operational excellence in the pharmaceutical …file/... · operational excellence in the...

316
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

Upload: hoangthu

Post on 27-Aug-2018

225 views

Category:

Documents


1 download

TRANSCRIPT

Page 1: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets

D I S S E R T A T I O N 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

Page 2: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 3: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

For my brother, Nicolas

Page 4: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 co-supervision 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

Page 5: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 first-hand 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.

Page 6: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 OPEX-Programm 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 afrika-nischen 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 OPEX-Managern von internationalen Pharma-Unternehmen in Schwellenländern bereichert.

Page 7: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 MOTIVATION AND RELEVANCE ........................................................................ 1

1.2 RESEARCH FOUNDATION AND QUESTION ........................................................ 6

1.3 RESEARCH METHODOLOGY AND DESIGN OF THE THESIS .............................. 10

1.4 STRUCTURE OF THE THESIS ............................................................................ 16

2 UNDERSTANDING EMERGING MARKETS ............................................... 18

2.1 TERMS AND DEFINITION ................................................................................. 18

2.2 CHARACTERISTICS OF EMERGING MARKETS ................................................. 23

2.3 MANUFACTURING IN EMERGING MARKETS ................................................... 34

2.4 DIFFERENCES OF NATIONAL CULTURES ......................................................... 40

2.5 SUMMARY & CONCLUSION ............................................................................ 47

3 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS ..................... 49

3.1 DETERMINANTS OF OPERATIONAL EXCELLENCE ........................................... 49

3.2 ELEMENTS OF OPERATIONAL EXCELLENCE ................................................... 53

3.3 PHARMACEUTICAL OPERATIONAL EXCELLENCE ........................................... 74

3.4 OPEX IN EMERGING MARKETS ...................................................................... 79

3.5 SUMMARY & DISCUSSION .............................................................................. 94

4 UNDERSTANDING THE REALITY: STUDIES IN THE FIELD ............... 96

4.1 OPEX BENCHMARKING .................................................................................. 96

4.2 INVESTIGATION IN THE FIELD ....................................................................... 113

4.3 CROSS CASE COMPARISON ........................................................................... 156

5 REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION ...................................................................................... 170

5.1 REQUIREMENTS FOR A TRANSFORMATION ................................................... 170

5.2 ELEMENTS OF A TRANSFORMATION ............................................................. 175

Page 8: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

VI INDEX

6 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE ................................................................................................. 181

6.1 OVERVIEW .................................................................................................... 181

6.2 DESCRIPTION OF THE ELEMENTS .................................................................. 183

7 SUMMARY & OUTLOOK .............................................................................. 231

7.1 CONTRIBUTIONS TO THEORY ........................................................................ 231

7.2 CONTRIBUTIONS TO PRACTICE ..................................................................... 232

7.3 LIMITATIONS AND FURTHER RESEARCH ...................................................... 233

REFERENCES .......................................................................................................... 236

APPENDIX A ............................................................................................................ 268

APPENDIX B ............................................................................................................ 269

APPENDIX C ............................................................................................................ 272

APPENDIX D ............................................................................................................ 293

CURRICULUM VITAE ........................................................................................... 294

Page 9: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 10: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 11: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 12: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 OVERVIEW .................................................................................................... 181

6.2 DESCRIPTION OF THE ELEMENTS .................................................................. 183

Page 13: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 CONTRIBUTIONS TO THEORY ........................................................................ 231

7.2 CONTRIBUTIONS TO PRACTICE ..................................................................... 232

7.3 LIMITATIONS AND FURTHER RESEARCH ...................................................... 233

REFERENCES .......................................................................................................... 236

APPENDIX A ............................................................................................................ 268

APPENDIX B ............................................................................................................ 269

APPENDIX C ............................................................................................................ 272

APPENDIX D ............................................................................................................ 293

CURRICULUM VITAE ........................................................................................... 294

Page 14: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 15: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 16: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 17: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 18: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 19: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 20: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

XVIII LIST OF ABBREVIATIONS

ITEM-HSG 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 for Economic Cooperation and 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 Conference on Trade and Development

Page 21: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 22: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the
Page 23: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 24: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 goal-oriented 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.

Page 25: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

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

8896

108120

131 127 128135 134 136 138 141 144 147 149

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

160

140

120

100

80

60

40

20

0

14%

12%

10%

8%

6%

4%

2%

-2%

-4%

0%

+6.5% CAGR 2004–10

+1.5% CAGR 2011–18

Wor

ldw

ide

Phar

ma

R&D

Spe

nd ($

bn)

Worldwide Total Pharmaceutical R&D Spend in 2004–18

R&D

Spe

nd G

row

th %

+9.6%

+12.3%+10.8%

+9.1%

-2.8%

+0.8%

+4.9%

+1.4% +1.7% +1.8% +2.0% +2.0% +1.9%

-0.3%

Page 26: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

4 INTRODUCTION

were already worth a projected US$ 185 billion by the end of 2013 (Hill and Chui, 2009).

Figure 1.2: Pharmerging1 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).

14% 10% 9%

15%15%

21% 20% 19% 21%

18%

16%

21%18% 16% 17%

22%

21%

29%27%

25%28%

12%

10% 9%11% 7%

7% 6%

7%

7%17% 20%5%

17%7%

7%8%7%

4%

2011 (f)

2%

2010 2012 (f) 2015 (f)

2%

2014 (f)

2%

2013 (f)

2%

USEU 5

Japan

Pharmerging Tier 3

Rest of the World

Pharmerging Tier 2

Pharmerging Tier 1

Page 27: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

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).

25%11% 18%

22%

20%

9%

11%

31% 53%

12%

63%

13%

Contract manufacturer

4%

3%

Generics manufacturer

5%

Brand-name companies

MarginSales & MarketingGeneral & AdministrationManufacturingR&D

Page 28: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 model2 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).

Page 29: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

INTRODUCTION 7

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 context-response relationship is not examined (Sousa and Voss, 2008).

TPM TQM JIT

House-keeping

Effective Technology

Usage

Cross-funct. Product Development

Supplier Quality

Management

Process Management

Customer Integration

Planning Adherence

Layout Optimization

Setup Time Reduction

Pull System

Preventive Maintenance

Standardization and Visual Management&

Effective Management System

Direction SettingManagement Commitment

&Company Culture

Employee Involvement&

Continuous Improvement

Functional Integration&

Qualification

Page 30: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

8 INTRODUCTION

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

Performance

Response Variable

Context

Response Variable

Context Context

Response Variables

Performance

Selection Interaction System

Page 31: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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?

Page 32: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 OPEX3, 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).

Page 33: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

INTRODUCTION 11

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

Literature analysis

Initial findings from

practice

Practical problems

Practical phenomena

Differentiation, abstraction

Critical reflection

Questions addressed to

practice

Data collection(Preliminary)

theoretical knowledge

Theory Field work

Research as iterative learning process

Page 34: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.”.

Page 35: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

INTRODUCTION 13

Table 1.1: Overview of empirical data base Phase II

Site visit & on-site 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 x

Workshop I ca. 4h

Workshop II ca. 3h

Overall number Total duration

9 51h 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).

Page 36: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

4 IN_MNC2 India multinational offshore

Operational Excellence Area Leader Emerging

Markets

local

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

13 WEST_OET no specific site,

focus on Emerging Markets in general

Operational Excellence Training

Organization

Director Western

14 n/a no specific site,

focus on Emerging Markets in general

n/a European

Operational Excellence Leader

Western

15 n/a no specific site,

focus on Emerging Markets in general

Consulting, focus on Change

Management

International Management

Trainer Western

16 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.

Page 37: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 Additional data source

PharmCo_OPEX_RESTRUC 2 (avg. 1 h) 2

(avg. 7h) Company internal

documents

PharmCo_COMPET-PRIO 2 (avg. 2h) 1

(ca. 8h) OPEX Benchmarking

PharmCo_CT (Complexity Transparency) 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

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 Sub-Saharan 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.

Page 38: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 39: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

INTRODUCTION 17

Figure 1.7: Structure of the thesis

UnderstandingEmerging Markets

Chapter 2Operational Excellence

in Pharmaceuticals & Emerging Markets

Chapter 3

ResearchProblem & Objective

Chapter 1

Understanding the Reality: Studies in the Field

Chapter 4

Requirements on an Emerging Market Site Transformation

Chapter 5

Transformation of an Pharmaceutical

Emerging Market Site

Chapter 6

Summary & Outlook

Chapter 7

Page 40: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 Markets5

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 Parts of this text have already been published in Friedli and Bellm (2013b). 6 The number in brackets is the year of foundation of the respective agreement or pact.

Page 41: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 well-established 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

Page 42: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

Page 43: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING EMERGING MARKETS 21

Table 2.2: Selected country classification systems (Nielsen, 2011)

Criteria IMF UNDP World Bank

Name of 'developed countries'

Advanced countries

Developed countries

High-income countries

Name of 'developing countries'

Emerging and developing countries

Developing countries

Low- and middle- income countries

Development threshold

Not explicit 75 percentile in the HDI distribution

US$6,000 GNI per capita in 1987-prices

Type of develop-ment 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

Page 44: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 45: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 46: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 47: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 48: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of 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).

Page 49: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 low8 (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).

Page 50: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 investments9. 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 attitudes10 (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).

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.

Many FewInstitutional voids

Market classificationsDysfunctional

marketsDeveloped

marketsEmerging markets

Page 51: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

Page 52: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 differences11. 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.

Page 53: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 54: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 index12 2012 (Transparency International, 2012)

Emerging markets Industrialized markets

Bra

zil

Rus

sia

Indi

a

Chi

na

Sout

h A

fric

a T

urke

y

Mex

ico

USA

Ger

man

y

Switz

er-

land

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.

Page 55: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING EMERGING MARKETS 33

Table 2.7: Market segments in emerging markets (Khanna et al., 2010)

Segment

Global

Emerging middle class

Local

Bottom

Price Global Global Local

Local Lowest Quality Global Global Global

Local Lowest Features Global Local Local

Local Fewest

Advantage Multinational

Battleground Battleground

Domestic Domestic

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.

Page 56: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

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)

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

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

Page 57: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 58: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 capabilities14 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.

Page 59: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 scope15 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.

Page 60: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 short-term 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

Page 61: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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-the-art 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

Page 62: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 doubts16 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.

Page 63: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING EMERGING MARKETS 41

‘Culture’ is an integral part of intercultural management17 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 problems18 (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 cross-

cultural 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.

Page 64: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Schein20 (1992) and Adler21 (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.

Page 65: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING EMERGING MARKETS 43

Figure 2.2a depicts the three levels of culture22 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).

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.

Artifacts

Espoused values

Basic underlying assumptions

Visual organizational structures and processes

(hard to decipher)

Strategies, goals, philosophies(espoused justification)

Unconscious, taken for granted beliefs, perceptions, thoughts and feelings

(ultimate source of values and action)

Culture

Values

Attitudes

Behavior

a b

Page 66: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

Page 67: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 four23 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 (long-term 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).

Page 68: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 in-group.

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 62 65 38 49 Russia 88 84 39 34 India 71 31 49 57 China 74 21 16 68 South Africa 41 39 69 64 Turkey 59 74 36 44 Mexico 75 71 28 71 Average 67.1 55.0 39.3 55.3

USA 31 37 100 63 Germany 26 55 72 68 Switzerland 25 48 73 72 Average 27.3 46.7 81.7 67.7

Page 69: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 Africa25 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’.

Page 70: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 71: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

Page 72: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 73: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 Manufacturing capability to …

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 … introduce innovative and novel products, processes, or products which enable the customer to be innovative

28 For a detailed discussions on number and terminology see (Mapes et al., 1997; Ward et al., 1998; Colotla,

2003; Miltenburg, 2008).

Page 74: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 75: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 76: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

54 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS

site may utilize the TPM philosophy and its strong positive influence on various performance dimensions30 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.

Page 77: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 DMAIC31 cycle or SIPOC analyses32 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.

Page 78: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

56 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS

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 waste33 (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.

Page 79: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 80: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 inter-dependent 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

Page 81: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 82: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

60 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).

Page 83: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 technical weakness among their managers

Ensure a significant number of managers have engineering or technical degrees

Train potential managers, early in their 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).

Page 84: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 technical weakness among their managers

Ensure a significant number of managers have engineering or technical degrees

Train potential managers, early in their 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 engineering

Unique capabilities of 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

Win the race by creating a constantly escalating standard

Continuous improvement in small increments

Continually adapt to changes in customer needs

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

Page 85: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 & Discussion36

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.

Page 86: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 time37 (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 dimensions38. 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, changes39 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 members40 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 Liker (2004) describes the organizational culture of Toyota as a quality and efficiency-obsessed culture. 38 Hofstede (1994b) describes organizational cultures along six dimensions: (1) process-oriented vs. results-

oriented, (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.

Page 87: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 exploitation41 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.

Page 88: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 thinking42 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.

Page 89: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

OPERATIONAL EXCELLENCE IN PHARMACEUTICALS 67

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.

Feed forward

Feed

back

Individual Group Organizational

Individual

Group

Organizational

Intuiting

Institutionalizing

Interpreting

Integrating

Page 90: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

68 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS

Figure 3.2: The ‘quasi-stationary’ equilibrium43 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 emergent44 (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.

Present stateor

desired state

Driving forces Restraining forces

Page 91: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 process45 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.

Page 92: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

70 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS

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. Müller-Stewens 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

Perceived environment

Relevant environment

Organization/ manufacturing site

Perceived environment

relevant environment

OPEX program

12

3

4

a b

Page 93: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

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 (Müller-Stewens 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).

ProjectWork

Positioning Work

Value Creation Work

Dramaturgy Work

ProcessHow?

ContentWhat?

Development

Change

Quadrant 1 Quadrant 2

Quadrant 4 Quadrant 3

Performance

Measuring

Page 94: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

72 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 already46. 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 system47 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.

Page 95: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

Page 96: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

74 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

Drug discovery Good Laboratory Practice x x x x x

Clinical trials Good Clinical Practice x x x x

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

Page 97: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 98: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

76 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS

Table 3.6: Challenges for African manufacturers towards achieving universal GMP standards, adapted from UNIDO (2012)

Technical expertise Financial considerations Infrastructure requirements

Access to know-how for design-ing, upgrading to and running GMP compliant facilities

Access to export markets and their current fragmented nature

Reliable utilities (implications for cost as well as compliance with GMP)

Access to skilled human resources

Competitive production given cost structure

Uncoordinated and/or vertical approaches to developing the sector

Variability in quality amongst market players

Access to bioequivalence centres

Market context Lack of market data Policy incoherence Regulatory oversight Access to affordable invest-

ment capital 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 curve49 and have difficulties in moving upwards. Depending on companies’ position in the value chain50, 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).

Page 99: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 spectrometry51 Percent failed

Large Indian producersa 471 6 1.3%

Small Indian producersb 327 29 8.9%

Chinese producers 169 13 7.7%

Southeast Asian producersc 69 4 5.8%

Western producersd 438 1 0.2%

African producers 302 28 9.3%

Producers in mid-income nationse 62 7 11.3%

TOTAL 1,838 88 4.8%

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.

Page 100: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

78 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 industries52 (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 SMED53 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 research-driven 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 intentions54 – 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.

Page 101: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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. Scherrer-Rathje 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

Page 102: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

80 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

Page 103: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 infrastructure55 impedes the realization of JIT56 (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 For “hard infrastructure” see Section 2.2.3. 56 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.

Page 104: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

82 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS

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.

Page 105: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 106: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

84 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS

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

Page 107: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

OPERATIONAL EXCELLENCE IN PHARMACEUTICALS 85

emerging markets in the literature58. 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.

Page 108: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

86 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS

Table 3.8: External and internal barriers to OPEX in emerging markets

B

row

n &

O’R

ourk

e (2

007)

Y

ang

& Y

u (2

010)

C

hen

& M

eng

(201

0a)

Che

n &

Men

g (2

010b

) Le

e et

al.

(201

1)

Phili

psen

& L

ittre

l (20

11)

Bol

lbac

k (2

012)

Sh

ang

& P

heng

(201

2)

Seth

& T

ripat

hi (2

012)

K

umar

et a

l. (2

012)

B

ello

-P.&

Mer

ino-

D. (

2013

) La

wre

nce

& L

ewis

(199

3)

Ken

ny &

Flo

rida

(199

4)

Law

renc

e &

Lew

is (1

996)

M

effo

rd &

Bru

un (1

998)

M

ersh

a (1

997)

C N59

C N C

N C N C

N CN C

N CN I

N I N A

R MX M

X MX M

X S

SA

External barriers

Poor education of employees x x x x x x

Government involvement x x x

Political instability x

Weak supplier performance x x x x x

Internal barriers

A mere focus on Lean tools x x

Missing link to business strategy x x

Poor quality practices x x x

Poor inventory management x x x x x

Lack of resources x x x

Poor employee training x x x x x x

Lacking understanding of Lean x x x x x x x

Short-term thinking x x x x x x

Management behavior x x x x x x x x x

Working attitude x x x x x x x x x x x x

Staff turnover rate x x x x

59 CN: China; IN: India; AR: Argentina; MX: Mexico; SSA: Sub-Saharan Africa.

Page 109: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 110: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

88 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS

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 programs60 are more likely to better operational performance in collectivist cultures like Mexico, China, South Korea and Taiwan compared to individualistic61 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.

Page 111: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 112: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

90 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS

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.

Page 113: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

OPERATIONAL EXCELLENCE IN PHARMACEUTICALS 91

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

Failure is always …

Strategy

Process

Market research

… a question of defined quality standards

… a question of customer requirement

… a question of performance and value

creation

Page 114: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

92 OPERATIONAL EXCELLENCE IN PHARMACEUTICALS

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 leader63. 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 behavior64.

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).

Page 115: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 116: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

94 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).

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

Failure is always …

Strategy

Process

Market research

… a question of defined quality standards

… a question of customer requirement

… a question of performance and value

creation

… a question of morality and business ethics

Page 117: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 118: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 used65 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.

Page 119: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING THE REALITY: STUDIES IN THE FIELD 97

a statement on a 5-point66 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 KPIs67 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.

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.

top-10

Belgium 10%

Canada 10%

Germany 30%

Italy 20%

The Netherlands 10%

US 20%

Austria 2.3%Belgium 3.2%

Canada 3.7%Denmark 2.8%

Finland 4.6%

France 5.5%

Germany 26.3%

Greece 0.5%Ireland 5.1%

Italy 7.4%Japan 0.5%

Norway 0.9%Portugal 0.5%

Sweden 0.9%

Spain 6.0%

Switzerland 13.8%

The Netherlands 6.5%

UK 5.1%US 4.6%

Page 120: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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”).

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 % advanced

n=217 % emerging n=37

<100 18% 8% 100-300 41% 26% 301-500 23% 38%

501-1,000 13% 21% >1,000 5% 7%

Czech Republic 5%

Estonia 3%

Poland 13%

Romania 3%

Slovenia 8%

Brazil 11%

Mexico 5%Puerto Rico 5%

Taiwan 14%

China 11%

Malaysia 8%

India 3%

Sub-Saharan Africa 11%

Page 121: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 % advanced

n=217 % emerging n=37

API 16% 23% Solids 21% 16% Semi Solids 1% 3% Liquids 3% 0% Sterile Liquids 7% 6% Mixed 52% 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.

Page 122: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 scale70. 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.

