
3 Low inventory
Low absenteeism
and fluctuation
Flexible
workforce
Effective Management System
Direction setting
Management commitment
&
company culture
Employee involvement Functional integration
&
&
continuous improvement
qualification
Please indicate to which degree the following statements apply to your plant!
Set-up time reduction
The statement applies to our plant...
not at all
F01
We are continuously working to lower set-up and cleaning
times in our plant.
F02
We have low set-up times for equipment in our plant.
F03
Our crews practice set-ups regularly to reduce the time
required.
F04
To increase the flexibility, we put high priority on reducing
batch sizes in our plant.
F05
We have managed to schedule a big portion of our set-ups so
that the regular up-time of our machines is usually not effected.
F06
Optimized set-up and cleaning procedures are documented as
best-practice process and rolled-out throughout the whole
plant.
Pull production
Our production schedule is designed to allow for catching up,
due to production stoppings because of problems (e.g. quality
problems).
F08
We use a pull system (kanban squares, containers or signals)
for production control.
F09
We mainly produce according to forecasts.
F10
Suppliers are integrated and vendors fill our kanban containers,
rather than filling our purchasing orders.
F11
We value long-term associations with suppliers more than
frequent changes in suppliers.
F12
We depend on on-time delivery from our suppliers.
F13
We deliver to our customers in a demand-oriented JIT way
instead of a stock-oriented approach.
F14
We mainly produce one unit when the customer orders one.
We normally do not produce to stock.
completely
Don`t
know
The statement applies to our plant...
not at all
F07
partially
partially
completely
Don`t
know
OPERATIONAL PERFORMANCE
Preventive maintenance
APPENDIX C
285
Layout optimization
The statement applies to our plant...
not at all
F15
Our processes are located close together so that material
handling and part storage are minimized.
F16
Products are classified into groups with similar processing
requirements to reduce set-up times.
F17
Products are classified into groups with similar routing
requirements to reduce transportation time.
F18
The layout of the shop floor facilitates low inventories and fast
throughput.
F19
As we have classified our products based on their specific
requirements our shop floor lay-out can be characterized as
separated into "mini-plants".
F20
Currently our manufacturing processes are highly synchronized
over all steps by one tact.
F21
F22
F23
partially
completely
Don`t
know
Currently our manufacturing processes from raw material to
finished goods involve almost no interruptions and can be
described as a full continuous flow.
At the moment we are strongly working to reach the status of a
full continuous flow with no interruption between raw material to
finished goods.
We use "Value Stream Mapping" as a methodology to
visualize and optimize processes.
Planning adherence
The statement applies to our plant...
not at all
F24
We usually meet our production plans every day.
F25
We know the root causes of variance in our production
schedule and are continuously trying to eliminate them.
F26
To increase our planning adherence we share data with
customers and suppliers based on a rolling production plan.
F27
We have smoothly leveled our production capacity throughout
the whole production process.
F28
Our plant has flexible working shift models so that we can
easily adjust our production capacity according to current
demand changes.
F29
A smoothly leveled production schedule is preferred to a high
level of capacity utilization.
partially
completely
Don`t
know
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286
APPENDIX C
G. Management System
Structural Factors
Costs
Housekeeping
Set-up time
reductions
Planning
adherance
Pull-system
JIT
TQM
Effective Cross-funct.
technology product
usage development
Layoutoptimization
Standardized processes Standardized replenishment
Standardized equipment
1 Stable running machines
Self-directed
teams
Customer
integration
Supplier
quality
management
Process
management
TPM
2 Stable processes
High continuous
improvement rates
3 Low inventory
Low absenteeism
and fluctuation
Flexible
workforce
Effective Management System
Direction setting
Management commitment
&
company culture
Employee involvement Functional integration
&
&
continuous improvement
qualification
Please indicate to which degree the following statements apply to your plant!
Direction setting
The statement applies to our plant...
not at all
G01
Our production site has an exposed site vision and strategy
that is closely related to our corporate mission statement.
