Operational Excellence

Operational Excellence

Establishing a Culture of Quality

April 5th ,2011

Prof. Dr. Thomas Friedli

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Agenda

Models & Patterns of OPEX programs1

The Cultural Challenge2

Summary3

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New drug approvals are not keeping pace with risingR&D expenditures

0

10

20

30

40

50

60

70

80

90

20022001200019991997 1998

40

35

30

25

50

20

0

R&

D e

xpen

ditu

res

($ b

n)

2011*2010*2009*2008*20072006200520042003

Num

ber

of

NM

Es

45

Global R&D expenditures

Number of NMEs first launched onto the world market

Source: CMR Factbook (2008)

+70 %-50 %

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The New Economics of Innovation

Historical margins

Historicalrevenues Revenues with greater

price pressures andshorter cycles

Productintroduction

Dol

lars

Years from product launch

Historical fixed development and manufacturing costs

6 12

New fixed development and manufacturing costs

Margins in new environment

Source: Pisano, HBS

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Why should you care about manufacturing? – Cost structure on Company level

18%11%

25%

12%

11%

9%

Contract manufacturer

4%

63%

3%

Generics manufacturer

20%

53%

5%

Brand-name companies

22%

31%

13%

MarginSales & MarketingGeneral & AdministrationManufacturingR&D

Source: University of St.Gallen, Benchmarking Industry Report (2009)

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Pharma has no Track Record of Thinking in Process Improvements! Pharmaceutical Manufacturing has traditionally focused on end-

product quality!

The Pharmaceutical Industry has not focused on developing a scientific understanding of their processes. This leads to a high rate of internal failures such as reworks and rejects!

Pharmaceutical manufacturing processes are often complex and include many non-value-added activities!

Pharmaceutical manufacturing tended to view individual sites independently!

The role of leadership and "human effects" had been neglected!

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A Framework for thinking about Operational ExcellenceOPEX Framework

Effective Management System

Direction settingManagement commitment and company culture

Employee involvement & continuous improvement

Functional integration & qualification

Op

erational P

erforman

ce

Preventive maintenance

HousekeepingEffective

technology

usage

TPM

Process management

Customer integration

Cross-funct.product

development

Supplier quality

management

TQM

Set - up time reductions

Pull system

Planningadherence

Layout -optimization

JIT

Stable running machines Stable processes Low inventory

Standardizedreplenishment

Low abseentism

& fluctuation

High continuous

improvement ratesLow absenteeism &

fluctuationFlexible

workforce

Self -directed

teams

1 2 3

Standardizedequipment

Standardizedprocesses

Source: University of St.Gallen

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-199X

"Pre-OPEX"

200x 201x

"Best PracticeTransfer"

"Transformation"

"Integrated Operations System"

Level of Operational Excellence

The Evolution of OPEX in the Pharmaceutical Industry

Source: Friedli et al. - Pathway to Operational Excellence (2010)

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The current phase of leading companies!

The "Transformation"

Phase

Operational Practices &

Tools

Innovation and Change

Management

Managerial and HR-based

Practices

Training Program

Quality System and Process

Control

Coaching and teaching Coaching techniques as well as

leadership practices such as Gemba are added to OPEX training concepts

HR gets more integrated into OPEX

Role of Leadership To solve problems and to

improve their daily work Improvements often struggle to

stay sustainable, payoffs are not as high as expected

Discussions about the role function of operations leaders as coaches and teachers got a key issue

Companywide Initiatives and Programs Companywide tool-boxes Common language and holistic view of

performance. Different initiatives cooperate with each other

Process Understanding More sufficient

techniques like real-time controlling

The foundation of process understanding has reached a reliable level for the first time

Large Scale Change Process Large scale

transformation processes focusing on organizational set-up

Innovations and changes are driven by Senior Management and Site Leadership Teams

Change pattern: Unfreeze- Transition - Refreeze


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Wyeth: Setting a Focus on Redefining Leader's Role

1

Source: Wyeth; Friedli et al. – The Pathway to Operational Excellence (2010)

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MerckSerono: Defining a Suitable Deployment Structure

Source: MerckSerono; Friedli et al. – The Pathway to Operational Excellence (2010)

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Example of an operational excellence iniative – Right First Time by Pfizer 2003

The Right First Time (RFT) Strategy is key to achieving the PGM Mission: “We will be the world's leading supply organization and an innovative and powerful competitive advantage for Pfizer.”