Page 123: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING THE REALITY: STUDIES IN THE FIELD 101

Table 4.4: Implementation scores of OPEX practices

top-10 advanced offshore domestic

TPM Preventive maintenance 79% 75% 75% 75% Technology assessment & usage 64% 60% 60% 61% Housekeeping 87% 83% 84% 82% TQM Process management 73% 72% 72% 73% Cross-functional product development 76% 68% 73% 63% Customer integration 75% 73% 73% 73% Supplier quality management 75% 69% 69% 68% JIT Setup time reduction 69% 63% 60% 66% Pull production 62% 49% 47% 51% Layout optimization 73% 64% 63% 66% Planning adherence 76% 71% 71% 71% HRM Direction setting 88% 80% 83% 77% Management commitment & company culture 76% 73% 74% 72% Employee involvement & continuous improvement 71% 67% 70% 64% Functional integration & qualification 71% 66% 64% 67% Basic elements Standardization 69% 73% 71% 76% Visualization 56% 60% 62% 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.

Page 124: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Figure 4.3: Comparison of preventive maintenance implementation71

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).

Figure 4.4: Comparison of technology assessment and usage72

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 See Appendix C for a detailed description of all items. 72 See Appendix C for a detailed description of all items.

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

D04

D05

D06

D07

D08

Top-10

Offshore

Domestic

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

D09

D10

D11

D12

D13

D14

Top-10

Offshore

Domestic

Page 125: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING THE REALITY: STUDIES IN THE FIELD 103

companies than in companies represented by the offshore or top-10 sample (see Figure 4.5).

Figure 4.5: Comparison of process management73

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.

Figure 4.6: Comparison of cross-functional product development74

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 See Appendix C for a detailed description of all items. 74 See Appendix C for a detailed description of all items.

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

E04

E05

E06

E07

E08

Top-10

Offshore

Domestic

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

E09

E10

E11

E12

E13

Top-10

Offshore

Domestic

Page 126: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

104 UNDERSTANDING THE REALITY: STUDIES IN THE FIELD

scheduling their machine setups without affecting the regular uptimes of their equipment (F05).

Figure 4.7: Comparison of setup time reduction75

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).

Figure 4.8: Comparison of Pull Production76

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 See Appendix C for a detailed description of all items. 76 See Appendix C for a detailed description of all items.

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

F01

F02

F03

F04

F05

F06

Top-10

Offshore

Domestic

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

F10

F11

F12

F13

F14

Top-10

Offshore

Domestic

Page 127: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

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).

Figure 4.10: Comparison of planning adherence78

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 See Appendix C for a detailed description of all items. 78 See Appendix C for a detailed description of all items.

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

F18

F19

F20

F21

F22

F23

Top-10

Offshore

Domestic

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

F24

F25

F26

F27

F28

F29

Top-10

Offshore

Domestic

Page 128: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

Figure 4.11: Comparison of direction setting79

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.

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

G01

G02

G03

G04

G05

G06

Top-10

Offshore

Domestic

Page 129: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING THE REALITY: STUDIES IN THE FIELD 107

Figure 4.12: Comparison of management commitment and company culture80

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.

Figure 4.13: Comparison of employee involvement and continuous improvement81

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 See Appendix C for a detailed description of all items. 81 See Appendix C for a detailed description of all items.

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

G07

G08

G09

G10

G11

G12

G13

G14

G15

G16

Top-10

Offshore

Domestic

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

G23

G24

G25

Top-10

Offshore

Domestic

Page 130: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

108 UNDERSTANDING THE REALITY: STUDIES IN THE FIELD

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).

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 See Appendix C for a detailed description of all items. 83 See Appendix C for a detailed description of all items.

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

G28

G29

G30

G31

G32

Top-10

Offshore

Domestic

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

H01

H02

H03

H04

H05

H06

Top-10

Offshore

Domestic

Page 131: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING THE REALITY: STUDIES IN THE FIELD 109

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

top-10 advanced offshore domestic

96.0% 85.3% 92.2% 81.9%

84 See Appendix C for a detailed description of all items.

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

H07

H08

H09

H10

Top-10

Offshore

Domestic

Page 132: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

110 UNDERSTANDING THE REALITY: STUDIES IN THE FIELD

One way to create planning stability is the introduction of a production freeze85. 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 orders86 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.

Page 133: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 134: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

112 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.

Page 135: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 136: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

114 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 data87.

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.

Page 137: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 138: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

116 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 countries89. 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.

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.

45%

55%

9%

4%

2%

2%

4%

3%

10%

4%

31%

32%

0% 100%

EM-TOTALn=37

PharmCo A

Direct Production Labor

Direct Quality Control

Indirect Quality Control

Quality Assurance

Maintenance

Other Functions

Page 139: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

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.

Manufacturing Strategy -- - 0 + ++

Flex

ibili

ty

Reduce cycle time

Reduce set-up time and cleaning time

Increase flexibility to respond to demand changes in volume

Increase flexibility to respond to market needs for broad product mix

Increase flexibility to respond to shorter product lifecycles and higher number of product launches

Accelerate new product introductions

Qua

lity

Reduce process variance through statistical process control

Increase supplier quality performance

Reduce scrap rates

Serv

ice

Leve

l Reduce lead time

Increase on-time delivery rate

Cost

Reduce stock

Increase asset utilization

Increase employee productivity

Increase capital investment productivity

Reason for launching OPEX -- - 0 + ++

To meet FDA regulations

To implement Process Analytical Technology (PAT)

To change from functional organization to process organization

To increase cost awareness

To increase employee involvement

To increase employee empowerment

To reduce lead times and inventory

To change the quality focus from final product to process quality

To initiate a cultural change for continuous improvement

To introduce standardized methodologies for problem solving

To launch a broader cost cutting program

To improve final product quality

To fulfill site targets between corporate and plant management

Page 140: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

118 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

Page 141: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 well-functioning 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

Page 142: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

120 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 up-times 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 performance-related KPIs to its workforce. The knowledge of the actual shop-floor performance is

Page 143: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 mid-term 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.

Page 144: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

122 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

Page 145: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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%

Deviations per batch 0.121 0.155 0.292 0.034

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

Page 146: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

124 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.

Page 147: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 Africa91, 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.

Page 148: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

126 UNDERSTANDING THE REALITY: STUDIES IN THE FIELD

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.

45%

30%

9%

5%

2%

4%

4%

4%

10%

3%

31%

55%

0% 100%

EM-TOTALn=37

PharmCo B

Direct Production Labor

Direct Quality Control

Indirect Quality Control

Quality Assurance

Maintenance

Other Functions

Page 149: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING THE REALITY: STUDIES IN THE FIELD 127

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

Manufacturing Strategy -- - 0 + ++Fl

exib

ility

Reduce cycle time

Reduce set-up time and cleaning time

Increase flexibility to respond to demand changes in volume

Increase flexibility to respond to market needs for broad product mix

Increase flexibility to respond to shorter product lifecycles and higher number of product launches

Accelerate new product introductions

Qua

lity

Reduce process variance through statistical process control

Increase supplier quality performance

Reduce scrap rates

Serv

ice

Leve

l Reduce lead time

Increase on-time delivery rate

Cost

Reduce stock

Increase asset utilization

Increase employee productivity

Increase capital investment productivity

Reason for launching OPEX -- - 0 + ++

To meet FDA regulations

To implement Process Analytical Technology (PAT)

To change from functional organization to process organization

To increase cost awareness

To increase employee involvement

To increase employee empowerment

To reduce lead times and inventory

To change the quality focus from final product to process quality

To initiate a cultural change for continuous improvement

To introduce standardized methodologies for problem solving

To launch a broader cost cutting program

To improve final product quality

To fulfill site targets between corporate and plant management

Page 150: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

128 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 shop-floor 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.

Page 151: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 152: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

130 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.

Page 153: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 154: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

132 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 countries92. 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/S93 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.

Page 155: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING THE REALITY: STUDIES IN THE FIELD 133

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.

45%

67%

9%

4%

2%

10%

4%

1%

10%

6%

31%

13%

0% 100%

EM-TOTALn=37

PharmCo C

Direct Production Labor

Direct Quality Control

Indirect Quality Control

Quality Assurance

Maintenance

Other Functions

Page 156: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

134 UNDERSTANDING THE REALITY: STUDIES IN THE FIELD

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

Manufacturing Strategy -- - 0 + ++Fl

exib

ility

Reduce cycle time

Reduce set-up time and cleaning time

Increase flexibility to respond to demand changes in volume

Increase flexibility to respond to market needs for broad product mix

Increase flexibility to respond to shorter product lifecycles and higher number of product launches

Accelerate new product introductions

Qua

lity

Reduce process variance through statistical process control

Increase supplier quality performance

Reduce scrap rates

Serv

ice

Leve

l Reduce lead time

Increase on-time delivery rate

Cost

Reduce stock

Increase asset utilization

Increase employee productivity

Increase capital investment productivity

Reason for launching OPEX -- - 0 + ++

To meet FDA regulations

To implement Process Analytical Technology (PAT)

To change from functional organization to process organization

To increase cost awareness

To increase employee involvement

To increase employee empowerment

To reduce lead times and inventory

To change the quality focus from final product to process quality

To initiate a cultural change for continuous improvement

To introduce standardized methodologies for problem solving

To launch a broader cost cutting program

To improve final product quality

To fulfill site targets between corporate and plant management

Page 157: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING THE REALITY: STUDIES IN THE FIELD 135

high operations costs. Thus, the site is today equipped with relatively young, well-maintained 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

Page 158: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

136 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

Page 159: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 shop-floor 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

Page 160: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

138 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.

Page 161: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 162: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

140 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.

Page 163: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 in-process 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

Page 164: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

142 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.

Page 165: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

PharmCo 3 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

PharmCo 4 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 Time95 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 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 CAPAs96 % 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 Total production lead time (incl. lead time for pharmaceutical manufacturing and QA/QC). 96 CAPA is the acronym for ‘Corrective And Preventive Actions’.

Page 166: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

144 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.

Page 167: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 Circle97 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”.

Page 168: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

146 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.

Page 169: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 170: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

148 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.

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.

45%

49%

9%

9%

2%

4%

4%

4%

10%

0%

31%

35%

0% 100%

EM-TOTALn=37

PharmCo F

Direct Production Labor

Direct Quality Control

Indirect Quality Control

Quality Assurance

Maintenance

Other Functions

Page 171: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING THE REALITY: STUDIES IN THE FIELD 149

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

Manufacturing Strategy -- - 0 + ++Fl

exib

ility

Reduce cycle time

Reduce set-up time and cleaning time

Increase flexibility to respond to demand changes in volume

Increase flexibility to respond to market needs for broad product mix

Increase flexibility to respond to shorter product lifecycles and higher number of product launches

Accelerate new product introductions

Qua

lity

Reduce process variance through statistical process control

Increase supplier quality performance

Reduce scrap rates

Serv

ice

Leve

l Reduce lead time

Increase on-time delivery rate

Cost

Reduce stock

Increase asset utilization

Increase employee productivity

Increase capital investment productivity

Reason for launching OPEX -- - 0 + ++

To meet FDA regulations

To implement Process Analytical Technology (PAT)

To change from functional organization to process organization

To increase cost awareness

To increase employee involvement

To increase employee empowerment

To reduce lead times and inventory

To change the quality focus from final product to process quality

To initiate a cultural change for continuous improvement

To introduce standardized methodologies for problem solving

To launch a broader cost cutting program

To improve final product quality

To fulfill site targets between corporate and plant management

Page 172: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

150 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

Page 173: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

Page 174: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

152 UNDERSTANDING THE REALITY: STUDIES IN THE FIELD

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.

Page 175: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 176: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

154 UNDERSTANDING THE REALITY: STUDIES IN THE FIELD

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 shop-floor are hesitant to use PharmCo F’s suggestion program.

Page 177: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 conference98. 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 face-to-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.

Page 178: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

156 UNDERSTANDING THE REALITY: STUDIES IN THE FIELD

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

Page 179: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 180: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

158 UNDERSTANDING THE REALITY: STUDIES IN THE FIELD

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.

Page 181: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 182: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

160 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

Page 183: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING THE REALITY: STUDIES IN THE FIELD 161

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 capabilities100 (Schmenner and Swink, 1998; Vastag, 2000).

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. 100 See Section 3.1.2 for manufacturing/organizational capabilities.

Asset frontier

Operating frontier

Operating frontier with better operational capabilities and with no additional investments

Manufacturing input, investments and choices

Man

ufac

turi

ng p

erfo

rman

ce

Page 184: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

162 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 samples101

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.

Page 185: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 in-process 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.

Page 186: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

164 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 resources102 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.

Page 187: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 188: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

166 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-

Page 189: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 shop-floor.

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 data104. 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).

Page 190: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

168 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.

Page 191: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

UNDERSTANDING THE REALITY: STUDIES IN THE FIELD 169

Table 4.20: Barriers to pharmaceutical OPEX in emerging markets

External barriers Internal barriers

Poor education of employees A mere focus on Lean tools Government involvement Missing link to business strategy Weak supplier performance 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.

Page 192: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

170 REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION

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-and-paste 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

Page 193: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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).

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

Architecture

Holistic model Competency Efficiency Reusability Conformity Complexity handling

Applicability

Consistency

Completeness

Identification of processes structure & content

Identification of object & mission

Clarity

Transform-ability

Accuracy

Genericity

Separation of behavior & functionality

Extendibility

Scalability

Modularity

Evolutionary approach

Separation of areas

Functional decomposition

Visualization

Page 194: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

172 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

Page 195: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 196: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

174 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 efficiencies105. A model to support a pharmaceutical manufacturing site’s OPEX transformation has to accept and accommodate these prerequisites.

Requirement 8: Recognize and meet institutional and regulatory requirements

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.

Page 197: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION 175

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

Architecture

OPEX-relatedassumptions

Emerging marketperspective

Inclusion and consideration of cultural concepts

Recognize andsupport institutional

and regulatory requirements

Acknowledge the facets of Operational

Excellence

Facilitate continuous development of the

modelA stronger focus on

strategy development and alignment of OPEX

activities

Better handling of varying resources and

capabilitiesInclusion of respective market characteristics

and barriers

Focus on continuous process optimization

Producing quality is no implicitness

Page 198: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

176 REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION

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.

Stru

ctur

al L

ever

sIn

fras

truc

tura

l Lev

ers

Suppliers Customers

Dynamic

Dynamic

Organization/Manufacturing Site

OPEX

People

Technics & Tools

3

1

4

Fit 5

2

Page 199: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 200: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

178 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 sites106.

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.

Page 201: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 re-evaluated 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

Page 202: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

180 REQUIREMENTS FOR AN EMERGING MARKET SITE TRANSFORMATION

between an organization and its environment, the OPEX program needs to be continuously aligned with both, the organization and its environment.

Page 203: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 204: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

182 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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.

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

Management Commitment

Strategy

People

Pharm. Manuf. Environment & Quality

Product Portfolio

Processes

Transparency

Page 205: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 183

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).

Page 206: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

184 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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:

Page 207: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 185

(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).

Page 208: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

186 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

Table 6.2: Leadership skills and activities: A taxonomy of General Management, adapted from Pavur (2012)

Skills & activities Functions Broad categories

Clarifying

Plan, organize, command, coordinate, control (Fayol, 1917)

Organize, improve, monitor (Taylor, 1911)

Initiation of structure (Stogdill, 1974)

Planning & organizing

Problem solving

Informing

Monitoring results

Supporting

Participation, motivation,

support

Consideration (Stogdill, 1974)

Consulting

Delegating

Recognizing

Rewarding

Developing, empowering, motivating

Managing conflict, building teams

Achievement, constructive conflict (Follett, 1941)

Developing teams

Representing

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)

Networking, interfacing

Communicating a vision of the future

Taking risks for the organization

Promoting open systems analysis

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 literature107. Rather, the most

107 A summary of leadership styles can be found in Iszatt-White and Saunders (2014).

Page 209: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 187

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

Page 210: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

188 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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 attributes108 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).

Page 211: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 189

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.

Page 212: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

190 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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).

Page 213: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 191

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).

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

Direct

Coach

Excite

Delegate

Skill

Will

Page 214: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

192 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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 incentive-based 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 buy-in 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

Page 215: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 193

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 long-term 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.

Page 216: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

194 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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 assumptions109 needs to be challenged (Trompenaars, 1996).

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.

Level 2: Structured CI; formal commitment to build a system which will develop CI across the organization

Level 3: Goal Oriented CI; commitment to expand CI behavior from a ‘local’ level to wider strategic concerns of the site

Level 4: Proactive CI; attempt to empower and increase autonomy of individuals and groups as to manage and direct their own processes

Level 5: Full CI Capability; the manufacturing site becomes a model of a learning organization

Level 1: Pre-CI; interest in the concept has been triggered – implementation is on an ad hoc basis

Random problem solving Informal & unstructured improvement approach Solutions address short-term benefits Etc.

Structured problem solving process High percentage in staff ’s participation Training in basic CI tools Etc.

Formal deployment of strategic goals Monitoring and measuring the progress Etc.

Establishing a problem solving unit High levels of experimentation Etc.

Learning behavior of the organization Systematic problem solving and building a

knowledge base+

+

+

Level of Continuous Improvement Characteristic behavior patterns

Page 217: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 195

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 leader110 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).

Page 218: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

196 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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.

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

Stra

tegi

c pr

iori

ties

Price / cost

Quality Conformance

DeliverySpeed

Dependability

Flexibility

Product range /design flexibilityOrder size / delivery flexibility

Innovation Product / process

Portfolio of technology

Services

Stra

tegi

c pr

iori

ties

Price / cost

Quality Conformance

DeliverySpeed

Dependability

Flexibility

Product range /design flexibilityOrder size / delivery flexibility

Innovation Product / process

Portfolio of technology

Services

Important for winning orders

Important for not losing orders

Insi

gnifi

cant

Orde

r qua

lifie

r

Criti

cal

orde

r qua

lifie

r

Low

pri

ority

orde

r win

ner

Hig

h pr

iori

tyor

der w

inne

r

Hig

hest

pri

ority

orde

r win

ner

Important for winning orders

Important for not losing orders

Insi

gnifi

cant

Orde

r qua

lifie

r

Criti

cal

orde

r qua

lifie

r

Low

pri

ority

orde

r win

ner

Hig

h pr

iori

tyor

der w

inne

r

Hig

hest

pri

ority

orde

r win

ner

Participants: Actual state (after discussion): Market Requirement:

Page 219: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 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 cost-driven, 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).

Page 220: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

198 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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

Page 221: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 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 RACI111-matrix and can be used for maintaining an overview.

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.

Action RACI To dos Influences Sub goals & milestones Deadlines Miscella-

neous

… … …

Page 222: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

200 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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.”

Transformation

Change

Design

Targ

et OPEXphilosophy

Realizationprojects

Star

t

OPEXalignment

Mapprocesses

Developaction plan

Approveaction plan

Define strategy Propose OPEX-structure

Qual

ifica

tion

of p

erso

nnel

Inte

rmed

iate

ta

rget OPEX

development

Design high performance organization

Develop implementation

plan

Review andalign plan

Designprocess house

Urge

nt

need

s

Pilot task force „Delivery Performance“

Sens

itiza

tion

to O

PEX

Information to

employees

Kick-off

Page 223: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 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 top-down 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

Page 224: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

202 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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.

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.

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

Conditions leading toa physical state ofpowerlessness

The use of managerial strategies & techniques

To provide self-efficacy information

to subordinates using four sources

Results in empoweringexperience of subordinate

Leading to behavioral effects

Remove conditions listed under Stage 1

AND

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 orbelief inpersonal efficacy

Initiation/ persistence of behavior to accomplishtask objectives

Page 225: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 203

China (CN_MNC2): “Empowerment of people has to be a continuous effort. It is definitely not a one-time 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.”

Page 226: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

204 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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.”

Page 227: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 205

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.

Page 228: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

206 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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 has112 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.

Page 229: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 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.”

