Operation and Supply Chain Management - Case Study Example

OPERATION AND SUPPLY CHAIN MMMMANAGEMENT Name: Course Professor’s name University name City, State Date of submission Operation and Supply Chain Management Introduction Supply chain management, fundamentally, is the oversight and/or the management of the distribution and production of goods. It also involves the movement, as well as storage of raw materials, finished goods, and work-in-progress inventory. Essentially, the three departments that play a major role in ensuring that the production and distribution processes have been carried out effectively are the production operations, the supply chain and the business process management department. The production operations department is basically involved in the conversion company’s capital resources into final goods. This is one of the most important processes in an organization, considering that it is the origin of all the company’s products. The capital resources in the organization are all the resources that facilitate the production process. They include physical capital, the human resource, raw materials and technology. The effectiveness of any department in the organization is dependent of the quality of the management team. The ability to put together all the important variables in the production process, as well as make informed decisions in a timely manner is key to enhancing the production process. The chain supply management, on the other hand, is charged with the responsibility of ensuring that the company’s products reach the final consumer. This can be achieved through various intermediaries including middlemen, wholesalers, and sometimes retailers. The bottom line is that the supply chain management ensures that the produced goods are moved out of the company to various destinations, where they would be needed by different types of customers (Tenant, 200, p.56). To do this, this department needs to ensure that proper supply designs have been developed, which would be as a result of proper planning. Proper planning and appropriate supply design would put the organization in a superior position to execute their supply strategies. The business process department ensures that the various processes involved in the production and supply of the products have been carried out in an effective manner, and ample time is given to every process. This can be achieved by aligning the position of the company with the current activities and the resources, which would ensure that the organization works within the constraints of time and resources. As the company and other different organizations focus on the core competencies, as well as becoming more flexible, they end up reducing their ownership of raw materials sources and/or the distributional channels. Summary Report from Mike Kamarck to Wendy Kouba on the Objectives Background information Wyeth Pharmaceuticals, just like many other organizations in the pharmaceutical industry, faced enormous challenges in terms of operating costs in the third quarter of the financial year 2007. The increase of operation costs, consequently, resulted into low profit margins, rampant consolidations, need for more investment in the industry, dry up of product pipelines, among many other challenges. The objective of every organization include Wyeth, is to optimize production by maximizing revenues and profits, while at the same time minimizing costs. This has barely been the case in the pharmaceutical industry, and particularly Wyeth. The ultimate consequence is that the industry lost its protection because of not meeting the expected rate of profitability (Beede, 2009). The ability of pharmaceutical companies to make profits depends on their ability to optimize production, as well as the nature of prices they charge their customers. By charging high prices for their drugs, and ensuring that the quality of the drugs is unquestionably high, the companies would be in a superior position to cover their operational costs and enhance their profitability. The operational costs have a direct impact on the profitability of any organization, and given that this challenge squarely faces this organization, the main objective is to come up with interventions that would facilitate a significant reduction of these costs. To achieve up to 25% of cost reduction, Wyeth would need to put in place strategic approaches that would enhance its profitability. According to Tenant (2001), patent States of America ran for as long as 20 years, and during this period, the pharmaceutical companies under the umbrella of the patent holder would be able to complete the manufacturing of the drug. This would involve conducting of the necessary tests; get the required approvals from the FDA, as well as increasing the capacity of production. The patent period was reduced to 12 and 14 years after the introduction of stricter rules and regulations. This implies that in order to achieve the same objectives that were achieved before, there is need for more investment since the span of time had significantly been reduced. Things were slightly different in the past because pharmaceutical companies were given a two-year grace period after the expiry of their patents. During this time, the pharmaceutical companies were able to produce the generic versions of the drugs and, therefore, increase the production capacity, as well as enhance their profits. The implementation of stricter rules and regulations, did not only lead to the