GENENTECH CAPACITY PLANNING GMAN 505 FORECASTING AND OPERATIONS OPERATIONS MANAGEMENT MANAGE MENT
GENENTECH – CAP CAPACITY ACITY PLANNING AGENDA Introduction and Preliminary Calculations Introduction Answers to the 4 Case Questions Final Thoughts Q & A Session and Discussion
Forecasting and Operations Management
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GENENTECH – CAP CAPACITY ACITY PLANNING INTRODUCTION 1976 - Robert Swanson Swanson and Dr. Dr. Herbert Boyer founded Genentech 1980 – Genentech IPO 1982 - First recombinant DNA drug marketed: human insulin (licensed to Eli Lilly in 1977) 1985 – FDA approved growth hormone for children 1990 – Roche Holding Ltd. Invested $2.1 billion in the company 2004 – Received FDA approval for 15 new drugs developed through recombinant DNA technology 2004 - Genentech was valued valued at $52 billion, billion, Roche held approx. 60% of the common stock
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GENENTECH – CAP CAPACITY ACITY PLANNING INTRODUCTION cont… Genentech Company is facing a lot of problems and difficulties in order to implement and incorporat incorporate e best technologies for future growth regar regarding ding uncertain future of its cancer drugs. The senior vice president of product David Ebersman along with his team is busy outlining the best approach to it.
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GENENTECH – CAP CAPACITY ACITY PLANNING CENTRAL ISSUE What measures should Genentech employ or implement in order to increase their production and manufacturing capacity to meet the future anticipated and predicted demands over the next 2 to 3 years for a family family of new cancer drugs?
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GENENTECH – CAP CAPACITY ACITY PLANNING PRELIMINARY PRELIM INARY CALCULATIONS CALCULATIONS – Part I
kg
yield
% non-contamination
kg/12000 liters
9.00
0.65
0.80
70.20
multipler
170.94
9*.65*.80*15(# of batch per year) = 70.20 12000/70.20= 170.94
Forecasting and Operations Management
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GENENTECH – CAP CAPACITY ACITY PLANNING PRELIMINARY PRELIM INARY CALCULATIONS CALCULATIONS – Part 2 Location
2004
2010
2015
ssf
561.6
561.6
561.6
vacaville ccp1
842.4
842.4
842.4
vacaville ccp2
0
1170
1170
spain
234
234
234
1638
2808
2808
96000*.00075*x15*.80*.65 = 561.6 kg. 96000/170.94 = 561.6
outsourced total
Forecasting and Operations Management
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GENENTECH – CAP CAPACITY ACITY PLANNING Case Question 1: What is your evaluation of Genentech’s production capacity
requirements given expected demand in 2010 and 2015 for Avastin and Genentech’s other products?
Does your evaluation change if Genentech wants to cover the 85th percentile level of demand?
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GENENTECH – CAP CAPACITY ACITY PLANNING CASE QUESTION 1 cont… 2010
lung
breast
kidney
pancreatic
other
total
patients
27750
54000
8100
7200
11500
108550
grams
249750
486000
72900
64800
103500
976950
kg
249.75
486
72.9
64.8
103.5
976.95
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GENENTECH – CAP CAPACITY ACITY PLANNING CASE QUESTION 1 cont… 2015
lung
breast
kidney
pancreatic
other
total
patients
27750
54000
8100
7200
22500 22 500
119,550
grams
249750
486000
72900
64800
202500
1,075,950
kg
249.75
486
72.9
64.8
202.5
1075.95
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GENENTECH – CAP CAPACITY ACITY PLANNING CASE QUESTION 1 cont… Drugs for each condition have a 50% chance of being approved. approved.
Therefore… - 2*2*2*2*2 = 32 combinations - using ‘sum product’ product’ function, we can calculate the kg for each combination. - Then, use the formula N/32 to get the probability weighted in kg.