Page 230: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

208 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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 quality-related 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.

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.”

WillMotivation

SkillCapabilities

Job satisfaction

Performance of employee

Performance-related attributes

of personality

Performance appraisal

Behavior training Skill training

Rewards (financial &

non-financial)

X+

Page 231: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 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.”

Page 232: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

210 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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

Page 233: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 211

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 IT-based 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

Page 234: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

212 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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)

Page 235: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 213

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.

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,

46%

45%

35%

10%

9%

7%

1%

2%

18%

3%

4%

13%

10%

10%

9%

29%

31%

19%

0% 100%

ADVANCEDn=217

EM-TOTALn=37

IN_MNC1Direct Production Labor

Direct Quality Control

Indirect Quality Control

Quality Assurance

Maintenance

Other Functions

Page 236: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

214 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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

Page 237: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 215

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.

Figure 6.10: A framework to assess organizational quality culture,

adapted from Seghezzi et al. (2013)

Leadership behavior

Quality awareness

Self-concept of employees

ActiveTaking responsibility Passive Absolute Relative

Direct

Exemplify

Company-related

Function-related

Page 238: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

216 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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 determined113. 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.

Page 239: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 217

Figure 6.11: Internal complexity drivers114

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.

33

13

10

97

6

21

# Changeovers

Layout of building

Maintenance of

master data

#SKUs

#Different

drugs

#New

products & SKU

launches

Total Others

Page 240: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

218 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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.

Page 241: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 219

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

Region A

Region B

Region C

Region … Dem

and

Man

agem

ent

Global S&OP

Product A

Fulfillment TrackingProduct Lifecycle Management

Master Data (Service Functions)Planning Inventory Purchasing Pick/Pack/Ship

QA/QC

Product B

Fulfillment TrackingProduct Lifecycle Management

Master Data (Service Functions)Planning Inventory Purchasing Pick/Pack/Ship

QA/QC

Other Products

Fulfillment TrackingProduct Lifecycle Management

Master Data (Service Functions)Planning Inventory Purchasing Pick/Pack/Ship

QA/QC

Page 242: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

220 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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).

Figure 6.13: External complexity drivers116

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).

40

8

86

11

Others# Customers

Supplier delivery

reliability

Steering market

behavior

#Customer

orders

Bargaining power of markets

Total

3

Page 243: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 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).

Page 244: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

222 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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 buy-in 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.

Page 245: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE 223

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 stock118 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.

Manufacturing / purchasing

API

Manufacturing brite stock

Releasebrite stock Packaging

Page 246: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

224 TRANSFORMATION OF A PHARMACEUTICAL EMERGING MARKET SITE

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-to-end 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

Page 247: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 system119.

119 A comprehensive list of performance indicators to assess pharmaceutical operations can be found in

Appendix C.

Page 248: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 249: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Figure 6.15: The GMN as transformational guideline

Management Commitment

Strategy

People

Pharm. Manuf. Environment & Quality

Product Portfolio

Processes

Transparency

ProjectWork

Positioning Work

Value Creation Work

Dramaturgy Work

Quadrant 1 Quadrant 2

Quadrant 4 Quadrant 3

Page 250: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

228 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

Page 251: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 far-reaching 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.

Page 252: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

230 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.

Page 253: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 254: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 255: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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 Sub-Saharan African countries. Therefore, further research should advance the

Page 256: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of 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

Page 257: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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.

Page 258: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

236 REFERENCES

References Abdullah, S., Abdul Razak, A., Abu Bakar, A. and Mohammad, I. (2009), “Towards

Producing Best Practice in the Malaysian Construction Industry: The Barriers in Implementing the Lean Construction Approach”, available at: eprints.usm.my (accessed January 15th, 2014).

Achanga, P., Shehab, E., Roy, R. and Nelder, G. (2006), “Critical success factors for lean implementation within SMEs”, Journal of Manufacturing Technology Management, Vol. 17 No. 4, pp. 460–471.

Acquaah, M. (2005), “Enterprise Ownership, Market Competition and Manufacturing Priorities in a Sub-Saharan African Emerging Economy: Evidence from Ghana”, Journal of Management & Governance, Vol. 9 No. 3-4, pp. 205–235.

Adler, N.J. (1991), International Dimensions of Organizational Behavior, 2nd ed., PWS-KENT Publishing Company, Boston.

Adler, N.J. and Gundersen, A. (2008), International Dimensions of Organizational Behavior, 5th ed., Thomson South-Western, Mason.

Ahire, S.L. and O’Shaughnessy, K. (1998), “The role of top management commitment in quality management: an empirical analysis of the auto parts industry”, International Journal of Quality Science, Vol. 3 No. 1, pp. 5–37.

Aitken, B.J. and Harrison, A.E. (1999), “Do domestic firms benefit from direct foreign investment? Evidence from Venezuela”, American Economic Review, Vol. 89 No. 3, pp. 605–618.

Ajiferuke, M. and Boddewyn, J. (1970), “"Culture" And Other Explanatory Variables In Comparative Management Studies”, Academy of Management Journal, Vol. 13 No. 2, pp. 153–163.

Allen, J. (2000), “Making lean manufacturing work for you”, Journal of Manufacturing Engineering, Vol. 124 No. 6, pp. 54–64.

Aminpour, S. and Woetzel, J.R. (2006), “Applying lean manufacturing in China”, McKinsey Quarterly, Vol. 2 No. 1, pp. 106–115.

Amoako-Gyampah, K. and Meredith, J.R. (2007), “Examining cumulative capabilities in a developing economy”, International Journal of Operations & Production Management, Vol. 27 No. 9, pp. 928–950.

Amoako-Gyampah, K. and Acquaah, M. (2008), “Manufacturing strategy, competitive strategy and firm performance: An empirical study in a developing economy environment”, International Journal of Production Economics, Vol. 111 No. 2, pp. 575–592.

Anderson, T., Olson, J. and Sobelman, D. (2009), “Assessment of the opportunities for pharmaceutical manufacturers in emerging markets”, Journal of Managed Care Pharmacy, Vol. 15 No. 5, pp. 396–402.

Page 259: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 237

Arnheiter, E.D. and Maleyeff, J. (2005), “The integration of lean management and Six Sigma”, The TQM Magazine, Vol. 17 No. 1, pp. 5–18.

Arnold, D.J. and Quelch, J.A. (1998), “New Strategies in Emerging Markets”, Sloan Management Review, Vol. 40 No. 1, pp. 7–20.

Bagla, P. (2013), “Next Stop Mars”, India Today, 2013, October 28, pp. 62–64. Barnes, D. (2002), “The complexities of the manufacturing strategy formation process

in practice”, International Journal of Operations & Production Management, Vol. 22 No. 10, pp. 1090–1111.

Barney, J.B. (1986), “Organizational Culture: Can It Be a Source of Sustained Competitive Advantage?”, Academy of Management Review, Vol. 11 No. 3, pp. 656–665.

Barro, R.J. (1991), “Economic Growth in a Cross Section of Countries”, The Quarterly Journal of Economics, Vol. 106 No. 2, p. 407.

Bartel, A.P. and Lichtenberg, F.R. (1987), “The Comparative Advantage of Educated Workers in Implementing New Technology”, The Review of Economics and Statistics, Vol. 69 No. 1, pp. 1–11.

Bartlett, C.A. and Ghoshal, S. (2000), “Going Global: Lessons from Late Movers”, Harvard Business Review, Vol. 78 No. 2, pp. 132–142.

Bass, B.M. (1990), “From transactional to transformational leadership: Learning to share the vision”, Organizational Dynamics, Vol. 18 No. 3, pp. 19–31.

Bass, B.M. (1997), “Does the transactional-transformational leadership paradigm transcend organizational and national boundaries?”, American Psychologist, Vol. 52 No. 2, pp. 130–139.

Basu, P., Friedli, T. and Bellm, D. (2013), “The Future of Pharmaceutical Manufacturing”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 445–464.

Bate, R. (2008), Making a Killing: The deadly Implications of the Counterfeit Drug Trade, AEI Press, Washington, D.C.

Bate, R. (2010), “Are Drugs Made in Emerging Markets Good Quality?”, AEI Health Policy Working Paper, available at: http://www.aei.org/paper/100178 (accessed November 22nd 2013).

Bello-Pintado, A. and Merino-Díaz-de-Cerio, J. (2013), “Determinants of the use of quality management practices in Latin America: the case of Argentina and Uruguay”, Total Quality Management & Business Excellence, Vol. 24 1-2, pp. 31–47.

Berggren, R., Møller, M., Moss, R., Poda, P. and Smietana, K. (2012), “Outlook for the next 5 years in drug innovation”, Nature Reviews Drug Discovery, Vol. 11 No. 6, pp. 435–436.

Bertalanffy, L. von (1950), “The Theory of Open Systems in Physics and Biology”, Science, Vol. 111 No. 2872, pp. 23–29.

Page 260: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

238 REFERENCES

Bessant, J. and Francis, D. (2001), “Developing strategic continuous improvement capability”, International Journal of Operations & Production Management, Vol. 19 No. 11, pp. 1106–1119.

Bhasin, S. (2012), “Prominent obstacles to lean”, International Journal of Productivity and Performance Management, Vol. 61 No. 4, pp. 403–425.

Bhasin, S. and Burcher, P. (2006), “Lean viewed as a philosophy”, Journal of Manufacturing Technology Management, Vol. 17 No. 1, pp. 56–72.

Blanchard, K.H., Parisi-Carew, E. and Carew, D. (2009), The one minute manager builds high performing teams, 3rd ed., William Morrow & Co., New York.

Bleicher, K. (2004), Das Konzept integriertes Management: Visionen - Missionen - Programme, 7th ed., Campus Verlag, Frankfurt.

Blomström, M. (1986), “Foreign investment and productive efficiency. The case of Mexico”, The Journal of Industrial Economics, Vol. 35 No. 1, pp. 97–110.

Bloom, N., Eifert, B., Mahajan, A., McKenzie, D. and Roberts, J. (2013), “Does Management Matter? Evidence from India”, The Quarterly Journal of Economics, Vol. 128 No. 1, pp. 1–51.

Bloom, N., Mahajan, A., McKenzie, D. and Roberts, J. (2010), “Why Do Firms in Developing Countries Have Low Productivity?”, American Economic Review, Vol. 100 No. 2, pp. 619–623.

Blunt, P. and Jones, M.L. (1997), “Exploring the limits of Western leadership theory in East Asia and Africa”, Personnel Review, Vol. 26 No. 1-2, pp. 6–23.

Bollbach, M.F. (2012), “Country-specific barriers to implementing lean production systems in China”, PhD Thesis, University of Loughborough, Loughborough, 2012.

Bowonder, B., Thomas, M.T., Rokkam, V.M. and Rokkam, A. (2003), “The global pharmaceutical industry: changing competitive landscape”, International Journal of Technology Management, Vol. 25 No. 3-4, pp. 201–226.

Braglia, M., Carmignani, G. and Zammori, F. (2006), “A new value stream mapping approach for complex production systems”, International Journal of Production Research, Vol. 44 18-19, pp. 3929–3952.

Brandenburger, A. and Nalebuff, B. (1995), “The right game: use game theory to shape strategy”, Harvard Business Review, Vol. 73 No. 4, pp. 57–71.

Brhlikova, P., Harper, I. and Pollock, A. (2007), “Good Manufacturing Practice in the Pharmaceutical Industry”, Working Paper 3, University of Edinburgh, 2007.

Brown, G.D. and O’Rourke, D. (2007), “Lean Manufacturing Comes to China: A Case Study of Its Impact on Workplace Health and Safety”, International Journal of Occupational and Environmental Health, Vol. 13 No. 3, pp. 249–257.

Page 261: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 239

Bruton, G.D., Dess, G.G. and Janney, J.J. (2007), “Knowledge management in technology-focused firms in emerging economies: Caveats on capabilities, networks, and real options”, Asia Pacific Journal of Management, Vol. 24 No. 2, pp. 115–130.

Buckley, P.J., Clegg, J. and Wang, C. (2007), “Is the relationship between inward FDI and spillover effects linear? An empirical examination of the case of China”, Journal of International Business Studies, Vol. 38 No. 3, pp. 447–459.

Burgess, S.M. and Steenkamp, J.-B.E. (2006), “Marketing renaissance: How research in emerging markets advances marketing science and practice”, International Journal of Research in Marketing, Vol. 23 No. 4, pp. 337–356.

Burnes, B. (1996), “No such thing as … a “one best way” to manage organizational change”, Management Decision, Vol. 34 No. 10, pp. 11–18.

Burnes, B. (2009), Managing Change, 5th ed., Prentice Hall, Harlow. By, R.T. (2005), “Organisational change management: A critical review”, Journal of

Change Management, Vol. 5 No. 4, pp. 369–380. Cagliano, R., Caniato, F., Golini, R., Longoni, A. and Micelotta, E. (2011), “The

impact of country culture on the adoption of new forms of work organization”, International Journal of Operations & Production Management, Vol. 31 No. 3, pp. 297–323.

Calnan, N. (2013), “Leading the Advance in Regulatory Science”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 59–75.

Caloz, P. and Wedemeyer, S. (2010), “Delivering Operational Excellence in Technical Operations at Merck Serono”, in Friedli, T., Basu, P.K., Gronauer, T. and Werani, J. (Eds.), The Pathway to Operational Excellence in the Pharmaceutical Industry: Overcoming the internal inertia, Editio Cantor, Aulendorf, pp. 153–167.

Campell, D. and Maag, G. (2010), “Zeitenwende im internationalen Pharmamarkt: „Aufstrebende Regionen“ gewinnen an Bedeutung”, Pharmind, Vol. 72 No. 4, pp. 614–618.

Cartwright, S. and Cooper, C.L. (1996), Managing mergers, acquisitions, and strategic alliances: Integrating people and cultures, 2nd ed., Butterworth-Heinemann, Oxford.

Chacar, A. and Vissa, B. (2005), “Are emerging economies less efficient? Performance persistence and the impact of business group affiliation”, Strategic Management Journal, Vol. 26 No. 10, pp. 933–946.

Chan, L. and Daim, T.U. (2011), “Multi-perspective analysis of the Chinese pharmaceutical sector: Policy, enterprise and technology”, Journal of Technology Management in China, Vol. 6 No. 2, pp. 171–190.

Chandra, P. and Sastry, T. (1998), “Competitiveness of Indian Manufacturing. Findings of the 1997 Manufacturing Futures Survey”, available at: iimb.ernet.in (accessed January 9th, 2014).

Page 262: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

240 REFERENCES

Chari, M.D. and David, P. (2012), “Sustaining superior performance in an emerging economy: an empirical test in the Indian context”, Strategic Management Journal, Vol. 33 No. 2, pp. 217–229.

Chen, D., Doumeingts, G. and Vernadat, F. (2008), “Architectures for enterprise integration and interoperability: Past, present and future”, Computers in Industry, Vol. 59 No. 7, pp. 647–659.

Chen, L. and Meng, B. (2010a), “The Application of Value Stream Mapping Based Lean Production System”, International Journal of Business and Management, Vol. 5 No. 6, pp. 203–209.

Chen, L. and Meng, B. (2010b), “Why Most Chinese Enterprises Fail in Deploying Lean Production”, Asian Social Science, Vol. 6 No. 3, pp. 52–57.

Chikán, A. and Demeter, K. (1995), “Manufacturing strategies in Hungarian industry: the effects of transition from planned to market economy”, International Journal of Operations & Production Management, Vol. 15 No. 11, pp. 5–19.

Child, J. (1996), Management in China During the Age of Reform, Cambridge University Press, Cambridge.

Choo, A.S., Linderman, K.W. and Schroeder, R.G. (2007), “Method and context perspectives on learning and knowledge creation in quality management”, Journal of Operations Management, Vol. 25 No. 4, pp. 918–931.

Chowdary, B.V. and George, D. (2012), “Improvement of manufacturing operations at a pharmaceutical company: A lean manufacturing approach”, Journal of Manufacturing Technology Management, Vol. 23 No. 1, pp. 56–75.

Christmann, P., Day, D. and Yip, G.S. (1999), “The relative influence of country conditions, industry structure, and business strategy on multinational corporation subsidiary performance”, Journal of International Management, Vol. 5 No. 4, pp. 241–265.

Clugston, M., Howell, J.P. and Dorfman, P.W. (2000), “Does Cultural Socialization Predict Multiple Bases and Foci of Commitment?”, Journal of Management, Vol. 26 No. 1, pp. 5–30.

Colotla, I. (2003), “Operation and performance of international manufacturing networks”, PhD Thesis, University of Cambridge, Cambridge, 2003.

Comm, C.L. and Mathaisel, D.F. (2005), “An Exploratory Analysis in Applying Lean Manufacturing to a Labor-Intensive Industry in China”, Asia Pacific Journal of Marketing and Logistics, Vol. 17 No. 4, pp. 63–80.

Conger, J.A. and Kanungo, R.N. (1988), “The Empowerment Process: Integrating Theory and Practice”, Academy of Management Review, Vol. 13 No. 3, pp. 471–482.

Contractor, F.J., Kumar, V. and Kundu, S.K. (2007), “Nature of the relationship between international expansion and performance: The case of emerging market firms”, Journal of World Business, Vol. 42 No. 4, pp. 401–417.

Page 263: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 241

Crawford, K.M., Blackstone, J.H. and Cox, J.F. (1988), “A study of JIT implementation and operating problems”, International Journal of Production Research, Vol. 26 No. 9, pp. 1561–1568.

Crosby, P.B. (1979), Quality is free: The art of making quality certain, McGraw-Hill, New York.

Crossan, M.M., Lane, H.W. and White, R.E. (1999), “An Organizational Learning Framework: From Intuition to Institution”, Academy of Management Review, Vol. 24 No. 3, pp. 522–537.

Crossman, A. (2013), “Transformational Leadership - Shaping the Future of the Biopharmaceutical Industry”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 355–367.

Cua, K.O., McKone, K.E. and Schroeder, R.G. (2001), “Relationships between implementation of TQM, JIT, and TPM and manufacturing performance”, Journal of Operations Management, Vol. 19 No. 6, pp. 675–694.

Cua, K.O. (2000), “A theory of integrated manufacturing practices. Relating total quality management, just-in-time and total productive maintenance”, PhD Thesis, University of Minnesota, Minnesota, 2000.

Cui, G. and Liu, Q. (2000), “Regional market segments of China: opportunities and barriers in a big emerging market”, Journal of Consumer Marketing, Vol. 17 No. 1, pp. 55–72.

Dai, Z. and Scott, M.J. (2007), “Product platform design through sensitivity analysis and cluster analysis”, Journal of Intelligent Manufacturing, Vol. 18 No. 1, pp. 97–113.

Dangayach, G.S. and Deshmukh, S.G. (2005), “Advanced manufacturing technology implementation: Evidence from Indian small and medium enterprises (SMEs)”, Journal of Manufacturing Technology Management, Vol. 16 No. 5, pp. 483–496.

Dangayach, G.S. and Deshmukh, S.G. (2001a), “Practice of manufacturing strategy: Evidence from select Indian automobile companies”, International Journal of Production Research, Vol. 39 No. 11, pp. 2353–2393.

Dangayach, G.S. and Deshmukh, S.G. (2001b), “Manufacturing strategy: Literature review and some issues”, International Journal of Operations & Production Management, Vol. 21 No. 7, pp. 884–932.

Danneels, E. (2011), “Trying to become a different type of company: dynamic capability at Smith Corona”, Strategic Management Journal, Vol. 32 No. 1, pp. 1–31.

Dawar, N. and Frost, T. (1999), “Competing with giants. Survival strategies for local companies in emerging markets”, Harvard Business Review, Vol. 77 No. 2, pp. 119–129.

