The case study of ACTAVIS BULGARIA EAD Sofia’s supply chain performance evaluation focuses on various drives, environmental factors, needs, technologies, and other forces.
Actavis is one of the leading European providers of generic pharmaceuticals, with turnover and EBITDA in 2004 of EUR 452 million and EUR 115 million, respectively. It develops manufactures and distributes generics under its own brand name and acts as an outsourcing partner for other major pharmaceutical companies. The Group also established itself as a supplier of pharmaceutical intellectual property. Actavis has qualified as one of the Europe’s fastest growing companies in the 2005 edition of Europe’s 500.
The Bulgarian chapter of Actavis’s history started in 1999 with the privatisation of three state owned pharmaceutical factories located in the cities of Dupnitca, Razgrad and Troyan. In the five-year period to 2004 all of them have been completely renovated in order to comply with the European GMP (Good Manufacturing Practice) Standards.
To maintain a competitive advantage in the market place, on-going evaluation and suppler performance by management is mission critical. As demonstrated in this analysis, the evaluation and improvement of supply chain performance in complex and dynamic. Evaluation results enhance the productivity of the company also under discussion.
Importance of Measuring the Performance of the Supply Chain
The operation management model constitutes of inputs and outputs. The list of inputs include,
1. customer needs
3. Technology management
4. Fixed assets of the business
5. Human capital
6. Variable assets related to transformation process.
Information and the physical factors play an important role for managers in order to produce outputs.
Authors (La Londe and Masters 1994; Lambert, Stock, and Ellram 1998; Mentzer et al. 2001) regard a supply chain as a set of firms involved in the upstream and downstream flows of products, services, information, and/or finances. Mentzer et al. (2001, p. 4) described a supply chain as “a set of three or more organisations directly linked by one or more of the upstream and downstream flows of products, services, finances, and information from a source to a customer.” Thus, the nature of a supply chain is comprehensive so that membership is not limited to a supplier, a manufacturer, and a distributor, but opens to any firm that performs various flow-related services (Mentzer et al. 2001).
The main task of the supply chain management is to develop a strategy which can cater the need of the customers and is aligned with the company objectives (Pohlen, 2003).
Most companies choose to outsource their supply chain management by partnering with a Third-party logistics providers. The successful and efficient combination of the operations of these firms provides the company with the competitive edge in the market. (Cook, DeBree, and Feroleto, 2001). Lummus and Vokurka (1999) points out towards the need for the managers to understand the performance of all the stake holding firms in the supply chain. According to (Pohlen, 2003), this insight in the performance of each firm will enable the managers to develop measures in order to fulfil the demands of the customers.
However it is remains important for mangers to continue to measure the performance of different aspects of the supply chain (Deloitte, 1999). Improvement in the company’s performance cannot be realized without improved performance from the suppliers (Lummus, Vokurka, and Alber, 1999). An overview of the supply chain of the Actavis Bulgaria and demonstrates how performance evaluation can lead to a more informed decision-making process that benefits the company. Routine planning and information taking activities performed by operations and senior management allow real time up to date information regarding the performance of different supply chain firm vital to the stake holders and investors to the firm.
Key Performance Indicators to Assess Company Suppliers
Currently Actavis operates in the country split into two divisions – Operations and Sales &Marketing. Actavis Bulgaria Operations is a holding company responsible for the management of the three factories providing first class generic products, mainly for the Bulgarian, Russian, Ukrainian and CIS markets.
The Sales & Marketing division is represented in the country by Actavis EAD, a company registered under the Bulgarian law. It employs about 200 people and operates three warehouses in the country. Actavis EAD is mainly focused on marketing the Group’s products as first class generics on the Bulgarian market, which is the third biggest market for the company’s own brand revenues world wide.
Following its strategy for a vertical integration on the Bulgarian market, Actavis recently acquired one of the biggest local distribution companies, Higia. It anticipated the combination of Actavis’ strong portfolio and Higia’s strategically important foothold in the distribution of pharmaceuticals will provide a more direct route to the customers and also provide a stronger platform for future growth.
