A manufacturing network strategy that optimizes resources, embeds resilience, and confers a competitive edge is increasingly important in the life-sciences sector. However, for many, the approach to manufacturing has been focused on responding to trigger events, such as M&As, growth or capacity constraints, demand surges, an acute need to cut costs, new product launches, or regulatory changes.
This has resulted in a patchwork of subscale manufacturing sites and contract development and manufacturing organization (CDMO) relationships spread across the globe for many pharma manufacturers. COVID-19 disruptions brought focus to the risks in this patchwork approach and led many pharma companies to reassess their manufacturing networks and strategies, shifting from reactive tactics to a strategy rooted in manufacturing optimization.
However, companies that invest the time, effort, and resources in devising their manufacturing strategies can reap significant rewards. We have seen companies realize 10 to 20 percent baseline cost reductions by overhauling their manufacturing strategy. But there are many reasons beyond cost savings, including resilience, agility, and sustainability, to optimize manufacturing networks and strategies. We share four ways to optimize a manufacturing strategy and how to avoid the common pitfalls.
Five common pitfalls that can tank a manufacturing refresh
Our work with pharma companies has uncovered five common mistakes that can frustrate efforts to design and implement an optimized manufacturing strategy.
- Reacting to triggers versus proactively driving manufacturing strategy. If a manufacturing strategy is a rushed response to a trigger event rather than a strategic tool or ongoing maintenance activity, it often fails to deliver on its promises. Decisions made under pressure are rarely underpinned by robust and comprehensive analysis and are likely not sustainable over time.
- Being too narrowly focused. Often companies focus too narrowly on their manufacturing footprint and labor costs, losing sight of total costs and broader opportunities, such as make-or-buy decisions, which can bring major benefits. A variety of other important factors, such as logistics, talent availability, efficiencies, quality, regulatory, CDMO capabilities, proximity to R&D, and supplier base, may also be overlooked, limiting the effectiveness and scope of manufacturing decisions in both the short and long terms.
- Basing decisions on emotions rather than data. Given the nature, scale, and risk of significant manufacturing decisions, fear and doubt may motivate people to hinder change rather than validate and support it. It can sometimes be difficult for employees to shutter a specific site, even if it is suboptimal, because it has a unique history in the organization—for example, the original headquarters. Emotions and skepticism can best be overcome with a robust business case based on an in-depth analysis of requirements and facts.
- Pursuing short-term goals at the expense of long-term potential. The value of a manufacturing strategy lies in long-term bets. However, often many factors used to choose a new site are short term. The attractiveness of a given location may change substantially in the five to ten years until the site is fully operational, so basing decisions on near-term criteria can result in suboptimal network designs.
- Losing executive focus. Executive focus often diminishes during the planning and implementation of a manufacturing strategy. But executive attention is crucial throughout and adds value in the detailed decision making. We have seen companies lose the momentum of, or even derail, an excellent strategy by a lack of focus and follow-up. When this happens before the value has been achieved, it isn’t easy to get back on track.
For example, one large pharma company developed a comprehensive seven-year strategic plan to save 15 percent of its cost of goods. However, after more than two years into the timeline, the company had fallen 18 months behind schedule. The plan lacked committed executive involvement and, as a result, struggled under consistent second-guessing that paralyzed forward progress.
Best practices for a successful manufacturing strategy
There are four best practices that we have seen pharma companies follow in developing a successful, sustainable manufacturing strategy (Exhibit 1).
1. Create business-driven aspirational goals
- Put business first. Network strategy design should relentlessly focus on business requirements. Manufacturing strategies that establish the business need and guiding principles can go back to them in times of misalignment, leadership pushback, or critical decisions. This can include setting guardrails around the time frame for payback, such as a breakeven within five years or limitations on when a brick-and-mortar expansion may be considered. For example, a large pharma company recently developed a plan to redesign its manufacturing network and consolidate its distribution footprint. The project team first defined its guiding principles, then created five alternative scenarios that addressed the pain points, and finally used workshops to decide on the respective costs, benefits, and risks. After selecting the best-integrated scenario, the company realized $100 million annualized savings.
- Be radical, not incremental. It can be risky to move historically important or flagship sites. But companies that allow every option to be considered, think holistically, and make step-change decisions versus incremental adjustments are better positioned to achieve transformative change. Changing and implementing a manufacturing strategy is a significant undertaking, even if it only involves small adjustments. So why not strive for economies of scale while doing it? Radical changes, such as major site moves, can bring outsize rewards.
Companies that allow every option to be considered, think holistically, and make step-change decisions are better positioned to achieve transformative change.
For example, a pharma organization recently relocated one of the largest facilities in its network and realized it could also optimize processes more comprehensively to create substantial value. Although this was a massive effort, it was more efficient, financially rewarding, and beneficial to supply chain performance than the several small moves the organization could have made instead. While large efforts like this only make sense in certain circumstances, they can yield greater benefits relative to the effort involved.
2. Make strategy design comprehensive
- Make operations strategy an input to network strategy. A holistic approach to manufacturing strategy factors in all the elements of operations strategy, such as make or buy, the product portfolio, technology outlook, and the value chain of the future—not just manufacturing sites. Therefore, the manufacturing strategy needs to include all the internal (for example, internal sites) and external (for example, CDMOs) aspects of the manufacturing network, and the manufacturing strategy design and detailed planning phases need to accommodate strategic partners (Exhibit 2).
