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Dear Pharma Veterans. This series of Blogs is a summary view of Pharma Business in Pakistan. It is a series spread over several parts covering the entire spectrum of Pharma business.
Pharma Business – OPERATIONS – JUST IN TIME
Acknowledgement. In writing this piece, I have taken material from sites, including but not limited to Wikipedia, Tradegecko, brighthubpm, etc. I gratefully acknowledge their contribution to my understanding and expression of the subject.
Just In Time – JIT
JIT is heard in supply chain meetings, and in management circles. It is therefore pertinent to understand the concept of JIT and its applicability in Pakistan Pharma business.
“Just in Time Manufacturing (JIT) – also known as “lean manufacturing” refers to a system of manufacturing in which products are not built until the product is ordered and paid for. Some companies that have successfully implemented JIT include Toyota, Dell and Harley Davidson1.”
Just In Time is also known as ‘Toyota Production System’. Toyota refined it, institutionalized it and popularized it. TPS means that practically Toyota will start manufacturing after it has received customer order. The relevant parts will arrive at that time, the vehicle will be assembled and rolled off the line. Of course, Toyota always have orders in queue, therefore the assembly line keeps working. This is the core concept of JIT.
Keep this model in mind and try to see the benefits (and problems) of JIT.
The upside goes like this.
Inventory Holding – is extremely limited for both materials and finished product. Because components arrive at short notice, it obviates the need for buying and keeping large quantities of materials. The final product is already sold, therefore there is no hold-up for the finished products. The product comes off the line and is dispatched.
Cash Flow – Inventory is usually the largest money-eater. When inventory is severely contained, it frees up plenty of cash flow. The free cash flow can be used for many other developments, growth, projects and what not.
Space – traditional, ever-expanding, large spaces are not required in this system because the inventory is not held for any longer than is necessary. Space is another scarce resource and any saving is always welcome.
Delivery – On-time delivery has to be the hallmark of JIT. In fact, it is compelled by it. This would in turn mean more satisfied customers.
Wastage – The possible wastage arising out of over inventory, slow moving stocks, dead stocks will be avoided.
The downside goes like this.
On time Order Completion – Because the components are arriving in time, it may become a challenge if any or some components do not arrive. Everything will be disturbed. Just-in-time is not a one-time activity; it has to happen all the time, every time. In real world, things can go awry due to human or natural causes. The vendors are multiple, and their locations are also multiple. Hauling everything on time, every time is a tall order.
Zero Error – There is no time for error. The pace of activities is constant and inexorable. Every part of sequence is interlinked. If one step is missed, the next one will not happen or may create error.
Price Changes – most probably, there will be no time for re-negotiating if the prices change due to time constraint. Price changes will have to be absorbed.
Just in Time in Pharma
JIT application will have following challenges in Pharma.
- Vendors are not aligned to the concept and therefore non-compliance of delivery schedule is frequent and common
- Vendors’ own quality check is poor. The goods delivered suffer from quality issues making availability irregular and patchy
- Vendor development is integral in JIT. It is done initially and then continued. It is easier to do if the vendor is supplying exclusively to manufacturer. Pharma vendors are supplying to multiple manufacturers and can only be developed in a limited manner.
- Mandatory Quality Clearance from QC is required. It may delay the availability of components.
- Some materials have to be imported because those are not manufactured locally. Imported materials can never be brought just-in-time.
- Goods are not already sold. Stock is prepared first and then sold.
- Demand of products fluctuates and therefore required production also varies
- GMP dictates that the Pharma products will be produced in batches whose size will be standard and will not be changed. This necessitates a certain fixed production size even if the demand is less.
- Sterile products are kept for fourteen days, tested for sterility and then released for sale. Inventory buildup occurs by rule.
Therefore, JIT is not entirely applicable in Pharma, not just in Pakistan, but anywhere. However, key principles of JIT can be applied in adapted form. JIT is certainly a revolutionizing concept and can help in efficient inventory management and on time deliveries.