G02
Our vision, mission and strategy is broadly communicated and
lived by our employees.
G03
Goals and objectives of the manufacturing unit are closely
linked and consistent with corporate objectives. The production
site has a clear focus.
G04
The overall objectives of the production site are closely linked
to the team or personal objectives of our shop-floor teams and
employees.
G05
Our manufacturing managers (Head of manufacturing, Siteleader etc.) have a good understanding of how the corporate/
divisional strategy is formed.
G06
Our manufacturing managers know exactly what the most
important criteria for manufacturing jobs are (i.e. low costs,
delivery, quality etc.).
Management commitment and company culture
Plant management empowers employees to continuously
improve the processes and to reduce failure and scrap rates.
G08
Plant management is personally involved in improvement
projects.
G09
There is too much competition and too little cooperation
between the departments.
G10
The communication is made via official channels.
G11
The company has an open communication culture. There is a
good flow of information between the departments and the
different management levels.
G12
About innovations we are informed early enough.
G13
Problems (e.g. reclamations etc.) are always traced back to
their origin to identify root causes and to prevent doing the
same mistakes twice.
G14
The achievement of high quality standards is primarily the task
of our QA/ QC departments.
G15
Our employees continuously strive to reduce any kind of waste
in every process (e.g. waste of time, waste of production space
etc.).
G16
Command and control is seen as the most effective leadership
style rather than open culture.
completely
Don`t
know
The statement applies to our plant...
not at all
G07
partially
partially
completely
Don`t
know
OPERATIONAL PERFORMANCE
Preventive maintenance
APPENDIX C
287
Employee involvement and continuous improvement
The statement applies to our plant...
not at all
G17
We have implemented tools and methods to deploy a
continuous improvement process.
G18
Our employees are involved in writing policies and procedures
(concerning Site Vision down to Standard Operating
Procedures).
G19
Shop-floor employees actively drive suggestion programs.
G20
Our work teams cannot take significant actions without
supervisors or middle managers approval.
G21
Our employees have the authority to correct problems when
they occur.
G22
Occurring problems should be solved by supervisors.
G23
Supervisors include their employees in solving problems.
G24
Our plant forms cross-functional project teams to solve
problems.
G25
The company takes care of the employees.
partially
completely
Don`t
know
Please indicate which of the following statements are true for
your work teams
G26
G27
We have organized production employees into teams in
production areas. For each team there is one dedicated team
member that is responsible for supervisory tasks.
We have organized production employees into teams in
production areas. For team leadership we have an additional
supervisory level in our organization.
Functional integration and qualification
yes
no
yes
no
The statement applies to our plant...
not at all
G28
Each of our employees within our work teams (in case workers
are organized as teams) is cross-trained so that they can fill-in
for others when necessary.
G29
At our plant we have implemented a formal program to increase
the flexibility of our production workers. Employees rotate to
maintain their qualification.
G30
In our company there are monthly open feedback meetings.
G31
The information of these official feedback meetings is used
systematically in further training.
G32
We continuously invest in training and qualification of our
workers. We have a dedicated development and qualification
program for our production workers.
partially
completely
Don`t
know
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288
APPENDIX C
H. Basic Elements
Structural Factors
Costs
Process
management
Housekeeping
Effective Cross-funct.
technology product
usage development
Set-up time
reductions
Planning
adherance
Pull-system
JIT
Layoutoptimization
Standardized processes Standardized replenishment
Standardized equipment
1 Stable running machines
Self-directed
teams
Customer
integration
Supplier
quality
management
TQM
TPM
2 Stable processes
High continuous
improvement rates
3 Low inventory
Low absenteeism
and fluctuation
Flexible
workforce
Effective Management System
Direction setting
Management commitment
&
company culture
Employee involvement Functional integration
&
&
continuous improvement
qualification
Please indicate to which degree the following statements apply to your plant!