RFT is a science-based approach that will have a dramatic impact on PGM (Pfizer Global Manufacturing) business performance by transforming our competencies, technologies and ways of working, thereby establishing PGM as the industry benchmark in innovation.

RFT will be fully realized when PGM becomes an agile supply organization driven by highly capable processes and a diverse team of highly engaged colleagues

The target of Right First Time is to enhance the effectiveness of processesThe target of Right First Time is to enhance the effectiveness of processes

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RFT: The 5 priorities

Performance MeasuresAutomation

Value Stream Mapping

Archival Knowledge StorageProcess Analysis Techniques (PAT)

Six Sigma methodsIT Systems (Catalyst and PharmInvestigator)

Launch of new products

RFT Organisation Performance of SuppliersCommunities of Practice

performanceperformance

paradigm shiftparadigm shift

organisational initiatives

organisational initiatives

Risk AssessmentManufacturing Science

Process Capability

process understanding

process understanding

Behaviour of Leader and ValuesCommunication

Method 1Knowledge Management

Relentless Process Focus

colleagues/culture

colleagues/culture

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14

Right First Time Organization

RFT Area Leaders Local Communication & Leadership

Overall StrategySponsors

Global Communication & Leadership

PGM RFT Leader

Local InitiativesCommunicationTrainingLocal Metrics

Implementation

RFT Leaderson Site Level BB + GB + YB

RFT is virtual!RFT directly reports in the line functions!

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RFT Methodology

Topic Method 1

Method 2 Green Belt

Method 3 Black Belt

Method 4

Incidence dissolve simple deviations dissolve deviations dissolve variations decrease rejects improve flow

Problem effectiveness & efficiency effectiveness & efficiency effectiveness & efficiency efficiency Involved Persons

individual initiative or teamwork

teamwork Green Belt

interdisciplinary teams Black Belt

interdisciplinary Teams Green and Black Belts

Necessary Skills basic knowledge of tools for problem solving

Specialization in methodology

standardized and certified training supervisors

standardized and certified training supervisors

Special reason yes yes no no General reason no no yes no Complexity low mid-high very complex mid-high Specific Tools problem definition

process mapping cause & effect brainstorming timing diagram pareto diagram control diagrams

Method 1 and capacity index frequency diagrams Gauge R&R

Method 2 and hypothesis testing regression analysis design of experiments

Method 3 and value stream

mapping value analysis establish flow cell design standard work failure proofing 5S + Visual

Workplace setup reduction total productive

maintenance material flow (Pull) expected value flow

Examples accounting quality deviations bottlenecks in

production

recurring failures, loss of production

loss of revisions

return maintenance glass particles in

sterile products

capacity problems OEE-improvement high stocks cycle times

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Agenda

Models & Patterns of OPEX programs1

The Cultural Challenge 2

Summary3

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The Key influencing Factors for a sustainable Implementation of OE

General Plant Culture

Understanding of OE initiative

Linkage to daily jobProject Mgt.

Project Portfolio Mgt.

Integration of corporate initiatives

Implementation of OE into the Organization

Site Leader

Interplay

OE leader

TrainingPlant Identity

Project Selection

Mgt. Engagement Understanding

Knowledge Mgt.

Communication

Problem – Method Matching

Belt Selection

Plant Mgt. of OE

Identity of OE program

Sponsor Commitment

Usage of OE language

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Management Commitment

Circle of Key Influencing Factors

1

Structure

2

People

3Processes

4

Integration

5

Culture

6Heritage

Corp. commit-ment & support

Management Commitment

Structure

People

Processes

Integration

Culture

1

6

5

4

3

Operational Excellence

2

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Basic Categories of Model

Site Culture/Background

ManagementCommitment

Structure Processes People

Integration

Culture

Corporate Commitment / Support

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„Tension Lines“ for Evaluation of Sites

Extreme 1 Extreme 2

hinders asustainable OEimplementation

fosters asustainable OEimplementation

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I. Site Culture / Background