loss of patents in the United States, but also meant that the only countries that could produce generic drugs faster and have the approval to release the drugs to the international market were China and India. This is due to the fact that the facilities in India and China had already been put in place, and these countries do not have the soft time lag. The loss of patents has compelled some pharmaceutical companies in the United States to come up with innovative ways of producing their own drugs. This has been characterized by intensive research and innovation of new, as well as existing ideas, a factor that was nonexistent before the revocation of the patents. This had led to a situation where, as much as the founding company would have exclusive patents to carry out research and produce a new drug, other companies can get exclusive patents to improve this drug. This creates a situation where the founding company and other companies that improved its product are competitors. Another major challenge facing the pharmaceutical companies in the United States is the shortage in the drug inventory. The increase of the cost per dose has significantly led to the increase in the total costs of manufacturing the invented drugs, as well as in increase in the costs involved in the preparation of the drugs for sale in the international markets. According to research by Beede (2009), most drug production facilities in the United States have little activity due to the increased costs of production. This is clearly, due to the fact that the pharmaceutical companies are attempting to align the demand with their production capacity. This, among many other challenges, have influenced significant changes in the approaches by these pharmaceutical companies. Possible Strategies to Achieve the Company’s Desired Goals Quality is at the center of every successful organization, regardless of the industry. This is why Wyeth would go for nothing less than quality products as a preliminary and the most important step towards solving the various problems that it is facing. Therefore, the objective of Wyeth is to become the best supplier of high quality medicine in the world, which would, by extension, improve people’s lives. Fundamentally, achieving these goals would depend on the type of workforce that Wyeth puts in place, from the management down to the junior employees. Commitment and competence are key qualities that a workforce should have, and for Wyeth to see itself through successfully, the management has to ensure that the organization is equipped with the best people. According to Beede (2009), discipline is one of the most important qualities that a workforce in any organization should have. Discipline constitutes the ability of an individual or a group of people to perform various tasks assigned to them with minimal supervision. In an organization where people do not have to be supervised to do their work, a lot of time is saved, and fewer mistakes are made. To achieve the desired goals, Wyeth should maximize on supply networks that range from procurement, production and distribution of the medicine. Having a good supply network would certainly give Wyeth a competitive advantage. To achieve the desired goals, the management should ensure that the company follows standard processes and systems that are stable as well as flexible across the network. The standardized, stable and flexible work processes ensure a continuous increase in a company’s return on the company’s assets as well as on the overall cost of goods. Working within the set laws and following all the regulations set by FDA, would go a long way in giving the organization an opportunity to carry out its activities with minimum distractions. Directive Letter from Wendy Kouba to Site Leaders Summary of the challenges at hand in Wyeth Pharmaceuticals Production Sites Wyeth Pharmaceuticals is one of the largest pharmaceutical organizations in the world, and as such, it has 25 production facilities with diverse culture, different styles of leadership, as well as technologically intensive systems and programs. To ensure that there is maximum productivity in this organization; programs that would facilitate operational excellence must be installed in all sites. The organization has done well to install operational excellence programs in different sites, but the problem has been to integrate and coordinate these programs towards a single organizational goal (Tenant, 200, p.56). This means that there were no strategies, or at least proper strategies, that would facilitate coordination among the different sites, which would have ensured that the organization moved towards its goal faster and more efficiently. Consistency in the management style, according to Beede (2009), is also one of the key factors to the growth of the organization. The major challenge facing our sites is the overall lack of consistency by the management when it comes to improvement strategies. There exists an incredibly big gap between the site managers and corporate managers of the company. This, as it stands, can be the organization’s immediate threat as far as development and improvement is concerned. Having gaps in the overall management of the company is simply and implication that the problem is even bigger among other stakeholders, for example, the employees. It came to my realization that there is no clear relationship between the site managers and the corporate managers. This is evidenced by the fact that the