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European Pharmaceutical Contractor

Mastering Complexity

Julian Mosquera at LCP Consulting explains how a broader approach to the application of Lean and Six Sigma principles is the best way for businesses to achieve the next level of cost and service improvement

Lean (with its focus on lead time and waste reduction) and Six Sigma (with its focus on process variance reduction) are once again the focus of attention for management teams seeking improvements in operational performance and cost improvement to drive earnings. In the current economic climate, it is not surprising that this is becoming their singular focus.

With the predominant focus of Lean and Six Sigma on operations improvement, there is a limit to the scale of business improvements that can be achieved; a more holistic supply chain, operations management and organisation approach is required. Lean techniques have been applied since the mid-1980s, so the question is: what has changed? Beyond the packaging of the techniques, the answer is pretty much nothing! Sectors have adopted

Lean thinking at different points in time, from the early adopters in the automotive, hightechnology and electronics sectors, to batch and general manufacturing, and more recently large retailers, and now we see a great focus coming from the pharmaceutical, healthcare and chemicals sectors. But, beyond natural evolution, is there more going on?

The major challenge for organisations continues to be the sheer scale of the transformation – from training and education, through to the deployment of improvement teams, to actually landing value benefit and securing it over the long term with projects that deliver real value and ‘stick’ in the organisation. A whole industry has grown up around these initiatives, teams are generally large and programme delivery is often characterised as cumbersome and technical, not the Lean delivery one might expect.

First there is a need to really focus efforts through small tight teams that can quickly pin-point the root cause of the problem and then deploy equally small teams to implement a permanent solution. It is important to be highly selective with the tools used and analysis required, drilling down where the nature of the problem demands.

Experience suggests that integrating Lean and Six Sigma techniques into a broader problem analysis and resolution achieves more complete, quicker results. The selective application of techniques brings real value and clarity to a problem, while allowing wider business issues to be addressed simultaneously, without the project overheads typically associated with such programmes. The operative word is ‘selective’ – a major criticism levelled at such programmes is that they encourage ‘death by analysis’ and take too long to generate actionable results. Businesses are looking for investigations that are comprehensive, yet at the same time can be deployed in anything from four to eight weeks dependent on scope, rather than the comparable Six Sigma exercises that are measured in months.

The essence of Lean and Six Sigma is about operational improvement to generate competitive advantage through cost and efficiency; they are about doing things right. The underlying principle is that being able to perform at a lower cost than the competition gives competitive advantage; indeed it does, but it is not the complete grail of competitive capability. Companies can create even more advantage by also focusing on ‘value’. This is about doing the right things with the goal that the organisation does the right things well.

The key to this is applying many of the same tools to address inherent business complexity. It is a fact that no business operates a single supply chain. There are multiple sourcing, production or transformation points, third party vendors and intermediaries; even the handling characteristics and storage options give rise to alternate material flows. And then there are customers, channels to market and service standards. Each one of these end-to-end processes constitutes a separate supply chain that possesses its own unique characteristics and potential for control and decision making.

THE DRIVERS OF BUSINESS AND SUPPLY CHAIN COMPLEXITY

While Lean and Six Sigma have, over the last 20 years, homed in on operations that the wider supply chain and management dimension has often missed, one sector that has recently tapped in on the benefits and demonstrates the value of a more holistic approach is retail. The majority of these businesses do not fundamentally manufacture anything and, as a result, their focus has to be holistic, focusing on time compression and waste reduction rarely seen in other sectors. They have to consider the interaction of all business activities and processes: from sourcing, design, planning, supplier management (with its inherent manufacturing cycle) and the supply chain processes to deliver product to store or direct to customer. As such, retailers are inherently addressing far more complex and integrated problems that influence many aspects of their business, not just one area or function.

