Roche Pharmaceuticals Operations Planning - Research Paper Example

?Chapter 5: Operations Planning 5 Manufacturing Strategy at Roche Roche essentially deals in pharmaceuticals many of which are life saving drugs. Hence, Research and Development plays the most significant role in its product development. Most of the products produced by Roche pharmaceuticals are Make to Stock products except for very large customers such as big hospitals where the company can change its manufacturing strategy to a Make to order strategy. 5.2. Sales & Operations Planning At Roche an efficient sales & operations planning is used in order to balance demand and supply, to align mix and volume and for integrating financial and operating plans. This has been facilitated by using of Enterprise Resource Planning systems discussed in later sections. At Roche, the top management takes ownership of the sales and operations planning process. The management considers it a source of delivering business plans and strategies. The medium to long term decisions are taken by the top executives while the short term decisions are taken by the middle management. Various products at Roche pharmaceuticals are divided into families which makes it easier for management to review them for planning. Roche believes in proactive management rather than reactive crisis management. Hence, the sales and operations plan are designed well ahead of time. The sales and operations planning process also encompasses risk analysis and mitigation. The various possible scenarios in the planning horizon are studied and plans are made to tackle sudden rise or fall in demand and resources. After the plans have been decided at the top, they are communicated throughout the organization for smooth and accurate implementation. Broadly speaking, 5 steps are followed by Roche for Sales and Operations Planning. In the first steps, all new product development programmes are reviewed with the help of Research and Development Department. The information obtained acts as input for the sales and operations planning process. The concerned risks and assumptions are also documented. In the second step, a new sales and demand plan is created. The forecasts made here are dependent upon inputs from various stakeholders in the meeting. Roche accomplishes forecasting with the help of SAP ERP tools. The system generated forecasts are shared with all stakeholders. Any changes suggested are incorporated after discussion and the final forecasts are developed. These forecasts act as input for demand planning meeting. The concerned risks and assumptions are documented. In the third step, an operations plan is prepared in order to fulfill demands for each time period. For this the old operations plan is studied and the differences are noted. In the new operations plan, these differences are adjusted keeping in view the various resource constraints and inventory levels. The operations plan is multiplied by bill of materials required for each product family to arrive at total required resources. The required resources are compared with available resources. If there are significant differences, solutions to fill those gaps are identified and documented. In the fourth step, the impact of operations plan on other departments such as Accounts, finance, IT and sales is studied. Reconciliations and corrections are done to address concerns of various departments. Finally the key recommendations and potential scenarios are studied to from an agenda for the final Sales and Operations Planning meeting. The agenda is shared before the meeting for everyone to understand. In the fifth step, final Sales and Operations meeting is conducted. In the final meeting, the progress on previous sales and operations plan is studied, plan for each product family is reviewed, approvals are made and new proposals are decided. The minutes of meeting and action plans are then communicated to various stakeholders (PHS, 2006). 5.3. Aggregate Planning Strategies Roche pharmaceuticals uses aggregate planning for achieving its medium term objectives. The activities are planned at various levels under this planning. The goal here is again to prepare a production plan to make optimum utilization of organizational resources for satisfying expected demand but on a more detailed basis as compared to Sales and Operations Planning. Roche uses a mix of Chase and Level Strategies of Aggregate Planning. For highly successful and popular drugs and OTC (over the counter) drugs, Roche generally uses a level scheduling strategy. This is because the company can afford to hold inventory for these drugs as consistent sales are ensured sooner or later. However, for new products and less popular drugs, the company prefers to use chase strategy as the demand is very uncertain. However, the company may decide to switch between the two planning strategies depending upon season, demand and geography. In that sense, Roche uses a mixed strategy of aggregate planning. It keeps on changing the number of workers, production and inventory levels to realize its goals for the planning horizon. Though aggregate planning involves changing both supply and demand, Roche generally believes in making supply changes to achieve its objectives. Because of the critical nature of pharmaceutical industry, demand is not under much control. At Roche, Aggregate planning is facilitated by use of ERP systems. However, manual interventions are required at various stages. 