Why SMED is quick win in pharma – Episode I

Improving changeovers in pharma industry is a relatively quick and easy way to quick wins, faster and easier than usually assumed. This series tells you why.

Episode I: The Background

There are roughly two cases to consider when addressing operational performance in pharma industry :

  1. the traditional (big) ones
  2. the tollers and generic makers.

Traditional pharma makers used* to be protected by their patents, granting them several years (about 20) of monopoly in order to payoff the huge initial investments in R&D.

*Many blockbusters drugs have lost patent protection, allowing generic makers to produce and sell them much cheaper. The dramatic drop in revenue for the original makers brought up the term “patent cliff”, a metaphor for the sudden fall of incomes. For manufacturers without other blockbusters to compensate, it is a sudden exposure to leaner and meaner competitors.

Tollers (or subcontractors) and generic makers are not investing in hazardous R&D and will not have patent protection in return. They manufacture for others or “copy” drugs after they fell into public domain and sell at much lower price.

On the operational side, during the blockbusters years – when huge incomes were secured – the (big) pharmas did not care much about capacity exploitation and efficiency. When more capacity was required, new equipment, lines or even whole factories were bought/built.

The payoff was such that it was faster to setup a new facility and run it at relatively low productivity level than to try to improve already installed capacities.

Falling off the cliff

The consequences years after, once most of the blockbusters fell off the patent cliff into public domain and related revenues plummeted, are:

  • huge overcapacities, often whole plants,
  • low productivity* compared to other industries,
  • lower maturity regarding industrial best practices (e.g. Lean Manufacturing, Lean Management),
  • no real sense of urgency** to improve in operations,
  • lack of agility,
  • a “sudden” and unprepared facing of leaner and meaner competitors, meaning ordinary competition,

*OEE (Overall Equipment Effectiveness), is often in the range 15-35% when in other industries it is rather in the 50-65% range.

**this lax posture of well paid pharma workers, even when “the platform is finally burning”, make them the “spoiled children” from the perspective of others, struggling in harsher competition with lesser compensation.

Tollers and generic makers must be lean and efficient at once because of their business model. They don’t have secured incomes nor a patent shielded-off competition. They compete with makers in low wage countries, with lower sales prices, hence lower profit per unit.

They nevertheless have to invest and carry costs related to regulatory compliance.

Given the circumstances these makers understood much sooner the importance to close the gap with Best Practices in more mature industries. This does not mean that generic makers are all best in class, but they had powerful and early drivers to push them up the performance ladder.

Now that the scene is set, what is the link to quick changeovers?

For traditional pharma experiencing normal competition, investments are no more that easy they once were. Given the many remaining overcapacities, when delivery is poor, the solution is no more installing additional capacity but make better use of the one installed.

When looking closer how the installed capacity is wasted, changeover duration most often pops up as a major cause. And as changeovers tend to multiply with the shortening of runs and smaller, more frequent batches, they become good candidates for capacity / performance improvement.


In the next Episode, we’ll see how much can be gained and why.


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2 thoughts on “Why SMED is quick win in pharma – Episode I

  1. Pingback: Why SMED is a quick win in pharmaceuticals indu...

  2. Pingback: Why SMED is a quick win in Pharma - Parts 1 and...

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