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Formulation and API Plants Join the Capacity Hunt Program Achieving Certain Growth in Uncertain Times

Shridhar Lolla, PhD

lolla@cvmark.com

Draft: 30.Oct.2013

Note: This article is built on the content of two game changing books on operational excellence, 'The Path - Leveraging Operations in a Complex and Chaotic World' and 'Building Manufacturing Competitiveness'. While the first book presents a detailed action oriented and story driven case of how pharma companies are making operations central to their competitive strategy in today's business environment, the second one provides a technical explanation of the first. Following the release of the two books, there has been a demand from pharma plants to bring out successful case studies on how throughput of plants can be improved 'dramatically' and 'quickly' on an ongoing basis; this article is directed to meet this demand.

Definition: The Capacity Hunt Program is analogous to a Treasure Hunt Program; and is run inside a participating organization to unearth huge fortune (capacity) hidden in its operational war zone. The key difference between the two is that the Capacity Hunt Program is conducted without costly risks, trade-offs and burn-outs.

The First Call

It was barely a week since I returned from IDMA's meeting in Chennai, when I got the call.

"We are up against a big challenge... We would like to meet you." said the caller.

When I asked him "what do you want me for?" he said, "We need extra capacity in our plant, we are negotiating a huge order...if it comes, we are afraid we will have problem in meeting the delivery dates."

Next day, I reached their formulation plant located in the far west part of the town. The Chief Operating Officer, COO and his two colleagues led me into a conference room. There I was introduced to more than 10 Heads of different functions, including the plant manager. It was the level-1 team of the plant.

No Alternative but to Act

Soon the COO took the lead and said, "Just when we were talking to you yesterday, our sales team was with our key customer and we have now got this huge order of USD 25 million. Most of it is from one molecule. We have won this order against tough competition. The order is very prestigious and if we execute well, we will be in the league of big players."

He then displayed a summary of the customer order from his laptop. But then he stopped, and said, "The good thing is that we got the order. The worrisome thing is that we still do

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not know how we would deliver it on time. The trouble is that this order has severe FTS (failure to supply) clause; not just in monetary terms but also in terms of our positioning in the market.... We do not have enough capacity....and in the available time, we can neither outsource it nor install new capacity." There neck was on line!

"We are in such a situation that we can't go back nor spend time arguing why did we take the order. The business environment is so complex and chaotic that taking some risk is inevitable for growth. The buck has moved from sales to operations!" the COO made it clear that what may come actions need to be taken and the team needs to move forward. I guessed that there must have already been a lot of arguments within the team about the order.

I sensed the pulse of the moment.

"I see! Why do we say that we do not have enough capacity" was my first question to the team.

They were ready with answers. What followed was a series of presentation slides and XL sheets that explained the product flow, routing, process complexity, machine configuration, capacity, utilization etc. They also showed how they could install new machines and how much time and effort it would take. For almost an hour, I was inundated with data and impossible alternative tactics.

The presentation highlighted not just that the plant didn't have any extra capacity, it also made it clear that even their main supplier of API didn't have enough capacity to support the order. They were talking about their flagship product that covered a major part of the order; and I was surprised to know that they had only one supplier. There was no time to discuss about their procurement strategy though.

Between a Rock and Hard Place

The situation was very grim with hardly any visible option, specially looking from the time frame perspective. Anyway, I asked, "What do you want from me?"

Pat came the answer, "Reveal the Hidden Capacity."

I was awe stuck!

The COO said, "We are pushed to a situation where we need to believe that there is hidden capacity in our plant and you could help our team in identifying and revealing the capacity quickly."

He had played back the statement often written in my blogs and articles. I was in a very awkward situation, where my customer was pitting me against my own proclamation. You could imagine what was my situation. There was no place to hide than taking it head on.

I said, "You are so crazy to call me so suddenly. We could have run a full Capacity Hunt Program if I knew earlier. Under normal circumstances with at least one lead time ahead, we normally have enough time to bring the plant teams up to the speed. Remember that it is not just about physical capacity of the plant but about building capability in your team to identify and exploit the hidden capacity. We need to train people while revealing capacity one by one. It is a process of ongoing improvement than just one event trouble shooting."

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"We understand that it is almost like a knee jerk reaction. We are extremely sorry for this rush but we are really in a soup and something must be done... perhaps this event could be the beginning..."

"Yes, now that I am here, we must do what it takes to." I said.

"Ok, remember that identifying and revealing capacity is the job of our team and I can only guide them through."

"We understand!"

"And promise me that we will have all the attention of the required members of your team for 2 days and thereafter, a project team is exclusively assigned till the big order is through. I also need your commitment to sustain the activities of revealing hidden capacity so that you do not land into similar situation again and call me in a rush."

