The competence centre for Operational Excellence (OPEX) at the Institute of Technology

Management at the University of St. Gallen, Switzerland (ITEM-HSG) has focused its research for
more than ten years on the challenges faced by pharmaceutical companies in their pursuit of
Operational Excellence. Over time the researchers have been able to sustain a database consisting
today of 281 data sets from 123 different pharmaceutical companies from all over the world. With
this data, and on the basis of several continuous exchange platforms, we are able to follow the
trends in the manufacturing sector in real time. From an operations management perspective, we
were able to identify ten topics that are on the agenda of almost every production manager in the
pharmaceutical industry. This allows us to make a projection about where pharmaceutical OPEX is
headed in the near future. Figure 1 exhibits an overview of the mentioned topics.

1. Quality metrics

The starting point of our “hot topic” list, quality metrics, goes back to the publication of the US Food
and Drug Administration Safety and Innovation Act (FDASIA) in 2012, and a subsequent public
docket in February 2013. In this work the FDA announced their intention to examine the use of
selected Quality Metrics to support their risk-based inspection programme. The purpose of the
metric is to support the industry to deliver high quality medicines across all sites (US Congress,
2012). The quality metric programme is supported by the big pharma associations (ISPE, 2013;
PDA, 2013). The first draft of the FDA’s quality metrics is expected by the end of this year.
Depending on the chosen set of metrics the impact on the industry could be supportive for the above
mentioned objectives but also the opposite could become true. If the final metrics are not based on
mutual trust between the regulators and the industry and has limits concerning comparability and
interpretability it could lead to unwanted behaviour. A positive impact so far can be seen in the fact
that, based on the discussion, more and more quality and OPEX have become to be integrated in
pharmaceutical companies.

2. Benchmarking the quality organisation

As OPEX and Quality is more and more integrated the efficiency of the whole quality organisation
becomes a focus topic in pharmaceutical companies. The hard separation of the quality organisation
had the effect that there hasn’t been a true evaluation of effectivity and efficiency of the quality
organisations. Nevertheless, it needs some sophistication to do this in a way that the overall
perspective and the quality performance are not sacrificed for costs. It is especially important to
measure the right KPIs and to evaluate them in a meaningful way. The team at the University of St.
Gallen proposed to constantly consider the entire picture. A separation in resource consumption
(efficiency) and goal attainment (quality performance) both being aggregated KPIs consisting of
diverse single KPIs could be a way to keep the overall understanding in the centre of the discussion.
Figure 2 shows an example of the evaluation of quality organisation. Managers in this company
should further investigate the differences between site six and four in this specific production
network.

3. Organising OPEX

In general there is no ‘best’ structure for Operational Excellence in an organisation that is valid for all
situations. The share of corporate to site based resources concerning OPEX varies depending on
the maturity level a company achieves in relation to Operational Excellence. The formal organisation
structure has a strong influence on the efficiency of an organisation. The researchers of the
University of St.Gallen are developing a management model for organising OPEX relating to the
level of implementation over time.
4. Opex maturity

Three key observations are often made when talking about the pathway to Operational Excellence:
1) Companies have to know their current state of OPEX implementation; 2) They should be
interested in the next steps to improve the level of OPEX implementation; 3) They need to know the
level their competitors achieved to benchmark themselves against the peer’s OPEX levels. The team
of the University of St. Gallen developed an OPEX maturity model that can be backed up with data
to give answers to these questions (see figure 3). The core elements of the model are equipment
stability, process stability, pull production and continuous improvement. It is important to understand
that higher maturity levels can only be sustainably reached if the requirements of the lower levels
have been fulfilled.

5. Managing complexity

Increasing complexity is a topic every pharmaceutical company is facing. The researchers of the
University of St. Gallen separate the complexity as internal and external. Internal complexity consists
of the elements people, processes and products, external complexity addresses the market and the
supply side of a plant. Figure 4 gives an overview of the complexity drivers. Sites that are able to
translate a high external complexity into a low internal complexity are considered as complexity
masters. Furthermore, the idea is to compare the ability of a site to handle complexity with the
overall operational performance of the site. If this evaluation shows that a site has achieved the level
of mastery and has very high operational performance we name the site a true master. True masters
are especially well-structured in their processes, have an above average level of OPEX practices
implementation and find ways to optimally adapt their internal processes to their external
requirements.

6. Shift from tool to culture

For many years, pharmaceutical companies mostly focused on training of specialists and technical
aspects on their pathway to OPEX. This emphasis on methods and tools somewhat distracted from
one of the most important success factors for a sustainable implementation: culture. The importance
of a continuous improvement culture has been notoriously underestimated in the past. Of course,
tools are the prerequisite to achieve a better performance, but sustainability is only achieved with a
cultural change. OPEX has to become omnipresent in structures, behaviour and actions. Managing
this shift from single tool oriented company programmes to a continuous improvement culture is an
essential step in the pursuit of excellence. To successfully accomplish this transformation, a strong
leadership commitment is necessary, but without neglecting other crucial aspects such as the
involvement of all different network players, as well as the implementation of a collaborative
knowledge management system.