Deflorin, P. (2007), “Fähigkeiten zur Umsetzung hybrider Produktionsstrategien in der Schweiz”, PhD Thesis, University of St.Gallen, St.Gallen, 2007.

Page 264: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

242 REFERENCES

Deflorin, P. and Scherrer-Rathje, M. (2011), “Challenges in the transformation to lean production from different manufacturing-process choices: a path-dependent perspective”, International Journal of Production Research, Vol. 50 No. 14, pp. 3956–3973.

Deming, W.E. (1986), Out of the crisis: Quality, productivity and competitive position, Cambridge University Press, Cambridge.

Démurger, S. (2001), “Infrastructure Development and Economic Growth: An Explanation for Regional Disparities in China?”, Journal of Comparative Economics, Vol. 29 No. 1, pp. 95–117.

Denrell, J. (2003), “Vicarious Learning, Undersampling of Failure, and the Myths of Management”, Organization Science, Vol. 14 No. 3, pp. 227–243.

Denzin, N.K. (1978), The research act: A theoretical introduction to sociological methods, 2nd ed., McGraw-Hill, New York.

DeRuiter, J. and Holston, P.L. (2012), “Drug Patent Expirations and the “Patent Cliff””, U.S. Pharmacist, Vol. 37 No. 6, pp. 12–20.

Dodgson, M. (1993), “Organizational Learning: A Review of Some Literatures”, Organization Studies, Vol. 14 No. 3, pp. 375–394.

Donaldson, L. (2001), The contingency theory of organizations, Sage Publications, Thousand Oaks.

Doolen, T.L. and Hacker, M.E. (2005), “A review of lean assessment in organizations: An exploratory study of lean practices by electronics manufacturers”, Journal of Manufacturing Systems, Vol. 24 No. 1, pp. 55–67.

Doty, D.H., Glick, W.H. and Huber, G.P. (1993), “Fit, Equifinality, and Organizational Effectiveness: A Test of Two Configurational Theories”, Academy of Management Journal, Vol. 36 No. 6, pp. 1196–1250.

Drazin, R. and Van de Ven, A.H. (1985), “Alternative Forms of Fit in Contingency Theory”, Administrative Science Quarterly, Vol. 30 No. 4, pp. 514–539.

Dreamer, S. (2010), “Operational Excellence in the Pharmaceutical Industry - the Case of Novartis”, in Friedli, T., Basu, P.K., Gronauer, T. and Werani, J. (Eds.), The Pathway to Operational Excellence in the Pharmaceutical Industry: Overcoming the internal inertia, Editio Cantor, Aulendorf, pp. 168–174.

Dreamer, S. and Niewiarowski, P. (2013), “Lean in Novartis Pharma: Sustainability Through a Five Step Deployment Methodology”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 145–152.

Dufort, V. (1999), “Measuring Housekeeping in Manufacturing Industries”, The Annals of Occupational Hygiene, Vol. 43 No. 2, pp. 91–97.

Dunning, J.H. and Lundan, S.M. (2008), Multinational enterprises and the global economy, 2nd ed., Edward Elgar, Cheltenham.

Page 265: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 243

Earley, P.C. (1994), “Self or Group? Cultural Effects of Training on Self-Efficacy and Performance”, Administrative Science Quarterly, Vol. 39 No. 1, pp. 89–117.

Eban, K. (2013), “Maker of generic Lipitor pleads guilty to selling 'adulterated drugs'”, 2013, available at: http://features.blogs.fortune.cnn.com/2013/05/13/ranbaxy-guilty/ (accessed February 19th, 2014).

Ebrahimpour, M. and Schonberger, R.J. (1984), “The Japanese just-in-time/total quality control production system: potential for developing countries”, International Journal of Production Research, Vol. 22 No. 3, pp. 421–430.

Edmondson, A. and Moingeon, B. (1998), “From Organizational Learning to the Learning Organization”, Management Learning, Vol. 29 No. 1, pp. 5–20.

Eid, R. (2009), “Factors affecting the success of world class manufacturing implementation in less developed countries: The case of Egypt”, Journal of Manufacturing Technology Management, Vol. 20 No. 7, pp. 989–1008.

Eisenhardt, K.M. (1989), “Building Theories from Case Study Research”, The Academy of Management Review, Vol. 14 No. 4, pp. 532–550.

Eisenhardt, K.M. and Graebner, M.E. (2007), “Theory Building from Cases: Opportunities and Challenges”, Academy of Management Journal, Vol. 50 No. 1, pp. 25–32.

Ekvall, G. and Arvonen, J. (1991), “Change-centered leadership: An extension of the two-dimensional model”, Scandinavian Journal of Management, Vol. 7 No. 1, pp. 17–26.

El-Khasawneh, B.S. (2012), “Challenges and remedies of manufacturing enterprises in developing countries: Jordan as a case study”, Journal of Manufacturing Technology Management, Vol. 23 No. 3, pp. 328–350.

Emery, F.E. (1965), “The Causal Texture of Organizational Environments”, Human Relations, Vol. 18 No. 1, pp. 21–32.

Enderwick, P. (2007), Understanding emerging markets: China and India, Routledge, New York.

Enderwick, P. (2009), “Managing “quality failure” in China: lessons from the dairy industry case”, International Journal of Emerging Markets, Vol. 4 No. 3, pp. 220–234.

EvaluatePharma (2012), “World Preview 2018. Embracing the Patent Cliff”. Eylon, D. and Au, K.Y. (1999), “Exploring empowerment cross-cultural differences

along the power distance dimension”, International Journal of Intercultural Relations, Vol. 23 No. 3, pp. 373–385.

Fayol, H. (1917), Administration industrielle et générale; prévoyance, organisation, commandement, coordination, controle, H. Dunod et E. Pinat, Paris.

FDA (2004), “Guidance for Industry PAT - A Framework for Innovative Pharmaceutical Development, Manufacturing, and Quality Assurance”, available at: http://www.fda.gov (accessed January 15th, 2014).

Page 266: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

244 REFERENCES

FDA (2014), “Facts About Current Good Manufacturing Practices (cGMPs)”, available at: http://www.fda.gov/drugs/developmentapprovalprocess/manufacturing/ucm169105.htm (accessed April 22nd, 2014).

Feigenbaum, A.V. (1983), Total quality control, 3rd ed., McGraw-Hill, New York. Feinberg, S.E. and Majumdar, S.K. (2001), “Technology Spillovers from Foreign

Direct Investment in the Indian Pharmaceutical Industry”, Journal of International Business Studies, Vol. 32 No. 3, pp. 421–437.

Ferdows, K. (1997), “MADE IN THE WORLD: THE GLOBAL SPREAD OF PRODUCTION”, Production and Operations Management, Vol. 6 No. 2, pp. 102–109.

Festing, M., Dowling, P.J. and Weber, W. (2011), “Institutionelle Rahmenbedingungen und kultureller Kontext”, in Festing, M., Dowling, P.J., Weber, W. and Engle, A.D. (Eds.), Internationales Personalmanagement, Gabler, Wiesbaden, pp. 49–135.

Fettke, P. and Loos, P. (2007), “Perspectives on reference modeling”, in Fettke, P. and Loos, P. (Eds.), Reference Modeling for Business Systems Analysis, Idea Group Pub., Hershey, pp. 1–20.

Flaherty, M.T. (1996), Global operations management, McGraw-Hill, New York. Fleury, A. (1999), “The changing pattern of operations management in developing

countries: The case of Brazil”, International Journal of Operations & Production Management, Vol. 19 No. 5-6, pp. 552–564.

Fleury, A. and Fleury, M.T. (2009), “Understanding the strategies of late-movers in International Manufacturing”, International Journal of Production Economics, Vol. 122 No. 1, pp. 340–350.

Flynn, B.B., Sakakibara, S. and Schroeder, R.G. (1995), “Relationship between JIT and TQM: Practices and Performance”, Academy of Management Journal, Vol. 38 No. 5, pp. 1325–1360.

Flynn, B.B., Schroeder, R.G. and Flynn, E.J. (1999), “World class manufacturing: an investigation of Hayes and Wheelwright's foundation”, Journal of Operations Management, Vol. 17 No. 3, pp. 249–269.

Flynn, B.B. and Saladin, B. (2006), “Relevance of Baldrige constructs in an international context: A study of national culture”, Journal of Operations Management, Vol. 24 No. 5, pp. 583–603.

Follett, M.P. (1941), Dynamic administration: The collected papers of Mary Parker Follett, Metcalf, H; Urwick, L. (Eds.), Pitman, London.

Fox, M.S., Chionglo, J.F. and Fadel, F.G. (1993), “A Common-Sense Model of the Enterprise”, Proceedings of the Industrial Engineering Conference 1993.

Friedli, T. (2000), “Die Architektur von Kooperationen”, PhD Thesis, University of St.Gallen, St.Gallen, 2000.

Page 267: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 245

Friedli, T. (2006), Technologiemanagement: Modelle zur Sicherung der Wettbewerbsfähigkeit, Springer, Heidelberg.

Friedli, T. and Ziegler, R. (2013), “Preventive Process Stabilization by Integrated Process Development”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 263–283.

Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.) (2013a), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg.

Friedli, T. and Schuh, G. (2013), Wettbewerbsfähigkeit der Produktion an Hochlohnstandorten, 2nd ed., Springer, Heidelberg.

Friedli, T., Mänder, C. and Bellm, D. (2013b), “Matching Problems with Tools”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 285–321.

Friedli, T. and Werani, J. (2013a), “Leadership Principles & Operational Excellence”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 347–353.

Friedli, T., Kickuth, M., Stieneker, F., Thaler, P. and Werani, J. (Eds.) (2006), Operational excellence in the pharmaceutical industry, Editio Cantor, Aulendorf.

Friedli, T. and Bellm, D. (2013a), “Barriers and Success Factors in Managing Operational Excellence”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 103–114.

Friedli, T. and Bellm, D. (2013b), “A Look to the Environment and the Impact on OPEX”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 77–102.

Friedli, T. and Bellm, D. (2013c), “OPEX: A Definition”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 7–26.

Friedli, T. and Werani, J. (2013b), “The History of OPEX in the Pharmaceutical Industry”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 27–34.

Friedli, T., Basu, P.K., Gronauer, T. and Werani, J. (Eds.) (2010a), The Pathway to Operational Excellence in the Pharmaceutical Industry: Overcoming the internal inertia, Editio Cantor, Aulendorf.

Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.) (2013c), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg.

Friedli, T., Gronauer, T. and Werani, J. (2010b), “A Model for the Sustainable Implementation of Operational Excellence”, in Friedli, T., Basu, P.K., Gronauer, T. and Werani, J. (Eds.), The Pathway to Operational Excellence in the Pharmaceutical Industry: Overcoming the internal inertia, Editio Cantor, Aulendorf, pp. 202–219.

Page 268: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

246 REFERENCES

Friedmann, R. and Kim, J. (1988), “Political Risk and International Marketing”, Columbia Journal of World Business, Vol. 23 No. 4, pp. 63–74.

Galperin, B.L. and Lituchy, T.R. (1999), “The implementation of total quality management in Canada and Mexico: a case study”, International Business Review, Vol. 8 No. 3, pp. 323–349.

Gammeltoft, P., Pradhan, J.P. and Goldstein, A. (2010), “Emerging multinationals: home and host country determinants and outcomes”, International Journal of Emerging Markets, Vol. 5 No. 3-4, pp. 254–265.

Garratt, B. (1987), The Learning Organization, Fontana, London. Gassmann, O. (1999), “Präxisnähe mit Fallstudienforschung”,

Wissenschaftsmanagement, Vol. 5 No. 3, pp. 11–16. Ge, G.L. and Ding, D.Z. (2008), “A strategic analysis of surging Chinese

manufacturers: The case of Galanz”, Asia Pacific Journal of Management, Vol. 25 No. 4, pp. 667–683.

Ghobadian, A. and Gallear, D. (2001), “TQM implementation: an empirical examination and proposed generic model”, Omega, Vol. 29 No. 4, pp. 343–359.

Ghobadian, A. and Gallear, D. (1996), “Total quality management in SMEs”, Omega, Vol. 24 No. 1, pp. 83–106.

Ghobadian, A. and Speller, S. (1994), “Gurus of quality: a framework for comparison”, Total Quality Management, Vol. 5 No. 3, pp. 53–70.

Ghosh, M. (2013), “Lean manufacturing performance in Indian manufacturing plants”, Journal of Manufacturing Technology Management, Vol. 24 No. 1, pp. 113–122.

Giffi, C., Roth, A.V. and Seal, G.M. (1990), Competing in world-class manufacturing: America's 21st century challenge, Business One Irwin, Homewood.

Gilboy, G.J. (2004), “The Myth behind China's Miracle”, Foreign Affairs, Vol. 83 No. 4, pp. 33–48.

Goodson, R.E. (2002), “Read a Plant - Fast”, Harvard Business Review, Vol. 80 No. 5, pp. 105–113.

Gray, J.V., Roth, A.V. and Leiblein, M.J. (2011), “Quality risk in offshore manufacturing: Evidence from the pharmaceutical industry”, Journal of Operations Management, Vol. 29 7-8, pp. 737–752.

Griffith, C.M., Rondoletto, N. and Hamed, F. (2010), “The Best of Two Legacies: History, Present and Vision of the Roche-Genentech Operational Excellence Integration”, in Friedli, T., Basu, P.K., Gronauer, T. and Werani, J. (Eds.), The Pathway to Operational Excellence in the Pharmaceutical Industry: Overcoming the internal inertia, Editio Cantor, Aulendorf, pp. 135–152.

Gronauer, T. (2012), “Einfluss von internen Kontext- und Prozesselementen auf die Etablierung eines Operational Excellence Programms. Eine vergleichende Fallstudienanalyse aus der pharmazeutischen Industrie”, PhD Thesis, University of St.Gallen, St.Gallen, 2012.

Page 269: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 247

Gronauer, T., Friedli, T. and Goetzfried, M. (2010), “The Roadmap to Operational Excellence - Patterns and Elements of OPEX Programs”, in Friedli, T., Basu, P.K., Gronauer, T. and Werani, J. (Eds.), The Pathway to Operational Excellence in the Pharmaceutical Industry: Overcoming the internal inertia, Editio Cantor, Aulendorf, pp. 175–199.

Groocock, J.M. (1988), Qualitätsverbesserung, McGraw-Hill, Hamburg. Größler, A. (2010), “The development of strategic manufacturing capabilities in

emerging and developed markets”, Operations Management Research, Vol. 3 No. 1-2, pp. 60–67.

Gu, F.F., Hung, K. and Tse, D.K. (2008), “When Does Guanxi Matter? Issues of Capitalization and Its Dark Sides”, Journal of Marketing, Vol. 72 No. 4, pp. 12–28.

Guzmán, G.A. (2003), “Inside modular production networks: “soft operational issues” in building factory competitiveness”, Integrated Manufacturing Systems, Vol. 14 No. 1, pp. 6–15.

Haleem, R.M., Salem, M.Y., Fatahallah, F.A. and Abdelfattah, L.E. (2014), “Quality in the pharmaceutical industry – A literature review”, Saudi Pharmaceutical Journal, In Press.

Hall, E.T. (1990), The silent language, Anchor Books, 2nd ed., Anchor Books, New York.

Hall, E.T. and Hall, M.R. (1990), Understanding cultural differences, Intercultural Press, Yarmouth.

Hall, R.W. (1987), Attaining manufacturing excellence: Just-in-time, total quality, total people involvement, Dow Jones-Irwin, Homewood.

Hallgren, M. and Olhager, J. (2006), “Quantification in manufacturing strategy: A methodology and illustration”, International Journal of Production Economics, Vol. 104 No. 1, pp. 113–124.

Hampton, D. (2013), “Making Operational Excellence a Priority at Every Level”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 369–383.

Hasenstab, M. (1998), “Interkulturelles Management. Bestandsaufnahme und Perspektiven”, PhD Thesis, University of Jena, Jena, 1998.

Hayes, R.H. and Pisano, G.P. (1994), “Beyond World-Class: The New Manufacturing Strategy”, Harvard Business Review, Vol. 72 No. 1, pp. 77–87.

Hayes, R.H., Pisano, G.P., Upton, D.M. and Wheelwright, S.C. (2005), Operations, strategy, and technology: Pursuing the competitive edge, John Wiley & Sons, Hoboken, New Jersey.

Hayes, R.H., Wheelwright, S.C. and Clark, K.B. (1988), Dynamic manufacturing: Creating the learning organization, Free Press, New York.

Hayes, R.H. and Wheelwright, S.C. (1984), Restoring our competitive edge: Competing through manufacturing, John Wiley & Sons, New York.

Page 270: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

248 REFERENCES

Hermelo, F.D. and Vassolo, R. (2010), “Institutional development and hypercompetition in emerging economies”, Strategic Management Journal, Vol. 31 No. 13, pp. 1457–1473.

Hermelo, F.D. and Vassolo, R. (2012), “How much does country matter in emerging economies? Evidence from Latin America”, International Journal of Emerging Markets, Vol. 7 No. 3, pp. 263–288.

Hersey, P. and Blanchard, K.H. (1977), Management of organizational behavior: Utilizing human resources, 3rd ed., Prentice-Hall, Englewood Cliffs, New Jersey.

Hill, R. and Chui, M. (2009), “The Pharmerging Future”, The Business Magazine of Pharma, Vol. 29 No. 7.

Hill, T. (1993), Manufacturing strategy: The strategic management of the manufacturing function, 2nd ed., MacMillan, Basingstoke.

Hill, T. (2000), Manufacturing strategy: Text and cases, 2nd ed., Palgrave, Basingstoke.

Hill, W. and Ulrich, P. (1979), “Wissenschaftstheoretische Grundlagen der Betriebswirtschaftslehre”, in Raffée, H. and Abel, B. (Eds.), Wissenschaftstheoretische Grundfragen der Wirtschaftswissenschaften, Vahlen, München, pp. 161–190.

Hines, P., Holweg, M. and Rich, N. (2004), “Learning to evolve: A review of contemporary lean thinking”, International Journal of Operations & Production Management, Vol. 24 No. 10, pp. 994–1011.

Hitt, M.A., Li, H. and Worthington, W.J. (2005), “Emerging Markets as Learning Laboratories: Learning Behaviors of Local Firms and Foreign Entrants in Different Institutional Contexts”, Management and Organization Review, Vol. 1 No. 3, pp. 353–380.

Hofstede, G. (1993), “Cultural constraints in management theories”, Academy of Management Perspectives, Vol. 7 No. 1, pp. 81–94.

Hofstede, G. (1994a), “Management Scientists Are Human”, Management Science, Vol. 40 No. 1, pp. 4–13.

Hofstede, G. (1983), “The Cultural Relativity of Organizational Practices and Theories”, Journal of International Business Studies, Vol. 14 No. 2, pp. 75–89.

Hofstede, G. (1994b), “The business of international business is culture”, International Business Review, Vol. 3 No. 1, pp. 1–14.

Hofstede, G.H. (1980), Culture's consequences: International differences in work-related values, Sage, London.

Hofstede, G.H. (2014), “The Hofstede Centre. Country Comparison”, available at: http://geert-hofstede.com/countries.html (accessed February 7th, 2014).

Hofstede, G. and Hofstede, G. (2005), Cultures and organizations: Software of the mind, 2nd ed., McGraw-Hill, New York.

Page 271: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 249

Hofstede, G., Neuijen, B., Ohayv, D.D. and Sanders, G. (1990), “Measuring Organizational Cultures: A Qualitative and Quantitative Study Across Twenty Cases”, Administrative Science Quarterly, Vol. 35 No. 2, pp. 286–316.

