Digg It - Business

Part One of Creating Well-Defined Processes Series

What if your sales increased from $100,000 to $110,000 per day and your profit increased from $10,000 to $11,000 – did you improve by 10%? The answer might shock you...

Because the answer is no. No improvement occurred.

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

In fact, your process deteriorated. Sure, revenue increased, but is this really an improvement? Let’s take a look at the problem by looking at revenue and expenses.

Extra Expenses Prevent Process Improvement

Let’s examine the before and the after scenario. Say, in the

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

before picture, you have sales of $100,000, fixed costs of $20,000 and variable costs of $70,000. Total expenses amount to $90,000, giving you a gross profit of $10,000. In the after picture, sales increase to $110,000, while variable costs rise to $77,000 in addition to $2,000 in

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

Extra Expenses – which give you total expenses of $99,000 and a gross profit of $11,000. In the after picture, remember though, fixed costs are fixed, and do not change with additional revenue. So you should get more than 10% (11.8% to be exact) profit from 10% growth.

But in o

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

der to maintain a 10% profit we have to spend $2,000 in Extra Expenses. These Extra Expenses represent your process inefficiencies. These expenses could be sales discounts, travel, overtime, or something else. The names don't really matter. What does matter is that we are not i

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

proving.

Process Evolution Enables Improvement

Improvement results from process evolution, not from an increase in scale. What’s the difference? Scale increases when we hire another person, increase expenses, or purchase more assets in order to acquire or service more b

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

usiness. Process evolution occurs when we change the process and as a result can release hidden capacity and service more business without adding any costs - and this is a form of efficiency. You can measure efficiency with the formula:

Efficiency = Output / Costs

But process

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

volution is about more than just changing costs. It is about changing time, increasing process velocity, and getting more output from the costs you already have. Cutting costs, by itself, does not evolve a process. In fact, reducing costs, without properly understanding how tho

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

e costs relate to the process, can actually decrease process evolution (devolution). Let's review an example…

A Cost Reduction and Procedures Training Case Study

A company decreases costs by switching suppliers and using cheaper materials for their manufacturing process.

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

Now the purchasing department is happy they are saving money. The bottom line is starting to look better as profits initially increase. And so this improved the process, right? Well...

But then complaints start rolling in from the field. Products are breaking down faster.

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

echnical support costs rise, and customers start reducing their orders. Not only do profits evaporate, but customer goodwill does too. To offset this, your first reaction might be to switch back to the old supplier. This is much easier and it fixes the immediate problem, but it

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

on't recapture the lost sales, customers and damage to the company’s reputation.

But, again, you need to focus on the most important issue. There is a limit to the amount of costs one can reduce in any process – zero. You can’t reduce costs below zero. On the other hand, there

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

is no limit to the process potential we can achieve. Process evolution concerns the numerator (the output), not the denominator (the costs) in the efficiency equation above.

Change in Process Evolution = New Output / Old Output (Assuming costs are held constant)

By focusing

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

on process evolution instead of costs we can continue to increase our output forever. We just have to make sure that the output increases faster than the costs. Then what we have is incremental improvement. But what procedures can you use to achieve this?

Process Training
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
>

It’s all about collecting feedback to set the right priorities for your change process. You need feedback to drive the change process. The more feedback you get the better you will be able to evolve your process. So let’s take a look at what your change process needs to incl
t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
ude.

1. Feedback Records with Deficiency Notations

2. Trend Analysis

3. Corrective Action Process and Criteria for action

4. Audit Process

5. Management Review Process

And then ask yourself the following questions about your change process:

• Are process feedback records cr
ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust
ated?

• Have the feedback records been analyzed for process deficiencies?

• Are the deficiencies analyzed for statistical significance?

• Are the deficiencies of statistical significance written up for corrective action?

• Is corrective/preventive action implemented?

• Is the
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
e an objective review of all processes to ensure the change process is working?

• Does management review all findings to ensure the change process is working -- and that processes are evolving to meet or exceed organizational requirements?

Next week: Business Modeling

Wi
.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
th these thoughts in mind, you can see how important it is to first define continuous improvement and note how it can actually affect your business.

But you can't gather feedback from all processes at once. If you did, that would generate a process overload. So where do you sta
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip
t?

Next time we will show you show how when we discuss business modeling. Business modeling prioritizes which core processes you should improve. It tells you which processes are most important to not only achieve your company goals - but also to survive as a profitable business

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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Digg It - 5 Steps to Continuous Process Improvement

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