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Site Culture / Background

Command & Control-

hierarchical

Open, culture of discussion, flat

hierarchy, Process Management

Functional and hierarchical

barriers lead to islands/silos

Problem orien-tation leads to

cross-functional discussions

Management Style

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II. Corporate Commitment / Support

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No Corporate/OpU resources available

Corp./OpUresources availablein case of

emergency

Corp./OpU resources

available on request

Corp./OpU resourcesavailable- whenthey are needed

Corporate/OpU Resources for OE

No linkLinked to main

strategic objectives

Indirectly linked

to objectives

Linked, but not always to the most critical

objectives

OE Aligned/Supportive of Site Objectives

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Not engaged Highly engaged, high number of site visits

Average number of site visits

Low number of site visits

Engagement of OpU/Corporate Support People

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III. Management Commitment

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Not involved in Site

Strategy Setting

Fully involved in Site Strategy Setting

Delivers inputs for Site Strategy

Setting

Partly involvedin Site Strategy

Setting

OE Site Leader

Relationship between Site MD and OE Leader

Contradictory, Not the same agenda

Complementary, completly aligned,

synergistic

Different positions on

several strategic issues

Different positions on

several tactical issues

Commitment of Site Managing Director

Low CommitmentHigh Commitment,

proactive promotion of OE

Focus on mimimal

fulfillment of OE-objectives

Shows Support for OE projects

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Not engaged and commited

Engaged and highly Commited- engaged

with projects

Majority of the SLT engaged and highly commited

Minority of the SLT engaged and highly commited

Commitment of Site Leadership Team (SLT)

Management of OE

Managed as me-too

initiative

Managed as an integrated, strategic

initiative

Managed as a relevantInitiative

Managed as an important initiative

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Understanding of Middle Management

Level of OE Project Sponsors

OE seen as unrelated to them

OE seen as strategic and vital to their

success

OE seen as important but not necessarily

for them

OE seen as technical- somewhat

narrow focus

Middle management

or lowerMember of SLT

Partially member of the

SLT

In most cases member of SLT

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OE only mentioned at

some dedicated events

Structured and well executed

communication strategy

Communication doesn`t reach

shop floor level

Communication takes place on

all levels

Communication

OE and Plant Objectives

No linkLinked to main

objectives and part of

a clear site vision

Indirectly linked

to objectives

Linked to less important objectives

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Selection criteriais availability of

person

Selection criteriais leadership

potential

Selection Criteria is interest

Selection criteria is capability

Black Belt Selection Criterias

Selection criteriais availability

Selection criteriais leadership

potential

Selection Criteria is interest

Selection criteria is capability

Green Belt Selection Criterias

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IV. Structure / Organization

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almost 0% 100%less than 50% more than 50%

Available Working Time of Site OE Leader for OE

Organizational Integration of OE at Site

Integrated in existing

Function:no site-wide level OE role

Created a new dedicated position

for OE & also embedded in functions

...

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no SC SLT leads SCOnly formal

existence of SC

Single members of SLT are

engaged in the SC

OE Steering Committee

There is no celebration of

achievements at all

Achievements are celebrated

systematically

Achievements are

communicated with posters

There is a team event for each

successful closure of a

project

OE Achievements

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V. People

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Technical methodology not seen as applicable

at shop floor

focus on support ofcompetitiveness

helps to solve single

problems

Makes daily work easier

and more efficient

Understanding of OE on Shop Floor Level

Limited to one function

Spread to all functions

Limited to few functions

Spread tomost

functions

Spread of Projects over Organization

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Training (1) Workforce Knowledge of OE

100% trained inbasic understanding

of OE

Adequate number

of green and black belts

50% trainedin basic under-standing of OE

No OE specific

trainings

Training (2) Role of Training

Seen as technical and project related

Seen as means to start

a change ofmindset

Mainly seen as technical, but also

engagement related

Seen as an enabler for

engagement

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VI. Process

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projects are only started with

pressure from outside

projects are started regularly from inside and get finished on

time

projects are regularly

started, but often lose

momentum

projects are regularly started from inside and finished in most

cases

OE Project Engagement

Standardization of Project Management- Include capture ofbusiness benefits

No defined processDisciplined project

management across Site- advanced benefits

captured

not explictly defined process-

some benefits identified

Key Projects chartered &

benefits captured

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ReactiveProactive by realbusiness needs