5.4. Enabling Operations planning through Enterprise Resource Systems Sales and Operations Planning at Roche pharmaceuticals is supported by a number of ERP systems implemented from time to time. These systems have been designed by companies such as SAP, Oracle and OSIsoft. Roche Pharma uses Oracle’s Seibel Pharma to have a comprehensive understanding of its customer base. It enables medical representatives at Roche to compile and share useful information. This prevents any conflicts in sales calls and improves the capability to coordinate marketing and sales efforts (Oracle). Roche has also deployed SAP xMII for performance monitoring and plant to business integration. According to Robert Fretz, Head of Process Automation & MES, Roche , pharmaceuticals division, “The implementation of xMII provides our users with sophisticated yet easy to configure tool for performance monitoring and plant to business integration.” On the basis of SAP xMII, Roche was able to introduce a system for data collection and visualization. There were two main goals of midi project. One was to enable product and plant related monitoring of phase times in batch production within scope of improved process management. The other was to enable bi-directional data flow between shop floor and SAP level. Interactive dashboards were used for display, monitoring and control. There were some challenges encountered in the project. One was the integration of SAP R/3 and systems for production monitoring. The other challenges were regarding implementation of interfaces and visualization. As a result of these enterprise resource planning initiatives, Roche has realized many advantages. The reactivity of the staff has increased due to visualization and better information flow. The manual effort spent has reduced due to automatic data transfer between databases. Also the number of errors has significantly reduced. This has led to improvement in internal operations and customer service (Trebing & Himstedt). Further, Roche also implemented SAP Analytics and SAP Net Weaver Business Intelligence Solutions. These solutions enabled the company to collect data for various functions such as finance, marketing, sales in a single reporting platform. This also enabled Roche to integrate internal and external data sources. Roche was able to reduce its Total Cost of Ownership (TCO) as a result of this project. The information throughout sales and marketing divisions was easily and accurately available which enabled better sales & operations planning and forecasting. This implementation enabled Roche to have the flexibility to adjust to dynamic business requirements. The productivity increases and operations were optimized. This led to wide acceptance by users as their tasks were simplified. The reporting also became more reliable and it was easier for higher management to take business decisions on the basis of reports (SAP Customer Success Story Pharmaceuticals). Roche also uses OSIsoft platform in order to employ real time performance management and to achieve operational efficiencies. This system helps employees improve operations and batch efficiencies and also allows collaboration within the organization. It enables the company to perform root cause analysis, efficient reporting and continuous improvement. In words of Robert Fretz, Head of Process Automation & MES, Roche Pharmaceuticals Global Engineering and Technologies Group, “Using the OSIsoft PI System is a global initiative both as an operational improvement solution and as a solid infrastructure. The power of having real-time data so pervasive across the organization is a great advantage. Making operations data available to every employee and providing the environment to make use of the data correlates with our belief that our success depends on our employees’ capabilities (OSIsoft Inc., 2007). Figure1: PI system for Operations Planning and Control at Roche Source: PI system case study, OSIsoft Inc., 2007 As result of the implementation of OSIsoft PI system, Roche was able to have a better visibility of its operations. The response time and lead time reduced and costs were brought down. The throughput increased by 10%. The company has moved to electronic batch reporting which has almost eliminated any complaints due to non-compliance. The trends and deviations could now be displayed batch to batch. Real key performance Indicators could be identified and real time costing could be done. A screenshot of the PI system being used by Roche for Operations planning and control is shown in Figure 1. 5.5. Aggregate Planning for Services provided by Roche Roche pharmaceuticals in collaboration with Roche diagnostics division is also involved in services such as clinical trials. This also includes laboratory services. This segment is in early stages and attracting huge investments from big pharmaceutical companies such as Roche. However, Roche faced significant challenges in aggregate planning for these services. The first challenge is that the services happen only when they are rendered. Since it is not possible to time the, they can’t be inventoried. The only planning which can be done is of diagnosis equipment and human resources. Also, it is difficult to predict demand for these services. There are peaks and valleys in the demand for these services. Roche also encounters a huge seasonality in its demand. Hence, the demand for clinical trials is very high in rainy seasons or during change of seasons when infections are very prevalent. In addition to demand, it is also difficult to predict and plan for supply. There are several types of