Lean Manufacturing and Pharma: An Interview with Phil Emard

PE – The more inventory you have on hand, the longer your product lead time is and the more difficult it will be for you to respond to a sudden change in the marketplace. Right now, Chrysler has over 70 days worth of inventory, where Toyota has 18 to 20 and is now the second leading carmaker in the world, poised to take over the number one slot from GM within the next two years. And their margins are roughly 17%, whereas GM and Ford are just hovering on profitability.

Toyota tries to build only at the demand of the customer. The company keeps lead times and turnaround times as low as absolutely possible so they can meet those market needs quickly. So Lean is a way of life: the relentless pursuit of perfection in the elimination of waste.

PM – Who do you consider to be the father of Lean?

PE – Lean has more than one father and mother. Hirano, Shingo, Deming and Juran all made great contributions, but the concepts really sprang from Henry Ford and Tayishi Ohno.

Ford incorporated the idea of the continuous pursuit of quality improvement. And he did this at a period in history when it took 13 days to move from iron ore in the ground to a finished good awaiting shipment. Within this framework, building a Model T took only 81 hours, a tremendous accomplishment. Think about it. There wasn’t any fancy inventory management software available at the time.

Now let me ask you a question. When I say “Henry Ford,” what do you immediately think of?

PM – The assembly line?

PE – Exactly. But what drives that concept is the concept of flow; everything must be kept in motion. Ford’s goal was to eliminate waste, relentlessly, in his system. But consumers had little choice. They could get any color Model T they wanted as long as it was black. That’s where Toyota came in. They took Ford’s flow model and they adapted it for highly variable products.

My first impression of this was actually a Kawasaki plant in Japan where you would see SUVs, jet skis, snowmobiles and street bikes all coming down the same assembly line, just smoothly flowing based on the demand of the customer. So if the customer wanted 300 dirt bikes, they built 300 bikes and they could intermix those in their production systems almost seamlessly.

PM – So why has Lean captured the attention of the drug industry today?

PE – The answer is simple: results, all achieved by eliminating waste. Floor space, work-in-process and lead time are all interrelated. You don’t get one without the other.

PM – How is that? Why is lead time reduction so critical?

PE – Well, if I reduce my lead time, the time it takes to produce my product, I’m going to reduce my work in process. If I don’t have inventory all over the floor and in every place, floor space requirements drop, and with them the heating, cooling and other costs required to run floor space. Work in progress also drops, saving money, taxes and interest.

PM – So how could RMM fit into a Lean pharma manufacturing system?

PE – Quality Assurance, including testing for microbial contamination, is an area often overlooked when drug manufacturers implement Lean. This is a mistake, and RMM can reduce lead time significantly. Celsis made the point that its system can reduce testing time from three to five days down to 18 hours. That would allow manufacturers to release product faster and reduce inventory levels.

But RMM could also serve as an error-elimination system, analogous to the one I saw at Harley Davidson’s Kansas City facility on their Sportster motorcycle production line. The facility used to inspect product quality after manufacturing, as most drug facilities inspect their products. Now, they’ve installed an automated system and any time it detects a quality problem, no matter what it is, the entire system shuts down, and a signal sent to each area indicating the source of the defect, whether a scratch or something more serious.

PM – Can you point to any challenges facing drug companies as they attempt to implement Lean?

PE – In the drug industry, FDA regulations have, typically, run counter to the goals of Lean, which are to take action. FDA’s mandates, instead, require validating and proving that any changes or new systems will maintain or improve quality. So a drug company may develop a Lean improvement methodology, then have to wait six months to implement it.

PM – How can drug manufacturers optimize Lean process development with FDA requirements in mind?

PE – Basically, they have to stay focused a lot longer than companies in other industries. The best approach will be the one that accounts for product flow.

PM – You mentioned FDA regulations. What are the other obstacles?

PE – Pharma tends to be very siloed. People will say, “I’m in the engineering department, you’re in research and development, and you’re in QA.”

This approach fails to take customer needs into account. After all, you may have the best inspection department in the country or the world, but if your lead time is still 80 days, do your customers really care?

Instead of a unified system where activities flow, we have a system where I finish my work and throw it over the wall to you. “Didn’t meet our deadline? Don’t look at me, I hit my numbers.” The silo approach works against the concept of product flow. All these “guiding coalitions” guide, while walls divide. Then when we try to break down the walls, what do we encounter?

PM – Resistance?

PE – Yes, and don’t underestimate the force of that undercurrent of resistance, which can undercut the most important business objective or need for change.

PM – So how do you overcome resistance?

PE – The key is establishing a sense of urgency about the change.

PM – Okay. So, regardless of industry, what is it that you typically do when you enter a new client’s facility for the first time?

