Throughput Time Management at Boehringer Ingelheim GmbH - Case Study Example

Summary of the case study on Throughput Time management at Boehringer Ingelheim GmbH Boehringer Ingelheim is a private human and animal pharmaceutical company which is involved in research and development of drugs in addition to their manufacturing and marketing. It was founded in mid 1880s and is one of the biggest drug companies in the world. The company invests heavily in research and development in addition to clinical trials of therapeutic drugs. The company is in need of a supply chain which is flexible and with lower costs of operation in addition to reduced inventories. Previously many pharmaceutical companies emphasized the need for high service to customer which increased inventories due to capacity constraints. This was very expensive due to increased costs of the products as a result of buying new machines. The companies also employed demand management which is characterized with variances and uncertainties in sales, supplies and delivery time’s forecasts. Thus the management is unable to make sound decisions to reduce inventories. Many companies are now optimizing throughput times to reduce inventories and at the same time have service level that is high. The regulatory and compliance requirements however make the process of inventories reduction challenging. Boehringer Ingelheim has been directing its efforts to optimization of throughput time management to reduce inventories. Between 1999 and 2003 Boehringer Ingelheim’s inventory improved from 18.6 per cent to 13.5 per cent. In spite this company still required further improvement. The company targeted 10% improvement in inventory by 2008 which was expected to save about € 23 million yearly on Boehringer Ingelheim Value Added (BIVA). The reduction of inventories was to be focused on the Throughput Time management of the supply chain of the company. This was assigned to Supply Chain Processes Group as from 2003. Led by Dr Joos, one team has been implementing the Pull concept to dosage forms of drugs manufactured by the company since 2004. This concept initially showed some ability to reduce inventories and improve BIVA by € 2 million. However the concept was bound to increase inventories as shown sales patterns in some countries. Local Pull project is still going on in addition to others aimed at improving the management of Boehringer Ingelheim. For instance stock policies are being revised, stock levels safety is being defined and orders quantities which are economical are being developed. Dr Joos’ team believes the levels of inventory are directly proportional to throughput time. Thus extra time required for producing a drug will also result increased inventories required for production. In addition, inventories required for marketing will also rise. Therefore the team’s aim is to ensure that supply chain throughput time is reduced. At Boehringer Ingelheim, throughput time (TPT) is the time difference between raw material reception time and the time the customer receives the product. The TPT is measured by both cost of material and product in addition to time hence it is referred to as weight TPT. This helps the company to identify both expensive steps and products where optimization may be undertaken. In spite these efforts the waiting times are still long and its optimization is still being investigated. 1. Holding inventories in pharmaceutical supply chain Inventory management involves size specification and placement of goods stocked by a firm. It ensures that the production process is not hampered by materials getting finished. In pharmaceutical supply chain inventories are kept for various reasons. First, there is a lot of lagging in supply chain during movement of products from the pharmaceutical supplier to the consumer. Thus holding inventory ensures that this lead time is utilized. Second, inventories are kept to buffer any uncertainties in the pharmaceutical chain such as uncertainties in supply, products movement and demand. Furthermore pharmaceutical supply chain keeps inventories to ensure that its products are available when demanded by its consumers. In addition, inventory keeping ensures that the supply chain buys in bulk to enjoy economies of scale. Moreover, inventory keeping ensures that the process of production runs smoothly in the firm. Since some drugs are consumed more in certain seasons, their stocking during slack period ensures that customers are satisfied during peak time and hence reduce costs of setting up and stabilizes labor force. However, keeping inventory comes with some risks. The pharmaceutical drugs especially those with short half life may be damaged during the process of keeping inventory. In addition a drug may become obsolete because of much research taking place in pharmaceutical industry and drug resistance. Thus an effective drug today may be obsolete tomorrow in case of drug resistance occur for example. In addition, chances of such a product getting damaged due to prolonged storage or other causes are very high in case the inventory kept is large. Pharmaceutical products are mainly flammable and thus keeping large inventory may lead to greater losses in case of fire outbreaks. Another reason why inventory kept should be small is the cost involved, that is, both holding costs and capital costs are usually high in terms of rent, insurance, warehousing salaries, equipment, taxes and damage. Inventory in pharmaceutical chain supply are also associated with work in process costs which makes it more expensive to keep inventory. 