Lean Principles for Outsourcing Manufacturing: Product Quality and Eliminating Waste

Increasing costs are the reality for today’s pharmaceutical manufacturer. Many are addressing increasing costs and a more competitive marketplace by implementing and managing Lean manufacturing practices. Lean requires a culture that believes in continuous improvement through the elimination of waste.

There are Lean programs and Lean definitions, but the sole purpose of Lean is driving waste from all aspect of the business. Lean manufacturing, a Japanese philosophy, is simply the elimination of waste through continuous improvement.

Selecting a supplier with a strong Lean culture and proven Lean systems when production is outsourced, is your best insurance for avoiding a supplier’s requests for price increases. Also, it helps to ensure that your cost and quality objectives are met, and will continue to be met.

Developing the Scope of Work

Planning and creating clear expectations are the key to successful outsourcing. For example, for tablet manufacturing, develop a thorough, exact set of specifications/requirements that paints a clear picture of your desired outcome. Include everything from the supplier’s vendor selection, tablet design, date and method of shipment, and everything in between. Milestones are critical during the supplier planning/ approval phase, launch phase, and during production. Developing the initial contract is the most important step in the outsourcing process, although it’s not the only critical step.

Values and Culture

Subcontractors may not share your values, or, they may not have a culture that is conducive to continuous improvement. Your supplier evaluation should include a review of the subcontractor’s philosophy, employee morale, housekeeping, teamwork and their commitment to continuous improvement. Underutilized human potential (ninth form of waste) is essential to a successful outsourced project. This is often overlooked, and it encompasses the greatest opportunity for achieving production cost, quality and delivery objectives.

Managing the Scope of Work

Buyers who have their own set of requirements/needs may negotiate your production contract without consultation from the production, sales, and quality teams. This is a recipe for a very difficult customer/supplier relationship. This is the time to focus on common goals to ensure that all the needs of the affected teams are met. An experienced program manager will ensure the scope of the work is clear to all parties, from the negotiation stage to completion. A competent program manager will also ensure the scope of work is met while educating customers and supplier to the documented agreement. You should get what you agreed to pay for! Defining that is the beginning, and managing to those expectations is crucial to a successful outsourced product.

A “Responsibility RACI (responsibility, accountability, consultations, and information) matrix” is an effective tool for clarifying and ultimately managing the scope of work. RACI defines who is responsible for which deliverables: planning, setup, reporting, delivery, transportation, etc.

Supply Chain Management

The scope of work needs to define responsibilities for not only your supplier, but also for your supplier’s responsibility to manage their supply base. For example, you don’t want an ingredient substituted for in your finished tablet, not be told, and not have it identified on the product’s label. Substitutions are not uncommon, and many times occur somewhere in the supply chain.

Lean Manufacturing Principles

Specific expectations should be spelled out in the scope of work for continuous improvement, in adherence to the Lean manufacturing principles outline below.

Assessing Suppliers Lean Capabilities

The easiest and most telling place to start assessing a supplier’s Lean capabilities are in housekeeping. Housekeeping and cleaning are drop dead issues for the FDA. That is critical to eliminating waste, and to the overall quality of your manufactured tablet. The supplier’s work areas, warehouse, and office should be organized, labeled and in showroom condition. The supplier should ensure that only those things that are required for the work area are present there. Everything in the area should be labeled, have a home, a purpose and always be accessible to the operator.

The Japanese have a word, “Muda” which literally translates as “futility”. In Lean, this is called “waste”. There are seven forms of waste identified in Lean manufacturing; there are additional forms of waste sometimes identified by different authors. We believe there are two additional vitally important forms of waste for a total of nine, they are:

1. Defects: reworking or scrapping product is an unnecessary cost and motion
2. Waste in the production process: corrected with line balancing
3. Overproduction: making product not required by the customer
4. Wait time: operators should never have to wait for material or product
5. Transportation: an opportunity to optimize the process
6. Inventory: too much, or, too little raw material, work-inprocess, finished goods, etc.
7. Unnecessary motion by the employee(s)
8. Unsafe or non-ergonomic work conditions
9. Underutilized human potential: skills, talents, and creativity (ask your employees for input)

Lean philosophies should be applied throughout the supplier’s organization. Look for application(s) in their manufacturing suite, filling line, packaging operations, warehouse, quality control, and anywhere you believe that waste can be eliminated. Companies tend to overlook the administrative process, this area doesn’t get the focus it deserves. While its true there are a lot of opportunities to improve manufacturing, no part of a business is exempt from the need to eliminate waste. When assessing supplier capabilities, review their approach to dealing with each of the seven primary forms of Muda/waste.

Defects

Ensure the supplier counts all defects, tracks trends, and makes decisions based on that data. The “cost of quality” isn’t the price of creating a quality product or service. It’s the cost of “NOT” creating a quality product or service; as stated by W. Edwards Deming.