Commercial entities licensed by the Ministry of Health for wholesale trading with pharmaceuticals. Due to the corporate structure of Actavis AD (Bulgaria), the wholesale companies are the end-users of the company, since Actavis AD (Bulgaria) does not distribute its products directly to pharmacies and hospitals but through its distributing companies (wholesalers) to which “to the market” sales are made. The value added by the distributing companies to the overall commercial activities of Actavis AD (Bulgaria) is defined both by the key position of our major partners in the whole pharmacy supply chain and by the ever improving logistics and warehouse capacities of the leading national distributing companies.
The distributing companies are the company’s clients and at Actavis the customers are treated as a key to the company’s success”. The wholesalers’ role for the overall business of Actavis AD (Bulgaria) is extremely important also due to the fact that the key distributing companies (e.g. Commercial League, Sanita Trading, Kaliman) have developed vertical integration within the distribution channel, that is they own pharmacy chains. (Actavis, 2004)
Managing operations is a crucial aspect of each and every kind of business especially in the drug manufacturing which is the main production of Actavis, as it involves the high time constraint and quality assurance.
The notion of production management has been transformed from the manufacturing activities and has expanded to activities as purchasing, warehousing, transportation, and other operations from the procurement of raw materials through various activities until a product in available to the buyer. The notion includes the process of delivering the services to the customers with the products. With the changing time the aspects covered are increasing, the process now also includes R&D, value creation, marketing management, sales activities, accounting and finance.
Most of the physical assets remain unchanged. These include buildings, land, manufacturing plants, warehouses etc. Planning, operating and controlling are the important constituents of transformation process. The improvement in the system is also an important aim of the model. Outputs consist of products and services and may even be information, such as that provided by a consulting organisation. (Koontz and Weihrich, 1994; p 633, 634)
Possibilities for Improvements of the Downstream Supply Chain
There are many other techniques, which can be undertaken by the management in order to improve the quality of management process. Firms typically choose one or more current providers, particularly those committed to continuous improvement of the quality, reliability, responsiveness, innovation, flexibility, tailoring, cost effectiveness, etc., of their goods or services.
In addition, some buyers bundle a number of related products or services into a single contract, thus providing a single “belly-button” or point of communication and thereby reducing the coordination costs associated with working with many different providers and allowing economies of scope and scale.
For a company having the distribution supply chain as Actavis PERT/ COST analysis should be performed in order to evaluate the effectiveness of supply chain.
A product can be improved and its cost lowered through value engineering, which consists of analysing the operations of the product or service, estimating the value of each operation, and attempting to improve that operation by trying to keep costs low at each step or part. The following specific steps can be taken in order to improve the supply chain at Actavis.
1. Identify the costs for each part and operation.
2. Identify each part’s relative contribution value to the final unit or product.
3. Find a new approach for those items, which appear to have high cost and low value. (Koontz and Weihrich, 1994; p.648)
Work methods can be improved through work simplification, which is the process of obtaining the participation of workers in simplifying their work. Training sessions should be conducted in the company to teach concepts and principles of techniques such as time and motion studies, workflow analyses, and the layout of the work situation. (Koontz and Weihrich, 1994; p.648)
The supply chain management at Actavis should establish a group of people from the same organisational area who meet regularly to solve problems they experience at work. (Goldstein, 1985; p.504-517) Members should be trained in solving problems, in applying statistical quality control, and in working in-groups. A facilitator should work with each group consisting of six to twelve members. The QCs may meet 4 hours a month. Although QC members may receive recognition, they should also receive monetary rewards.
Quality circles should evolve from suggestion programs. In both approaches, workers will participate in solving work-related problems. Although in suggestion programs the problems are usually quite specific, those dealt with by quality control circles are often more complex and require the involvement of several team members.
The team should consist primarily of rank-and-file workers and sometimes it can also include supervisors. (Koontz and Weihrich, 1994; p.649)
Time network analysis is a logical extension of the famous Gantt chart. Often referred to as the program Evaluation and Review Technique (PERT) an in its essentials as the Critical Path Method (CPM), this technique of planning and control has wide potential use in many applications. But PERT and it’s various refinements, like PERT/COST, have considerable potential for use in many aspects of planning and controlling operations (Koontz and Weihrich, 1994; p.648).