Holweg, M. (2007), “The genealogy of lean production”, Journal of Operations Management, Vol. 25 No. 2, pp. 420–437.

Hopp, W.J. and Spearman, M.L. (2004), “To Pull or Not to Pull: What Is the Question?”, Manufacturing & Service Operations Management, Vol. 6 No. 2, pp. 133–148.

Hoskisson, R.E., Eden, L., Lau, C.M. and Wright, M. (2000), “Strategy in Emerging Economies”, Academy of Management Journal, Vol. 43 No. 3, pp. 249–267.

House, R.J., Hanges, P.J., Ruiz-Quintanilla, S.A., Dorfman, P.W., Falkus, S.A. and Ashkanasy, N.M. (1999), “Cultural influences on leadership and organizations: Project Globe”, in Mobley, W.H., Gessner, M.J. and Arnold, V. (Eds.), Advances in global leadership, 2nd ed., Emerald Group Publishing Ltd, Bingley, pp. 171–233.

House, R.J., Hanges, P.J., Javidan, M., Dorfman, P.W. and Gupta, V. (2004), Culture, Leadership, and Organizations: The GLOBE study of 62 societies, Sage Publications, Thousand Oaks.

Huq, M. (2004), “Building technological capability in the context of globalization: opportunities and challenges facing developing countries”, International Journal of Technology Management and Sustainable Development, Vol. 3 No. 3, pp. 155–172.

Husseini, S.M. and O'Brien, C. (2004), “Strategic implications of manufacturing performance comparisons for newly industrialising countries”, International Journal of Operations & Production Management, Vol. 24 No. 11, pp. 1126–1148.

Ichniowski, C., Shaw, K. and Prennushi, G. (1997), “The effects of human resource management practices on productivity. A study of steel finishing lines”, American Economic Review, Vol. 87 No. 3, pp. 291–313.

Ichniowski, C., Shaw, K.L. and Prennushi, G. (1995), “The Effects of Human Resource Management Practices on Productivity”, NBER Working Paper No. w5333.

Imai, M. (1986), Kaizen: The Key to Japan's Competitive Success, 1st ed., Random House Business Division, New York.

IMF (2012), World economic outlook, October 2012: Coping with high debt and sluggish growth, International Monetary Fund, Wahington, DC.

IMS Health (2012), “IMS Health Market Prognosis”. Irani, S.A., Zhang, H., Zhou, J., Huang, H., Udai, T. and Subramanian, S. (2000),

“Production Flow Analysis and Simplification Toolkit (PFAST)”, International Journal of Production Research, Vol. 38 No. 8, pp. 1855–1874.

Ishikawa, K. (1985), What is total quality control? The Japanese way, Prentice-Hall, Englewood Cliffs, New Jersey.

Page 272: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

250 REFERENCES

ISO (1999), Industrial Automation Systems: Requirements for Enterprise-Reference Architectures and Methodologies, ISO/DIS 15704, International Organisation for Standardisation.

Iszatt-White, M. and Saunders, C. (2014), Leadership, Oxford University Press, New York.

Jenner, R.A. (1998), “Dissipative enterprises, chaos, and the principles of lean organizations”, Omega, Vol. 26 No. 3, pp. 397–407.

Jick, T.D. (1979), “Mixing Qualitative and Quantitative Methods: Triangulation in Action”, Administrative Science Quarterly, Vol. 24 No. 4, p. 602.

Johanson, J. and Vahlne, J.-E. (1977), “The internationalisation process of the firm – A model of knowledge development and increasing market commitment”, Journal of International Business Studies, Vol. 8 No. 2, pp. 23–32.

Johanson, J. and Vahlne, J.-E. (1990), “The mechanism of internationalisation”, International Marketing Review, Vol. 7 No. 4, pp. 11–24.

Jones, P. (2001), “Are educated workers really more productive?”, Journal of Development Economics, Vol. 64 No. 1, pp. 57–79.

Jørgensen, J.T. (2008), “Are we approaching the post-blockbuster era? Pharmacodiagnostics and rational drug development”, Expert Review of Molecular Diagnostics, Vol. 8 No. 6, pp. 689–695.

Jun, M., Cai, S. and Shin, H. (2006), “TQM practice in maquiladora: Antecedents of employee satisfaction and loyalty”, Journal of Operations Management, Vol. 24 No. 6, pp. 791–812.

Juran, J.M. (1989), Juran on leadership for quality: An executive handbook, Free Press, New York.

Juran, J.M., Gryna, F.M. and Bingham, R.S. (1974), Quality control handbook, 3rd ed., McGraw-Hill, New York.

Kaplan, R.S. and Norton, D.P. (2001), “Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part I”, Accounting Horizons, Vol. 15 No. 1, pp. 87–104.

Karpak, B. and Topcu, I. (2010), “Small medium manufacturing enterprises in Turkey: An analytic network process framework for prioritizing factors affecting success”, International Journal of Production Economics, Vol. 125 No. 1, pp. 60–70.

Kathuria, R. (2000), “Competitive priorities and managerial performance: a taxonomy of small manufacturers”, Journal of Operations Management, Vol. 18 No. 6, pp. 627–641.

Kathuria, R., Porth, S.J., Kathuria, N. and Kohli, T. (2010), “Competitive priorities and strategic consensus in emerging economies: evidence from India”, International Journal of Operations & Production Management, Vol. 30 No. 8, pp. 879–896.

Page 273: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 251

Kearney, C. (2012), “Emerging markets research: Trends, issues and future directions”, Emerging Markets Review, Vol. 13 No. 2, pp. 159–183.

Keller, E. von (1981), “Die kulturvergleichende Managementforschung. Gegenstand, Ziele, Methoden, Ergebnisse Erkenntnisprobleme einer Forschungsrichtung”, PhD Thesis, University of St.Gallen, St.Gallen, 1981.

Kenney, M. and Florida, R. (1994), “Japanese maquiladoras: Production organization and global commodity chains”, World Development, Vol. 22 No. 1, pp. 27–44.

Khanna, T., Palepu, K.G. and Sinha, J. (2005), “Strategies that fit Emerging Markets”, Harvard Business Review, Vol. 83 No. 6, pp. 63–76.

Khanna, T. and Palepu, K.G. (2006), “Emerging Giants: Building World-Class Companies in Developing Countries”, Harvard Business Review, Vol. 84 No. 10, pp. 60–69.

Khanna, T., Palepu, K.G. and Bullock, R.J. (2010), Winning in emerging markets: A road map for strategy and execution, Harvard Business Press, Boston.

Khanna, T. and Palepu, K.G. (1999), “The right way to restructure conglomerates in emerging markets”, Harvard Business Review, Vol. 77 No. 4, pp. 125–134.

Khanna, T. and Palepu, K.G. (1997), “Why Focused Strategies may be wrong for Emerging Markets”, Harvard Business Review, Vol. 75 No. 4, pp. 41–51.

Kickuth, M. (2005), “Operative Exzellenz in der pharmazeutischen Industrie. Ein Referenzmodell”, PHD Thesis, University of St.Gallen, St.Gallen, 2005.

Kickuth, M., Friedli, T., Thaler, P., Tykal, D. and Osterwald, H. (2006), “The Status of the Pharmaceutical Industry”, in Friedli, T., Kickuth, M., Stieneker, F., Thaler, P. and Werani, J. (Eds.), Operational excellence in the pharmaceutical industry, Editio Cantor, Aulendorf, pp. 53–81.

Kickuth, M. and Friedli, T. (2006a), “Case Study: Launching an Operational Excellence Initiative in a Global Pharmaceutical Company - The Case of Pfizer Inc.”, in Friedli, T., Kickuth, M., Stieneker, F., Thaler, P. and Werani, J. (Eds.), Operational excellence in the pharmaceutical industry, Editio Cantor, Aulendorf, pp. 82–94.

Kickuth, M. and Friedli, T. (2006b), “Developing the Operational Excellence Reference Model for the OPEX project”, in Friedli, T., Kickuth, M., Stieneker, F., Thaler, P. and Werani, J. (Eds.), Operational excellence in the pharmaceutical industry, Editio Cantor, Aulendorf, pp. 40–52.

Kim, J.S. and Arnold, P. (1996), “Operationalizing manufacturing strategy: An exploratory study of constructs and linkage”, International Journal of Operations & Production Management, Vol. 16 No. 12, pp. 45–73.

Kim, J.-Y. and Miner, A.S. (2007), “Vicarious Learning from the Failures and Near-Failures of Others: Evidence from the U.S. Commercial Banking Industry”, Academy of Management Journal, Vol. 50 No. 3, pp. 687–714.

Kotter, J.P. (1995), “Leading Change: Why Transformation Efforts Fail”, Harvard Business Review, Vol. 85 No. 1, pp. 59–67.

Page 274: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

252 REFERENCES

Kotter, J.P. (1996), Leading Change, Harvard Business School Press, Boston. Kouznetsov, A. (2009), “Country conditions in emerging markets and their effects on

entry mode decisions of multinational manufacturing enterprises: Evidence from Russia”, International Journal of Emerging Markets, Vol. 4 No. 4, pp. 375–388.

KPMG (2011), “Future Pharma. Five Strategies to Accelerate the Transformation of the Pharmaceutical Industry by 2020”.

Krafcik, J.F. (1988), “Triumph of the lean production system”, Sloan Management Review, Vol. 30 No. 1, pp. 41–52.

Kroeber, A. and Kluckhohn, C. (1952), Culture - a critical review of concepts and definitions, New York.

Kubicek, H. (1977), “Heuristische Bezugsrahmen und heuristisch angelegte Forschungsdesigns als Elemente einer Konstruktionsstrategie empirischer Forschung”, in Köhler, R. (Ed.), Empirische und handlungstheoretische Forschungskonzeptionen in der Betriebswirtschaftslehre: Bericht über die Tagung in Aachen, März 1976, Poeschel, Stuttgart, pp. 5–36.

Kull, T.J. and Wacker, J.G. (2010), “Quality management effectiveness in Asia: The influence of culture”, Journal of Operations Management, Vol. 28 No. 3, pp. 223–239.

Kumar, M., Antony, J., Singh, R.K., Tiwari, M.K. and Perry, D. (2006), “Implementing the Lean Sigma framework in an Indian SME: a case study”, Production Planning & Control, Vol. 17 No. 4, pp. 407–423.

Kutschker, M. and Schmid, S. (2002), Internationales Management, 2nd ed., Oldenbourg, München.

Lagrosen, S. (2003), “Exploring the impact of culture on quality management”, International Journal of Quality & Reliability Management, Vol. 20 No. 4, pp. 473–487.

Lamba, S.S. (2013), “Winning the “Facility of the Year” - Award with an Indian Plant”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 209–226.

Laohavichien, T., Fredendall, L.D. and Cantrell, R.S. (2011), “Leadership and quality management practices in Thailand”, International Journal of Operations & Production Management, Vol. 31 No. 10, pp. 1048–1070.

Lawrence, J.J. and Lewis, H.S. (1996), “Understanding the use of just-in-time purchasing in a developing country: The case of Mexico”, International Journal of Operations & Production Management, Vol. 16 No. 6, pp. 68–90.

Lawrence, J.J. and Lewis, H.S. (1993), “JIT manufacturing in Mexico: Obstacles to implementation”, Production and Inventory Management Journal, Vol. 34 No. 3, pp. 31–35.

Lawrence, P.R., Garrison, J.S. and Lorsch, J.W. (1967), Organization and environment: Managing differentiation and integration, Division of Research, Graduate School of Business Administration, Harvard University, Boston.

Page 275: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 253

Lee, T., Wong, W. and Yeung, K. (2011), “Developing a readiness self-assessment model (RSM) for Six Sigma for China enterprises”, International Journal of Quality & Reliability Management, Vol. 28 No. 2, pp. 169–194.

Leivo, A. (2005), “Field study of the effects of a self-implemented feedback program on housekeeping performance”, International Journal of Industrial Ergonomics, Vol. 35 No. 5, pp. 471–485.

Levinthal, D.A. and March, J.G. (1993), “The myopia of learning”, Strategic Management Journal, Vol. 14 No. 2, pp. 95–112.

Lewin, K. (1952a), “Frontiers in Group Dynamics”, in Cartwright, D. (Ed.), Field Theory in Social Science, Social Science Paperbacks, London.

Lewin, K. (1952b), “Physological ecology”, in Cartwright, D. (Ed.), Field Theory in Social Science, Social Science Paperbacks, London.

Lewis, K. (2009), “China's counterfeit medicine trade booming”, Canadian Medical Association Journal, Vol. 181 No. 10, pp. 237–238.

Li, L. (2005), “Assessing intermediate infrastructural manufacturing decisions that affect a firm's market performance”, International Journal of Production Research, Vol. 43 No. 12, pp. 2537–2551.

Li, L.X. (2000), “An analysis of sources of competitiveness and performance of Chinese manufacturers”, International Journal of Operations & Production Management, Vol. 20 No. 3, pp. 299–315.

Li, S., Rao, S., Ragunathan, T. and Ragunathan, B. (2005), “Development and validation of a measurement instrument for studying supply chain management practices”, Journal of Operations Management, Vol. 23 No. 6, pp. 618–641.

Li, Y., Wang, L. and Liu, Y. (2011), “Organisational learning, product quality and performance: the moderating effect of social ties in Chinese cross-border outsourcing”, International Journal of Production Research, Vol. 49 No. 1, pp. 159–182.

Lihong, Z. and Goffin, K. (1999), “Joint venture manufacturing in China: an exploratory investigation”, International Journal of Operations & Production Management, Vol. 19 No. 5-6, pp. 474–490.

Liker, J.K. (1997), Becoming lean: Inside stories of U.S. manufacturers, Productivity Press, Portland.

Liker, J.K. (2004), The Toyota way: 14 management principles from the world's greatest manufacturer, McGraw-Hill, New York.

Lin, J. (2011), “Technological Adaptation, Cities, and New Work”, Review of Economics and Statistics, Vol. 93 No. 2, pp. 554–574.

Little, I.M.D. (1987), “Small Manufacturing Enterprises in Developing Countries”, The World Bank Economic Review, Vol. 1 No. 2, pp. 203–235.

Page 276: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

254 REFERENCES

Littrell, R.F. (2011), “Contemporary Sub-Saharan African Managerial Leadership Research: Some Recent Empirical Studies”, Asia Pacific Journal of Business and Management, Vol. 2 No. 1, pp. 65–91.

Lockström, M., Schadel, J., Harrison, N., Moser, R. and Malhotra, M.K. (2010), “Antecedents to supplier integration in the automotive industry: A multiple-case study of foreign subsidiaries in China”, Journal of Operations Management, Vol. 28 No. 3, pp. 240–256.

Low, S.P. (1997), “Thick face, black heart and the marketing of construction services in China”, Marketing Intelligence & Planning, Vol. 15 No. 5, pp. 221–226.

Luo, X. (2007), “Continuous Learning: The Influence of National Institutional Logics on Training Attitudes”, Organization Science, Vol. 18 No. 2, pp. 280–296.

Luo, Y. (2003), “Market-seeking MNEs in an emerging market: How parent–subsidiary links shape overseas success”, Journal of International Business Studies, Vol. 34 No. 3, pp. 290–309.

Luo, Y. and Tan, J. (1998), “A Comparison of Multinational and Domestic Firms in an Emerging Market: A Strategic Choice Perspective”, Journal of International Management, Vol. 4 No. 1, pp. 21–40.

Macduffie, J.P. (1995), “Human Resource Bundles and Manufacturing Performance: Organizational Logic and Flexible Production Systems in the World Auto Industry”, Industrial and Labor Relations Review, Vol. 48 No. 2, pp. 197–221.

Macharzina, K. and Oesterle, M.-J. (1997), “Das Konzept der Internationalisierung im Spannungsfeld zwischen praktischer Relevanz und theoretischer Unschärfe”, in Macharzina, K. and Oesterle, M.-J. (Eds.), Handbuch Internationales Management: Grundlagen - Instrumente - Perspektiven, Gabler, Wiesbaden, pp. 3–21.

Mady, M.T. (2009), “Quality management practices: An empirical investigation of associated constructs in two Kuwaiti industries”, International Journal of Quality & Reliability Management, Vol. 26 No. 3, pp. 214–233.

Malhotra, M.K., Steele, D.C. and Grover, V. (1994), “Important Strategic and Tactical Manufacturing Issues in the 1990s”, Decision Sciences, Vol. 25 No. 2, pp. 189–214.

Mapes, J., New, C. and Szwejczewski, M. (1997), “Performance trade-offs in manufacturing plants”, International Journal of Operations & Production Management, Vol. 17 No. 10, pp. 1020–1033.

March, J.G. (1991), “Exploration and Exploitation in Organizational Learning”, Organization Science, Vol. 2 No. 1, pp. 71–87.

Martinsons, M.G. and Tseng, C.-S. (1995), “High-technology management in China: A case study of the Shanghai success stories”, Journal of Engineering and Technology Management, Vol. 12 No. 1-2, pp. 111–137.

Matook, S. and Indulska, M. (2009), “Improving the quality of process reference models: A quality function deployment-based approach”, Decision Support Systems, Vol. 47 No. 1, pp. 60–71.

Page 277: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 255

McKone, K.E., Schroeder, R.G. and Cua, K.O. (2001), “The impact of total productive maintenance practices on manufacturing performance”, Journal of Operations Management, Vol. 19 No. 1, pp. 39–58.

McKone, K.E., Schroeder, R.G. and Cua, K.O. (1999), “Total productive maintenance: a contextual view”, Journal of Operations Management, Vol. 17 No. 2, pp. 123–144.

McLachlin, R. (1997), “Management initiatives and just-in-time manufacturing”, Journal of Operations Management, Vol. 15 No. 4, pp. 271–292.

Mefford, R.N. and Bruun, P. (1998), “Transferring world class production to developing countries: A strategic model”, International Journal of Production Economics, Vol. 56-57 No. 1, pp. 433–450.

Mejlvang, K. (2013), “Ten Years with OPEX as a Brand: cLEAN© in Novo Nordisk Product Supply”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 131–143.

Melton, T. (2005), “The Benefits of Lean Manufacturing”, Chemical Engineering Research and Design, Vol. 83 No. 6, pp. 662–673.

Mersha, T. (1997), “TQM implementation in LDCs: driving and restraining forces”, International Journal of Operations & Production Management, Vol. 17 No. 2, pp. 164–183.

Metters, R., Zhao, X., Bendoly, E., Jiang, B. and Young, S. (2010), “"The way that can be told of is not an unvarying way": Cultural impacts on Operations Management in Asia”, Journal of Operations Management, Vol. 28 No. 3, pp. 177–185.

Meyer, M.W. (2008), “Editor's Introduction No Free Lunch: Dilemmas of Product Quality in China”, Management and Organization Review, Vol. 4 No. 2, pp. 157–165.

Midler, P. (2009), Poorly made in China: An insider's account of the China's production game, John Wiley & Sons, Hoboken, New Jersey.

Migliaccio, G., Ricciardi, N., Scott, J. and Winskill, N. (2010), “Building a Continuous Improvement Culture: Pfizer Moves Beyond "Right First Time"”, in Friedli, T., Basu, P.K., Gronauer, T. and Werani, J. (Eds.), The Pathway to Operational Excellence in the Pharmaceutical Industry: Overcoming the internal inertia, Editio Cantor, Aulendorf, pp. 106–119.

Miller, D. (1992), “Environmental Fit Versus Internal Fit”, Organization Science, Vol. 3 No. 2, pp. 159–178.

Miller, D., Lee, J., Chang, S. and Le Breton-Miller, I. (2009), “Filling the institutional void: The social behavior and performance of family vs non-family technology firms in emerging markets”, Journal of International Business Studies, Vol. 40 No. 5, pp. 802–817.