PE – We start of with a value stream or product flow analysis, from the very beginning of the process until product is in the customer’s hand. Typically, we find that product spends most of its time waiting — waiting for testing, waiting for the next process. Consider one hospital’s billing system: it took 30 days from the time any patient left the hospital to the time his or her bill was sent out. How much time was required for the billing? About two and a half hours. So why should 2.5 hours take 30 days?

In most facilities it’s like that, too: all hurry up and wait. “I’m very efficient in my department. I’m meeting my objective and I throw it over the fence and breathe a sigh of relief because now it’s Laurie’s problem.”

Then, after waiting time comes non-value-added tasks. As you’re walking the factory floor, play a game that I usually play with CEOs or Operations Directors the first time I enter their facilities: Freeze, count the number of people around you, and guess how many of them are working. Then guess how many of them are performing a function that’s adding value to the product. Chances are if you count 20 people, 19 are working, but only one or two are performing work that adds value to the product you’re making.

PM – So what is a realistic ratio for value added vs. non-value-added time?

PE –Toyota always aimed for 80% value added time. Elsewhere, you’re lucky to see 10%. In fact, one drug company client, not far from here, was in the 0.5% range of value-added time. Now think if they even brought that up to 20% — the implications for their customers, for their cost structures, their floor space and inventory. They would be huge. Lean helps you reduce transportation of goods, it attacks waiting time and eliminates non-value-added activity. At the same time it reduces chances for error, a major source of product quality problems.

PM – Can Lean be applied to product development?

PE – Yes. That’s exactly what we did at Lockheed Martin Development. At first, folks didn’t see how it would be applied. The key is standardizing and improving processes so once you execute, you can do it flawlessly. At Lockheed’s Skunkworks developmental facility, we standardized all processes so that once engineering decided where they went, they didn’t have things like back-ordered supplies to slow them down. Within the drug development cycle, there are micro-processes all over and interfaces between departments, between organizations. The question is, once you make a decision, can you execute flawlessly without any waste?

PM – But many scientists in the pharmaceutical industry think that such a “standardized” approach would stifle creativity.

PE –Well, at Toyota, everyone puts their creativity into moving the ball forward, rather than doing things their own way.

So they’re constantly in this Design of Experiments mode, if you will, with their processes and improving their processes. Not perfect, but that rigidity is what gives them flexibility to try things, make a decision and move on in a very rapid fashion. They’re changing the way they use creativity. It’s the difference between effort and coordinated effort.

Lean principles are very easy to understand but they’re very hard to implement. Do you think someone can figure out a better way to perform some operation, driving cost down and quality up? Now multiply this one little point of light in a large company and imagine that’s going on all over. It’s really a game of inches.

Lean is a top down-bottom up [system]. You’ve got to provide workers with the system, the tools, the methodology, but the improvements have to come from the inside.

PM – What are some easy adjustments that pharma companies can make to minimize error?

PE – One thing is eliminating the need to write down batch record data and simple calculations. We developed spreadsheets, first in Excel and then in Access, to help our pharma clients automate the data-entry process. But when we first presented the concept to one client, they said they needed the source code for Excel to validate that process. It took them five weeks to “get it” and make a simple process change.

It’s not that Lean principles don’t apply to pharma, it’s just that projects within this industry typically require a greater focus and determination in order to succeed.

PM – Thousands of "Lean experts" have hung out a shingle. Many of them are expensive and some don't lead to positive change. How can one ensure that any Op Ex consulting firm is "legit" and thereby prevent costly failure?

PE – First, beware of anyone who mystifies things by throwing out a lot of Japanese terms without fully explaining the concepts and clarifying them.

Also beware of the "hit and run" types, who come in but are out the next week. Many of these consultants base their work on the Toyota Quality Circle model, but that won't work unless you already have standard Lean work processes in place.

If you’re implementing Lean for the first time and you don’t have standard work, performance measures, visual controls and flow, standard work in process, all those principles employed in your factory, then I would highly recommend not doing Lean. Doing it right requires a thorough and ongoing program.

Some people take the very informal approach, as in, "Can I get all of you together for a week or an hour a week or maybe an hour twice a week, and we’ll decide what we’re going to do and then we’ll go out and do it and then we’ll meet back in an hour?" This won't work unless you have 80 years to implement your first change.

Okay, you say, so instead you assemble a dedicated cross-functional team that meets, usually one week, sometimes less, sometimes for as long as two weeks? Again, the desire for change is good, but this is the wrong approach. What you’re going to have is inconsistency.

You’ve got to build a brick house and lay a foundation. Lean is continuous waste elimination. That’s the whole secret to why Toyota is just capturing market share at will and has some of the best vehicles out there; the company is simply relentless in implementing its system.

If you're serious, you'll need to do a full implementation. Such programs usually generate the most excitement because they provide a big hit: 30% productivity gains and 70% reductions in turnaround or lead time are fairly common. At that point in the process, methodologies like Six Sigma should be applied, while new technologies can allow you to move both these efforts forward.