Forecasting and Operations Management
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GENENTECH – CAP CAPACITY ACITY PLANNING CASE QUESTION 1 cont…
expected demand
488.48
from non-avastin
488.48
avastin demand
322.00
total
810.48 kg
2010
expected demand
537.97
from non-avastin
537.97
avastin demand
383
total
920.97
2015
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GENENTECH – CAP CAPACITY ACITY PLANNING CASE QUESTION 1 cont… Ideal Capacity Needed: demand (kg) 87.75 300
minimum capacity (liters) 15000 51282.05
810.48 920.98 1000 1250 1563
138542.74 157431.62 170940.17 213675.21 267179.49
capacity ideal capacity cushion 0.5 22500 0.5 76923.08 0.5 0.5 0.5 0.5 0.5
207814.10 236147.44 256410.26 320512.82 400769.23
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GENENTECH – CAP CAPACITY ACITY PLANNING IDEAL CAPACITY NEEDED:
Avastin non-avastin current proteins non-avastin new proteins Total
avastin non-avastin current proteins
Demand
Kg
2004 (current)
2010
2015
300
810.5
921.0
1,000.00
1,563.00
1300
250 2310.475
400 2883.975
Needed Capacity current (2004) 76,923
Liters 2010 207,814
2015 236,147
256,410
320,513 64,103
400,769 102,564
333,333
592,429
739,481
non-avastin new proteins total
1,250.00
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GENENTECH – CAP CAPACITY ACITY PLANNING 85th percentile of demand - 2010: 1130.65 1161.25 1195.45 1226.05 1234.15 1298.95
808.65 839.25 873.45 904.05 912.15 976.95
85th%
1131 kg
0.84375 0.875 0.90625 0.9375 0.96875 1
Demand changes to cover the 85th percentile – New demand is 1131 kg and new capacity must be minimum of 193,333 liters.
193333.33 liters
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GENENTECH – CAP CAPACITY ACITY PLANNING 85th percentile of demand - 2015: 1209.2 1256.45 1321.25 1386.05 1394.15 1458.95
826.2 873.45 938.25 1003.05 1011.15 1075.95
85th%
1210 kg
.843 0.875 0.90625 0.9375 0.96875 1
Demand changes to cover the 85th percentile – New demand is 1210 kg and new capacity must be minimum of 206,837 liters.
206837.4 liters
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GENENTECH – CAP CAPACITY ACITY PLANNING Case Question 2: Assuming Genentech decides to proceed with CCP3, what size production lines (tank sizes) would you recommend? Why?
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GENENTECH – CAP CAPACITY ACITY PLANNING 25000 liter tank: •
Pros Capital investment is not substantially higher than 12000 liter tank. Double capacity to anticipate growth in demand Planning a head Design, construction, testing and FDA filing takes up to 5 years. New technology with appealing cost structure and higher profit margins over the long term. Cons change over lead to downtime - may need to change the protein produced by the factory often/other products may not have as much demand, therefore if one product has already been produced, there may be significant s ignificant downtime. If you produce everything for avastin (for example), you have all this left over space for f or other products that's not being produced. Note: it takes 7-14 days fermentation process for 9kg production. –
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GENENTECH – CAP CAPACITY ACITY PLANNING Case Question 3: What criteria should Ebersman use in selecting a location? Why? Several Criteria – Ebersman should look at the current. Locations and consider the most cost effectiv effective e means available. available. What expertise, expertise, facilities, cost of workforce the locations are available.
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GENENTECH – CAP CAPACITY ACITY PLANNING Case Question 3:
Expertise Workforce Cost Demand Empower the Employees
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GENENTECH – CAP CAPACITY ACITY PLANNING Case Question 3:
Expertise Having the knowledge and experience is critical in the field of medical technologies. Developing a product in an established established locale such as Vacaville keeps keeps you close to your critical assetsyour knowledge.