Mills, J., Platts, K., Neely, A., Richards, H. and Bourne, M. (2002), Creating a winning business formula. Strategy and Performance, Cambridge University Press, Cambridge.

Page 278: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

256 REFERENCES

Miltenburg, J. (2008), “Setting manufacturing strategy for a factory-within-a-factory”, International Journal of Production Economics, Vol. 113 No. 1, pp. 307–323.

Miltenburg, J. (2009), “Setting manufacturing strategy for a company's international manufacturing network”, International Journal of Production Research, Vol. 47 No. 22, pp. 6179–6203.

Monden, Y. (1994), Toyota production system: An integrated approach to just-in-time, 2nd ed., Chapman & Hall, London.

Mora-Monge, C.A., González, M.E., Quesada, G. and Rao, S.S. (2008), “A study of AMT in North America: A comparison between developed and developing countries”, Journal of Manufacturing Technology Management, Vol. 19 No. 7, pp. 812–829.

Mrazek, M. and Fidler, A. (2004), “Access to pharmaceuticals and regulation in the Commonwealth of Independent States”, in Mossialos, E., Mrazek, M.F. and Walley, T. (Eds.), Regulating pharmaceuticals in Europe: Striving for efficiency, equity and quality, Open University Press, Maidenhead, pp. 334–345.

Müller-Stewens, G. and Lechner, C. (1999), “Die Gestaltung unternehmerischer Einheiten: Der General Management Navigator als ein Konzept zur integrieren Strategie- und Wandelarbeit”, Die Organisationsentwicklung, Vol. 18 No. 2, pp. 24–43.

Müller-Stewens, G. and Lechner, C. (2005), Strategisches Management: Wie strategische Initiativen zum Wandel führen ; der St. Galler General Management Navigator, 3., aktualisierte Aufl., Schäffer-Poeschel, Stuttgart.

Mundt, A. (2012), “The Architecture of Manufacturing Networks. Integrating the Coordination Perspective”, PhD Thesis, University of St.Gallen, St.Gallen, 2012.

Nagabhushana, T. and Shah, J. (1999), “Manufacturing priorities and action programmes in the changing environment: An empirical study of Indian industries”, International Journal of Operations & Production Management, Vol. 19 No. 4, pp. 389–400.

Nahavandi, A. and Malekzadeh, A.R. (1988), “Acculturation in mergers and acquisitions”, The International Executive, Vol. 30 No. 1, pp. 10–12.

Nakajima, S. (1988), Introduction to TPM: Total productive maintenance, Productivity Press, Cambridge.

Nakata, C. and Sivakumar, K. (1997), “Emerging market conditions and their impact on first mover advantages: An integrative review”, International Marketing Review, Vol. 14 No. 6, pp. 461–485.

Narasimhan, R., Swink, M. and Kim, S.W. (2006), “Disentangling leanness and agility: An empirical investigation”, Journal of Operations Management, Vol. 24 No. 5, pp. 440–457.

Page 279: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 257

Närhi, M. and Nordström, K. (2008), “National GMP Regulations and Codes and International GMP Guides and Guidelines: Correspondences and Differences”, in Gad, S.C. (Ed.), Regulations and quality, Pharmaceutical manufacturing handbook, John Wiley & Sons, Hoboken, New Jersey, pp. 119–162.

Naylor, B.J., Naim, M.M. and Berry, D. (1999), “Leagility: Integrating the lean and agile manufacturing paradigms in the total supply chain”, International Journal of Production Economics, Vol. 62 1-2, pp. 107–118.

Neely, A., Gregory, M. and Platts, K. (1995), “Performance measurement system design: A literature review and research agenda”, International Journal of Operations & Production Management, Vol. 15 No. 4, pp. 80–116.

Netland, T.H., Mediavilla, M. and Errasti, A. (2013), “The Insignificant Role of National Culture in Global Lean Programmes”, in Emmanouilidis, C., Taisch, M. and Kiritsis, D. (Eds.), IFIP Advances in Information and Communication Technology, Springer, Heidelberg, pp. 454–462.

Newman, K.L. and Nollen, S.D. (1996), “Culture and Congruence: The Fit Between Management Practices and National Culture”, Journal of International Business Studies, Vol. 27 No. 4, pp. 753–779.

Nielsen, L. (2011), “Classifications of Countries Based on Their Level of Development: How it is Done and How it Could Be Done”, IMF Working Paper, Vol. 31 No. 11, pp. 1–45.

Niskanen, W.A. (1991), “The soft infrastructure of a market economy”, CATO Journal, Vol. 11 No. 2, pp. 233–238.

Nonaka, I. and Takeuchi, H. (1995), The knowledge-creating company: How Japanese companies create the dynamics of innovation, Oxford University Press, New York.

North, D.C. (1990), Institutions, institutional change, and economic performance, Cambridge University Press, Cambridge.

Ohno, T. (1988), Toyota production system: Beyond large-scale production, Productivity Press, Portland.

Olhager, J., Rudberg, M. and Wikner, J. (2001), “Long-term capacity management: Linking the perspectives from manufacturing strategy and sales and operations planning”, International Journal of Production Economics, Vol. 69 No. 2, pp. 215–225.

Oliver, C. (1991), “Strategic Responses to Institutional Processes”, Academy of Management Review, Vol. 16 No. 1, pp. 145–179.

Osigweh, C.A.B. (1989), “Concept Fallibility in Organizational Science”, The Academy of Management Review, Vol. 14 No. 4, p. 579.

Pagell, M., Katz, J.P. and Sheu, C. (2005), “The importance of national culture in operations management research”, International Journal of Operations & Production Management, Vol. 25 No. 4, pp. 371–394.

Page 280: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

258 REFERENCES

Pammolli, F., Magazzini, L. and Riccaboni, M. (2011), “The productivity crisis in pharmaceutical R&D”, Nature Reviews Drug Discovery, Vol. 10 No. 6, pp. 428–438.

Pardo del Val, M. and Fuentes, C.M. (2003), “Resistance to change: a literature review and empirical study”, Management Decision, Vol. 41 No. 2, pp. 148–155.

Parker, S.K. (2003), “Longitudinal effects of lean production on employee outcomes and the mediating role of work characteristics”, Journal of Applied Psychology, Vol. 88 No. 4, pp. 620–634.

Parmenter, D. (2010), Key performance indicators: Developing, implementing, and using winning KPIs, 2nd ed., John Wiley & Sons, Hoboken, New Jersey.

Paul, S.M., Mytelka, D.S., Dunwiddie, C.T., Persinger, C.C., Munos, B.H., Lindborg, S.R. and Schacht, A.L. (2010), “How to improve R&D productivity: the pharmaceutical industry's grand challenge”, Nature Reviews Drug Discovery, Vol. 9 No. 3, pp. 203–214.

Pavnaskar, S.J., Gershenson, J.K. and Jambekar, A.B. (2003), “Classification scheme for lean manufacturing tools”, International Journal of Production Research, Vol. 41 No. 13, pp. 3075–3090.

Pavur, E.J. (2012), “Leadership for managers”, The Psychologist-Manager Journal, Vol. 15 No. 4, pp. 269–274.

Pedler, M., Boydell, T. and Burgoyne, J. (1989), “Towards the Learning Company”, Management Learning, Vol. 20 No. 1, pp. 1–8.

Peng, M.W. (2003), “Institutional Transitions and Strategic Choices”, The Academy of Management Review, Vol. 28 No. 2, pp. 275–296.

Perlitz, M. (2004), Internationales Management, 5th ed., Lucius & Lucius, Stuttgart. Pettersen, J. (2009), “Defining lean production: some conceptual and practical issues”,

The TQM Journal, Vol. 21 No. 2, pp. 127–142. Philipsen, S. and Littrell, R.F. (2011), “Manufacturing Quality and Cultural Values in

China”, Asia Pacific Journal of Business and Management, Vol. 2 No. 2, pp. 26–44.

Pil, F.K. and MacDuffie, J.P. (1996), “The Adoption of High-Involvement Work Practices”, Industrial Relations, Vol. 35 No. 3, pp. 423–455.

Plafker, T. (2013), “China´s lunar programme. We have lift-off”, The Economist, 2013, December 2, available at: http://www.economist.com/blogs/analects/2013/12/chinas-lunar-programme (accessed December 20th, 2013).

Platts, K., Mills, J., Neely, A., Gregory, M. and Richards, A. (1998), “Evaluating manufacturing strategy formulation processes”, International Journal of Production Economics, Vol. 46-47 (December), pp. 233–240.

Page 281: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 259

Platts, K. and Gregory, M. (1990), “Manufacturing Audit in the Process of Strategy Formulation”, International Journal of Operations & Production Management, Vol. 10 No. 9, pp. 5–26.

Popper, M. and Lipshitz, R. (2000), “Organizational Learning: Mechanisms, Culture, and Feasibility”, Management Learning, Vol. 31 No. 2, pp. 181–196.

Popper, M. and Lipshitz, R. (1998), “Organizational Learning Mechanisms: A Structural and Cultural Approach to Organizational Learning”, The Journal of Applied Behavioral Science, Vol. 34 No. 2, pp. 161–179.

Porter, M.E. (1985), Competitive advantage: Creating and sustaining superior performance, Free Press, New York.

Power, D., Schoenherr, T. and Samson, D. (2010), “The cultural characteristic of individualism/collectivism: A comparative study of implications for investment in operations between emerging Asian and industrialized Western countries”, Journal of Operations Management, Vol. 28 No. 3, pp. 206–222.

Pradhan, J.P. (2010), “Strategic asset-seeking activities of emerging multinationals perspectives on foreign acquisitions by Indian pharmaceutical MNEs”, Organizations and markets in emerging economies, Vol. 1 No. 2, pp. 9–31.

Pradhan, J.P. (2011), “Emerging Multinationals: A Comparison of Chinese and Indian Outward Foreign Direct Investment”, International Journal of Institutions and Economies, Vol. 3 No. 1, pp. 113–148.

Prahalad, C.K. and Hamel, G. (1990), “The Core Competence of the Corporation”, Harvard Business Review, Vol. 68 No. 3, pp. 79–91.

Prahalad, C.K. and Lieberthal, K. (1998), “The end of corporate Imperialism”, Harvard Business Review, Vol. 81 No. 8, pp. 109–117.

Prajogo, D.I. and Sohal, A.S. (2001), “TQM and innovation: a literature review and research framework”, Technovation, Vol. 21 No. 9, pp. 539–558.

Pümpin, C., Kobi, J.-M. and Wüthrich, H.A. (1985), “Unternehmenskultur: Basis strategischer Profilierung erfolgreicher Unternehmen”, Schweizerische Volksbank, Vol. 85.

Pun, K.F. (2004), “A conceptual synergy model of strategy formulation for manufacturing”, International Journal of Operations & Production Management, Vol. 24 No. 9, pp. 903–928.

Punch, K. (2005), Introduction to social research: Quantitative and qualitative approaches, 2nd ed., Sage, London.

Ramdas, K. and Sawhney, M.S. (2001), “A Cross-Functional Approach to Evaluating Multiple Line Extensions for Assembled Products”, Management Science, Vol. 47 No. 1, pp. 22–36.

Raven, B.H. (2008), “The Bases of Power and the Power/Interaction Model of Interpersonal Influence”, Analyses of Social Issues and Public Policy, Vol. 8 No. 1, pp. 1–22.

Page 282: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

260 REFERENCES

Reed, R., Lemak, D.J. and Montgomery, J.C. (1996), “Beyond Process: TQM Content and Firm Performance”, Academy of Management Review, Vol. 21 No. 1, pp. 173–202.

Ricardo, D. (1817), On the principles of political economy and taxation, J. Murray, London.

Riehle, C. (2010), “Operational Excellence in Production Processes - A Consequence of Technology, Automation, and Integration”, in Friedli, T., Basu, P.K., Gronauer, T. and Werani, J. (Eds.), The Pathway to Operational Excellence in the Pharmaceutical Industry: Overcoming the internal inertia, Editio Cantor, Aulendorf, pp. 255–270.

Rodgers, R., Hunter, J.E. and Rogers, D.L. (1993), “Influence of top management commitment on management program success”, Journal of Applied Psychology, Vol. 78 No. 1, pp. 151–155.

Root, F.R. (1987), Entry strategies for international markets, Lexington Books, Lexington.

Rüegg-Stürm, J. (2005), The New St.Gallen Management Model: Basic Categories of an Approach to integrated Management, 1st ed., Palgrave Macmillan, Houndmills.

Salaheldin, S.I. and Eid, R. (2007), “The implementation of world class manufacturing techniques in Egyptian manufacturing firms: An empirical study”, Industrial Management & Data Systems, Vol. 107 No. 4, pp. 551–566.

Saurin, T.A. and Ferreira, C.F. (2009), “The impacts of lean production on working conditions: A case study of a harvester assembly line in Brazil”, International Journal of Industrial Ergonomics, Vol. 39 No. 2, pp. 403–412.

Schein, E.H. (1992), Organizational culture and leadership, 2nd ed., Jossey-Bass, San Francisco.

Scherrer-Rathje, M., Boyle, T.A. and Deflorin, P. (2009), “Lean, take two! Reflections from the second attempt at lean implementation”, Business Horizons, Vol. 52 No. 1, pp. 79–88.

Schlager, T. (2013), “Redefining the Logic of Value Creation. A Global Perspective on Emerging Interaction Patterns between Customers and Companies”, PhD Thesis, University of St.Gallen, St.Gallen, 2013.

Schmenner, R.W. and Swink, M.L. (1998), “On theory in operations management”, Journal of Operations Management, Vol. 17 No. 1, pp. 97–113.

Schonberger, R. (1986), World class manufacturing: The lessons of simplicity applied, Free Press, New York.

Schroeder, R.G., Linderman, K., Liedtke, C. and Choo, A.S. (2008), “Six Sigma: Definition and underlying theory”, Journal of Operations Management, Vol. 26 No. 4, pp. 536–554.

Schwartz, S.H. (1999), “A Theory of Cultural Values and Some Implications for Work”, Applied Psychology, Vol. 48 No. 1, pp. 23–47.

Page 283: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 261

Schwartz, S.H. (2004), “Mapping and interpreting cultural differences around the world”, in Vinken, H., Soeters, J. and Ester, P. (Eds.), Comparing cultures: Dimensions of culture in a comparative perspective, Brill, Leiden, pp. 43–73.

Scott, W.R. (2001), Institutions and organizations, 2nd ed., Sage Publications, Thousand Oaks.

Seghezzi, H.D., Fahrni, F. and Friedli, T. (2013), Integriertes Qualitätsmanagement: Der St.Galler Ansatz, 4th ed., Hanser, München.

Seller, C. and Davis, R. (2013), “From Process Stabilization to Plant Network Performance: Pfizer’s Journey to Operational Excellence”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 117–130.

Senge, P.M. (1990), The Fifth Discipline: The Art and Practice of the Learning Organization, 1st ed., Doubleday/Currency, New York.

Seth, D. and Tripathi, D. (2005), “Relationship between TQM and TPM implementation factors and business performance of manufacturing industry in Indian context”, International Journal of Quality & Reliability Management, Vol. 22 No. 3, pp. 256–277.

Shah, R., Chandrasekaran, A. and Linderman, K. (2008), “In pursuit of implementation patterns: the context of Lean and Six Sigma”, International Journal of Production Research, Vol. 46 No. 23, pp. 6679–6699.

Shah, R. and Ward, P.T. (2007), “Defining and developing measures of lean production”, Journal of Operations Management, Vol. 25 No. 4, pp. 785–805.

Shah, R. and Ward, P.T. (2003), “Lean manufacturing: context, practice bundles, and performance”, Journal of Operations Management, Vol. 21 No. 2, pp. 129–149.

Shang, G. and Pheng, L.S. (2012), “The adoption of Toyota Way principles in large Chinese construction firms”, Journal of Technology Management in China, Vol. 7 No. 3, pp. 291–316.

Shapiro, B.P. (1977), “Can marketing and manufacturing coexist?”, Harvard Business Review, Vol. 55 No. 4, pp. 104–114.

Sheth, J.N. (2011), “Impact of Emerging Markets on Marketing: Rethinking Existing Perspectives and Practices”, Journal of Marketing, Vol. 75 No. 4, pp. 166–182.

Singh, B., Garg, S. and Sharma, S. (2010), “Scope for lean implementation: a survey of 127 Indian industries”, International Journal of Rapid Manufacturing, Vol. 1 No. 3, pp. 323–333.

Singh, D. (2012), “Emerging economies and multinational corporations: An institutional approach to subsidiary management”, International Journal of Emerging Markets, Vol. 7 No. 4, pp. 397–410.

Singh and Lakhwinder (2006), Innovations, high-tech trade and industrial development: Theory, evidence and policy, UNU World Inst. for Development Economics Research (UNU/WIDER), Helsinki.

Page 284: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

262 REFERENCES

Skinner, C.W. (1964), “Management of International Production”, Harvard Business Review, Vol. 42 No. 5, pp. 125–136.

Skinner, W. (1969), “Manufacturing - missing link in corporate strategy”, Harvard Business Review, Vol. 47 No. 3, pp. 136–145.

Skinner, W. (1974), “The focused factory”, Harvard Business Review, Vol. 52 No. 3, pp. 113–121.

Slack, N. and Lewis, M. (2011), Operations strategy, 3rd ed., Prentice Hall, Harlow. Slack, N. and Lewis, M. (2002), Operations strategy, 1st ed., Prentice Hall, Harlow. Solis, L.E., Raghu-Nathan, T. and Rao, S.S. (2000), “A regional study of quality

management infrastructure practices in USA and Mexico”, International Journal of Quality & Reliability Management, Vol. 17 No. 6, pp. 597–614.

Sousa, R. and Voss, C. (2008), “Contingency research in operations management practices”, Journal of Operations Management, Vol. 26 No. 6, pp. 697–713.

Spear, S.J. and Bowen, H.K. (1999), “Decoding the DNA of the Toyota production system”, Harvard Business Review, Vol. 77 No. 5, pp. 96–106.

Spencer, J.W. (2008), “The Impact of Multinational Enterprise Strategy on Indigenous Enterprises: Horizontal Spillovers and Crowding Out in Developing Countries”, Academy of Management Review, Vol. 33 No. 2, pp. 341–361.

Stark, J. (2011), “Product Lifecycle Management”, in Stark, J. (Ed.), Decision Engineering, Springer, London, pp. 1–16.

Starke, V. and Kumor, J. (2013), “Abbott Pharmaceuticals Journey of Business Excellence Standards”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 153–168.

Stogdill, R.M. (1974), Handbook of leadership: A survey of the literature, Free Press, New York.

Strunz, M. (2012), Instandhaltung, Springer, Heidelberg. Suri, R. (1998), Quick response manufacturing: A companywide approach to reducing

lead times, Productivity Press, Portland. Süss, O. (2004), Das Jahrhundert der emerging markets: Profitieren von

aufstrebenden Märkten, 1st ed., Finanzbuch Verlag, München. Suzuki, T. (1994), TPM in process industries, Productivity Press, Portland. Swamidass, P.M. and Newell, W.T. (1987), “Manufacturing Strategy, Environmental

Uncertainty and Performance: A Path Analytic Model”, Management Science, Vol. 33 No. 4, pp. 509–524.

Taguchi, G. (1986), Introduction to quality engineering: Designing quality into products and processes, The Organization, Tokyo.

Taj, S. (2005), “Applying lean assessment tools in Chinese hi-tech industries”, Management Decision, Vol. 43 No. 4, pp. 628–643.

Page 285: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 263

Taj, S. (2008), “Lean manufacturing performance in China: assessment of 65 manufacturing plants”, Journal of Manufacturing Technology Management, Vol. 19 No. 2, pp. 217–234.

