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One of the most competitive industries in the world is the pharmaceutical industry. For a long time, the operation of the pharmaceutical companies has been subject to scrutiny, especially by the government of each country of operation. The underlying reasons for the strict attention include: the cost of medicines and drugs available for purchase, the reduced life cycle of product development, the technological advancements which impact operations and the nature of the health care systems. Moreover, the pharmaceutical industry, like other businesses, is affected by factors such as the issues of human resources development and sensitivity to culture and diversity. In fact, they all have influenced the birth of the new and improved meaning of operational excellence.
The increasing demands for an improved productivity and manufacturing costs have been the growing concern of pharmaceutical companies today. The need to meet the fast changing needs of the market for a much higher standard and quality drugs has also resulted to increased expectations not only from the consumers but from all stakeholders (suppliers, investors, employees and the government). However, the quest for a much potent product is a very significant issue. The common goal is to reduce the attrition rate in bringing new medicines in the market as well as in creating a fair and efficient standard in choosing the best pharmaceutical company to award the patent. As more and more consumers are becoming concern of the drug s its short-term efficacy and its long-term side effects, marketing for the drug has also become more innovative and active. In this view, the operational processes and engineering for pharmaceutical product has come to a new level.
The old adage Health is Wealth is generally true nothing can be more valuable than being healthy and alive. The objective of the government of every country around the world to provide its public with health care services has been notable but still incomplete and unsuccessful. Not only the poor and underdeveloped countries are the ones having problems with high medical costs and insurances but even the developed or economically strong countries. There are many factors that contribute to the inability of the government to properly provide for its people in terms of health care, for one, the health service is truly an expensive part of man s need to live and the costs of services are high because medical equipments are expensive not mentioning the maintenance cost of every hospital. Hence, the need to secure the health benefits of the people has become the motivating factor for the government to present in an agenda, its health objectives for the American Nation.
Statement of the Problem
The pharmaceutical business is one of the most important industries in the world. The benefits people gain from the results of research and development conducted by the pharmaceutical firms, which include discoveries of the cures for many diseases, and the lessening time required to treat the patient that lead to saving of lives, cannot be equated with money. Even the wealthiest person on earth gets sick and requires medicine. Sick people and their families are happy whenever they learn that there is a cure for their diseases and that their lives are lengthened by the healing power of medicine. However, with the high cost of production, stiff competition, and the ever-changing government legislations, pharmaceutical companies are facing major challenges. While the time to bring the pharmaceutical product in the market quickens, the risk involved in the cost recovery and industry survival increases for many pharmaceutical companies. In this view that the selected problem is titled: Achieving Operational Excellence in the Pharmaceutical Industry.
The selected research problem evaluates the operational and engineering processes used by the pharmaceutical companies. Achieving operational excellence requires that pharmaceutical companies understand the factors which may affect their operations, such as the changing human resources relative to cultural diversity and manpower outsourcing, the impact of the environmental factors, which may include changing government legislations, market trends and future opportunities and threats and the future trends, operational systems, collaborative efforts (merging, tie-ups, etc.) that will all make a difference in the midst of heavy competition and highly selective customers. The selected statement of the problem hopes to reveal the possible solutions to the challenges and in the end provide a wider perspective based on the data presented, evaluated and analyzed.
Purpose of the Study
The goal of this research is to find out the relevant factors that affect the achievement of the operational excellence of the firms in the pharmaceutical industry. It also hopes to learn and understand what makes a successful pharmaceutical company and how operational excellence can be achieved.
Significance of the Study
The findings of this research will serve as useful information on understanding the pharmaceutical industry as a whole. Readers will also have a full view of the pharmaceutical industry from its begging up to the current time. Researchers of the same issue will have a concrete basis of analyzing and evaluating for the same. Pharmaceutical companies will have a wider perspective of the industry where they exist, providing them with more information useful in the creation of marketing strategies and operational upgrades. The government will also benefit from this research because, it will present a different interpretation of the key factors affecting the pharmaceutical industry.
This paper looks into the following issues:
(1) How should the current pharmaceutical industry be described in terms of:
a. Operational processes and engineering;
b. Pharmaceutical technology;
c. New product development, Research and development; and Product life cycle;
d. Production systems (total quality management, total productive maintenance, etc.); and
e. Factors that characterize operational excellence (best practices)?