7. OPEX leadership

The fundamental purpose of managers is to help an organisation to become more successful

(Pavur, 2012). Leadership is therefore not an end in itself, but an enabler of success. Leading OPEX
is not only about creating a vision and a sense of urgency. It is more about “forming a powerful
coalition, communicating a vision, empowering others to act on that vision, planning for and creating
short-term wins, consolidating improvement while producing still more change and institutionalising
the new approaches”. To achieve long-term success and impact, it is essential to anchor changes in
the corporate culture (Kotter, 1995). “Again, this requires communication, and OPEX has to become
visible in structures, activities, incentive systems, etc. To some degree, OPEX has to become a
routine operation, even if it will continue to be about change. It is both, fostering change and
ensuring stability, what is required from leadership, and these two perspectives on OPEX together
define the basic requirements for leaders: establishing structures, planning for improvements,
organising activities, establishing routines but also being present where the action is, caring about
people, communicating, coaching, supporting and motivating employees” (see figure 5). An effective
model for leading OPEX has to include all of this (Friedli/Werani, 2013).

8. Continuous improvement culture

In comparison to other manufacturing industries, the pharmaceutical sector was initially slow to focus
on OPEX practices and adopt a continuous improvement mindset. Various companies launched a
limited number of initiatives by the late 1990s, but they were not widespread until the first decade of
the 2000s (Seller/Davis, 2013). Today, however, pharmaceutical companies are at the forefront of
driving performance by embracing the goals of OPEX and fostering a continuous improvement
culture throughout the organisation. Their aim is to improve efficiency by optimising processes and
eliminating wasted efforts. Problems are solved fast and efficiently at the level of occurrence in order
to ensure that fewer problems occur and output gradually increases (Mejlvang, 2013). To
accomplish this type of culture we already mentioned that a strong leadership emphasis is essential.
But this is not the only requirement (see figure 6). Further elements of a successful OPEX culture
are: Credibility of message, involvement of employees, and employee ownership. The first element
is aimed at creating a shared vision amongst all employees, promoting the existence of a continuous
pursuit for excellence and communicating the overall goals and performance. The involvement of
employees is aimed at fostering teamwork through total involvement and committed personnel, and
also about ensuring that decisions are made at the lowest possible level. Finally, employee
ownership aims to share the gains with the total workforce and to provide personal and professional
satisfaction for the employees (Srinivasan/Kurey, 2014). Hence, a continuous improvement culture
requires new ways of working, leading and thinking. Many people believe that first they have to
change the culture and this will have an impact on the work. But it is the other way round. Only by
making changes in the work will you be able to change the culture. Therefore, culture is more an
outcome than an input.

9. OPEX in network

As global competition intensifies, companies face difficult challenges in every aspect of corporate
management. In particular, corporate OPEX initiatives must be examined anew when markets and
manufacturing operations become global. For example, what are the implications of globalisation in
terms of cycle times and production costs? Is it really possible to empower OPEX to all functions and
levels across all country organisations within a global corporation? Pharmaceutical companies often
do not use the full potential of their globally scattered manufacturing sites. Most often, they use them
to benefit only from cheap labour, tariff and trade concessions, and reduced logistics costs.
Therefore, they assign a limited range of work, responsibilities, and resources to those sites.
Successful companies, however, may use various sites to unlock all the potential by getting access
to new customers and suppliers, or accessing knowledge and skilled workforce. Such companies
use their sites as a competitive advantage (Ferdows, 1997). A lack of transparency is another
common issue within global manufacturing networks. In various projects the authors discovered that
managers often know neither the potential a site has, nor the purpose and reason of their sites, nor
the range of competencies the respective sites have. Furthermore, sites were developing but
corporate management was not able to describe the current state of the sites, not even to speak of
prescribing the path the sites would take in the next years. Assigning well-defined roles to the sites
within the network is crucial to overcome these problems and unlock hidden potential in a globalised
world (Friedli/Liebetrau/Luetzner, 2013).

10. Knowledge management

Sharing of information and knowledge within a manufacturing network often happens to be a
challenge in everyday business. In several industry projects, operation managers reported difficulties
concerning, for example, the flow of information  related to successful practices within the global
network. Existing knowledge was not being exploited to its full potential whereby reaching
improvements was costing extra resources. We believe that sharing information and knowledge is
essential for good management. Transparency about production volumes, for example, enables load
levelling in the network. Increased data quality in general enables managers in making well informed
decisions (Friedli/Liebetrau/Luetzner, 2013). Chew et al. consider information sharing in
manufacturing networks as the main coordination mechanism. Accordingly, they find the
management of information flow as important as the management of the flow of physical goods
between sites (Chew et al., 1990). Therefore, establishing a structure for knowledge management
and knowledge exchange is a key lever to increase productivity and ensure improvements using
own capabilities and competencies.

Conclusion

Operational Excellence can be seen as a philosophy that helps to tackle the mentioned challenges.
OPEX is not only about streamlining the processes and waste elimination, but also about the
engagement of every single employee and the establishment of a continuous improvement culture.
With the systemic approach of OPEX the quality and complexity related issues and challenges can
be solved. Management commitment and sharing of knowledge are absolutely crucial for the
success of every initiative. The proper way of organising OPEX throughout the production network
matching the OPEX maturity levels of a company is also a key to success. Having all the mentioned
elements aligned under control OPEX can be seen as a competitive priority to ensure the overall
competitiveness of a company.