corporate managers only expected the site managers to ensure that drugs were produced and sent to them for sale and nothing further. This showed that corporate management team did not cooperate with the site managers, which is a gross weakness in management and an undermining factor in the organization’s primary of expanding by maximizing production. Wyeth is working to reduce its operational costs, while at the same time using its external expertise to help in the overall improvement of the company’s processes. One of the major factors that undermines with this strategy is the fact that the organization has a significant number of outsourced employees, who cost the organization a lot of money. This increases the overall company expenses, which is a contradiction as far as reducing the cost of operation is concerned (Beede, 2009). Other general challenges that the company faces includes the increased costs of raw materials used in the production of the drugs and the costs involved in the preparation of the drugs for sale. As a result of the increased costs of operation, the management had closed down various production facilities. This has a direct and immediate impact on the volume of sales, since this has led to a reduction in the supply of drugs. Closing down these facilities, as already pointed out, would lead to a significant reduction of sales, but would also mean that there would be a shortage of drugs, since the company would be producing below demand. As much as this would affect the profitability of the company, the customers would also be forced to deal with the shortage and all the challenges that come with it, including hiked drug prices. Competition is one major characteristic of the pharmaceutical industry. Wyeth has not only faced competition from other pharmaceuticals, but also from within the organization, where different sites would compete. As much as competition plays an important role in ensuring that organizations produce nothing short of quality, price wars that might be inevitable lead to unhealthy competition that significantly reduces the company’s profitability (Blanchard, 2010). This organization faces a major challenge due to its inability to produce new products, probably due to the fact that there is minimum innovation. As Beede (2009) points out, the lack of patents for the pharmaceutical companies in the United States of America has also facilitated intense competition from other pharmaceutical companies that use the inventions of other pharmaceutical companies to improve the products and register them as distinct drugs. This encourages companies to produce generic products thus enabling them to become competitors of the founding company, a factor that indicates that there is little research going on in the pharmaceutical industry, and particularly in Wyeth. Directives to achieve Desired Goals The major goal of Wyeth Pharmaceutical, as implied, is to become the best producer and supplier of pharmaceutical products that aims to improve the quality of life of the customers by providing them with excellent quality of drugs. There are various ways in which these goals can be achieved and some of them include improving the quality of supply networks from the procurement to the production process and, as well as improving the quality of the distribution process by the different site managers. To come up with an efficient problem-solving algorithm, the management at Wyeth pharmaceutical has to ensure that they hire highly skilled and committed staff. Coordination and coming up with strategies that would facilitate performance measurement would go a long way in ensuring that there is accountability in the organization (Lubar, 2012). By promoting the just in time culture in the organization, the organization would stand a good chance of saving a lot of time, as well as optimizing its production process. By ensuring that everyone in the organization does their best in carrying out their duties, the organization would not need to outsource employees, which, as pointed out, inflates the wage bill in the organization. Recommendation Report from site Managing Directors to Wendy Kouba The leadership coalition The site management team of directors appreciates the concern and effort that the new management team has shown towards improving the performance of the production site and how they relate to the overall company strategic goals of reducing production costs (Wyeth Pharmaceuticals). In order for the company’s strategic goals that relate to the various production sites to align themselves to the overall objectives, several concerns need addressing first. These issues among others include cooperation between managers of the Wyeth Company, as well as communication problems. A huge gap due to miscommunication or rather poor communication exists between the site managers and the corporate managers at the Wyeth Company. The communication problem has caused numerous differences and conflicts in the interpretation of objectives and the achievement of company strategic goals. No organization could function without proper communication at all levels, let alone achieve their objectives in the improvement of production and delivering of quality services. Wyeth is a pharmaceutical company that produces medicine to help people, as well as achieve its own company objectives such as profitability at the same time. Making that happen will depend on the absolute cooperation, coordination and proper exchange of information, to