Sunday, June 7, 2009

Extending the Operational Excellence Paradigm

Regulatory Forum: Lean Sustainability:

There can be no mistaking that we are entering a new era in the pharmaceutical and biotech marketplace. The escalation of the pharmaceutical emerging markets in India, China, and the remaining BRICK nations has changed the landscape from both a strategic and tactical perspective. It has even spawned its own buzz word, called the “Pharmerging” markets. The progression of these markets has put unmistakable pressure on pharmaceutical companies to reinvent the way they think about product development, clinical efficiency, and manufacturing performance.

In response, the established markets in the U.S. and Europe have embraced the principles of Operational Excellence as a catalyst for change. Big pharma has taken up the basic principles of Lean Manufacturing and Six Sigma as frameworks for driving business performance, with tangible results. While wholesale transformation may take decades to accomplish, public pressure together with market pressure from these Pharmerging markets are hastening the transformation, spawning a “survival of the fittest” business environment. While many large pharma organizations explore the potential for leveraging the low cost intellectual horsepower and low labor cost the Pharmerging markets promise, they have chosen to move forward cautiously in part due to their perceived difficulty in adopting the U.S. and European concepts of cGMP and also the risk exposure from quality management systems which are still maturing.

The question remains, is it possible to extend the benefits of operational excellence and its subsequent heightened business performance, to the principles of sustainability in this current competitive marketplace? I believe it is not only possible but also in an organization’s best interest to do so.

What is sustainability? Sustainability is “meeting the needs of the current generation without compromising the ability of future generations to meet their needs.”1 While the U.S. has historically been a powerhouse from a GDP perspective, it has been notoriously inefficient in how we feed our manufacturing engines. Across industries, only 1% of all of the raw materials we use actually end up in our final products.2 Similarly, if China used the same amount of oil as the U.S. per capita, it would consume the entire world’s oil capacity of 83 billion barrels in just one year.3 Simply put, sustainability is the Golden Rule applied across generations, and it is easy to see how the principles of Lean can lead us toward sustainability initiatives. Originated by Taiichi Ohno to analyze processes within the Toyota Production System, Lean principles have evolved into a development philosophy that strives to identify and eliminate waste by concentrating on what is valuable to the customer.

In his landmark book “The Machine That Changed the World,” Jim Womack describes the five basic tenets of Lean as follows:

Every company needs to understand what value the customer places upon their products and services. It is this value that determines how much money the customer is willing to pay for the product and services.

The Value Stream
The value stream is the entire flow of a product’s life-cycle from the origin of the raw materials used to make the product through to the customer’s cost of using and ultimately disposing of the product. Only by a study and clear understanding of the value stream and its value-add and waste can a company truly understand the waste associated with the manufacture and delivery of a product and/or service.

• Flow
One very significant key to the elimination of waste is flow. Carefully designed flow across the entire value chain will tend to minimize waste and increase value to the customer.

• Pull
Use a pull approach to ensure that nothing is made ahead of time, building up work-in-process inventory that stops the synchronized flow. A pull approach states that we do not make anything until the customer orders it, in order to achieve this requires great flexibility and very short cycle times of design, production, and delivery of the products and services.

• Perfection
A lean manufacturer sets his/her targets for perfection. The idea of total quality management is to systematically and continuously remove the root causes of poor quality from the production processes so that the plant and its products are moving towards perfection.

How do these basic principles align with the philosophy of sustainability? Classically, Lean principles have focused primarily on discrete, measurable short term improvements which can drive long term corporate growth, i.e. the economic organizational customer. Sustainability tends to look at the long term benefits to an organization and like Lean, stresses the lifecycle approach to improvement. The Lean mantra of eliminating waste fits sustainability initiatives perfectly. Since it is much like Lean, both in concept and in practice, sustainability can be thought of as Lean extended to a much broader objective.

While it would be wonderful to say the nobler long term goals of greater sustainability should be sufficient to drive change, the reality is our industry requires near term tangible benefits to catalyze a change in thinking. Three tangible benefits from pursuing an organizational strategy of sustainability are:

• Reduced Operating Costs
Extending the concepts of Lean in terms of eliminating waste to environmental improvement will drive down operating costs. Waste removal, energy conservation, water management all drive down operating costs. Organizations attempting to operate in Europe are often confronted with the requirement to be ISO 14001 compliant. Shifting this requirement up to the development process can multiply its effectiveness exponentially as it integrates through the product development lifecycle.

• Greater Consumer Satisfaction
It is difficult to debate the high profile nature of environmental issues facing the world today. Greenhouse gases and global warming are in the news on a daily basis. Any organization that embraces and advocates the merits of its sustainability program will garner public praise and position itself, all things being equal, as a higher quality supplier of product

• Risk Reduction
Investing in business performance initiatives tied to sustainability provides both a moral and financial catalyst for change. As regulations and legislation evolve, they are migrating towards to escalating standards for both safety and environmental impact. Similarly, recognizing the heightened sensitivity to sustainability issues, some insurance organizations are punishing organizations that have no active sustainability programs in place because of the potential for litigation as policies change.

With a typical useful lifetime measured in decades, facilities are one of the largest investments an organization can make. Facilities require significant capital investment well in advance of proof of clinical efficacy, and yet they typically end up being the gating activity to moving your product to market. Applying sustainability requirements to the facility planning and design exercise is the perfect opportunity for an organization to add value to the overall product development process.

Extending the identification of waste not only to the processes within the facility but to the facility’s operation as well, will result in an operation which is flexible and cost efficient.

The framework for Lean facility design has been discussed in previous articles. Within this framework many of the analytical tools from Lean can be applied to include sustainability. When combined with the milestone-based project management structure of Six Sigma, an organization’s ability to begin the transformation to sustainability is almost seamless. For example, value stream mapping can easily include environmental considerations such as power consumption, waste generated, and utility requirements. Lean Kaizen teams which focus on rapid focused improvement of a problem can apply the same definition and improvement approach to environmental issues. Integrating root cause analysis techniques such as Kepner-Tregoe and the 5 Why’s, coupled with capable measurement tools can easily facilitate the optimization activities of both the product and its byproducts.

The application of Operational Excellence principles can easily be extended to include sustainability considerations for an organization. Doing so provides a competitive edge both in terms of business performance and reducing risk from shifting legislation. The Pharmerging markets are struggling to demonstrate their ability to consistently provide product which is safe and efficacious. Compounding these challenges is the ever-increasing scrutiny from the public and regulatory bodies around the globe regarding pressing environmental issues. Any organization that embraces both the near term benefits of improved business performance derived from Operational Excellence programs such as Lean and Six Sigma will have the added advantage from the long-term strength in terms of both profitability and social responsibility a sustainability strategy can provide.


  1. The definition is from the Bruntland Commission Report, United Nations, 1987.
  2. Ayres, R.U., Technology and Environment, Washington, D.C., National Academy of Sciences, 1989.
  3. Langenwalter, G., “Life is Our Ultimate Customer: From Lean to Sustainability,” AME, Target Vol. 22, No. 1, 2006

Bikash Chatterjee is the president of Pharmatech Associates, Inc. He has been involved in the bio-pharmaceutical, pharmaceutical, medical device and diagnostics industry for over 20 years. His expertise includes site selection, project management, design, and validation of facilities for both U.S. and European regulatory requirements.

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