1) How would you characterise Eli Lilly’s approach to manufacturing before 1987? How much
progress have they made since then? Characteristics of Eli Lilly’s approach to manufacturing before 1987: ➢ High stress on R&D and capital expenditure compared to manufacturing (process improvement). ➢ Manufacturing was given a relatively lower weight in the overall corporate strategy. ➢ Location decisions heavily influenced by availability of technical staff, infrastructure and tax incentives. ➢ Critical manufacturing technologies were spread across numerous smaller scale plants rather than concentrated at key world scale plants. ➢ Manufacturing had not been able to coordinate fully its activities with other functions, which was attributed to lost of significant opportunities both in manufacturing processes for new drugs and improving existing processes. ➢ In the early half of 1980 the company had a significant amount of idle capacity, this however changed in the later half with rising sales for several products (Humulin, Prozac, Ceclor and others) to growth phase (better utilization of plants/ capacity). ➢ The focus was more on short term planning and results than long term planning and results. Progress made since 1987:➢ Manufacturing was given higher weight in overall corporate strategy. ➢ In late 1988 a Manufacturing Strategy Committee was set up to establish global manufacturing policies. ➢ The committee included top executives from manufacturing, engineering, R&D, marketing, finance, personnel and international. ➢ A central theme of “Process development and improvement” was chosen for guiding the manufacturing strategy. ➢ The Cooke’s team developed three plans (proposals) for the consideration of committee for the decision on process improvement efforts. ➢ An outside consulting firm was hired to gather estimated data and assess the impact of each of the plans on the company’s bottom-line (through cost savings and capacity building).
1) What recommendations would you make to Joe Cook regarding the three alternatives for process development? Why? Recommendations: Adopt plan2 (Commit to process improvement for a product(s) that is not yet on the market, but which appears overwhelmingly likely to succeed) for Eli Lilly Pharmaceutical
company which would lead to Investment savings on the rig upto $26188 million for the period of 1979 to 2000. Reasoning: We first deduce the decision of which plan to adopt? Step1: From exhibit 7A we calculate no. of rigs required for the current yield, plan1, plan2 and plan3. Then we calculate the total investment per year for rigs (1 rig = $40million)
Now from Exhibit 5 we calculate the Manufacturing cost (Rig cost) = Annual volume X Rig unit cost. We then add this Manufacturing cost with the annual process development cost and incremental investment per year for rig to arrive at the total cost.
Now we have total savings from the three plans. We now do the decision analysis Strategy adopted Plan1 Plan2 Plan3 Savings (m$) Probabilit y of success Payoff (m$)
28.03
641.27
844.00
1
0.8
0.2
28.03
513.02
168.80
We observe that the payoff from the plan 2 is the highest which is $513.02 million among the three plans, hence we adopt the plan2 Step2: We calculate the implications of adopting plan2 for all Eli Lilly pharmaceutical co. From Exhibit 7B we calculate the incremental investment per year for current yield and plan2 for all Eli Lilly pharmaceutical co. and then calculate the overall savings for plan2.
Projected Capacity Required Plan2 Yield no of rigs
Cumulative no. of rigs required for Plan2
Total Investment on rigs for Plan2 (m$)
Incremental Investment per year for Plan2 (m$)
1500 1500 50000
1750
29
29
1142.86
1142.86
70000
2000
35
64
2542.86
1400.00
80000
2500
32
96
3822.86
1280.00
100000
3250
31
126
5053.63
1230.77
130000
4000
33
159
6353.63
1300.00
170000
4750
36
195
7785.21
1431.58
210000
5500
38
233
9312.48
1527.27
240000
6000
40
273
10912.48
1600.00
270000
6000
45
318
12712.48
1800.00
300000
6250
48
366
14632.48
1920.00
310000
6500
48
414
16540.17
1907.69
290000
6750
43
456
18258.69
1718.52
199 3 199 4 199 5 199 6 199 7 199 8 199 9 200 0
250000
7000
36
492
19687.26
1428.57
240000
7250
33
525
21011.40
1324.14
220000
7250
30
556
22225.19
1213.79
200000
7250
28
583
23328.64
1103.45
180000
7250
25
608
24321.74
993.10
150000
7500
20
628
25121.74
800.00
110000
7500
15
643
25708.41
586.67
90000
7500
12
655 26188.41 Total Investment on rigs for current Yield (m$)
480.00 26188.41
Savings generated for all Eliy Lilly Pharmaceutical co. from 1979 to 2000 = $ 9675.41 million
2) What steps must be taken to implement your recommendation? Steps needed to be taken for implementing recommendations: ➢ List down the product(s) which are in Phase III clinical, these are the product(s) for which resources (capital and manpower) should be committed for process improvement. ➢ Since these product(s) have 2 more years for testing, the process development for these products is already started hence the process improvement must start from year7 instead of year8 (refer exhibit 2). ➢ Decision on which plant location the product would be produced in mass scale should be decided, the plant employees from that plant should be actively involved in the process development and process improvement activities. ➢ Since there is 20% probability of the product not making to the market, a continuous review of the product’s progress in clinical trials should be done meticulously in order to get the early signs of the product’s viability.
➢ All other activities such as Marketing, ramp-up mechanism etc. need to be accelerated due to increased pace of the product introduction in the marketplace (if not done these activities could become constraints).