2. Effect of reducing TPT on inventories and concepts used in reduction of TPT Reduction of TPT results in the reduction of inventory. Various concepts are used to reduce TPT which consequently results in reduction of inventory. They include Just in Time concept Six Sigma concept and lean concept. Just in time concept encourages production of what is required only instead of production for inventory purposes. This method reduces inventory in addition cutting inventory costs. To enjoy this advantage the products must be of high quality and availed on time. Just in time has various benefits such as: little capital is tied up in the inventory, increased space which can be used for other purposes, reduced throughput and reduced defect rates. In addition, just in time concept ensures that what is delivered to the customer is newly produced and in case a new technology has been developed it can be incorporated easily. Thus chances of the product being obsolete are very low. However just in time is expensive and difficult to implement. In addition production may be forced to cease in case any supplier disrupts supply process since there is no stocks in the inventory to fall back on. Lean concept concerns increased business value delivery and increased throughput delivery of products to customers as well as adopting practices with minimal wastages through balanced process flow. This concepts need to flow from the top management team to the employees in the lower cadre. To ensure that the results delivered are long term, the lean concept should be in line with the structure of the organization, management performance and culture of the organization. The concept compresses lead time in the firm in addition to improving throughput and hence results in reduced inventory. Six Sigma concept involves reduction of development and production costs in addition to reducing inventory and cycle times. It also aims to eliminate damages, increase satisfaction of the customers and at the same time increase the margins of profits. It employs a structured approach which is data driven to eliminate defects and to ensure that the goods sigma levels are improved. 3. Implementation plan Customer orders a product The order is registered The product is manufactured The stock is managed Orders are generated to providers Providers a) Applicability of the concepts Just in time concept has various advantages when applied to a company. First, the funds which were initially used for keeping inventory can be utilized in other places. In addition, the space which was initially used to store raw materials and finished products can be utilized for other purposes. Furthermore, there is reduction of throughput time. This results in increased output and improved timely response to customers. However, just in time concept is difficult and expensive to implement. This is because it requires overhaul of major systems of the business. Lean operational concept ensures that the flow process is balanced. In addition, it pulls throughput to be in tandem with customers’ demand. Furthermore, the production process is also characterized with reduced wastages and inventories. Finally, lean concept is associated with increased variety in addition to complexity. The concept is difficult to implement especially those new to it. It takes them much time to learn the process of problem identification and solution since it is not well structured and it is challenging. Six sigma concepts ensure high standard quality production which controls the process and defects to reduce throughput and inventory. It can be used together with lean concept. It has large amounts of statistical data and hence its implementation in an institution which has limited resource can be difficult thus it will require training of employees for it to be implemented. b) Difficulties in the implementation of the concepts Lean and sigma six concepts are difi8cult to implement. Lean concept implementation requires that one spend more time at identifying solutions which are effective which in most cases are not well structured and are challenging. Thus operations personnel need to be experienced for it to be able to identify the main causes of inefficiency and waste. When the problems are identified there is need for combined skills for development of solutions which are creative. Much time is often spent in the identification and analysis of existing problems by improvement programs. To reduce this, tools like process simulation and value stream mapping can help in the process of creative thinking for better redesigning and improvement. Six Sigma is difficult to implement since it involves many statistical data. This requires a lot of investment in the training of employees in statistical methods of analysis which are often complicated. In most cases it is not appropriate concept to organization culture and often expensive to implement. c) Concept that could be used to analyze the process and prioritize a consistent action plan Lean concept could be used to analyze the process further. Lean tools include Process Mapping, Pareto analysis, value stream Mapping, 5S, Poke Yoke and Fishbone analysis tool. Processing mapping tool can ensure that the whole process of production and delivery of goods is monitored. This tool can be used to analyze valuable stages in the lead time and hence eliminate those which are not important and hence cut on the throughput time. 5S tool would be used in ensuring economical workplace structure to reduce throughput time and hence reduce inventory at the firm. To ensure reduced errors in the process, poke yoke tool would be used to proof read errors in the process and thus reduce defects in the time lead resulting in reduced throughput time. 4. How Six sigma and lean operations can help Boehringer Ingelheim reduce TPT Lean tools such as Process Mapping, Pareto analysis, value stream Mapping, 5S, Poke Yoke and Fishbone analysis can be used to compress end to end process at BI and therefore improve its throughput time. Appropriate selection and deployment of some of these tools can result in reduction of the TPT. Implementation of process mapping for example can help BI to link process flowcharts within BI to value measures of the customer. This can help the BI to understand the value of each activity in the process of research, development, marketing and delivery of drugs. The use of lean- sigma at BI can help it to analyze the complex dynamic process involved in its supply chain. Six Sigma is a quality management concept which controls defects and the process of management by deploying a define, measure, analyze, improve and control driven loop. Thus it will be useful to BI in the process of controlling defects and the process of research and development in addition to supply chain management. It also ensures high standards of quality and thus will help BI to produce quality products. Read More