Standardization and simplification
The statement applies to our plant...
not at all
H01
We emphasize standardization as a strategy for continuously
improving our processes, machines and products.
H02
We use our documented operating procedures to standardize
our processes (e.g. set-ups).
H03
Optimized operating procedures (e.g. shortened set-ups) are
documented as best-practice processes and rolled-out
throughout the whole plant.
H04
Standardized functional descriptions have reduced the period of
vocational training for new employees.
H05
We use standardized machines and equipment (e.g.
standardized machine design, standardized spare parts etc.)
to achieve a high up time of our machines.
H06
By using standardized machines and fixtures we could
significantly lower our material costs for spare parts.
Visual management
H08
H09
H10
Performance charts at each of our production processes (e.g.
packaging) indicate the annual performance objectives.
Technical documents (e.g. maintenance documents) and
workplace information (e.g. standardized inspection
procedures, team structures) are posted on the shop floor and
are easily accessible and visible for all workers.
Charts showing the current performance status (e.g. current
scrap-rates, current up-times etc.) are posted on the shop-floor
and visible for everyone.
Charts showing current takt times and schedule compliance
(e.g. Andonboards) are posted on the shop-floor and visible for
everyone.
completely
Don`t
know
The statement applies to our plant...
not at all
H07
partially
partially
completely
Don`t
know
OPERATIONAL PERFORMANCE
Preventive maintenance
APPENDIX C
289
Reasons for launching Operational Excellence initiatives The statement applies to our plant...
not at all
H11
To meet FDA regulations
H12
To implement Process Analytical Technology (PAT)
H13
To change from functional organization to process organization
H14
To increase cost awareness
H15
To increase employee involvement
H16
To increase employee empowerment
H17
To reduce lead times and inventory
H18
To change the quality focus from final product to process
quality
H19
To initiate a cultural change for continuous improvement
H20
To introduce standardized methodologies for problem solving
H21
To launch a broader cost cutting program
H22
To improve final product quality
H23
To fulfill site targets between corporate and plant management
partially
completely
Don`t
know
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290
APPENDIX C
I. Performance of the plant
Structural Factors
Costs
Set-up time
reductions
Planning
adherance
Pull-system
JIT
TQM
Effective Cross-funct.
technology product
usage development
Layoutoptimization
Standardized processes Standardized replenishment
Standardized equipment
1 Stable running machines
Self-directed
teams
Customer
integration
Supplier
quality
management
Process
management
TPM
2 Stable processes
High continuous
improvement rates
Low absenteeism
and fluctuation
3 Low inventory
Flexible
workforce
Effective Management System
Direction setting
Management commitment
&
company culture
Employee involvement Functional integration
&
&
continuous improvement
qualification
Quality performance
Nam e
Definition
Number of justified complaints as a percentage of all
customer orders delivered.
Unit
I01
Complaint rate
(customer)
I02
Yield
I03
RFT
I04
Rejected batches
Number of rejected batches as a percentage of all
batches produced.
%
I05
Scrap rate
Average difference between 100% and real achieved
output in packaging operations.
%
I06
Complaint rate
(supplier)
Number of complaints as a percentage of all deliveries
received (from your supplier).
%
I07
Release time
Average time from sampling to release of finished
products including all waiting times.
I08
Deviations
Number of deviations per month that arise from raw
materials purchased, production components
(equipment) and product/ process specifications.
I09
Deviation closure
time
Average deviation closure time in days.
Average difference between 100% and real achieved
output in pharmaceutical production due to material
losses, weighting, sediments.
Total number of batches produced without document
errors or exception reports as a percentage of the total
number of batches produced.
Measure
Don't
know
Measure
Don't
know
Measure
Don't
know
%
%
%
Working days
Number per
month
Working days
Delivery performance
Nam e
Definition
I10
DOH
Average Inventory less write downs x 365 divided by the
'Cost of Goods Sold (COGS).
