By Larry Cote, President Lean Advisors Inc

In the past few years there have been rumblings from the North American manufacturing community about the desire to return some of their manufacturing to North America.

There have been many changes in the economics and the markets since the early 90s both here and in Asia (China specifically).  Some of those changes are that China’s economic environment has evolved and grown.  As it happens in every economy, growth and competition puts pressures on the cost of doing business, the infrastructure of transportation/logistics of shipping higher volumes and more products becomes stressed.

In the meantime while this evolution has been happening in China, North American productivity has improved, especially in the US through technology and advancements in process thinking.  All these factors (and many more) have caused CEOs of manufacturing companies to reassess the decisions that they made a decade or two ago to move production overseas.  They are realizing that it may be more profitable now to do some of their manufacturing here on this continent.

This opportunity should not be missed by Canada or the US.

Management teams must first recognize that they can be competitive in quality, cost and speed of supply.  Once this realization is made then they quickly must re-examine the importance of dramatically and quickly transforming their current methods and thinking – both culturally (value thinking) and processing.  We must not kid ourselves, this opportunity to take advantage of ‘repatriation’ or ‘re-shoring’ will not last long.   CEOs are constantly searching for the next place to invest, where they can drive profits and a better ROI.

The one solution that is being touted for attracting manufacturing back to North American soil is to adopt the latest technology as well as investing in innovation.  This is a simple solution that on the surface is an obvious statement to make.  The reality though, is that over the past decade, our margins have been squeezed so tight that survival has been the primary focus.  In this scenario, very little money can be freed up to buy new technology let alone spend time on research and innovation.  So, what do we do??

Our belief is that expensive technology should not be the first step in becoming attractive to foreign business.  Technology should be the second step in turning around your company.  “Leaning out” your existing processes is the first step and will give you the knowledge and understanding of what technology you really require and should invest in.

Initially, North American organizations should be focused on ensuring their current processes are ‘waste’ free.  Without this customer focus of ‘value’ as the major driver of the corporate strategy, we will miss the opportunity to attract the manufacturing industry we lost to foreign countries over the past few decades.  This “leaning out” will also give organizations the profits they need to move to the next phase, which is purchasing new technology.

I know this sounds like the same old preaching Lean has been teaching since the mid 90s, but ‘off-shoring’ of manufacturing began well before Lean could have an impact.  Now we’ve had the past 15 years to become experts – let’s call the last 15 years ‘practice time’ – and we are ready to actually demonstrate to the world that North America is the place to invest if you want the best quality, service and cost.

Manufacturing is the backbone of our economy.  Let’s not miss this small window of opportunity to bring back some of the manufacturing we lost and even to develop new opportunities for growth.  We have been given a second chance, let’s not miss out!!

Larry Coté is well known for his penetrating analysis and creative energy. Larry has worked with the Lean Enterprise Institute in Boston (the first Lean teaching and learning institute) as C.O.O./E.V.P. and was the Founder and President of the Lean Enterprise Institute Canada. In 1999, Larry founded Lean Advisors, Inc. which has developed into one of the premier Lean consulting groups in North America and around the world. Read More

As companies consider applying Lean in their industry they face the challenge of determining how it will work in their environment.  Part of the difficulty is much of the information available is from other industries.  This lack of information can cause confusion on how they can apply the Lean Principles. For example, a major method of improvement in the manufacturing industry is eliminating large batches.  When manufacturing discrete items, the idea of making a batch smaller is challenging, but easy to envision. A batch in other industries such as food preparation and pharmaceuticals brings a whole other set of issues.

In the pharmaceutical industry, the first thought is reducing the size of the blend.  The blending of pharmaceutical products is highly regulated and any change to blend size requires significant testing and many levels of approval. Thus, some companies that associate Lean with reducing batch size believe that Lean won’t work in the pharmaceutical industries.

The question is how you can apply a strategy that has its roots in the car industry in the Pharmaceutical industry.

Here is the approach that one pharmaceutical company is using.  Like many companies going Lean for the first time, there were many concerns about the benefits they could achieve.  The senior team put their faith in the hands of their Lean champion and Kaizen Institute Lean Advisors to take them on the Lean Journey.

The key in all industries is to follow the Lean Principles.  The first of which is to define value.  The pharmaceutical company’s value is to blend components in the right quantities to produce a quality product for their clients.  This is the science of their job.  As with most applications of Lean, the science of the job is not the area of opportunity.  The opportunity for improvement lies in between these steps.

Once the value was determined it was time to value stream map the processes.  We started from the receipt of the components through to the packaging process. Like most non lean processes each area operated in silos with each department being concerned with their own schedule and productivity.  Their goals were to meet their schedule and keep their employees busy.

The lead time identified by the current state map was around 250 days for one of the product families.  The team identified many areas where significant inventories of partially finished product (WIP) were stored.  Analysis indicated that less than 5 days of lead time was caused by the original size of the blend.  What the team found was that there were nine completed blends waiting to be made into tablets.  There were weeks of finished tablets waiting to be packaged.  Reducing the size of the blends was a small opportunity compared to the other in process opportunities.  Inventory causes many incidental activities as well as impacting cash flow.  In the pharmaceutical industry, there are some added impacts.  For example, if these inventories are kept too long, extra testing is required tying up valuable lab hours.  In some situations, much of the inventory needs to be destroyed when kept too long.

The next step was to create a future state for the process.  This involved the application of the 3^rd and 4^th principles of Lean,  The creation of flow and pull from the customer.  To create flow it was important to tie the processes together.  In the first pass the goal was to only have a week of material in between each processing step.  Although this is not the perfect future state, it brings us to principle number 5, seek perfection.

Sometimes a company or the employees feel they have failed when they don’t achieve a perfect future state on the first pass.  The goal in the first 3 to 6 months is to get significantly better.  In this case, the lead time will improve by over 100 days or close to 50%.  What company wouldn’t be pleased with a 50% reduction in all their lead times?

To achieve this reduction in inventory, the team had to set up a kanban system.  It’s a fairly simple system, when the customer needs to be replenished the product is packaged from a small supermarket of product.  This creates an opening in the tablet area and they draw a batch of blended material which sends a signal production control.  Production control sends a request to the dispensing area.  Dispensing gathers the components and puts them in a FIFO lane for the blending area to work on.

This process was implemented in two weeks, initially with the extra inventory as a safety stock.  The safety stock was quickly reduced until they reach their first target.  This allows the employees, and some of the management, to understand the process and to be comfortable that it will work.

There are still cultural barriers to overcome.  The employees feel nervous with their safety net reduced.  There are questions about what to do when you complete the work before the end of the shift.  It is easier to just produce a few more thousand tablets than find some other value adding work for the employees.  These are common concerns and are only eliminated as the employees see that Lean works in their industry.  They have already taken the first and most critical step which is to try.

They are on their way to achieving major gains in the first 3 to 6 months.

• 50 % reduction in Lead times
• 20 to 30 % reduction in storage space
• The elimination of an offsite storage facility
• Reduced changeover times
• 90 to 100% reduction in retesting

Does Lean work in pharmaceuticals, without a doubt.