(2) How are performances evaluated?
a. The Porter s diamond concept in a pharmaceutical setting
(3) What are the challenges of achieving operational efficiency in view of:
a. Sensitivity to culture and diversity with respect to a unified corporate thinking;
b. Globalization; and
c. Human resources development?
(4) What are the expected future trends?
Pharmaceutical firms are categorized according to the nature of their business operations: they are the research-based firms; manufacturing-based firms and a combination of research-based and manufacturing-based firms. Characterized by its two distinct functions: research and development (R&D), and manufacturing, the pharmaceutical industry was reported as a $600 billion worth of sales in the year 2006 (economywatch). Specifically, there was a 7 per cent increase on the sales of prescription medicines worldwide or a total of $602 billion based on the report of some major pharmaceutical and medical information firms. These pharmaceutical firms are either, primarily engaged in Research and Development (R&D) alone, studying diseases and advancing drugs and medicinal potency while other firms focus on the drug manufacturing process. Large, financially-able and world renowned pharmaceutical companies engaged in both activities.
The US is considered as having the number one pharmaceutical market and an increasing trend in the pharmaceutical industry all over the world. According to statistics the highest recorded annual sales of pharmaceutical products and services in the US alone is $252 billion and increases at around 5.7 per cent annually (economywatch). According to a pharmaceutical industry report, the leading countries in the world in terms of potential market are India, China and the United States. The report specifically stated that: The report proved that there is an increasing demand and market for the pharmaceutical industry because of the increasing health awareness of the people all over the world.
Market intelligence data from IMS Health, a research company providing on pharmaceutical and healthcare industries proved that: in 2002, the estimated worldwide sales for prescription drugs was about $400 billion; and that the United States expenditure on prescription drugs in 2002, was roughly 200 billion dollars which accounted for approximately half of all sales worldwide. But despite this high costs, the United States ranked as the 21st rate on infant mortality in the world, way below Greece and South Korea and only a bit higher in Poland. Also, the United States ranked at the 17th rate in terms of life expectancy all over the world. The research agency also reported that in 2008, the US prescription drugs sales had amounted to a whopping $291 billion dollars every year (sourcewatch).
In this view, the challenges faced by the pharmaceutical industry around the world are enormous (Sherk). One of the main reasons is the pressure of bringing down the prices of medicines and drugs that are considered contributive to the escalating costs of the health care services (Sherk). The cost of health care in the United States is generally double compared to other developed countries in Europe such as Britain, France and Germany. (yahoonews) Furthermore, the United States has reportedly spent 7, 290 dollars per person in the year 2007 but provided no meaningful advantage in terms of quality of care, and placed far behind the averages in the key indicators such as the infant mortality and life expectancy rate compared to the previously mentioned countries. The proposed healthcare reform in the United States, includes the evaluation of the drug costs and the possibility of creating legislations that will regulate the operations of pharmaceutical companies.
The research design that will be used to evaluate and answer the selected problem titled: Achieving Operational Excellence in the Pharmaceutical Industry is qualitative research. The decision to use the qualitative research design was based on the following factors: limited time available, and also, the use of secondary data. In order to answer the general and specific questions, the researcher uses the descriptive research as a type of qualitative method of research. The researcher gathers secondary data from previous researches, statistical reports, surveys, demographic information, and online resources. The data gathered are listed, sorted and analyzed in order to answer the problems undertaken.
The following are the findings that were gathered using secondary information, specifically from previous researches, statistical reports, and other sources.