realize the existent dynamics and how to go about solving the issues. A good example is the market dynamics, which differ such that the prices of raw materials affect the selling price of the final product. Therefore, the two different production units need to communicate to establish a fair ground on how to set strategic prices and not overwhelm one side. If the price of raw material is higher, the selling department needs to consider selling products at a concurrent price, and vice versa. In Wyeth Pharmaceutical Company, the main point of contention arises when corporate department asks for more than the site managers could deliver. The corporate managers ask for medicine without considering the production costs, which prompts them to sell drugs at cheaper prices. Prices sometimes are lower than the price of purchasing raw materials. There is no way that the company would be able to reduce the production costs if the trend continues. The company would otherwise make losses while blaming the other side of management. The site managers are left with the task and responsibility of overseeing the production of medicine, procurement of raw materials as well as meeting FDA requirements, and finally distributing the drugs to the company warehouses after the final stages of production (Lubar, 2012). The first wave of transformation for the company includes forming a leadership coalition and improving communication between the leaders. The company members agreed to form groups of twelve leaders from each department, so that they could represent the views of the others as well as help pass down a new culture, as part of the organizational culture change process. These members would come from senior employees, who have experience and could pass it down to others. The groups of leaders selected will help in the cost reduction campaign by advocating for and ensuring a 25% cost reduction on production costs. The implementation of the leadership coalition is been faced with challenges, which stem from disagreement between some of the selected members. The members opposing the guidelines have a problem with the depth of the coalition guidelines; therefore, they have challenged the implementation of this proposition. Some of the guidelines included uncompromising with the customer standards and quality of production, consistency in coordination between all departments, encouraging employees to engage in capacity building and issues of sustainability, as well as integrate these recommendation across all organizational functions. The guidelines are also in favor of establishing better working standards, encouraging, and sharing the spirit of progressive development across all 25 sites. The guidelines also encourage the tolerance of ambiguity, biasness of action and willingness to take corrective measures mid-course. Communication with sites The phase included a meeting that brought together quality managers and managing directors of the various sites. The team explained the guidelines, one of them being saving a 25% cost of production, which most managers did not agree with, due to various reasons. However, the team elaborated the importance and benefits of saving 25% of the production cost, and went ahead to challenge the managers to give reasons as to why they object the guidelines. Most managers explained that their objection is based on realistic achievable goals of an organization. The 25% reduction would be unrealistic and very hard to achieve. The team, however, was prepared with statistics and data to support and prove that the 25% cost reduction is possible with the right implementation of technique, as well as coordination among members. Quality management concerns Two managers from the Wyeth Pharmaceutical sites were given the task of becoming the managing director, who would oversee the overall activities of the sites, and the quality control manager, who would be in charge of ensuring safety and quality production of the drugs. However, the quality management team presented concerns and issues purporting to the idea that they did not understand the proposed guidelines of implementation that included cutting down of the 25% costs of production. Some of the guidelines suggested use of methods like the lean method to achieve the 25% cost reduction, which to some employees translated as reducing the number of employees in Wyeth Pharmaceuticals. Recommendations The managing directors of the various sites understand that they not only need to comply with the law, but they are also able to implement the company guidelines, which will ensure that they produce and distribute the best quality drugs in the market, while reducing the cost of production by an overwhelming margin. This will be achieved through standardization of the company’s processes across all 25 sites. Standardization will bring uniformity and singularity in achievement of objectives at a subsidized cost. The process will also make sure there is uniformity and consistency in the production of drugs, as well as compliance of the set standards by the law. In order to achieve standardization, there is need for elimination of obstacles and barriers to the implementation. Elimination of complications and obstacles provides an avenue to create a proper platform of ensuring what was suggested and agree upon by all members is what would be implemented. The goals of operational transformation The main aim of transformation in the operations department was to cut down the cost of