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GENENTECH – CAP CAPACITY ACITY PLANNING Case Question 3:
Demand Infrastructure / facilities: Having a facility capable of the increased Infrastructure production, and or the space to build on the existing work space. Who and where are they buying, being close to consumers reduces transport costs. What kind of international international demand is there, there, and having an overseas location, and the possible effect and or additional add itional business it may bring with international exposure. exposure.
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GENENTECH – CAP CAPACITY ACITY PLANNING Case Question 3 cont…
Shall we give the employees a choice? Questions to ask-- In selecting location, etc., should it be part of company policy to make employee satisfaction a priority. Perhaps asking employees to take a survey sur vey,, considering three options 1. build another in Vacaville? Vacaville? 2. build other location in the US 3. or build in a foreign country. To ask employees: Are you happy? Do we need another anothe r plant? Would you be willing to relocate if the plant were located outside of the USA?
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GENENTECH – CAP CAPACITY ACITY PLANNING Case Question 4: Should Ebersman move forward with CCP3 now? If not, when? when ? Two pronged approach in dealing with his capacity planning.
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GENENTECH – CAP CAPACITY ACITY PLANNING Case Question 4 cont… - have his process process development team team focus on increasing the yield amounts amounts in their current manufacturing process. However this being an unknown quantity I would still move forward with increasing capacity and build out the Vacaville site CCP3. - it would be a greater greater risk not to increase capacity at this time. A delay delay in getting new product to the market would result in a much high loss in revenue then having excess capacity.
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GENENTECH – CAP CAPACITY ACITY PLANNING Final Thoughts… - They should try to further improve the current process by boosting throughput. - Try to build relationships with other manufacturers and additional ad ditional companies to meet the Excess demands by negotiating contracts and agreements. - Start searching for economical and strat strategic egic locations for building up u p of new n ew manufacturing plant. It’s important to keep looking for space and be ready with a
blue print of an additional facility. - Try to stay stay away from messing up with FDA regulations by avoiding long period revalidation.
- Focus should be laid on fully completing the CCP2 at Vacaville.
Forecasting and Operations Management
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GENENTECH – CAP CAPACITY ACITY PLANNING
Thank you.
Forecasting and Operations Management
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GENENTECH – CAP CAPACITY ACITY PLANNING Additional Material: Assumption: 85 percentile demand is assumed to be 1.25 times the expected demand Production Capacity Gap Analysis Genentech Demand 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Avastin
303
Other Drugs
1000 1050 1100 1150 1200 1250 1313 1375 1438 1500 1563
Omnitarg Total Expected Demand
495 50
687 100
879 150
1071 1263 1289 1314 1340 1365 1391 200
250
300
350
400
450
500
1303 1595 1887 2179 2471 2763 2901 3039 3177 3315 3454
85 Percentile Demand 1629 1994 2359 2724 3089 3454 3626 3799 3972 4144 4317 0.85083
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GENENTECH – CAP CAPACITY ACITY PLANNING Genentech Capacity 2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
SSF
562
562
562
562
562
562
562
562
562
562
562
CCP1
842
842
842
842
842
842
842
842
842
842
842
1170
1170
1170
1170
1170
1170
1170
234
234
234
234
234
234
CCP2 CCP3 Porrino
234
234
234
234
234
Rituxan Outsour Outsource ce
117
117
117
117
117
117
117
117
117
Herceptin Hercept in Outsourc Outsource e Genentech Cap.
1638
1638
1638
1638
2808
2808
2808
2808
2808
2808
2808
Outsource Cap.
117
234
234
234
234
0
0
0
0
0
0
1755
1872
1872
1872
3042
2808
2808
2808
2808
2808
2808
Total Cap.
Assumption: Two Contract M anufacturers will each have two 10,000 liter tank lines
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GENENTECH – CAP CAPACITY ACITY PLANNING
Genentech Capacity Need
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Excess Capacity Mean
452
277
-15
-307
571
45
-93
Excess Capacity 85%
126
-122
-487
-852
-47
-646
-818
-231
-369
-507
-646
-991 -1164 -1336 -1509
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