(1) How should the current pharmaceutical industry be described in terms of:
(a) Operational Processes and Engineering in the Pharmaceutical Industry
Drug Approval and Registration Process
As implemented by the Food Drug and Cosmetic Act, the strict compliance of the law should be observed in all stages of the operational process and engineering in the Pharmaceutical Industry, primarily, in the registration (FDA, 2010) The Food Drug Administration (FDA) s fundamental mission is protect the public health is the collection of this information, which is used for important activities such as post-market surveillance for serious adverse drug reactions, inspection of drug manufacturing and processing facilities, and monitoring of drug products imported into the United States. Comprehensive, accurate, and up-to-date information is critical to conducting these activities with efficiency and effectiveness. (FDA, 2010)
(b) Process Analytical technologies (PAT)
One of the new systems that are being used in the pharmaceutical industry is known as the Process Analytical technologies (PAT). The term "Process Analytical Technologies (PAT)" has been used to describe "a system for designing and controlling manufacturing through timely measurements (i.e. during processing) of critical quality and performance attributes for raw and in-process materials and also processes with the goal of ensuring final product quality". The PAT initiative focuses on building quality into the product and manufacturing processes, as well as continuous process improvement. (pharmainfo.net)
c) Industry Operating Procedures
The pharmaceutical industry, just like other industries uses the US standard of Accounting GAAP (irs.gov). Pharmaceutical companies have to apply for the registration of their newly discovered drugs or medicines. Before a drug can be tested in people, the drug company or sponsor performs laboratory and animal tests to discover how the drug works and whether it's likely to be safe and work well in humans. Next, a series of tests in people is begun to determine whether the drug is safe when used to treat a disease and whether it provides a real health benefit. The process must be based on the steps set by the Food and Drug administration of the country of operation. The development and Approval Process of Drugs in the United States is believed to be the safest and the most advanced pharmaceutical system in the world. Another unique operational process used by the pharmaceutical companies is in the area of marketing. Unlike, the traditional selling and buying area of many products, selling drugs is a very complicated issue. Before companies can sell drugs, they have to seek approval and license from the FDA. Marketing in the pharmaceutical industry is commonly through salesmen.
(2) How are performances evaluated?
Porter s Five Forces of Industry Analysis of the Pharmaceutical Industry
The pharmaceutical industry has high barriers to entry, primarily because capital is huge in this business. The need to allocate heavily on research and development is highly important if one will enter this industry, not mentioning high threat from government policies, and longer or no return on investment. The supplier power has low impact because material supplies are solely for pharmaceutical companies alone, and shelf life of chemicals is longer than any ordinary supplies. Buyer power depends on the kind of medicine being produced, if the medicine has no other substitute, then buyer power is low, and vice versa. The threat of substitutes is also low in the pharmaceutical industry, because although generics have been gaining popularity and acceptance, still, many consumers believe branded medicines are more effective. In terms of competitive rivalry, the pharmaceutical industry is highly competitive. Mullins (2006) reported that the industry was overpopulated and not one company has more than 5 percent market share. In addition, market growth rate is also minimal.
(3) What are the challenges of achieving operational efficiency in view of (a) Sensitivity to culture and diversity with respect to a unified corporate thinking; (b) Globalization and (c) Human resources development.
The changing landscape of business due to the forces of the new and changing environment have become the major influences in the manner in which leading function in the organization is done today. Unlike the traditional leadership process, global leadership extends its functions to new horizons and length that increased values for businesses, hence an increased risks. Leaders are more flexible and multi-skilled today. Thus, new business horizons that offer new and improved opportunities are available for global leaders to take advantage of. With the right attitude and qualifications, success in the business is possible for global leaders. The secrets however, lie on the ability of the leader to understand these new concepts and challenges.
Human Resource Management or HRM is an activity that is focused on recruiting, managing and developing the people in an organization. This function also deals with the issues regarding employee compensation, hiring, performance evaluation, safety, development, wellness, communication, training and development. The human resource management in the organization plays a big role in making strategic and coherent approach to managing the company s most important asset; its people. The HRM function is seen by most companies as a major contributing factor in aligning specific assignment to the employee s capabilities. In doing so, the company will be able to efficiently achieve its goals at a minimum required resources. Factors that affect staffing and staffing turnover are considered to be a big problem faced by human resource managers. Pinkerton (2001) made an effort to know the reasons that influence the staffing needs of hospitals. The answers vary depending on the hospital, the top three include, teamwork or no teamwork/unit cohesiveness, chaos factors impacting the delivery of nursing care and effectiveness of communication.
The factors affect staffing which can be categorized under external and internal. The external factors include the level of education, the prevailing attitudes in society (the kind of attitude toward work), the many laws and regulations that directly affect staffing, the economic conditions, and the supply of and demand for the manpower outside the enterprise. Organizational goals, tasks, technology, organization structure, the kinds of people employed by the enterprise, the demand for and the supply of managers within the enterprise, the reward system, and various kinds of policies are the internal factors which may affect staffing. For example, the use of high technology in most industries requires extensive and intensive education and training.
