GENENTECH-CAPACITY PLANNING

Question.1: What is your evaluation of Genentech’s production capacity requirement given

expected demand in 2010 to 2015 for Avastin and Genentech’s other products? Does your
evaluation change if Genentech wants to the level of demand?

Ans:
 It is recommended for the management of the company to build the production facility inside the United
States and the most recommended location would be California. Since, the management of the company
does not wants to build a third production capacity in Vacaville by leaving all the eggs in one basket,
therefore, the management can locate the plant in South San Francisco where the original production
capacity of the company is located. The main reason for this is that FDA will also have to certify this
production plant.
            These all are the biological production facilities. These facilities need to meet all the standards
which have been laid down by the FDA and they also need to keep these facilities clean in order to gain
certification from FDA. The production process of the company is highly labor intensive and there is a
very high number of the personnel required who are highly trained in order to operate these plants. High
maintenance is also required by these plants and not all of the companies are able to provide this.
            Overall, it would be very much difficult for Genentech Company to have access to such
specialized scientists and other resources if the production plant is located outside United States.
Currently, the management has a high level of expertise at the original SSF site and it could also use of
that expertise and build the new plant also in South San Francisco. All the employees would feel that they
are team of a single workforce and as a result the workforce of the company would also not be expanded.
One of the other advantages associated with this location is that the Vacaville location is just one and half
hour away from this site so if any emergency arises then the repair crews can also visit the new site easily.
Question.2: Assuming Genentech proceeds with CCP3, what size production lines (tank size) would
you recommend? Why? What criteria should Ebersman use in selecting a location? Why? Should
Ebersman move forward with CCP3 now? If no, when?
Answer: 25000 Litre Tank
Pros-
  Capital investment is not significantly advanced than 12000 litre tank.
 Paired volume to anticipate development in demand.
 Planning a head plan, construction, testing, and FDA filing take up to 5 years.
 New technology with attractive cost structure and higher profit limits over the long term.

Cons –
 Change over main to downtime- may need to change the protein produced by the factory
often/other products may not have as much demand, therefore if one product has already been
produced, there may be important downtime.
 If you produced everything for avastin (for example), you have all this left over space for other
product that’s not being produced.

Several criteria:
Ebersman should look at the present locations and consider the most cost active means available. What
expertise, facilities, cost of staff the location are available.

Expertise:
Having the knowledge and knowledge is critical in the field of medical skills. Developing a product in an
established locale such as Vacaville keep you close to your serious assets your knowledge.
Demand: Infrastructure/ facilities: Having a facility skilled of the increased production, and or the space
to build on the existing workstation. Who and where are they buying, close to consumer decreases
transport cost. What kind of international demand is there, and having an foreign location, and the
possible effect and or additional business it may bring with international exposure.

Two pronged approaches in dealing with his capacity planning:

 Have his process development team focus on increasing the yield amounts in their current
manufacturing process. However this being an unknown quantity I would still move forward with
increasing volume and build out the Vacaville site CCP3.
 It would be a larger risk not to increase capacity at this time. A postponement in getting new
product to the market would result in a much high loss in revenue then having capacity.

Final thought:
 They should try further improve the current process by increasing amount.
 Try to build relation with other productions and additional companies to meet the additional
demands by negotiating contracts and agreement.
 Try to stay away from messing up with FDA regulations by avoiding long period revalidation.
 Focus should be put on fully completing the CCP2at Vacaville.

Question3- What recommendations would you make to Ebersman regarding the process he and his
team should use in deciding how best to meet the demand for Avastin?
Answer:  If the contract manufacturing firm decides to offer four 10,000 liter lines of production of
Avastin, then the management of the company is highly recommended to opt for this option. The reason
for this is clear. Currently, there is no clue about whether the results of the clinical trials would be
favorable or not and if the management of the company decides to go ahead with CCP3 and the demand
of the company is not significant in future years then the over capacity of the company is going to result
in higher costs for the company, high inventory levels and higher administrative costs.
            These all costs combined together are going to have a significant impact upon the profitability of
the company. Furthermore, the cost associated with the construction of new plant was also significant
with a cost of about $ 600 million. The company also had the option to reengineer the current production
process of the company without adding any new plants but this would again have many other issues. For
instance, if the management of the company decided to reengineer the current plants of the company then,
the Food and Drug Administration in US will need to approve this added capacity and provide it with a
license.
            There would also be huge variations in the capacity requirements of the company in future.
Therefore, the current contract manufacturing offer for the company is feasible and the management of
Genentech should go ahead with it. Although, contract manufacturing is new in the industry but it is
gaining acceptance. Currently, the management of the company has established two successful contract
manufacturing contracts also. Lastly, if this option is expected then the management of the company
could decide to go ahead with CCP3 right now because the risk of loss and excess capacity would be
minimized. If after this contract manufacturing, the demand is found to be lower then, the management of
the company will still have enough plant capacity of its own to meet that demand and as a result it can
avoid any excess capacity, holding costs, higher inventory levels and lower profits
Question.4: A contract manufacturing firm has an unexpected reduction in demand for a drug it
produces. It is now offering to devote four 10,000 litter lines to the production of Avastin at a price
similar to Genetach’s existing contract manufacturing agreements. How should Ebersman
respond?
Answer: If the agreement manufacturing firm agrees to offer four 10,000 liter lines of production of
Avastin, then the management of the firm is highly optional to opt for this option. The motive for this is
clear. Currently, there is no evidence about whether the results of the clinical judgments would be
promising or not and if the organization of the company decides to go ahead with CCP3 and the demand
of the company is not significant in future years then the over capacity of the firm is going to result in
advanced costs for the company, high list levels and higher administrative costs. These all costs shared
together are going to have an important impact upon the success of the firm. Furthermore, the cost related
with the construction of new plant was also important with a cost of about $ 600 million. The company
also had the choice to reengineer the current production process of the company without count any new
plants but this would again have many other problems. For example, if the management of the company
decided to reengineer the current plants of the company then, the Food and Drug Administration in US
will need to support this added capacity and provide it with a license. There would also be huge
differences in the capacity requirements of the company in future. Therefore, the current agreement
manufacturing offer for the company is achievable and the management of Genentech should go ahead
with it. Although, agreement manufacturing is new in the industry but it is ahead acceptance. Currently,
the management of the company has established two successful agreement manufacturing contracts also.
Lastly, if this option is expected then the management of the company could decide to go ahead with
CCP3 right now because the risk of loss and excess capacity would be reduced. If after this contract
manufacturing, the demand is found to be minor then, the management of the company will still have
enough plant capacity of its own to meet that demand and as a result it can avoid any excess capacity,
holding costs, higher inventory levels and lower profits.