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Pharmaceutical Manufacturing and Packing Sourcer

A Wise Investment

Using the Total Cost of Ownership method can prove invaluable when making investment decisions. However, it is crucial to keep an eye on changing market conditions and company needs to make the most out of the results 

The Total Cost of Ownership (TCO) calculation has its origin in the IT industry. This method can be used to calculate the costs of an investment including operating costs. TCO calculations are, therefore, a good analytical basis for investment decisions. In this context, it is important to recognise any cost drivers and hidden costs and to quantify them as far as possible.

The definition of TCO is: “A method which is used to support investment decisions. In this method, the costs throughout the entire lifecycle of a configuration item are calculated (from acquisition to disposal) (1).”

The following explanations refer to a fictitious project to acquire a secondary packaging machine. They do not go into all blocks of costs in depth, only the most relevant.

Investment Costs

In terms of investment costs, the following cost blocks are essentially of relevance: 

  • The packaging machine(s) are likely to constitute the largest block with regard to investment costs
  • The installation and commissioning costs for the machines
  • The costs of qualification of the machines, including all documentation and creation of standard operating procedures (SOPs)
  • Training costs for personnel
  • Tools and spare parts

Experience shows that a cleanly structured specification is an important prerequisite for obtaining meaningful quotations, which can also be compared with each other. However, specifications are frequently too unclear and unstructured, and this makes even the first step of the TCO process considerably more difficult. Given a structured specification and correspondingly structured quotations, however, this first step is relatively easy.

Operating Costs

Some of the most essential blocks of costs are listed below.

Personnel Costs

The layout of the corresponding packaging installation can be used as a basis for the calculation of personnel costs. All necessary personnel interventions are then entered in a table. Essentially, on a packaging machine these involve the filling of magazines – for example, the folding box blanks, pack inserts, rolls of labels or other components not automatically fed to the machine. Then, in the next column, the time needed by an operator to refi ll the corresponding intervention points is entered. It is now possible to calculate what percentage of operator time is required for each intervention point. The sum of all the percentages gives an approximate picture of the number of people required for the operation of the machine.


Infrastructure Costs

It is well known that the costs for a conditioned space in the pharmaceutical industry are very high. Accordingly, it is important to occupy as little of this expensive space as possible. On the other hand, it must be ensured that a reasonable flow of materials and short distances for the personnel are achieved. Consequently a good machine layout, tailored to local conditions, will prove extremely beneficial.

Packaging Material Costs

In principle, the development of the packaging solution should take place right at the beginning of the decision-making process. The choice of a suitable packaging solution has a considerable impact on many TCO points. Special attention must be paid to the packaging solution because it may undoubtedly be one of the dominant cost drivers.

A simple practical example can explain this: a pharmaceutical producer wants to safely package three syringes and a pack insert. The choice is between a classic blister pack in a side-loading folding box, or a 100 per cent cardboard solution consisting of a folding box with a glued corrugated flute which can be produced on a toploader. Table 1 (on page 32) shows how the material costs differ. For an annual quantity of, say, 2.5 million packs, there are recurrent savings of $350,000 per year.

In addition to the pure material costs, other criteria have to be borne in mind, although these are difficult to represent as costs. They include, for example, ease of use for the user, simplicity of manufacture and, not least, the ecological benefits resulting from the substitution of plastic by cardboard.

Logistics Costs

In the particular case of products which have to be transported in the cold chain, the volume of the packing is of great importance.

The difference in volume is a factor of about two (see Figure 1). This big difference occurs because the toploading box is optimised for volume and the edge of the blister for sealing with the lidding foil is eliminated. By land, the costs for a 9m3 container over 3,000km amount to approximately $5,000.

Using a simple example, Table 2 shows that it is precisely when products have to be transported refrigerated that the packaging assumes great significance. The difference in cost is even more dramatic if the products have to be airfreighted and can easily reach millions.


Energy Costs

The energy costs for a packaging installation can be determined fairly easily from manufacturers' information. Due to the high heat expenditure for the film forming and sealing process, a thermoforming machine (for blisters) will certainly come out worse than, for example, a toploader for monomaterial packaging (cardboard) which is only glued. Basically, however, energy costs are not expected to have too much of an effect on the TCO calculation.