The organization s ability to effect change is largely affected by the organizational culture because it serves as the basic nature and characteristics of the whole organization. Where organizational culture is deep seated and forms underlying subcultures, it is more difficult to change and therefore sets a more challenging role for leaders who want to implement change in the organization. The tendency to resist change is higher when organizational culture is more cohesive and more symbolical. Since the organization comprises of people that have different behaviors, talents, skills, knowledge, values, personality and many other differences, working together they come on terms to manage each other s differences. Culture is the behavior which formed when the people in the organization meet and agreed verbally and nonverbally and creates rule for doing the task. (Heathfield)
The diversity in the organization was previously seen as a negative factor, but in today s environment where change is inevitable, it adds up to the company s flexibility in order to survive the competition in the market. In an organization where diversity is high, the leader must understand and know how to deal with it and use them effectively as a competitive advantage. Nowadays, many organizations employ diverse group of employees because they want to create a unique culture which adds up to the value of the organizational workforce. Common diversities in the organization include racial mixes, foreign workforces, women on the job, and disabled workers.
(4) What are the expected future trends?
Major transformations are occurring in the delivery of healthcare worldwide. Medical and healthcare technologies are increasingly impacting the clinical as well as the administrative dimensions of healthcare care delivery. Innovations introduced in the last decade have created accumulated effects that will be compounded with the continuing technical progress in medicine. Areas such as telemedicine, telehealth, computerized medical records, e-health and use of the Internet in B2B and B2C applications in healthcare are some of the milestones in the almost total revamping of the healthcare landscape. Medical and healthcare technologies are already transforming the operations, design and mission of hospitals. In this regard, the challenges for the future are an exciting opportunity for study, reflection, planning, and intervention.
Technology assessment (TA) arose in the mid-1960s from an appreciation of the critical role of technology in modern society and its potential for unintended, and sometimes harmful, consequences. Congress commissioned independent studies by the National Academy of Sciences, the National Academy of Engineering (NAE), and the Legislative Reference Service of the Library of Congress that significantly influenced the development and application of TA. These studies and further congressional hearings led the National Science Foundation to establish a TA program and, in 1972, Congress to authorize the congressional Office of Technology Assessment (OTA), which was founded in 1973, became operational in 1974, and established its health program in 1975.
Another factor that is considered as a threat not only to pharmaceutical industry but all industries is the globalization. Globalization has been creating impacts to various industries and individuals. The possibilities associated with it are countless. Hence, it also poses higher threats to many. Globalization has influenced major transformations on the organizational structures, and the processes of firms whether locally or internationally operated. Globalization also redefined the functions and roles of the intermediaries. Distribution of products has become entirely dependent on the intermediaries. Companies are trying to lessen interaction costs and because of this, have outsourced services from other countries to take advantage of the economies of scale. Industrial sectors have to undergo extensive structural changes which become more visible in the sectors that are based highly on the advanced technologies. Examples include the car industry, pharmaceutical industry and the telecommunications, among others.
Conclusions and Recommendations
Based on this research study, there are several lessons which could be learned from the evaluation of and analysis performed in the pharmaceutical industry. Primarily, the safety and security of our lives depend on the ability of the FDA (Food and Drug Administration) and, CDC (Centers for Disease Control and Prevention), the AMA (American Medical Association) and APA (American Pharmacists Association), to screen and select the safest medicine, drugs and vaccines. The criteria set should always and consistently be tested, proven, and communicated to all industry players. Second, the operations of the pharmaceutical companies are generally affected by the changes in the industry. The relative amount of information available in understanding or describing a situation can significantly help in making valuable decision regarding the business operation.
Third, the threat on the human resources because of globalization is considered a very critical issue even in the pharmaceutical industry. In the situation where there is limited available resources, need is high for an effective HR planning. Maximizing employee performances through devising appropriate training is also vital to the needs of the company. The approach will also help in maximizing the return on investment of the any organization s human capital and minimizing the financial risk is the main objective of human resources. Finally, it should therefore be concluded that the operational excellence in the pharmaceutical industry will only be achieved when companies learn to adapt the changes and developments brought about by the globalization.