Taj, S. and Morosan, C. (2011), “The impact of lean operations on the Chinese manufacturing performance”, Journal of Manufacturing Technology Management, Vol. 22 No. 2, pp. 223–240.

Tanco, M., Santos, J., Rodríguez, J.L. and Reich, J. (2012), “Lean toolbox for seasonal process industries. A nougat fabrication case study”, 6th International Conference on Industrial Engineering and Industrial Management, pp. 707–714.

Tavares Thomé, A.M., Scavarda, L.F., Fernandez, N.S. and Scavarda, A.J. (2012), “Sales and operations planning: A research synthesis”, International Journal of Production Economics, Vol. 138 No. 1, pp. 1–13.

Taylor, F.W. (1911), The Principles of Scientific Management, Harper & Row, New York.

Taylor, F.W. (2007), The principles of scientific management, NuVision Pub., Sioux Falls.

Teece, D.J., Pisano, G. and Shuen, A. (1997), “Dynamic capabilities and strategic management”, Strategic Management Journal, Vol. 18 No. 7, pp. 509–533.

The Economist (2013), “Ranbaxy’s chronic maladies”, 2013, available at: http://www.economist.com/news/business/21586537-indian-firm-forefront-revolution-cheap-generic-medicines-hits-fresh (accessed February 19th, 2014).

Thomas, S. (2013), “Produktionsnetzwerksysteme. Ein Weg zu effizienten Produktionsnetzwerken”, PhD Thesis, University of St.Gallen, St.Gallen, 2013.

Thompson, J.D. (1967), Organizations in action: social science bases of administrative theory, McGraw-Hill, New York.

Tomczak, T. (1992), “Forschungsmethoden in der Marketingwissenschaft: Ein Plädoyer für den qualitativen Forschungsansatz”, Marketing-ZFP, Vol. 14 No. 2, pp. 77–87.

Töpfer, A. (2007), Six Sigma: Konzeption und Erfolgsbeispiele für praktizierte Null-Fehler-Qualität, 4th ed., Springer, Heidelberg.

Transparency International (2012), Corruption perceptions index 2012, Transparency International, Berlin.

Treville, S. de and Antonakis, J. (2006), “Could lean production job design be intrinsically motivating? Contextual, configurational, and levels-of-analysis issues”, Journal of Operations Management, Vol. 24 No. 2, pp. 99–123.

Triandis, H.C. (1982), “Dimensions of cultural variation as parameters of organizational theories”, International Studies of Management & Organization, Vol. 12 No. 4, pp. 139–169.

Triandis, H.C. and Suh, E.M. (2002), “Cultural influences on personality”, Annual Review of Psychology, Vol. 53 No. 1, pp. 133–160.

Page 286: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

264 REFERENCES

Trompenaars, F. (1993), Riding the waves of culture: Understanding cultural diversity in business, Nicholas Brealey, London.

Trompenaars, F. (1996), “Resolving International Conflict: Culture and Business Strategy”, Business Strategy Review, Vol. 7 No. 3, pp. 51–68.

Tybout, J.R. (2000), “Manufacturing firms in developing countries. How well do they do and why?”, Journal of Economic Literature, Vol. 38 No. 1, pp. 11–44.

Ulrich, H. (1984), “Die Betriebswirtschaftslehre als anwendungsorientierte Sozialwissenschaft”, in Dyllick, T. and Probst, G. (Eds.), Management, P. Haupt, Bern, pp. 168–199.

Ulusoy, G. and Ikiz, I. (2001), “Benchmarking best manufacturing practices: A study into four sectors of Turkish industry”, International Journal of Operations & Production Management, Vol. 21 No. 7, pp. 1020–1043.

UNCTAD (2005), World investment report 2005: transnational corporations and the internationalization of R&D / United Nations Conference on Trade and Development, United Nations, New York.

UNIDO (2012), “Pharmaceutical Manufacturing Plan for Africa. Business Plan”, available at: http://www.unido.org (accessed January 27th, 2014).

United Nations (2010), World investment report 2010: Investing in a low-carbon economy, United Nations, New York.

United Nations (2012), World Economic Situation and Prospects 2012, United Nations, New York.

Van de Ven, A.H. (2007), Engaged scholarship: A guide for organizational and social research, Oxford University Press, Oxford.

Vastag, G. (2000), “The theory of performance frontiers”, Journal of Operations Management, Vol. 18 No. 3, pp. 353–360.

Vecchi, A. and Brennan, L. (2011), “Quality management: a cross-cultural perspective based on the GLOBE framework”, International Journal of Operations & Production Management, Vol. 31 No. 5, pp. 527–553.

Vernadat, F. (1996), Enterprise modeling and integration: Principles and applications, 1st ed., Chapman & Hall, London.

Vickery, S.K. (1991), “A Theory of Production Competence Revisited”, Decision Sciences, Vol. 22 No. 3, pp. 635–643.

Volkmer, N.-C. (2010), “Clinical trial excellence in the pharmaceutical industry. An integrated management model”, PhD Thesis, University of St.Gallen, St.Gallen, 2010.

Voss, C. (1995), “Alternative paradigms for manufacturing strategy”, International Journal of Operations & Production Management, Vol. 15 No. 4, pp. 5–16.

Voss, C., Tsikriktsis, N. and Frohlich, M. (2002), “Case research in operations management”, International Journal of Operations & Production Management, Vol. 22 No. 2, pp. 195–219.

Page 287: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 265

Walkhoff, U. (2013), “Leadership Characteristics for a Sustainable OPEX-Implementation”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 399–410.

Wang, C.L. and Ahmed, P.K. (2003), “Organisational learning: a critical review”, The Learning Organization, Vol. 10 No. 1, pp. 8–17.

Ward, P.T., McCreery, J.K., Ritzman, L.P. and Sharma, D. (1998), “Competitive Priorities in Operations Management”, Decision Sciences, Vol. 29 No. 4, pp. 1035–1046.

Ward, P.T., Duray, R., Leong, K. and Sum, C.-C. (1995), “Business environment, operations strategy, and performance: An empirical study of Singapore manufacturers”, Journal of Operations Management, Vol. 13 No. 2, pp. 99–115.

Wei, Y. and Liu, X. (2006), “Productivity spillovers from R&D exports and FDI in China's manufacturing sector”, Journal of International Business Studies, Vol. 37 No. 4, pp. 544–557.

Werani, J., Bellando-Randone, G. and Goetzfried, M. (2010), “Making Operational Excellence Work - Training and Coaching Supporting Behavioral Change”, in Friedli, T., Basu, P.K., Gronauer, T. and Werani, J. (Eds.), The Pathway to Operational Excellence in the Pharmaceutical Industry: Overcoming the internal inertia, Editio Cantor, Aulendorf, pp. 220–240.

Werani, J. (2013), “Leading an Operational Excellence Program at a Geographic Area Level”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 419–432.

Werani, J., Pfahlert, V., Reimers, K. and Diederich, G. (2013), “Implementing an OE Strategy on Plant Level”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 189–207.

Wernerfelt, B. (1984), “A resource-based view of the firm”, Strategic Management Journal, Vol. 5 No. 2, pp. 171–180.

Weston, R. (1999), “Reconfigurable, component-based systems and the role of enterprise engineering concepts”, Computers in Industry, Vol. 40 No. 2-3, pp. 321–343.

Wheelwright, S.C. (1984), “Manufacturing strategy. Defining the missing link”, Strategic Management Journal, Vol. 5 No. 1, pp. 77–91.

White, R.E., Pearson, J.N. and Wilson, J.R. (1999), “JIT Manufacturing: A Survey of Implementations in Small and Large U.S. Manufacturers”, Management Science, Vol. 45 No. 1, pp. 1–15.

WHO (2003), “WHO Expert Committee on Specifications for Pharmaceutical Preparations. Thirty-seventh report”, available at: http://apps.who.int/medicinedocs/pdf/s5517e/s5517e.pdf (accessed January 15th, 2014).

Page 288: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

266 REFERENCES

WHO (2007), “Quality Assurance of Pharmaceuticals. A Compendium of Guidelines and Related Materials. Volume 2, Good manufacturing practices and inspection”, available at: http://www.who.int/medicines/areas/quality_safety/quality_assurance/QualityAssurancePharmVol2.pdf (accessed January 15th, 2014).

Whybark, C., Wacker, J. and Sheu, C. (2009), “The Evolution of an International Academic Manufacturing Survey”, Decision Line, Vol. 40 No. 3, pp. 17–19.

Wiengarten, F., Fynes, B., Pagell, M. and Búrca, S. de (2011), “Exploring the impact of national culture on investments in manufacturing practices and performance: An empirical multi-country study”, International Journal of Operations & Production Management, Vol. 31 No. 5, pp. 554–578.

Williamson, O.E. (1999), “Strategy research: governance and competence perspectives”, Strategic Management Journal, Vol. 20 No. 12, pp. 1087–1108.

Woetzel, J.R. (2008), “Reassessing China’s state-owned enterprises”, McKinsey Quarterly, July, pp. 1–6.

Womack, J.P. and Jones, D.T. (1996a), Lean thinking: Banish waste and create wealth in your corporation, Simon & Schuster, New York.

Womack, J.P. and Jones, D.T. (1996b), “Beyond Toyota: How to Root Out Waste and Pursue Perfection”, Harvard Business Review, Vol. 74 No. 5, pp. 140–158.

Womack, J.P., Jones, D.T. and Roos, D. (1990), The Machine that changed the world, Maxwell Macmillan International, New York.

Wong, Y., Wong, K. and Ali, A. (2009), “A study on lean manufacturing implementation in the Malaysian electrical and electronics industry”, European Journal of Scientific Research, Vol. 38 No. 4, pp. 521–535.

Wozniak, A. (2010), “Are College Graduates More Responsive to Distant Labor Market Opportunities?”, Journal of Human Resources, Vol. 45 No. 4, pp. 944–970.

Wright, T. (2013), “Structuring and Implementing an Operational Excellence Program from Scratch in the Biotech Industry”, in Friedli, T., Basu, P., Bellm, D. and Werani, J. (Eds.), Leading Pharmaceutical Operational Excellence, Springer, Heidelberg, pp. 169–187.

Yang, P. and Yu, Y. (2010), “The Barriers to SMEs’ Implementation of Lean Production and Counter measures - Based on SMS in Wenzhou”, International Journal of Innovation, Management and Technology, Vol. 1 No. 2, pp. 220–225.

Yin, R.K. (1984), Case study research: Design and methods, Sage Publications, Beverly Hills.

Yip, G.S. (2002), Total global strategy: Updated for the Internet and service era, 2nd ed., Prentice Hall, Harlow.

Yukl, G., Gordon, A. and Taber, T. (2002), “A Hierarchical Taxonomy of Leadership Behavior: Integrating a Half Century of Behavior Research”, Journal of Leadership & Organizational Studies, Vol. 9 No. 1, pp. 15–32.

Page 289: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

REFERENCES 267

Yusuf, Y., Sarhadi, M. and Gunasekaran, A. (1999), “Agile Manufacturing: The Drivers, Concepts and Attributes”, International Journal of Production Economics, Vol. 62 No. 1-2, pp. 33–43.

Zerres, M. and Sobotta, R. (2011), “Erfolgsfaktoren des Deutschen Maschinenbaus in Indien: Problemstellung, Stand der Wissenschaft und Forschungsbedarf”, in Mann, A. (Ed.), Herausforderungen der internationalen marktorientierten Unternehmensführung, Gabler, Wiesbaden, pp. 471–486.

Zhang, Y., Li, H., Li, Y. and Zhou, L.-A. (2010), “FDI spillovers in an emerging market: the role of foreign firms' country origin diversity and domestic firms' absorptive capacity”, Strategic Management Journal, Vol. 31 No. 9, pp. 969–989.

Zhao, X., Young, S.T. and Zhang, J. (1995), “A survey of quality issues among Chinese executives and work”, Production and Inventory Management Journal, Vol. 36 No. 1, pp. 44–48.

Zhouying, J. (2005), “Globalization, technological competitiveness and the 'catch-up' challenge for developing countries: some lessons of experience”, International Journal of Technology Management and Sustainable Development, Vol. 4 No. 1, pp. 35–46.

Page 290: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

268 APPENDIX A

Appendix A

Questionnaire: “Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets”

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 / self-

directed 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?

Page 291: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX B 269

Appendix B

Emerging markets as developing countries and economies in transition.

Economies in transition (United Nations, 2012)

South-Eastern Europe Commonwealth of Independent States and Georgia

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 Asia Latin America & the Caribbean

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

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

Page 292: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

270 APPENDIX B

Africa Asia Latin America & the Caribbean

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

Western Asia Bahrain Iraq Israel Jordan Kuwait Lebanon Oman Qatar Saudi Arabia Syrian Arab Republic Turkey United Arab Emirates Yemen

Chile Colombia Ecuador Paraguay Peru Uruguay Venezuela (Bolivarian Republic of )

Page 293: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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

Page 294: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

272 APPENDIX C

Appendix C

YOUR COMPANY

A. Corporate Level

A01 Number

A02 In millions

A03

A04

A05

A06

A07

A08 0%

Significantly lower

Average Significantly higher

Don`t know

A09 Market share

A10 Sales growth

A11 Return on sales

A12 Launches of new promising products

A13 Share price

A14 Pharmaceutical company with R&D

A15 Generics manufacturer

A16 Contract manufacturer

A17 Biotechnology

A18 Miscellaneous

How many production sites does your company have?

Company type

Compared to your competitors, indicate the development of your company on the following dimensions within the last 3 years.

R&D

Manufacturing costs

General & administration costs

Sales & marketing costs

Total

What was your total sales in the last year?

Please fill in the cost structure of your company as a percentage of sales (approximate figures are sufficient).

Net profit

Please indicate your company type (yes/ no). Multiple answers are possible!

yes no

yes no

yes no

yes no

Page 295: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX C 273

A19 We have a manufacturing network.

No competence

Average High competence

Don`t know

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

© 2013 Institute of Technology Management (ITEM-HSG), University of St.Gallen

© 2013 Transfer Center for Technology Management (TECTEM), University of St.Gallen

http://w w w .opexbenchmarking.com

If your site is part of a manufacturing network , does the site have a specific role within this network? Multiple answers are possible!

Site Role

proceed

yes no

yes no

Page 296: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

274 APPENDIX C

YOUR SITE

B. Type of production site

No activities planned

Activities planned

Key activities

Don`t know

Increase of flexibility

B01

B02

B03

B04

B05

B06

Increase quality

B07

B08

B09

Increase service level

B10

B11

Reduce costs

B12

B13

B14

B15

B16

Synthetic products

Other products

B17 a-d IP - protected products

B18 a-d Not IP - protected products

B19 a-d Contract manufacturing

Sum 0.00%

Increase flexibility to respond to demand changes in volume

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)

Planned improvements of the manufacturing strategy at your site

Reduce cycle time

Reduce set-up time and cleaning time

Indicate the degree of emphasis which your manufacturing plant places on the following future activities.

Reduce lead time(lead time: time from raw material to finished goods incl. all kinds of process steps)

Increase on-time delivery rate

Reduce stock

Reduce process variance through statistical process control

Increase supplier quality performance

Reduce scrap rates

Indicate how your production site is organized.

Indicate the proportion of products manufactured at your plant (%) in the last year.

Increase asset utilization (e.g. machines)

Increase employee productivity

Increase capital investment productivity

Bio-technological productsPhytopharmaceuticals

Costs

High continuous improvement rates

Low absenteeismand fluctuation

Flexibleworkforce

Self-directed teams

Stable running machines Stable processes Low inventory

OP

ER

AT

ION

AL

PE

RF

OR

MA

NC

E

Preventive maintenance

Effective technology

usage

Process management

Customer integration

Cross-funct.product development

Supplier quality

management

Set-up time reductions Pull-system

Effective Management System

Functional integration &

qualification

Employee involvement &

continuous improvement

Management commitment &

company cultureDirection setting

1 2 3

TQM

Layout-optimization

Planningadherance

JITTPM

Standardized equipment Standardized replenishmentStandardized processes

House-keeping

Structural Factors

Cost-center Profit-center

Page 297: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX C 275

B20

B21

B22

B23

API Excipients Packaging material

B24 a-c

B25 a-c

B26 Overall number of active suppliers in the supplier base

B27

B28

B29

B30

B31 Western Europe

B32 North America

B33 Eastern Europe

B34 South America

B35 Middle East

B36 India

B37 China

B38 Rest of the world

Number of active suppliers for…

Total amount purchased (in millions) of…

Percentage of internal suppliers

Percentage of suppliers that deliver your site frequently

Number of products in the last year

Procurement and supplier structure in the last year

Number of different market products produced at your plant

Number of different formulations produced at your plant

Number of different SKUs produced at your plant

Number of different technologies/ platforms used at your plant

Supplier count: number of active suppliers both internal and external

Frequently means on average every … days.

Number of orders placed with your suppliers

Sourcing by regions (primary the location of production, not the registered office/ in %) in the last year

Page 298: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

276 APPENDIX C

Unit Measure

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.

B41 Pieces

B42 Liter

B43 Liter

B44 Kg

Indicate the total volume of bulk goods that was packed at your site in the last year.

B45 Pieces

B45 a Pieces

B45 b Pieces

B46 Liter

B46 a Liter

B46 b Liter

B47 Liter

B47 a Liter

B47 b Liter

B48 Kg

Indicate the number of packed units (boxes for sale) at your site in the last year.

B49 Packed units

B50 Pieces

B51 Packed units

B52 Liter

B53 Packed units

B54 Liter

B55 Packed units

B56 Kg - average packaging size

- thereof packed in amps

- thereof packed in vials

- average packaging size

- average packaging size

- average packaging size

Semi solid forms (creams etc.)

Semi solid forms (creams etc.)

Solid forms (tablets, capsules etc.)

Liquids

Sterile liquids

Liquids

Sterile liquids

Semi solid forms (creams etc.)

Solid forms (tablets, capsules etc.)

Liquids

Sterile liquids

Production structure

Solid forms (tablets, capsules etc.)

- thereof packed in blisters

- thereof packed in bottles

- thereof packed in amps

- thereof packed in vials

Page 299: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX C 277

API Formulation Packaging

B57 a-c

B58 a-c

B59 a/b min max

B60 a/b min max

B61

B62

B63

B64

B65

B66

B67 …regulatory body

B68 …headquarters

B69 …customer

B70

B71

B72

B73

B74

B75

B76

Batch & campaign structure in the last year

Indicate the number of different process steps performed at your site (e.g. granulate, pelleting, packaging, 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%)

Less than 4 operating procedures

4-8 operating procedures

More than 8 operating procedures

Number of batches produced in the last year

Number of campaigns in the last year

Indicate the batch size range min to max

Formulation/ pelleting (in kg)

Packaging units (in units )

Vertical integration of manufacturing in the last year

Please name the single process steps executed at your site by adding or deleting steps in the list provided.

Percentage of machines which are less than 3 years old

Percentage of machines that are between 3 and 5 years old

Percentage of machines that are between 6 and 10 years old

Percentage of machines that are older than 10 years

Level of automation in the last year

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.

Percentage of machines that are manually operated

Innovation structure

Number of new drug introductions within the last 3 years ("new drugs" should be understood in the sense of new for the site)Number of launched formats/ stock keeping units (SKU) at the site within the last 3 years

Number of inspections at site within the last 3 years from…

Age of production technology in the last year

Percentage of machines that are operated with IT-support

Percentage of machines that are fully automated (without supervision)

Page 300: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

278 APPENDIX C

B77 Completely

B78

B79

B80

B81

B82 Number of orders received from your customers

B83 Western Europe

B84 North America

B85 Eastern Europe

B86 South America

B87 Middle East

B88 India

B89 China

B90 Rest of the world

B91

B92

© 2013 Institute of Technology Management (ITEM-HSG), University of St.Gallen© 2013 Transfer Center for Technology Management (TECTEM), University of St.Gallen

The plant is an original plant and was founded by the company itself

The plant was acquired during a merger or acquisition…

http://w w w .opexbenchmarking.com

Percentage of customers delivered frequently

Frequently means on average every … days.