- Segment the manufacturing network. As supply chains become more complex, the manufacturing strategy needs to be tailored to each value chain. For example, one company with a diverse portfolio differentiated its manufacturing strategy so that large capital equipment would be manufactured closer to customers while manufacturing locations for small goods were more flexible since they could be shipped long distances more easily.
- Think beyond total landed cost. The best manufacturing designs used to be dictated by total landed cost. But today, to deliver full value, organizations must consider many more factors, such as risk, resilience, and supply chain responsiveness, to determine risk-adjusted total delivered value. For example, regionalization has become a key concern since the pandemic has exposed the limitations of global supply chains. Also, sustainability, increasingly at the forefront of strategic supply chain decision making, will have both immediate and long-term cost implications.
3. Use analytics and solutions scenarios to support selection
- Take time to get the facts. It is critical to collect good data and align on the facts with relevant business leaders to ensure that the initiatives are credible. For example, one organization pushed to move quickly into analysis but then lost weeks aligning the organization on the conclusions to its analysis because leaders questioned the validity of the underlying data. This not only jeopardized timelines but also damaged the credibility of the decision process. A firmly grounded fact base provided the foundation needed to overcome emotional or biased resistance.
- Start broad, then quickly narrow down. It is best to start with a wide funnel of different solution scenarios, then rapidly narrow down to those predicted to have the highest potential. This allows many possibilities to be considered and increases the chances of converging on the best. Some best practices include the following:
- grouping ideas into scenarios so that they can be efficiently assessed against hypotheses, versus assessing each one individually
- updating the inputs as the strategy is syndicated and new information comes to light
- involving the right people along the way so they are aligned on the full array of opportunities and the analytic rigor that’s deployed throughout the effort
- referencing the business need and guiding principles to assess scenarios and using the defined guardrails to narrow options
- Support business-led trade-off decisions with math. Manufacturing strategy decisions can often be emotional and bureaucratic. Framing key trade-offs with facts and analysis can help combat bias, as can assigning people to challenge preferred options before they are adopted.
One pharma company developed a five-year manufacturing strategy that would save 20 percent on cost of goods, but it required closing a historically significant site. Fact-based arguments won over emotion, and leadership supported the decision to move ahead with the strategy.
Exhibit 3 shows how one organization analyzed more than 200 potential combinations of sending and receiving sites. A solid financial model allowed the uneconomical options to be quickly removed from the solution set, leaving about 100 sites. These were grouped into scenarios and syndicated with a broad set of leaders who provided additional input, such as better receiving sites or missing or inadequate documentation that would extend a project’s timeline and budget. Guiding principles were relied on to steer major trade-off decisions. This iterative process enabled the company to narrow down its options to the strategy it ultimately pursued.
4. Systematically manage execution
- Create a dynamic road map, not an answer. Manufacturing strategy has a long-term, global scope and exists to manage a dynamic, ever-evolving situation. A dynamic road map that links to long-range planning and is flexible allows an organization to adapt to changes during the road map’s five- to ten-year life span. A company should also define triggers for when the strategy should be reassessed and refreshed, such as in the following instances:
- when major changes occur, such as in tax, regulatory, and products or programs, that may require significant moves or a new site, as well as a refreshed strategy
- periodically, even without major changes (for instance, companies may want to bookmark every three to five years to make sure the strategy is still optimal given more gradual alterations to the landscape)
- Institute a rigorous stage-gate process. While stage gates are common in processes like R&D, many organizations do not use them to manage manufacturing opportunities. A clearly defined and communicated stage-gate process ensures alignment at the level of detail required to progress to subsequent stages and limits the tendency to redo analysis and revert to a prior stage after a gate has been passed. The stage-gate process can be used to benchmark and measure annual tangible goals, provide a sense of progress, and combat a lack of urgency that can sometimes afflict a long-term network strategy.
Exhibit 4 shows how a stage-gate process can work. The strategy encompasses all the moves, while each move may progress through the stage gates individually.
- Support execution with a manufacturing transfer office. Manufacturing strategy and transfer is a capability rather than an event. Companies achieve greater value in manufacturing strategy if they support it with dedicated capabilities and governance. Some best practices include the following:
- Have a single leader own strategy from development through execution, thus ensuring incentives are aligned throughout the program.
- Organize reporting so that the leader reports high into the organization to keep the strategy a priority.
- Structure a decision-making process and authorities to support ongoing governance and ensure micro-decisions are in line with the big picture.
- Integrate moves into the profitability of sending and receiving sites. Measuring the profit-and-loss implications of transitions ensures that the sending and receiving site leaders focus on the transfer as if it were a part of their business. This will help ensure timelines are met and resources coordinated to support the handover activities necessary for success. While this requires facility leaders to implement significant change management practices, it also gives them appropriate accountability and control. One organization that took this approach experienced a step change in collaboration—the sending and receiving sites became much more engaged in finding solutions to challenges.
A formula for long-term success
For many companies, manufacturing strategy is a major opportunity for cost improvements as well as better strategic positioning and resiliency. But long-term success depends on foundational elements that include executive sponsorship, a commitment to building capabilities, decision-making authority at senior levels, the inclusion of manufacturing sites, and a dedicated team to manage the process. Companies that put these elements in place and pursue the best practices we have described above will be well prepared for an unpredictable future.