"We are all for you!" said the COO.

"Ok, let's move ahead."

It's More than one Plant

More than 90% of the sales order consisted of one molecule in its multiple dosages and pack sizes. The team also took me through the plant and explained the physical operations and material movement aspects. The way they explained, it seemed that their capacity was already full. Everybody and every machine was fully occupied, there was a whole lot of batches work in progress and over time work was a routine.

When we returned from the plant, we again looked at the production numbers of the formulation plant as well as those of the API supplier. There was some truth in that 'sometimes' formulation plant starved because of delays from supplier but it was not a definitive cause for limiting its production throughput. However, even if the capacity of formulation plant improved, they would not be able to fulfill the order without the help of API supplier; though at that moment they seemed to have enough API in stock for a while.

I asked, "Can the plant do say 25% higher rate, given the availability of APIs and other materials?"

"No, we can't. It is way too high!" So in their experience...there was a major constraint inside the plant.

"Ok, from your intuition, experience and data, it does appear that there is a capacity constraint inside the plant. But we may not be able to reveal enough capacity here... we will need to talk to the supplier."

"We will need to work inside our plant and that of our supplier."

"OK."

Action Time

We were discussing the steps of capacity hunt program. But since the immediate need was about one event problem pertaining mostly to one product, it was not necessary for the

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team to go through all the steps of the Capacity Hunt Program. Hence, the team did the following:

1. Mapping the One Flow that Mattered: The team identified the flow for the main product from ware house to packing all through to dispensing station of raw material. They realized that there were also other products and orders along the flow. As a first step they de-prioritized others, so that adequate focus is accorded to the delivery of the big order.

2. Identifying the One resource that Limited the Throughput: Noted down and compared the standard and actual cycle time of each operation along the identified flow. To their surprise it was found that encapsulation was delaying the batches, as there were too many batches of pallets waiting in the quarantine room (hold area) for getting encapsulated.

Till then, the plant had a belief that either pelletization or coating was limiting its capacity and nobody ever cared to look at encapsulation, which on standalone basis looked faster than other operations. Incidentally, the plant had carried out significant capacity improvement in other areas than encapsulation.

3. Identifying Hidden Capacity: The log sheet of encapsulation section was brought out and plotted (both run time as well as idle time). When the graph appeared on the screen, it made everybody's eyes wide open. A rough calculation revealed that the encapsulation machine was operating at less than 35% of its assigned capacity.

For me too, it was surprising that encapsulation machine was a bottleneck, since in most of our studies it never appeared so clearly. Actually, it was not a bottleneck at all, it was made to appear like a bottleneck, perhaps, because of the way it was managed and operated. Never the less, the team declared encapsulation machine as 'the constraint' of the plant.

4. Internalizing availability of hidden capacity: The team also went through a brief session of one hour training on constraint management. They understood that a constraint limits capacity of a line or plant to deliver more. It became very clear to them that just like a chain is no stronger than its weakest link, a plant capacity can't be more than the constrained resource. In their case, the encapsulation machine limited the throughput of the flagship product.

Utilization level of 35% was anyway a shamefully low figure for them. They also realized that normally encapsulation machines are expected to operate at as high as 70% utilization. Which means that they had almost 100% capacity hidden in the encapsulation machine.

Everybody in the management understood that one hour loss of encapsulation machine meant loss of one hour of production of the entire line and one hour gain in its utilization meant, one hour of extra capacity for the entire line. Further, this has to do everything with operations and not physical capacity of the machine.

5. New Policies: Identification of constrained resource led to commitment of the team to increase focus on it. In fact, the whole line was scheduled around the constraint. People working around the constraint were engaged to come out with ideas to improve uptime and reduce downtime of the encapsulation machine. They came out with a plan to ensure that the constraint would not starve because of delays from upstream. At the same time, downstream would be made to run as fast as it could once a batch is received from the constraint. At the end of the day the team became confident that it could achieve at least 50% higher capacity and they were looking forward to fulfilling the order. This was quite in

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contrast to a gamut of improvement activities running in the plant with so much of expenses and time, and yet having a promise to improve throughput by 2% or 3%. The team was just about to hit the real treasure.

6. Ensuring reliable material supply: With extra capacity of formulation plant of over 50% in their sight, it was time to look at the API suppliers. Visit was scheduled to the supplier's plant the next day.

Next day morning, we travelled to the industrial hub 20 miles from the formulation plant. The supplier pleasantly welcomed us. We went through the routine of presentation, discussion and plant visit. We discussed fundamentals of Capacity Hunt Program and took the API team through constraint management technique; that is, the one big lever that could dramatically improve its throughput without making ugly compromises.