Most projects started reactive, in single cases

they were generated proactive

Awareness of business needs

drives most projects, project pipeline is well

filled

Project Selection

Knowledge Exchange

Re-invent theWheel

Replicate & improve is our DNA

Unsystematic use of Know

How exchange

Systematic use of Know How

Exchange

Team Work

There’s no realteam work in

our OE activities

Results are achievedbecause of a real team

effort and excellent coaching

Results are achieved because of the efforts of a

few

Results are achieved because

of a real team effort

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VII. Integration

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OE as burdento daily job

OE as improvementof daily job

neutral towardsdaily job

OE as support of daily job

Link to Daily Job

Aligment of OE with other operations initiatives

Managed as contra-

dicting activities

Managed -fully integrated

Managed as separate activities

Managed as comple-mentary activities

There is no senseof responsibility

People closest tothe job take overresponsibility for

improvement

Black Belts feelresponsible for

outcomes

Black Belts andGreen Belts feel

responsible

Sense of responsibility

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Two sites compared




Integration

Culture


Site A Site B




Integration

Culture


Good level for sustainable OE implementation achieved

On the way

Room for improvement

Low level

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Agenda

Models & Patterns1

Example2

Summary3

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Some generalized conclusions concerning OE! For the initialization of OE an outside (e.g. corporate) support and pressure

is mandatory!

Next will be to gain the management commitment to OE at eachsite!

Project Selection has to be aligned to real needs from the beginning to ensure acceptance for OE!

To make OE sustainable a broad engagement of people has to take place – OE can‘t be ordered!

Structural/organizational measures can enforce the impact and help to communicate the importance of OE!

Make use of quick wins to bring in actively more people!

Communication is key – but communicate the right things!

Training is not only enabling people on the tool side of OE but also an important means to gain understanding and to implement a common language throughout the organization!

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The "Integra

ted Operatio

ns System"

phase

Operational Practices &

Tools

Innovation and Change

Management

Managerial and HR-based

Practices

Training Program

Quality System and Process

Control

QbD and CoDevelopment Upstream integration CoDevelopment products,

processes, and equipment are developed simultaneously and linkages are addressed to gain further improvements

Decentralized brain, and leaders become teachers Leaders become

coaches and teachers Work line operators

are expected to run reactive root cause analysis and to pro-active challenge their standardized work routines

The decentralized brain starts to spread its impact

Beyond the Tools Bundled under one umbrella program

Continuous improvement is seen as a specific mindset to challenge daily routines on every level of the company

New Training Concepts Focus on

understanding, but also on applying, leading and teaching.

New concepts like "Learn Factories" and "Study Tours" partially replace older lecture sessions

Continuous Improvement

Innovations and changes occur continuously on different level.

Senior Management and Site Leadership Teams give direction and ensure the conditions.

Change pattern: Freeze – Rebalance -

Unfreeze

Future State: The „Integrated Operations System“ phase


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The need for integration in next-level OPEX approaches

Align all intended initiatives with your corporate strategy and communicate the “why” of the initiative !

Establish a comprehensive reference model of your production system !

Establish a support structure on site level !

Establish a comprehensive management system for the improvement activities !

Establish a standardized process for the selection of improvement projects !

Establish a high level committee at the site !

Be precise about what kind of "Management Commitment" is needed !

Form a community of practices for Operational Excellence with outside experts and corporate management personnel !

Make sure that most of the available time of the people with responsibilities is spend where the action is and not behind their desks !

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Our 2nd OPEX Book "Pathway to Operational Excellence"

The follow-up to our first OPEX Book in 2006 Bringing together academia's research and

companies' experiences in one book Leading company representatives describe and

explain their OPEX programs in-depth, discuss successful practices and challenges

For example: - Pfizer- Wyeth- Novartis- Genentech- MerckSerono

Book Structure:I. IntroductionII. Starting Point of Our JourneyIII. Maps and ExperiencesIV. Exploring the LandscapeV. Redefining the Destination

Visit: www.opexbenchmarking.com

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Prof. Dr. Thomas FriedliManaging DirectorChair of Production ManagementDufourstrasse 40aCH - 9000 St. Gallen

www.tectem.unisg.chwww.globalmanufacturingnetworks.com

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