Top Quality Management TQM:
TQM is defines the guiding principles that represent the foundation of a continuously improving organisation. It is the application of quantitative methods and human resources to improve all the process within an organisation and exceed customer needs now and in the future. TQM integrates fundamental management techniques, existing improvement efforts, and technical tools under a disciplined approach. (Besterfield, Michna, Besterfied & Sacre, p.1)
Utilizing the Top Quality Management (TQM) model, the subsystems include all of the organisational functions in the life cycle of a product, i.e. design, planning, production, distribution, and field service. The management subsystems also require integration, strategy with a customer focus, tools of quality and employee involvement. (A corollary is that any product, process, or service can be improved, and a successful organisation is one that consciously seeks and exploits opportunities for improvement at all levels. The load-bearing structure is customer satisfaction. The watchword is continuous improvement. (Ross, 2)
All personnel must be trained in TQM, statistical process control (SPC), and other appropriate quality improvement skills so they can effectively participate on project teams. Including internal customers and, for that matter, internal suppliers on project teams are an excellent approach. They understand the process better than anyone else does. Changing behaviour is the goal. People must come to work not only to do their jobs, but also to think about how to improve their jobs. People must be empowered at the lowest possible level to perform processes in an optimum manner. There must be a continued effort to improve all business and production processes.
Quality improvement projects, such as on-time delivery, order entry efficiency, billing error rate, customer satisfaction, cycle time, scrap reduction, and supplier management, are good places to begin technical techniques such as SPC, benchmarking, quality function deployment, and designed experiments are excellent for problem solving. On the average 40% of pounds is purchased product or service; therefore, the supplier quality must-be outstanding. A partnering relationship rather than an adversarial one must be developed. Both parties have as much to gain or lose based on the success or failure of the product or service. The focus should be on quality and life-cycle costs rather than price. Suppliers should be few in numbers so that true partnering can occur. Performance measures such as uptime, percent non-conforming, absenteeism, and customer satisfaction should be determined for each functional area. These measures should be posted for everyone to see. Quantitative data are necessary to measure the continuous quality improvement activity. (Besterfield, Michna, Besterfied & Sacre, p.3)
Hence summarising the key points discussed above, productivity should be the major concern of managers at Actavis Bulgaria. It implies measurement, an essential step in the control process. The productivity measurement of skill workers is generally easier than that of knowledge workers such as managers. Yet managerial productivity is very important, especially for organisations operating in a competitive environment.
Top management must become convinced of the need for quality and must clearly communicate this to the entire company be written policy, starting that each person is expected to perform according to the requirement or cause the requirement to be officially changed to what the company and the customers really need.
Quality improvement team are composed of department heads to oversee improvements in their departments and in the company as a whole. Apply quality measurements to every activity in order to identify areas in need of improvement. Implement cost of quality estimates in order to identify areas where improvements would be profitable. Develop in-house quality awareness programs to elevate quality awareness among employees. Schedule supervisor training at all levels of management to be trained as to how to implement their part of the quality improvement program.
Zero defects day i.e. plan a day to signal to employees that the company has a new standard. Establish goal setting for individuals therefore have improvement goals for themselves and their groups. Employees should be encouraged to inform management of any problems that prevent them from performing error free work. Give public recognition, non-financial appreciation to those who meet their quality goals or perform outstandingly. Finally, build quality councils composed of quality professionals and team chairpersons. Quality councils should meet regularly to share experiences, problems, and ideas. Repeat the order to emphasise the never-ending process of quality improvement. (Ross, p. 6-7)
Production management refers to all those activities necessary to manufacture products; it may also include purchasing, warehousing, transportation, and other operations. Operations management has a similar meaning, referring to activities necessary to produce and deliver a service as well as a physical product. At Actavis it is important for the supply chain management to give importance to all of the above activities. Since a low level of performance from any part of supply chain can affect the whole process. (Koontz and Weihrich, 1994; p.653)
The method of operations research, which is the application of scientific methods to the study of alternatives in a problem situation to obtain a quantitative basis for arriving at the best solution, should be used. Other tools of production management such as linear programming inventory planning and control, the just-in time inventory system, and distribution logistics should be used to enhance the productivity of the Company. Other tools and techniques such as time-event inventory system, engineering, work simplification, quality circles, total quality management, and a variety of computer-aided approaches can also be used according to the need. (Koontz and Weihrich, 1994; p.653)