Percentage of internal customers

Customers by regions (primary the location of delivery, not the registered office/ in %) in the last year

History of the plant

Implementation of electronic batch records in the last year

Not at all

Customer structure in the last year

Overall number of customers

proceed

yes no

...within the last 3 years

...within the last 3-10 years

...more than 10 years ago

Page 301: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX C 279

C. Cost and headcount structure of the plant

C01 In thousand

C02 In thousand

C03

Definition Unit Measure

C04 thousand

C05 thousand

C06 thousand

C07 thousand

C08 thousand

C09 thousand

C10 thousand

C11 thousand

0.00

C12 thousand

C13 thousand

C14 thousand

C15 thousand

C16 thousand

Please indicate the non-consolidated sales of your production site in the last year.

Material costs

Plant, property and equipment costs

Other costs

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.

Cost structure in the last year

Direct material costs

Overall costs for quality assurance (usually the total number from your cost center(s) QC/ QA).

Cost due to rework.

Cost due to destruction.

Costs for machines & tools Costs for property and plant

Corporate allocations

Other costs

Cost of quality

Cost for planned and condition-based maintenance activities.

Rework cost

Destruction cost

Indirect material costs

Direct labor costs

Indirect labor costs

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!

Maintenance costs

Preventive maintenance cost

Sum

Labor costs

Cost for raw materials and preliminary products.

Cost for operating supplies as well as services.

Cost for employees directly involved in manufacturing and quality labs (see also FTE structure below).Cost for plant employees whose time is not charged to specific finished products (see also FTE structure below).

Cost for machines, equipment, tools, spare parts including costs for depreciation, electricity for the machines etc.Cost for property and plant including costs of depreciation and other costs for electricity, water etc.

Cost for corporate expenses charged to the plant.

Cost for e.g. Sales & Clerical, Marketing, R&D located at the dedicated plant.

Total maintenance cost includes both - internally and externally- rendered services, also cost for spare parts and consumables used for maintenance.

Name

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".

Costs

High continuous improvement rates

Low absenteeismand fluctuation

Flexibleworkforce

Self-directed teams

Stable running machines Stable processes Low inventory

OP

ER

AT

ION

AL

PE

RF

OR

MA

NC

E

Preventive maintenance

Effective technology

usage

Process management

Customer integration

Cross-funct.product development

Supplier quality

management

Set-up time reductions Pull-system

Effective Management System

Functional integration &

qualification

Employee involvement &

continuous improvement

Management commitment &

company cultureDirection setting

1 2 3

TQM

Layout-optimization

Planningadherance

JITTPM

Standardized equipment Standardized replenishmentStandardized processes

House-keeping

Structural Factors

Page 302: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

280 APPENDIX C

C17 0

C18 API production

C19 Pharmaceutical production

C20 Packaging

C21 Testing ("taking samples") incoming

C22 Testing ("taking samples") product testing

C23 Batch review and approval

C24 0

C25 Testing ("taking samples") management

C26 Laboratories management

C27 Environmental monitoring

C28 Stability testing

C29 Validation of process, equipment and method

C30 Quality planning

C31 Reactive (Fire fighting)

C32 Basic Care (e.g. lubrication, cleaning)

C33 Preventive (calendar based exchange of parts)

C34 Predictive (condition based exchange of parts)

C35 Other

C36 Production management

C37 Materials management (procurement and logistics)

C38 Manufacturing engineering

C39 EH&S (environment, health and safety)

C40 IT-support

C41 Miscellaneous (HR, finance, management)

C42 Overall number of FTEs at the site 0

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

© 2013 Institute of Technology Management (ITEM-HSG), University of St.Gallen© 2013 Transfer Center for Technology Management (TECTEM), University of St.Gallen

http://w w w .opexbenchmarking.com

Employment structure

Headcount structure

Please include all FTEs work ing at your site independent from being on your payroll.

Direct laborP

rodu

ctio

n la

bor

Qua

lity

cont

rol

Indirect labor

Oth

er fu

nctio

nsQ

ualit

y co

ntro

lQ

ualit

y as

sura

nce

Mai

nten

ance

proceed

Page 303: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX C 281

D. Total Productive Maintenance System

Preventive maintenance The statement applies to our plant...

not at all partially completely Don`t know

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 The statement applies to our plant...

not at all partially completely Don`t know

D09Our plant is situated at the leading edge of new technology in our industry.

D10We 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 The statement applies to our plant...

not at all partially completely Don`t know

D15 Our employees strive to keep our plant neat and clean.

D16Our 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.

© 2013 Institute of Technology Management (ITEM-HSG), University of St.Gallen© 2013 Transfer Center for Technology Management (TECTEM), University of St.Gallen

http://w w w .opexbenchmarking.com

Please indicate to which degree the following statements apply to your plant!

proceed

Costs

High continuous improvement rates

Low absenteeismand fluctuation

Flexibleworkforce

Self-directed teams

Stable running machines Stable processes Low inventory

OP

ER

AT

ION

AL

PE

RF

OR

MA

NC

E

Preventive maintenance

Effective technology

usage

Process management

Customer integration

Cross-funct.product development

Supplier quality

management

Set-up time reductions Pull-system

Effective Management System

Functional integration &

qualification

Employee involvement &

continuous improvement

Management commitment &

company cultureDirection setting

1 2 3

TQM

Layout-optimization

Planningadherance

JITTPM

Standardized equipment Standardized replenishmentStandardized processes

House-keeping

Structural Factors

Page 304: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

282 APPENDIX C

E. Total Quality Management System

Process management The statement applies to our plant...

not at all partially completely Don`t know

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.

E04In 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 The statement applies to our plant...

not at all partially completely Don`t know

E09Manufacturing 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.

E11Due 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.

E13For product and process transfers between different units or sites standardized procedures exist, which ensure a fast, stable and complied knowledge transfer.

Customer involvement The statement applies to our plant...

not at all partially completely Don`t know

E14 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.

Please indicate to which degree the following statements apply to your plant!

Costs

High continuous improvement rates

Low absenteeismand fluctuation

Flexibleworkforce

Self-directed teams

Stable running machines Stable processes Low inventory

OP

ER

AT

ION

AL

PE

RF

OR

MA

NC

E

Preventive maintenance

Effective technology

usage

Process management

Customer integration

Cross-funct.product development

Supplier quality

management

Set-up time reductions Pull-system

Effective Management System

Functional integration &

qualification

Employee involvement &

continuous improvement

Management commitment &

company cultureDirection setting

1 2 3

TQM

Layout-optimization

Planningadherance

JITTPM

Standardized equipment Standardized replenishmentStandardized processes

House-keeping

Structural Factors

Page 305: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX C 283

Supplier quality management The statement applies to our plant...

not at all partially completely Don`t know

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.

© 2013 Institute of Technology Management (ITEM-HSG), University of St.Gallen© 2013 Transfer Center for Technology Management (TECTEM), University of St.Gallen

http://w w w .opexbenchmarking.com

proceed

Page 306: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

284 APPENDIX C

F. Just in Time System

Set-up time reduction The statement applies to our plant...

not at all partially completely Don`t know

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.

F06Optimized set-up and cleaning procedures are documented as best-practice process and rolled-out throughout the whole plant.

Pull production The statement applies to our plant...

not at all partially completely Don`t know

F07Our 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.

Please indicate to which degree the following statements apply to your plant!

Costs

High continuous improvement rates

Low absenteeismand fluctuation

Flexibleworkforce

Self-directed teams

Stable running machines Stable processes Low inventory

OP

ER

AT

ION

AL

PE

RF

OR

MA

NC

E

Preventive maintenance

Effective technology

usage

Process management

Customer integration

Cross-funct.product development

Supplier quality

management

Set-up time reductions Pull-system

Effective Management System

Functional integration &

qualification

Employee involvement &

continuous improvement

Management commitment &

company cultureDirection setting

1 2 3

TQM

Layout-optimization

Planningadherance

JITTPM

Standardized equipment Standardized replenishmentStandardized processes

House-keeping

Structural Factors

Page 307: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX C 285

Layout optimization The statement applies to our plant...

not at all partially completely Don`t know

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.

F19As 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.

F21Currently our manufacturing processes from raw material to finished goods involve almost no interruptions and can be described as a full continuous flow.

F22At the moment we are strongly working to reach the status of a full continuous flow with no interruption between raw material to finished goods.

F23 We use "Value Stream Mapping" as a methodology to visualize and optimize processes.

Planning adherence The statement applies to our plant...

not at all partially completely Don`t know

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.

F28Our 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.

© 2013 Institute of Technology Management (ITEM-HSG), University of St.Gallen© 2013 Transfer Center for Technology Management (TECTEM), University of St.Gallen

http://w w w .opexbenchmarking.com

proceed

Page 308: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

286 APPENDIX C

G. Management System

Direction setting The statement applies to our plant...

not at all partially completely Don`t know

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.

G03Goals and objectives of the manufacturing unit are closely linked and consistent with corporate objectives. The production site has a clear focus.

G04The overall objectives of the production site are closely linked to the team or personal objectives of our shop-floor teams and employees.

G05Our manufacturing managers (Head of manufacturing, Site-leader etc.) have a good understanding of how the corporate/ divisional strategy is formed.

G06Our 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 The statement applies to our plant...

not at all partially completely Don`t know

G07 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.

G11The 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.

G13Problems (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.

G15Our 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.

Please indicate to which degree the following statements apply to your plant!

Costs

High continuous improvement rates

Low absenteeismand fluctuation

Flexibleworkforce

Self-directed teams

Stable running machines Stable processes Low inventory

OP

ER

AT

ION

AL

PE

RF

OR

MA

NC

E

Preventive maintenance

Effective technology

usage

Process management

Customer integration

Cross-funct.product development

Supplier quality

management

Set-up time reductions Pull-system

Effective Management System

Functional integration &

qualification

Employee involvement &

continuous improvement

Management commitment &

company cultureDirection setting

1 2 3

TQM

Layout-optimization

Planningadherance

JITTPM

Standardized equipment Standardized replenishmentStandardized processes

House-keeping

Structural Factors

Page 309: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX C 287

Employee involvement and continuous improvement The statement applies to our plant...

not at all partially completely Don`t know

G17 We have implemented tools and methods to deploy a continuous improvement process.

G18Our 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.

Please indicate which of the following statements are true for your work teams

G26We have organized production employees into teams in production areas. For each team there is one dedicated team member that is responsible for supervisory tasks.

G27We 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 The statement applies to our plant...

not at all partially completely Don`t know

G28Each 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.

G29At 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.

G32We continuously invest in training and qualification of our workers. We have a dedicated development and qualification program for our production workers.

© 2013 Institute of Technology Management (ITEM-HSG), University of St.Gallen© 2013 Transfer Center for Technology Management (TECTEM), University of St.Gallen

http://w w w .opexbenchmarking.com

proceed

yes no

yes no

Page 310: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

288 APPENDIX C

H. Basic Elements

Standardization and simplification The statement applies to our plant...

not at all partially completely Don`t know

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).

H03Optimized 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.

H05We 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 The statement applies to our plant...

not at all partially completely Don`t know

H07 Performance charts at each of our production processes (e.g. packaging) indicate the annual performance objectives.

H08

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.

H09Charts showing the current performance status (e.g. current scrap-rates, current up-times etc.) are posted on the shop-floor and visible for everyone.

H10Charts showing current takt times and schedule compliance (e.g. Andonboards) are posted on the shop-floor and visible for everyone.

Please indicate to which degree the following statements apply to your plant!

Costs

High continuous improvement rates

Low absenteeismand fluctuation

Flexibleworkforce

Self-directed teams

Stable running machines Stable processes Low inventory

OP

ER

AT

ION

AL

PE

RF

OR

MA

NC

E

Preventive maintenance

Effective technology

usage

Process management

Customer integration

Cross-funct.product development

Supplier quality

management

Set-up time reductions Pull-system

Effective Management System

Functional integration &

qualification

Employee involvement &

continuous improvement

Management commitment &

company cultureDirection setting

1 2 3

TQM

Layout-optimization

Planningadherance

JITTPM

Standardized equipment Standardized replenishmentStandardized processes

House-keeping

Structural Factors

Page 311: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX C 289

Reasons for launching Operational Excellence initiatives The statement applies to our plant...

not at all partially completely Don`t know

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

© 2013 Institute of Technology Management (ITEM-HSG), University of St.Gallen© 2013 Transfer Center for Technology Management (TECTEM), University of St.Gallen

http://w w w .opexbenchmarking.com

proceed

Page 312: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

290 APPENDIX C

I. Performance of the plant

Name Unit Measure Don't know

I01 Complaint rate (customer)

%

I02 Yield %

I03 RFT %

I04 Rejected batches %

I05 Scrap rate %

I06 Complaint rate (supplier)

%

I07 Release time Working days

I08 DeviationsNumber per

month

I09 Deviation closure time

Working days

Name Unit Measure Don't know

I10 DOH Days

I11 Service level - Delivery (OTIF)

%

I12 Service level Supplier

%

Name Unit Measure Don't know

I13 Forecast accuracy

%

I14Production schedule accuracy

%

I15 Priority orders %

I16 Production flexibility upside

Working days

I17Replacement time to customer

Working days

I18 < 15 daysI19 15-30 daysI20 > 30 days

I21 Raw material turns

Number

Quality performance

Number of deviations per month that arise from raw materials purchased, production components (equipment) and product/ process specifications.

Response time for short-term delivery to the customer for goods not on stock (delivery time supplier and your production time).

Number of released production orders as scheduled as a percentage of all production orders released within your freezing period.

Freezing period in which you do not allow any changes of your production schedule.

JIT performance

Definition

Definition

Delivery performance

Number of justified complaints as a percentage of all customer orders delivered.

Number of rejected batches as a percentage of all batches produced.

Number of complaints as a percentage of all deliveries received (from your supplier).

Average difference between 100% and real achieved output in pharmaceutical production due to material losses, weighting, sediments.

Average deviation closure time in days.

Total number of batches produced without document errors or exception reports as a percentage of the total number of batches produced.

Average difference between 100% and real achieved output in packaging operations.

Average Inventory less write downs x 365 divided by the 'Cost of Goods Sold (COGS).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.

Average time from sampling to release of finished products including all waiting times.

Definition

Actual orders received compared to the annual sales forecast.

Annual cost of raw materials purchased divided by the average raw material inventory.

Cycle timeCycle 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.

Number of priority orders as a percentage of all orders produced.

Costs

High continuous improvement rates

Low absenteeismand fluctuation

Flexibleworkforce

Self-directed teams

Stable running machines Stable processes Low inventory

OP

ER

AT

ION

AL

PE

RF

OR

MA

NC

E

Preventive maintenance

Effective technology

usage

Process management

Customer integration

Cross-funct.product development

Supplier quality

management

Set-up time reductions Pull-system

Effective Management System

Functional integration &

qualification

Employee involvement &

continuous improvement

Management commitment &

company cultureDirection setting

1 2 3

TQM

Layout-optimization

Planningadherance

JITTPM

Standardized equipment Standardized replenishmentStandardized processes

House-keeping

Structural Factors

Page 313: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX C 291

I22 WIP turns Number

I23 Finished goods turns

Number

I24 Average order lead time

Working days

Waiting time Production QA/QC Don't know

I25 a-c

I26 a-c

API Formulation Packaging Don't know

I27 a-cAverage changeover time

I28 a-c Changeovers

Name Definition API Formulation Packaging Don't know

I29 a-c Setup and Cleaning

I30 a-c Dedicated equipment

I31 a-cUnplanned maintenance

Mon - Fri Sat Sun Don't know

I32 a-c Shift-model

I33 a-c Shift length

If your are not sure an estimated answer is better than a field not completed!

in % API Formulation Packaging Don't know

I34 a-c

I35 a-c

I36 a-c

I37 a-c

I38 a-c 0.00% 0.00% 0.00%

Number of shifts per day.

Amount Produced - the number of units produced during the time periodIdeal Cycle Time - the designed or optimum cycle timeAvailable Time - the time the machine actually ran: scheduled time - downtime

(OEE) Quality = (Input - Defects) / Input

Input - the number of units that were started through the processDefects - the number of defective units (even if they were subsequently salvaged)

Overall Equipment Effectiveness = (OEE) Availability x (OEE) Performance x (OEE) Quality

Scheduled Time - time during which the equipment was scheduled or expected to operate during the time period being analyzedDowntime - breakdowns (unplanned downtimes) + setup downtime

(OEE) Performance = (Amount Produced x Ideal Cycle Time) / Available time

Loading = Scheduled Time / Calendar Time

Average length of one shift in hours.

Scheduled Time - time during which the equipment was scheduled or expected to operate during the time period being analyzedCalendar Time - usually 365 days, 8760 hours

The time spend for setup and cleaning as a percentage of the scheduled time.

Annual cost of raw materials purchased plus annual cost of conversion divided by the average work in process inventory.Annual cost of goods sold divided by the average finished goods inventory.Average time between a customer placing an order and receiving delivery.

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.

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.

Average production lead time

TPM performance

The percentage of your equipment that is dedicated to one product.Proportion of unplanned maintenance work as a percentage of the overall time spent for maintenance works.

Overall Equipment Effectiveness

(OEE) Availability = (Scheduled Time - Downtime) / Scheduled Time

Page 314: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

292 APPENDIX C

Name Definition Unit Measure Don't know

I39 Management layers

Number

I40 Management span of control

Number

I41 Group work %

I42Functional integration

%

I43 Suggestions (Quantity)

Number

I44 Suggestions (Quality)

thousand

I45Employee turnover

%

I46 Sick leave %

I47 Overtime %

I48 Training Days

I49Level of qualification

%

I50 Level of safety Number per month

Thank you very much for your participation!

[email protected]@unisg.ch

© 2013 Institute of Technology Management (ITEM-HSG), University of St.Gallen© 2013 Transfer Center for Technology Management (TECTEM), University of St.Gallen

Reportable incidents due to accidents and safety on average per month.

Number of workers without prior work related qualification/education as a percentage of the total number of workers at your site.

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).

http://w w w .opexbenchmarking.com

Estimated total savings due to suggestions that were implemented.

The average number of employees directly reporting to middle management (supervisors).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.Average number of suggestions per employee in the last year.

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.

Please save the survey on your hard disk and email the file to

You have completed the survey.

Management System Performance

Employees leaving your site due to terminations, expired work contracts, retirements etc. as a percentage of all employees.Total time of employees absent (e.g. sick leave) as a percentage of the total working time.

Number of training days per employee (all kinds of training off- and on the job).

Page 315: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

APPENDIX D 293

Appendix D

Cultural dimensions of Sub-Saharan Africa120 (Hofstede, 2014)

PDI UAI IDV MAS Ghana 74 55 11 39 Angola 83 60 18 20 Kenya 63 40 22 61 Malawi 63 40 28 39 Mozambique 85 44 15 38 Namibia 58 36 28 39 Nigeria 74 45 28 61 Sierra Leone 63 40 16 39 South Africa 41 39 69 64 Zambia 53 40 34 39 Average 65.7 43.9 26.9 43.9

120 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.

Page 316: Operational Excellence in the Pharmaceutical …FILE/... · Operational Excellence in the Pharmaceutical Industry – An Architecture for Emerging Markets . DISSERTATION . of the

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)