Traditionally, API plants come under the category of chemical plants and is considered very clumsy setup. Physically too they look very complex and convoluted. The general perception is that these plants have their own behavior and the output we get is what we can get. Since API is perceived as commodity for formulation plants, the tendency towards improving capacity has been through CapEX (by building extra capacity of reactors or other equipments) than through OpEx (by improving operational effectiveness and efficiency). The excellent co-operation of the supplier to identify hidden capacity surprised us though.

While walking through formulation plant is easy and it is possible for you to walk into quarantine areas to find if the flow of batches is stuck somewhere and therefore, figure out the constrained resource; it is not easy to figure things out by walking through an API plant.

The supplier's team helped us in presenting a clear picture of the flow through various reactors from material issue to clean rooms.

At one shot, it would appear that an API plant is just like normal chemical plant with continuous flow. But it is indeed not. Which brought us to ask the question, "How do we know which place along the flow how many batches are waiting." The only other way was to peep into their ERP system. The plant planner helped in fishing out all the stocks inside the plant. It became clear that most of the batches were stuck in front of the clean room. Clean room is the mega-structure of any API block with a number of processes that squeeze out and do mechanical process after receiving final mass. Because of its structurally complex setup, scheduling the equipments inside becomes tricky. Moreover, when multiple products pass through the same clean room, the delays caused for model change is enormous. And since the clean room has such a status, it often remains away from those responsible for improving its throughput.

A close look at utilization of clean room was though eye opener. Remember that readying the clean room when there is change in product model is an extremely clumsy process and decent people do not roam around when the clean room in being setup (cleaned, washed and part changed). There are more than 80 individual steps through which a clean room has to undergo before it is chemically and technically ready to start processing the next product model. Surprisingly, much of the setup takes place in quite an arbitrary way. A look at the log sheet of the clean room showed a variation of 100 to 400% in the time it took to re-setup the clean room during the past 45 days. This single data point was itself an eye opener for the head of the plant. I do not think he was not knowing that clean rooms were not managed what they should be but that amongst his all clean rooms, this clean room

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through which such a a high demand product flows be at a utilization level of just around 25%. It is a different matter that their internal records were showing a utilization of 75%. We did not have time to debate on the numbers, but it became clear that the clean rooms utilization desired much to improve.

The plant manager was more than happy to acknowledge the hidden capacity and quickly assembled a team to improve performance of the clean room. The initial plan gave an assurance that they could comfortably meet the demand due to the huge order of their customer. Well, when the team looked deeper into the clean room's operation many things cropped up than it appeared on the first go.

7. Revealing Hidden Capacity: The graphs below show how the capacity was revealed in the two plants in tandem. During this process that lasted less than 60 days, the plants went through several improvement steps, one step at a time. They applied various tools of TQM, Lean and Six Sigma, not all over the places but only on those high leverage points that dictated throughput. Their metrics for the plant changed as did their policy and incentives. At the end of 2 months, it was not just the order that the formulation plant was fulfilling regularly, but it had spillover effect that made the whole plant to begin working on the Capacity Hunt Program.

Figure - Results of Capacity Hunt Program run in tandem for Formulation and API plants

Starting with one event and the one challenge of delivering a large order on time, the formulation plant is now implementing the full sequence of steps involved in revealing hidden capacity. The team so energized and curious to continue its journey of hunting hidden capacity, they are on the journey of operational excellence that improves their deliveries on an ongoing basis without making costly trade-offs and burn-outs.

What did the Capacity Hunt Program do to the team?

It built the belief that

1. There is enormous hidden capacity in their operations.

2. The team can itself identify and reveal hidden capacity.

3. An improvement of 2-3% in operations is often lost in noise and that there are enough opportunities to improve operational performance in double digits.

4. Achieving huge operational improvement does not necessarily need high Capex, significant improvement can be achieved without costly expenses and burnouts.

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5. Significant improvement in operations can be achieved quickly, on an ongoing basis.

And it built a culture of ongoing radical improvements in operations that created certainty in achieving significant growth in the revenues of the organization.

...To be continued...

About the Author _______________________

The author Shridhar Lolla is a practitioner of operational excellence and he handholds

pharmaceutical organizations in making operational improvements that directly and

significantly impact business results. He is the author of a compelling business novel

based on the current state of pharma industry, 'The Path - Leveraging Operations in a

Complex and Chaotic World' (print and ebook). His another book, 'Building

Manufacturing Competitiveness - The TOC Way' (print and ebook) presents the

technical aspect of 'The Path'.

To know how dramatic improvements can be achieved quickly and sustainably without

costly burn-out and trade-offs, check 'The Capacity Hunt Program'.