I11
Service level Delivery (OTIF)
I12
Service level
Supplier
Perfect order fulfillment (percentage of orders shipped in
time from your site (+/- 1 days of the agreed shipment
day) and in the right quantity (+/- 3% of the agreed
quantity) and right quality) to your customer.
Perfect order fulfillment (percentage of orders shipped in
time to your site (+/- 1 days of the agreed shipment
day) and in the right quantity (+/- 3% of the agreed
quantity) and right quality) from your supplier.
Unit
Days
%
%
JIT performance
Nam e
Definition
I13
Forecast
accuracy
Actual orders received compared to the annual sales
forecast.
%
I14
Production
schedule
accuracy
Number of released production orders as scheduled as
a percentage of all production orders released within
your freezing period.
%
I15
Priority orders
Number of priority orders as a percentage of all orders
produced.
%
I16
Production
flexibility upside
Freezing period in which you do not allow any changes
of your production schedule.
Working days
I17
Replacement
time to customer
Response time for short-term delivery to the customer
for goods not on stock (delivery time supplier and your
production time).
Working days
Cycle time
Cycle time (from weighing to packaging). e.g. 30% of all
products have a cycle time of 15-30 days. 70% of all
products have a cycle time of more than 30 days.
Raw material
turns
Annual cost of raw materials purchased divided by the
average raw material inventory.
I18
I19
I20
I21
Unit
< 15 days
15-30 days
> 30 days
Number
OPERATIONAL PERFORMANCE
Preventive maintenance
Housekeeping
APPENDIX C
291
I22
WIP turns
Annual cost of raw materials purchased plus annual
cost of conversion divided by the average work in
process inventory.
Number
I23
Finished goods
turns
Annual cost of goods sold divided by the average
finished goods inventory.
Number
I24
Average order
lead time
Average time between a customer placing an order and
Working days
receiving delivery.
Waiting time Production
I25 a-c
Average production
lead time
I26 a-c
I27 a-c
Average
changeover time
I28 a-c
Changeovers
QA/QC
Don't
know
Average time in days from receiving the
raw material to release of finished
products in API production.
Average time in days from receiving the
raw material to release of finished
products in pharmaceutical production.
API
Formulation
Packaging
Don't
know
API
Formulation
Packaging
Don't
know
Mon - Fri
Sat
Sun
Don't
know
API
Formulation
Packaging
Don't
know
0.00%
0.00%
0.00%
Average time in hours spent between
different products for setting up and
cleaning the equipment.
Average number of changeovers performed
per month including changing lots and
changing formats.
TPM performance
Nam e
Definition
I29 a-c
Setup and
Cleaning
The time spend for setup and cleaning as
a percentage of the scheduled time.
I30 a-c
Dedicated
equipment
The percentage of your equipment that is
dedicated to one product.
I31 a-c
Unplanned
maintenance
Proportion of unplanned maintenance
work as a percentage of the overall time
spent for maintenance works.
I32 a-c
Shift-model
Number of shifts per day.
I33 a-c
Shift length
Average length of one shift in hours.
Overall Equipment Effectiveness
If your are not sure an estimated answer is better than a field not completed!
in %
I34 a-c
Loading = Scheduled Time / Calendar Time
Scheduled Time - time during which the equipment was scheduled or
expected to operate during the time period being analyzed
Calendar Time - usually 365 days, 8760 hours
I35 a-c
(OEE) Availability = (Scheduled Time - Downtime) /
Scheduled Time
Scheduled Time - time during which the equipment was scheduled or
expected to operate during the time period being analyzed
Downtime - breakdowns (unplanned downtimes) + setup downtime
I36 a-c
(OEE) Performance = (Amount Produced x Ideal Cycle Time)
/ Available time
Amount Produced - the number of units produced during the time period
Ideal Cycle Time - the designed or optimum cycle time
Available Time - the time the machine actually ran: scheduled time downtime
I37 a-c
(OEE) Quality = (Input - Defects) / Input
Input - the number of units that were started through the process
Defects - the number of defective units (even if they were subsequently
salvaged)
I38 a-c
Overall Equipment Effectiveness = (OEE) Availability x
(OEE) Performance x (OEE) Quality
292
APPENDIX C
Management System Performance
Nam e
Definition
Unit
Number of management levels between production
workers and the highest ranking manager at the site
(e.g. Worker - Supervisor - Manager of the department Site-leader = 4 Levels).