Waste in Production

Suppliers should balance their process using effective line balancing practices, and they should design their process to TAKT Time (the time available to complete the work).

Overproduction

Suppliers should manufacture to their customer’s needs. It is very easy to tie-up a lot of money in raw material, work-in-process, and/or finished goods.

Wait Time

Operators should be treated like surgeons. They should have everything they need within their reach to perform their jobs. Changeovers should be planned and choreographed so there is no wait time, require no special tools, and should be able to be completed by the operator. An effective documented preventative maintenance program will reduce wait time and production interruptions.

Operators should never have to wait for a batch to be blended for compression, a solution to be mixed for the filler, or, for bottles to be filled with capsules. An effective preventative maintenance program properly implemented and managed, and precision planning and scheduling can eliminate a large source of wait time.

Transportation

Poorly designed internal material routes result in unnecessary transportation times and congested traffic. Repeatedly handling material, and not having material stored near the point-of-use creates waste. This should be done in compliance with your specific governing manufacturing guidelines per FDA, USDA, standards organizations, etc.

Inventory

Suppliers should set inventory levels (raw material, work in process and finished goods) at their lowest comfort level based on your demands. Too much inventory ties-up money, can lead to obsolescence, it has to be stored, counted, and rotated, and that all requires resources.

Unnecessary Motion

This requires non-value added activities like moving material, multiple handling of material, inspecting material. (Sometimes you need to inspect things, but inspection is a non-value added activity, and is the result of a process that produces defects).

Unsafe Conditions

All injuries are preventable. They are 100% wasteful, destroy trust in management, and hurt morale. Suppliers must have an aggressive safety program that focuses on prevention and includes all disciplines. The safety program must set priorities that address the highest risks. Injuries at your supplier’s facility will affect your costs, and security.

Underutilized Human Potential

This is a most costly and non-recognized form of waste. Not including all employees in solving problems in their areas, not soliciting everyone’s ideas, not listening, poor or ineffective leadership, poor personnel interactions, a lack of common goals between departments and shifts, and poor morale all result in a tremendous amount of waste.

Employees want to be part of the solution. Employee empowerment is essential to your suppliers, and to your success.

Your outsourcing system should evaluate the supplier’s level of empowerment, participative decision-making, gain sharing and continuous improvement initiatives. You should determine if the supplier has a formal program to solicit employee ideas. Employees can identify waste in an operation better than any other source. They will tell you if asked, and if they feel it is in their best interest to do so. Suppliers should involve their employees, and everyone should feel a sense of ownership for housekeeping and organization.

If the supplier does not have effective leadership, teamwork and high morale, you should find another supplier. Everyone has to be on-board. Your outsourcing system should provide an evaluation of your supplier’s leadership effectiveness.

Quality

Lean and quality are synonymous. W. Edwards Deming said, “Quality is conforming to specifications”. Conforming to specifications is achieved through documented systems and job instructions so the process is repeated. Employee training and reducing variation between shifts can best be addressed with documented repeatable systems and job instructions. To ensure system compliance, process audits should be a very important part of your system. If your supplier does not have documented systems and process audits, they do not have a repeatable process, and they are not manufacturing to specifications.

Key Performance Metrics and Goal Setting

Suppliers should track and post key performance metrics so everyone knows how they are performing and what their goals should be. Ensure that each area of your business is driven by specific goals that drive continuous improvement, and that each goal ties into the company’s long-term goals, and that your organization agrees with those goals. Ensure that your supplier focuses on first-time quality throughput for your tableting. Having to reprocess your product can affect tableting flow ability, change particle morphology, and affect compaction behavior.

The cost of improving your supplier’s process should be the supplier’s responsibility, along with the cost(s) associated with receiving defective material. You are expected to deliver quality products; your suppliers should have the same expectation. Remember, inspection does not assure quality, only a process that is in control will produce consistent quality.

Your suppliers telling their employees to work harder, or, to offer more suggestions may create a short-term improvement (the Hawthorne Effect). However, identifying the systemic inefficiencies within an organization will provide sustainable improvement, and will help create the culture necessary to keep you competitive. Developing a culture where all employees have the skills needed to identify waste, take ownership for quality, solve problems, and the motivation to care about the long-term success of the company, are essential in today’s global market. You need to be able to evaluate your suppliers’ culture as it relates to Lean and continuous improvement.

Evaluating processes for the elimination of waste through continuous improvement in your supplier's production processes, material, work-inprogress, scrap, administration, quoting, systems, administrative policies and rules, is an effective way for you to ensure that you are receiving value. That will reduce the pressures on your bottom-line!

Outsourcing production can be very successful. But you cannot assume that any supplier will perform to your expectations, unless you have controls in place to ensure accountability. You will require a constant flow of information, a frequent presence, frequent milestone reviews, rewards and penalties, and a very clean initial document that clarifies all your requirements.

Outsourcing production can expand your production capabilities and help you grow, but you cannot outsource the responsibility for delivery and quality.