"I spent years as a plant manager before I became an analyst," began Kevin Prouty, vice president of research at Aberdeen Group. "I am a devotee of operational excellence, and that's what the life science industries are moving toward." He spoke at the Life Sciences Industry Forum today at the Rockwell Automation Automation Fair in Philadelphia.
"At Aberdeen, we divide companies into Leaders, Followers and Laggards," Prouty said. "And I'm going to show you some key findings about differences between the ways Leaders and Laggards in life sciences approach operational excellence issues. Life science companies are starting to be focused on maintaining cost positions while managing growth. Manufacturing operations are still driven by cost, but visibility and globalization are a concern. Leaders focus on optimizing and automating the business process."
"We have a process we call 'Maturity Class' that helps us define what a Leader does and what Followers do," Prouty continued. "The best in class, the top 20%, have 97% on- time and complete shipments, while the Laggards, the bottom 30%, have an average of 84% complete and on-time shipments. Frankly, as a former plant manager, I can't imagine having such a poor on time shipment record—at least not for very long."
Managing Growth and Costs
"Some business drivers our respondents have reported to us include the need to manage growth expectations (37%), the need to reduce costs (35%), the demand for interoperability across multiple operating locations (30%) and the pressure to innovate, to get new products in the pipeline faster (28%)," Prouty said.
"So companies produce strategic actions in response to these pressures," Prouty continued. "Nearly seventy percent of Leaders have streamlined and accelerated processes to improve efficiency and productivity. Followers are close, at 64%. Leaders provide visibility to business processes across functions and departments by a much wider margin than Followers do, 58% to 45%, and standardize business processes similarly by 50% to 45%. We asked about another category, ‘Optimize the use of current capacity.' This is really about how easy it is to access capital. As you might expect, Leaders outpace Followers by more than 6%."
There is a lot of business process re-engineering going on, Prouty claimed. With manufacturing operations costs increasing, and pressure to maximize return on assets, demands for on time and complete delivery and globalization of the manufacturing plant network, Leader companies have evolved some strategies to cope. They have increased focus on lean and operational excellence. They have synched operator performance with corporate performance, and they are improving efficiency quickly. Followers, Prouty said, are just now getting it.
Visibility, Standard Business Processes
"Best-in-class companies in the life sciences industries do better at standardizing business processes, measuring themselves and focusing on visibility at all levels of the enterprise," Prouty said. "They get the right organization in place and use the right tools. Leaders have standardized enterprise-wide procurement, cash management and financial reconciliation by a wide margin over Followers. Leaders have standardized procedures for order management and delivery or fulfillment. Leaders have standard enterprise procedures for production planning and execution.
"Continuous improvement," Prouty added, "is about visibility. Leaders have real-time visibility into all processes and automatic notification when problems occur."
Operational excellence does not occur in a vacuum. Leaders have executive sponsorship for operational excellence and cross-functional improvement teams. Leader companies also have excellent IT and operations collaboration on the design and deployment of manufacturing systems.
"In the life sciences especially," Prouty said, "Leaders are pulling away from the Followers. This is true more than in any other space. The laggards are continuing to fix the same problems over and over."
Metrics Required for Operational Excellence
Operational excellence requires measuring manufacturing, Prouty said. Nearly half of Leader executives have real-time visibility into manufacturing systems, and almost 70% have operations metrics linked to financial metrics.
"Leaders also have a normalized scorecard for determining performance across operations. This is necessary in a global environment because in certain parts of the world, they just don't measure cost the same way we do," Prouty continued.
"So Leading companies have enterprise-level business process optimization, manufacturing systems to automate and provide visibility, systems to automate process change and systems to automate as much of the quality process as possible."
"One of the most important things Leader companies do is to correctly use audits as continuous improvement tools, instead of compliance tools. Instead of having audits followed by punishments, Leader companies use them to benchmark performance and make hidden issues visible."
Sometimes this is called business intelligence or by the new buzzword, "Big Data."
Leading companies are better at industrial automation, manufacturing process planning, change management, and they build in processes and workflows for things like track-and-trace and genealogy by a wide margin over Followers.
"Operational excellence touches every part of the organization," Prouty concluded. "Standardize business processes and manufacturing processes, automate the manufacturing processes and measure the manufacturing processes in an audited cycle of continuous improvement."