The average number of employees directly reporting to
middle management (supervisors).
I39
Management
layers
I40
Management
span of control
I41
Group work
I42
Functional
integration
I43
Suggestions
(Quantity)
Average number of suggestions per employee in the last
year.
I44
Suggestions
(Quality)
Estimated total savings due to suggestions that were
implemented.
I45
Employee
turnover
Employees leaving your site due to terminations,
expired work contracts, retirements etc. as a
percentage of all employees.
%
I46
Sick leave
Total time of employees absent (e.g. sick leave) as a
percentage of the total working time.
%
I47
Overtime
Hours worked in paid overtime (excludes the overtime
which is compensated with free time) in the last year as
a percentage of the overall working time.
%
I48
Training
Number of training days per employee (all kinds of
training off- and on the job).
Days
I49
Level of
qualification
Number of workers without prior work related
qualification/education as a percentage of the total
number of workers at your site.
%
I50
Level of safety
Reportable incidents due to accidents and safety on
average per month.
Percentage of production workers that are organized in
self directed teams in terms of e.g. holiday planning and
team meetings.
Number of production workers that are qualified to work
on 3 or more technologies/functional areas as a
percentage of all workers.
Number
Number
%
%
Number
thousand
Number per
month
You have completed the survey.
Thank you very much for your participation!
Please save the survey on your hard disk and email the file to
nikolaus.lembke@unisg.ch
daniel.bellm@unisg.ch
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© 2013 Institute of Technology Management (ITEM-HSG), University of St.Gallen
© 2013 Transfer Center for Technology Management (TECTEM), University of St.Gallen
Measure
Don't
know
APPENDIX D
293
Appendix D
Cultural dimensions of Sub-Saharan Africa 120 (Hofstede, 2014)
Ghana
Angola
Kenya
Malawi
Mozambique
Namibia
Nigeria
Sierra Leone
South Africa
Zambia
Average
120
PDI
UAI
IDV
MAS
74
83
63
63
85
58
74
63
41
53
65.7
55
60
40
40
44
36
45
40
39
40
43.9
11
18
22
28
15
28
28
16
69
34
26.9
39
20
61
39
38
39
61
39
64
39
43.9
Hofstede’s (2014) study on cultural dimensions does not cover all countries of the Sub-Saharan African
region. The above table illustrates the available countries that are used for generalizations.
294
CURRICULUM VITAE
Curriculum Vitae
Name:
Daniel Bellm
Date and place of birth:
24th of August 1982 in Schwetzingen (GER)
Nationality:
German
Practical Experience
2011 – 2014: University of St.Gallen, St.Gallen (SUI)
Institute of Technology Management, Chair of Production Management
Group Coordinator & Research Associate
2010:
Volkswagen Consulting, Wolfsburg (GER)
Internship: Marketing & Sales
2008 – 2009: Porsche Asia Pacific Pte. Ltd., Singapore (SIN)
Internship: Sales
2008:
MTU Friedrichshafen, Friedrichshafen (GER)
Internship: Assembly Large Engines
2007 – 2008: Dr. Ing. h.c. F. Porsche AG, Hemmingen (GER)
Internship: Project Management Sales, Cayenne Series
Education
2011 – 2014: University of St.Gallen (HSG), St.Gallen (SUI)
Doctoral Studies in Business Innovation
2004 – 2010: Karlsruhe Institute of Technology (KIT), Karlsruhe (GER)
Business Engineering (Dipl.-Wi.-Ing.)
1993 – 2002: Privates Gymnasium St. Paulusheim, Bruchsal (GER)
Abitur (German A-Level Equivalent)