diseases and to appoint resources for each of them in advance could be very costly. However, doctors with multiple skills are an advantage for the company in healthcare services. Roche has already set up labs in various hospitals and has collaboration with many others for other healthcare services. In future, Roche may decide to venture into hospitals and aggregate planning and yield management would acquire even greater significance then. 5.6. Roche’s Operational Excellence Program Roche has initiated an Operational Excellence program whose objective is to adjust its cost structures to compete in an increasingly challenging market and to achieve considerable benefits in productivity and efficiency of its operations. There is a plan to increase the company’s investment in Research and Development activities significantly in order to foster innovation. This could result in a potential savings of 2.4 billion Swiss Francs (Media Release, 2010). The company is also taking in steps to ensure its long term sustainability and to become socially responsible. 5.7. Impacts of Operational Excellence Program Roche plans to reduce its workforce by 6% as a result of this program. The reduction will take place by means of normal attrition, transfers and planned layoffs. Most of the layoffs are bound to happen in manufacturing and Sales and marketing divisions. In addition to workforce reduction, Roche also plans to reorganize its operations in US and Germany. This would improve its capacity utilization. There is also a plan to outsource some product development activities to third party vendors. There are further plans to discontinue many activities in Research and Development and diagnostics. All these initiatives would either lead to reallocation of resources or layoffs. 5.8. Use of Voice-enabled technologies Roche implemented Datria Voice system in its Indianapolis facility in 2011. This has led to efficiency improvements in order selection, pick rates and replenishments. The company used this system to voice enable existing handheld devices for container and cart picking for its diabetes care and diagnostic products in a number of warehouses. This enables users to concentrate on the job rather than on tool. This has increases the pick rate while maintaining the same level of accuracy. This could lead to a potential bottom-line savings of up to 20% for the company in the future (Miller, 2011). 5.9. Business Process Re-engineering & Lean Operations Roche has launched a major re-engineering initiative in 2010 which will not only aim at cost saving but look at disruptive innovation for drug development. Roche has a very low exposure to generic products and is thus at a relatively advantageous position with respect to its rivals. Launching this restructuring initiative will further consolidate that position. The re-engineering program would enable Roche to make its operations leaner Roche is looking forward to diversify both from the view point of product portfolio and geographical spread. The company is especially looking forward to establish a strong position in emerging markets over the next two to three years. Roche’s operations have traditionally been carried out through specialty care franchises which charge high prices from the customers. Roche believes that with changing economic scenario, this model will reap benefits even in emerging markets. Roche’s primary target in emerging markets is China. Roche has set a network of key account management teams throughout China to make negotiations with the government for reimbursements. The company has made significant progress in wealthier regions. It is also flexible in making changes in its pricing models to increase its customer base. Roche has also increased the quality and quantity of its sales force to realize its vision in Chinese market (Re-engineering Roche). Roche also makes use of Lean Six Sigma to make its Operations Planning more efficient. Roche has initiated several projects in various categories for this purpose. These categories include laboratories, production, business processes, packaging, compliance, contract manufacturing, space utilization and management processes. In a typical project, the problem was that the waste in tablet powder granulation was 30% higher than the goal. In the project, waste categories were defined, root cause analysis was done, data gathering and sampling were done. As a result of the project, a new set up procedure was created for the production machine. There was a reduction in in-process sample sizes and testing frequency. The handling process for non-destructive samples was revised as well. Other projects also yielded similar results and optimized production planning and operations (Champaneria & Roche, 2009). References “Roche announces implementation plans for its Operational Excellence Program”, Media Release, 17 November, 2010, Basel, Available online from “Re-engineering Roche”, C-Suite views, Available online from “Oracle: Committed to the Life Sciences Industry”, Available online from Trebing &Himstedt, “Case Study”, 2005, Available online from < http://www.t-h.de/fileadmin/inhalt/mi/downloads/sap_ii/applikationsberichte/Case_Study_Roche_e.pdf > “SAP Customer Success Story Pharmaceuticals”, Available online from “Sales & Operations Planning Training”, PHS Management Training, 2006 “PI system case study”, OSIsoft Inc. , 2007 George Miller, “Merck, Roche add voice to pick operations”, 2011 Champaneria & Roche, “Lean Six Sigma and Operational Excellence at Roche”, 2009 Read More