Lean Comes to Pharma

Nov 18, 2009

These are turbulent times for innovative drugmakers. After years of high margins and deep pockets, the pharmaceutical and biotech industries are now in an era of slower growth and belt-tightening. But drugmakers increasingly recognize that one-time cost cutting isn't enough—their problems run too deep for just a Band-Aid. As senior management searches for new business disciplines that will improve efficiency and productivity, the Toyota Production System and other "Lean" approaches to operational excellence look more and more appealing, with the promise of truly transformative, company-wide change. Just as Toyota revolutionized automaking with its Lean production system, pharma executives are aiming to secure their industry's brave new future by adopting the Lean philosophy and tools.

For example, GlaxoSmithKline Bio, applied the concept of "one roof" development from carmaker Renault to its vaccines business by centralizing development in one location. The results were less waste and faster cycle time for decision-making, resulting in the launch of its HPV vaccine, Cervarix, 18 months earlier than the original projection. Other big pharmas are also using Lean to get leaner—though the tendency so far has been toward greater emphasis on manufacturing processes. Last month, the Financial Times reported that AstraZeneca had hired two experts from Jaguar Land Rover to increase efficiency at one of its main factories. Nor are drugmakers the only healthcare industry looking to Lean principles and techniques. According to a September USA Today report, hospital CEOs nationwide are adopting the Toyota Production System concepts and Six Sigma to identify and eliminate waste—initiatives that are likely to expand to meet the cost-cutting requirements of healthcare reform over the next decade.

The drug industry's need to transform its business model, operations, and culture is acute. With challenges on all sides—R&D productivity, rising costs, increasingly complex technologies and product portfolios, competition from generics, and growing regulatory scrutiny—industry market capitalization has declined by two-thirds of a trillion dollars since 2000. Unlike Toyota, which developed its Lean production system over a period of 50 years, pharma doesn't have much time. With an unprecedented number of products going off-patent within the next three years and few blockbusters waiting in the wings, companies are under the gun as never before. If they hope to achieve breakthrough change through the Lean approach, current efforts will have to accelerate and expand.

What Lean Means

Case Study: Early DRUG Development
When Toyota created its Lean production system in the late 1950s, the Japanese company built a lasting competitive advantage, not just with high-quality, low-cost automobiles but through a fundamentally new approach to business. The foundation was its production system—a total view of how to design, produce, and sell cars that engage the entire company in a shared way of working and a common set of principles. Since then, Lean techniques have moved far beyond the shop floor. And still, the principles of Lean remain the same: an integrated, end-to-end process that combines the concepts of waste elimination, just-in-time inventory and information management, built-in quality, and worker involvement supported by a cultural focus on problem solving and the use of tools such as kaizen (continuous improvement), kanban (ongoing replenishment), and poka-yoke (error-proofing).

Could Lean be what the ailing drug industry needs? As pharma executives increasingly recognize the imperative to fundamentally rethink their operations and culture, they look to other industries for new models. Lean has the power to deliver this high degree of transformation. It can streamline core processes, cut cycle times and costs, reduce waste and complexity, and engage the culture in pursuit of continuous improvement, while preserving the innovative spirit that drives the industry.

Yet Lean's basic principles fly in the face of much of pharma's culture. For one thing, pharma has only recently come to appreciate the values of productivity and efficiency. Years of high margins and large budgets engendered a less cost-conscious culture. Another problem is pharma's fiercely independent functions, divisions, and geographic units. The silo mentality remains deeply entrenched at most drug companies. Yet Lean is all about teams, process thinking, and cross-functional collaboration. What's more, Lean's "just in time" principle is at odds with pharma's historical "just in case" culture.

Success requires understanding and managing these challenges. For companies that are up to the task, the potential payoff is sizeable. Well-executed Lean programs in manufacturing can shorten cycle times by 60 to 90 percent, reduce inventory by 40 percent, and cut costs by 10 to 30 percent. New product development, sales force productivity, and marketing effectiveness can also improve.

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