activities by 25% while improving coordination and communication among memes. All these efforts would ensure efficiency in production as well as improved performance. Recommendation Reports from Site Quality Heads to Wendy Kouba In order to ensure good quality of medicine as well as compliance to the law, some issues need to be addressed. Firstly, all wasteful materials, resources and ideas need to be trimmed, because they do not add value to the company, but merely to increase cost. Secondly, there should be effective and efficient leadership that is transformational, from the heads of the different sites. Efficient leadership brings efficient work systems, which, the managers of each site employ through methods of site control and management such as gemba walks, value stream mapping workshops, 5S assessments, and operational equipment effectiveness benchmarking. There are other processes that, Wendy Kouba could implement to improve the quality of medicine produced as well as the efficiency of the process. The methods include six-sigma, a method used to reduce defects in the production line. Six-sigma measures and gives the number of defective products manufactured by use of various methods such as the defects per million opportunities (DPMO). DPMO = number of defects X 1,000,000 Number of opportunities for error per unit X number of units Lastly, the heads of sites especially quality management heads should create groups that can develop the right themes that will work for each site. The separate mini projects on each site will add value to the overall project of cutting down cost. The different sites required slightly different plans that have been fitted for each site, since there are differences in the cultures and ways of operating. Wendy Kouba Wendy Kouba has been recommended to take charge of the operations of the Wyeth pharmaceuticals as the vice president of the operations management following the stepping down of the proposer of the cost reduction program Mike Karmack. Wendy Kouba is the charged with the responsibility to implement different operating strategies that would facilitate the process of reducing operating costs in the organization. With her vast experience, having worked in the communication department for over 23 years, Wendy Kouba would be expected to do better and improve communication in the company apart from putting in place working strategies that are expected to bring the cost of operation by up to 25%. She is expected to address, as a matter of importance, the lack of proper communication within the management, as the preliminary step towards ensuring that proper coordination in the organization is restored. With her great interpersonal skills, Wendy Kouba would be expected to develop a good working relationship that is genuine, as well as one that propagates mutual respect. She has also proved that she can influence how people think in the organization, and hence she can ably persuade people to support all the strategies put in place with the aim of enhancing growth and productivity within the company. As described, Wendy Kouba has the required work experience and the qualifications, which is why we endorse her as a team of site managing directors. A mini Plan that will contribute towards the Operational Goal with Wyeth Pharmaceuticals The objective of Wyeth pharmaceutical to reduce its total expenses by 25% can be achieved only with an efficient plan in play. The organization should, first of all, look for suppliers who provide cheaper but quality raw materials. The organization should also implement intensive training of its employees on various production processes to avoid the need and temptation to outsource employees. The corporate managers in this organization will have to be allocated more tasks. This will help to avoiding the need to hire new people any time a new project or a new product is launched. The lack of patents in the United States, will force companies to make more investments if they are to achieve the same levels of productivity and satisfy their customers. However, companies such as Wyeth can form mergers with other pharmaceutical companies to facilitate the invention process and manufacture new drugs. The merger will help Wyeth save on costs, as they will share costs with the merging pharmaceutical company. Conclusion Wyeth Pharmaceuticals is one of the most successful companies in the world. However, just like any other business organization, it has faced enormous challenges in terms of increased production costs, stiff competition and challenges in the operational and supply management strategies among others. If the company succeeds in cutting its costs down by 25%, it will increase its profitability. The problem of increased competition can probably be dealt with by introducing blockbuster drugs on the market. Most of the challenges faced by this organization, for example, those associated with operations and supply management, can be ironed out by training and equipping the management, as well as employees with technical skills. References Beede, P., 2009, Wyeth Pharmaceuticals in 2009: Operational Transformation, pp. 1-22. Tenant, G., 2001, Six Sigma: SPC and TQM in Manufacturing and Services, Farnham: Gower Publishing Ltd. Lubar, S., 2012, Supply Chain and Operations Management, Retrieved on 15th May, 2014 from https://www4.uwm.edu/business/programs/bba/major/bbascom.cfm Blanchard, D., 2010, Supply Chain Management Best Practices, John Wiley &Sons, New Jersey. Read More