Maintenance Costs

With regard to maintenance costs, most companies are likely to have values obtained from experience at their disposal, or they can obtain them relatively easily from industry organisations. In the case of a standard packaging machine from a good-quality manufacturer, it can be assumed that the maintenance costs, too, will have no relevant impact on the TCO calculation.

Overall EquipmentEffectiveness (OEE)

The OEE of an installation hangs like a pall of smog over the operating cost account because it has an effect on many of the aforementioned cost blocks. If the OEE is low, personnel costs and energy costs will increase automatically, as the processing of orders takes longer. It is important at this stage to make a clear distinction between factors which are affected by the packaging machine or the packaging solution, and those which have more to do with organisational matters and the periphery of the installation. 

In this context, format changes are a classic and highly topical example. The OEE can be influenced massively by lot sizes, which are becoming smaller and smaller. In an integral approach, therefore, the packaging solution and the machine should be given equal consideration. This means that, in the initial stage, attention should be given primarily to harmonising packaging. If it is possible to unify the pack dimensions of different products, the cost and effort involved in switching between orders is automatically reduced. However, conflicts of aims may also arise. For example, with harmonised packaging the cost of change-overs falls, but may rise again due to a non-optimal packaging volume (see Table 2 on page 33). Therefore, the harmonised solution will be advantageous for small quantities, but this advantage diminishes as quantities increase and eventually becomes a disadvantage.

In the second stage, the packaging machine must be considered. If format changes are unavoidable, then they should at least be able to be carried out easily, quickly and accurately. This means that a few, robust, small and lightweight format parts are beneficial. In addition, digital displays (setpoint/ actual value), for example, assist the operator during a format change; the change is completed more quickly and fewer mistakes occur. 

Line clearance is also part of a switch from one order to another. Here, too, there is a great difference between different machine concepts. It is crucial that the machine has an idling mode, is of GMP-compliant construction and has no hidden ‘crannies’ for objects. For example, easy access, ideally from both sides of the machine, is necessary for quick and easy cleaning. 

These examples show how complex the topic of OEE is and that it has a major effect on the TCO calculation. 

Changing Overall Conditions

If it is assumed that a comprehensive TCO analysis has been carried out and an investment decision has been made on that basis, the result may still lead in completely the wrong direction, if key overall conditions change. 

For example, in today's pharma world, market trends, such as simpler forms of administration, improved compliance or environmental aspects (such as less waste or avoidance of plastics) can impose completely new requirements on the packing solution. Corporate mergers or reorganisations can change overnight the production environment and the product portfolio which is to be manufactured. This may mean that a site suddenly has to take over products from a different site or an originally planned product has to be discarded. Amended regulations may mean that the packaging has to be modified, for example by adding to or increasing the size of a pack insert. 

Ideally such changes to production goals can be accommodated without major investment in machinery. However, this is only possible if the packaging and packaging machine concept which was originally chosen allows for such adaptations. A flexible packaging concept and packaging machines of modular construction greatly increase the chances of being able to meet future requirements. It is therefore well worth taking this aspect into account in the decision and, where applicable, taking certain precautions. For example, space can deliberately be kept free on the packaging machine for additional future functionality. This approach allows a certain degree of investment security (or ‘asset protection’). 

Conclusion

A comprehensive TCO analysis, in particular of the cost drivers, makes a lot of sense in the context of an investment decision. With an eye to the future, however, an attempt should be made to anticipate future requirements. Changing conditions can quickly transform the original TCO results into so much waste paper. In this context, flexible packaging and modular machine design help to ensure the necessary margin for manoeuvre for the future. Production sites which respond appropriately are better prepared for changes; they can hedge their investments and are more competitive in the long term.

Reference

  1. Dugmore L, A manager’s guide to service management, BSI Standards (2), 2006 



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Christoph Hammer has held the position of Chief Technical Officer and Deputy CEO at Dividella in Grabs for the past 14 years. He holds a lot of experience in the food and pharmaceutical packaging industry in the fields of engineering and consulting. His expertise covers the capital equipment industry, and through extensive sales activities he has an excellent knowledge of international markets. Christoph was educated as an electrical engineer with additional degrees in Business and Production Technology.
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