MARKETPLACE
Conflicting pressures
A decade or so ago, when pharmaceutical companies were enjoying the profit from blockbuster products, the emphasis was on bringing new products to market as soon as possible with little regard for device cost. To some extent, this culture still prevails. Drug costs can outweigh device costs by as much as 1 000:1, thus attention naturally focuses on optimising drug delivery rather than device cost. Today, however, companies urgently need to achieve cost reductions in all areas and speed up delivery of new products if they are to provide the levels of return that investors expect.
The need to reduce costs and time-scales creates a tension. Companies tend to push through the first stages of development focusing on device performance with less regard to device cost. Later, when cost pressures surface, there is usually considerable resistance to making design improvements. This resistance arises primarily from the fact that changing the design late in the development could jeopardise the work that has already been done to satisfy regulatory requirements. Fortunately, with a structured approach and proven tools, it is possible to achieve substantial cost reductions at almost any point in the product lifecycle.
As it should be
In this scenario there is a new product: a first of its class or a newly developed “me- too” product. Because a robust business case has been developed, the team recognises that manufacturing cost is pivotal to the success of the project and product. The need to optimise manufacturing and logistics receives as high a priority as device performance. This is the ideal case: cost reduction is inherent in the development process.
Escalating development costs
In this scenario, the team identifies part-way through product development that projected product cost may exceed the initial target. This may be because supplier quotations have risen as more design detail is made available and specifications are tightened. To maintain the business case, the team should immediately embark on a cost reduction programme to reduce the risk of commercial failure.
Post launch
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Figure 1: Five stages to the best value stream.
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The third scenario is where, after product launch, manufacturing costs prove to be much higher than anticipated. This maybe because design change was resisted during the development process to protect continuity of the data set and expedite approval. By this stage, with the submission data reviewed and approved, there will be significant resistance to any change. At these later stages some of the biggest benefits are often available: improvements in performance repeatability, human interaction, manufacturing consistency, reject rates and manufacturing downtime are all achievable without having an impact on performance.
Cost reduction initiatives are most successful when they attack all elements of the value stream collectively by taking a holistic view of the product design, commercial situation and supply chain. A best practice approach to holistic cost reduction and quality improvement is described below in three workstreams.
Real cost calculation. This workstream calculates what the component or device should cost based on best practice principles. It is useful for identifying and reviewing the drivers behind the existing cost situation. By comparing the “should cost” with what is actually being paid or has been quoted, anomalies can be identified and investigated on a factual basis in appropriate levels of detail. This bottom-up approach to costing provides the data and ability to investigate anomalies with suppliers so that discrepancies can be understood.
Best value stream. This workstream tests the feasibility and quantifies the benefits of globalisation. How far could sourcing components from a low-cost economy reduce manufacturing costs? What will the impact be on supply chain logistics and end product distribution? More importantly, is the scenario feasible and can supply be assured? A cost model for the components is developed, which can be manipulated dynamically to determine the best possible cost and quality optimised supply chain. Figure 1 shows a possible approach.
Best value product. This workstream aims to control and, where possible, reduce the costs of specific technical solutions used within the product and its tooling. It enables comparisons to be made with competitor’s or parallel products to determine whether the same functionality can be achieved more cost-effectively. Whether the product design capability is inhouse or outsourced, the team should have the ability to design the product to minimise the cost of tooling. Design for quality and design for manufacture and assembly are essential for successful development; they are not practices to be introduced once the design is “frozen.” Using this approach, companies have gained significant savings: in one case, €2 million (33%) on a single toolset, which meant an extra €2 million saving in product development.
Bringing the workstreams together
Individually, the three workstreams are highly effective, but used in combination they can deliver spectacular cost reductions. A multidisciplinary team can explore a range of cost reduction ideas that feed off each other in a virtuous cycle. Early in the development process, the team should identify the design parameters (typically five to eight in number) that dominate performance. Then, when cost opportunities subsequently arise they will have a clear view of what changes will and will not have an impact on fundamental performance. The changes implied by these opportunities should be categorised into groups or tiers. By assigning proposed opportunities to these categories, the team can quickly assess and prioritise them and plan a controlled implementation programme. Tier one opportunities can be delivered quickly and will often fund implementation of those in other tiers.
With care, the majority of cost savings and quality improvements can often be obtained without affecting regulatory submission. As a result of the successful application of this approach, one major drug delivery device is now being manufactured at a third of its original postlaunch cost, and less than half the cost originally envisaged. No resubmission of data to regulators was required.
Philip Seeney, is Managing Consultant and Oliver Hunter is Principal Consultant at PA Consulting Group, Cambridge Technology Centre, Melbourn SG8 6DP, UK, tel. +44 1763 267 133. To receive an extended version of this article or for further information, e-mail: healthcare@paconsulting.com
