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Language: English

It's Time for a Step Change in Pharma Operations

 
 
 

Company: A.T. Kearney
Tag: Pharmaceutical Industry
Operations & Production


The competitive landscape of the pharmaceutical industry is changing dramatically. Sales are slowing, innovation is losing its punch, and complexity is rising in markets and technologies. The old pharma paradigm of a pure focus on innovation and markets is changing; price, cost, and service are beginning to matter more. As a result, the economics of the industry are changing, and operations is becoming a differentiating factor in the competitive landscape. Leading Big Pharma companies understand the new rules of the game and have started investing heavily in improving capabilities and shifting paradigms in operations. They are seeking to be first in this race. Pharma companies that want to be on the winning end must follow suit.

Comparing pharma’s operations with that of the consumer goods industry shows significant opportunities for pharma to improve in all major operations areas, including service, inventory levels, efficiency, quality, and innovation speed. By taking a page from the operational practices of consumer goods firms, the pharmaceuticals industry can unlock billions of dollars in value. They can make a step change in performance without reinventing the wheel, while still continuing to support the pharma industry’s economics.

The value of this endeavor is enormous. Assuming an operational transformation that merely cuts the performance gap with the consumer goods industry by only half, a typical pharma company could increase its earnings margins by 7.5 percentage points and free up inventory worth roughly 11 percent of one year’s sales. A firm with about $24 billion in sales—the average sales for a top-20 company in 2012—could unlock roughly $1.8 billion in yearly earnings and $2.6 billion in cash from working capital reductions. Over the whole industry, this would equal $135 billion in additional cash.

There is no silver bullet that magically brings results. Reaching world-class performance in pharma requires a holistic transformation based around a four-pronged “battle plan”: operations strategy, planning and reporting, execution, and people management. Within each theme are the moves pharma executives can make to create an immediate impact on their results and build a growing, long-term advantage.

 

 





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