As competition intensifies and payors restrict reimbursement, more pharmaceutical, biotech, and medical product companies are trying to maximize profits through operational improvement. But their efforts are often complicated by the increasing complexity of the healthcare landscape, such the shift of manufacturing to low-cost countries and the need for more intricate supply chains to meet growing demand in emerging markets.
McKinsey has decades of experience in all aspects of pharmaceutical operations, allowing us to help clients identify opportunities for revenue enhancement, efficiency improvement, and cost reduction throughout the entire production cycle. Over the past five years, we have served pharmaceutical, biotech, and medical product clients in more than 425 operations engagements, giving us a detailed understanding of all industry trends and challenges. We take a hands-on approach to working with clients, creating practical strategies that generate bottom-line impact. To sustain long-term improvement, we emphasize helping clients build their internal capabilities, providing tailored training programs for all organizational levels.
Our work covers six main areas:
- Supply chain management
- External supply
- Quality and compliance
- Network strategy
- Product development and lifecycle strategy
We improve shop-floor production efficiency through lean manufacturing methods. For instance, POBOS allows us to benchmark manufacturing costs and productivity to comparable peers for many different areas, including multiple fill/finish technologies, synthesis of active pharmaceutical ingredients (API), and production of biologics.
Supply chain management
We take the customer’s perspective to develop an end-to-end view of the supply chain, working with companies to define strategy, redesign distribution networks, benchmark performance, identify problems, improve service levels, manage risk, reduce backorders, and lower inventory.
We have a thorough understanding of external suppliers and contract management organizations (CMOs), including their capabilities and typical costs. Through our market knowledge and experience, we have helped clients capture both immediate and sustainable value in multiple projects. Our approach entails working with clients to create a comprehensive external supply strategy, segment suppliers, develop metrics for vendor performance, and establish clear management guidelines to optimize value from third-party suppliers.
Quality and compliance
Our areas of quality expertise include transformational change, risk assessment at the network and site levels, performance management and benchmarking (e.g., development of KPIs), organizational design, and workforce sizing. Our work with quality and compliance organizations helps companies improve their relationships with regulators.
We help clients determine if their networks are aligned with their overall company strategy and goals. We also help clients capture value by optimizing global plant configurations, identifying opportunities to shift production to low-cost countries, assisting with plant closures or transfer of operations, and ramping up production at new sites.
Product development and lifecycle strategy
We support clients throughout the end-to-end product lifecycle. Our areas of expertise include enhancing operations during the development of new product and platform strategies, conducting diagnostics to determine readiness for launch and acceleration, developing strategies for mature products, and optimizing costs. For medical product companies, we also offer tools that enhance quality, improve manufacturing processes, and increase their products’ appeal to customers.
Recent examples of our work
A few examples of how we have helped clients:
- We helped a healthcare company reduce its inventory by $500 million within six months by rapidly applying lean process improvements.
- At a global pharmaceutical company, we supported a sourcing transformation that realized 20% savings on indirect and direct categories (achieving almost half of the improvement within the first year). We also helped the client improve supply security, built capabilities, and developed a best-practice tracking system.
- We helped a struggling medical device company improve service levels from 60 percent to 99 percent, decrease lead times by 40 percent, and reduce scrap levels by 75 percent within four months. Among other changes, we helped the client implement a “pull” system that replenished inventory based on consumption, standardize key operations processes, and build its internal capabilities.
- At a medical device company, we supported the redesign of an existing product, allowing the client to reduce costs by 30 percent and increase pricing by 5 percent; within 90 days, overall gross margin improved 20 percent.
Proprietary tools and solutions
We have developed a set of tools and databases specifically for pharmaceutical operations, focusing on benchmarks. For instance, POBOS benchmarks manufacturing cost, productivity and quality, supply chain performance and quality performance across more than 35 pharmaceutical and biotech companies. We also have procurement benchmarking tools with data for more than 400 companies, and a plant networks database for the top 20 pharmaceutical companies.
To learn more, visit our Tools & Solutions page.
Conferences and presentations
A few examples of regular operations conferences that we convene:
- The annual POBOS Roundtable; in 2011 the 6th Roundtable focused on operations excellence in emerging markets
- The semi-annual External Supply Summit, which includes panel discussions by major suppliers and is attended by leading pharmaceutical companies
- The Medical Device Quality Enhancement Conference, attended by industry leaders and representatives of the US Food and Drug Administration
- Our operations experts have also presented at many events, including the Convention on Pharmaceutical Ingredients (CPhI) Global Supplier and Partnership Management Conference.
Additional details about our Operations capabilities
For more details about our expertise, please visit the Operations Practice page. For access to our exclusive insights into the latest operations trends across all industries, you can apply for free access to our Operations extranet.