Pharma and the related healthcare sector have much in common with retail in terms of taking a far more holistic Lean approach, addressing cross-functional issues and seeking integrated solutions that deliver both streamlined solutions and optimised financial results. We are seeing diverse Lean projects across the breadth of pharma which address traditional areas of focus as well as the more challenging. For example:

  • With the rate of M&A, general business improvements have applied Lean thinking techniques (not always implicitly or directly) to exploit global scalability, develop common processes and systems, streamline business functions (not just operations) and to ensure efficiency in developing common standards for regulatory compliance
  • Operations improvement in primary and secondary manufacture to guarantee supply on far shorter lead times than traditionally experienced, with improved schedule adherence and fewer order changes
  • Management of global supply and inventory disposition, applying postponement techniques and better planning to reduce working capital, as well as faster and leaner routes to market that reduce the dependency for high channel stocks to guarantee supply
  • Comprehensive reviews of asset footprints to maximise efficiencies, yet balance fulfilment capabilities to more closely match emerging (and challenging) customer expectations of more customised replenishment
  • Clinical trials and early stage integration that overhaul traditional ways of working and exploit technology to better integrate the process, improve process visibility and reduce the resources deployed with a focus on improving the ‘experience’ of all participants
  • Streamlining the discovery and R&D processes
  • Reengineering market supply dynamics and channel management to reduce the potential for pharma fraud and parallel trade
  • Developing direct distribution and patient service models that require the integration of sales, ordering, manufacture and fulfilment capabilities to execute with integrity

Accepting that supply chain and operations management are complex, the central question is how much of this complexity is unnecessary, that is to say, not enabling a business to better serve its customers. The interaction of all of these flows, the business processes that emerge, and the organisation that evolves to manage and control them, is often a hive of sub-optimisation that needs to be ‘mastered’. Constrained thinking, defaulting to a ‘one solution fits all’ mentality, generates systemic and operational waste, leaving immense potential for improvement.

Add to this the emerging challenges of business volatility, global turbulence and the extended enterprise, such that businesses are exposed to higher levels of risk from supply chain disruption, and it is obvious that the management dimensions that must be addressed are far broader than they traditionally have been.

While pharma has embraced Lean and Six Sigma, and has comparatively rapidly introduced new processes and ways of working, it must also recognise that the challenges for process improvement are common with those of other sectors, namely to move away from ‘spot’ solutions and address the wider issues of business complexity outlined above, as part of the total Lean solution that delivers global traction.

MASTERING COMPLEXITY IN FIVE KEY STEPS

We have argued that businesses need to apply a more holistic approach and methodology that widens the analysis and addresses issues of direct concern to the Board. In executing such programmes, we find that there is a need to focus effort on three themes (additional to the Lean agenda) that address the true cost of complexity:

  • Eliminating unprofitable complexity in both product and customer dimensions
  • Focusing on real value for customers
  • Working and fixed capital conservation

These still fundamentally draw upon the philosophies of waste and time reduction, and the removal of process variability, but crucially address business processes across all dimensions of complexity.

Our fact-based approach follows the five steps below and yields practical results that can be quickly implemented:

  1. Map the main supply chains, specifying their typical trading and flow characteristics (selectively applying Lean and Six Sigma); it is critical to segment these flows, grouping similar activities as far as possible, and establishing their unique features that must be managed or controlled
  2. Design out complexity (where possible), or in many cases determine how best to manage it. Establish simple management rules and guidelines to introduce greater control and governance over the range of channels that exist, thereby limiting the degrees of freedom a business has to contend with
  3. Streamline management processes, such that they become more predictable and resilient
  4. Design in responsive capability and capacity, for those areas of business that require the flexibility to be more demand driven
  5. Define a road map of discrete interventions across all areas of business that will cumulatively give rise to a significant profit improvement

CONCLUSION

Many businesses have invested heavily in developing trained resources. The underlying capability exists; the challenge is often the constrained scope of the work of these teams when it comes to addressing the root causes of complexity and its cost. The key is knowing where to look and what the wider problem is likely to be. The ability to narrow the field of investigation to ‘big value potential’ rapidly, as well as the consideration of potential solutions, is a crucial skill that functionally based Lean teams may not have.

Combining external expertise with internal resource can achieve outstanding results that stick. Through the programme of investigation, there is a natural transfer of knowledge and the internal team automatically has buy-in to the solutions developed and are the best advocates a business can have to achieve wider adoption and acceptance of proposed changes.


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Julian Mosquera is a Director of LCP; he joined the company in 1994 to specialise in the project leadership and management of major supply chain improvement assignments. Julian has worked in all areas of business process change, ranging from planning through manufacture and supply, covering both management and technical aspects of change. He has worked extensively across most industrial and commercial sectors, including retail, manufacturing, chemicals and high technology. He was formerly a lecturer at the University of Liverpool, with specific research interest in Logistics Management, and gained a PhD in Logistics Management.
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