Waste has a significant impact on the cost of quality (COQ)—or more exactly, the cost of poor quality—in the pharmaceutical industry. As a consultant with many years of experience in the industry, I’ve observed the negative effects of waste at many companies, and I want to identify activities that can be defined as “wasteful.”
When I refer to waste, I refer to activities within a process that are not value-added nor performed correctly the first time, and/or process outputs that are not desired by the customer. Ultimately, it is the customers, our patients, who pay for this waste, which also negatively impacts our employees’ morale and motivation.
This means there is a strong business case for reducing waste. Waste adds to the cost of pharmaceuticals. Today the cost of pharmaceuticals is a public issue and consumers are demanding government action to curb drug costs (1).
Based on my 40+ years in the industry, I estimate that waste amounts to at least 25% of the COQ (2, 3). Here lies an opportunity to reduce the COQ and thus reduce the cost of the pharmaceutical product.
Traditionally, COQ is divided into:
- Prevention – money spent on reducing the probability of failures before they occur
- Appraisal – money spent on evaluating process and product quality (testing, inspecting, checking, etc.)
- Internal Failures – the cost of process and product failures discovered while the product is still in the company’s possession
- External Failures – the cost of failures or problems that occur after the product has left the company (recalls, complaints, returns, regulatory actions, etc.)
I want to make it clear that waste impacts COQ, particularly in the areas of appraisal and internal failures. As I stated above, COQ can comprise 25% or more of sales but should ideally comprise only 2.5% of sales (4). FDA’s “Case for Quality” initiative shows that the Agency believes it is possible to reduce COQ by 20–30%, increasing profits by 3–4%.
Waste can be divided into two types: process waste and conditions that waste managers’ time, both of which I discuss below.
The basic process model takes input, materials and/or information, and through a number of value-added activities, transforms these into an output of use by the customer. Examples of obvious process waste are rejects, recalls, reworks, low yields and returns, and complaints due to quality problems. The COQ model identifies these as failure costs. We can also add to this list the costs of regulatory problems, such as a consent decree, as well as costs associated with loss of reputation due to poor quality.
Most companies are aware of the types of waste listed above and their costs. The waste I want to discuss now, however, is usually not identified as waste and its cost in dollars is generally unknown. Below are some examples of these often unrecognized forms of waste.
Failures and Deviations: Out-of-specification results or out-of-trend results require at minimum an investigation. Deviations from an SOP or the batch card require a correction and sometimes an investigation. These are instances of not Right First Time practice and thus, are waste. Failures and Deviations have a cost associated with them. The lack of finding and correcting the root cause continues the cost and waste.
Repeats: Another example of not Right First Time practice is when it is necessary to repeat a laboratory test or repeat a production step.
Validation studies that do not result in improvement of the production process, lead to recurring production problems, or fail to reduce finished product testing: In the past, running three batches and evaluating whether they met specifications without determining process capability produced minimal value to the company or the customer while also costing a huge amount of money. Following the revised FDA guidance (5) should result in a lower COQ.
Training without an improvement in performance of the trainees is waste: Much “GMP” training is waste since, after the training, trainees continue to perform their work exactly as they did before the training.
Failure to use risk analysis to prioritize activities: When resources are used on low risk tasks or problems, this wastes limited resources as well as takes resources away from higher risk corrective and preventive actions. Some examples are:
- CAPA – frequently the CAPA system is loaded with low risk corrective actions—and these are usually the ones that get done because they are the easiest. Also, where are the preventive actions in the system? Why include low risk corrective actions in a CAPA?
- Audits – Again, frequently the audit program does not use risk analysis for determining which processes to audit and which activities in the process to focus on. Also, why include low risk problems in the audit report?
- Change Control –Change control processes still exist that do not distinguish between low and high risk changes. In these processes, low risk changes require the same amount of review as high risk ones.
- Documentation – Are risk considerations (severity and probability of failure) considered in determining the number and length of procedures? Likewise, why do we need more than the two required signatures from the responsible person and someone from QA?
Checks: We love checks. Why? Do they improve quality? They certainly increase costs. The GMPs specify that a second check is required only when necessary. When is it necessary? When the risk is too high; i.e., the severity of a mistake is high and/or the probability (high complexity) of a failure is high. More than two checks is always wasteful and dilutes accountability.
Waiting: This is when we need to wait for a result, for material, for information, etc., before we can proceed with our task.
Reviews: Here we refer to the review of a protocol or document. As mentioned above under Documentation, the number of reviewers can be minimized, generally to a maximum of two, if the process owner is competent and held accountable.
Annual Product Review: I have audited many annual product reviews. Most of the time, I find them to be a waste because they do not generate any product or process improvement activities. No one denies that they take a lot of time and resources to complete. Perhaps the annual review is an obsolete concept. If there is a regular management review as required by ICH Q10, and the computer is monitoring process performance in real-time, batch-by-batch, why the big paper- exercise annually? The GMPs indicate the review should be done “at least annually.” The best practice is to conduct the review continuously.
Time Wasters for Managers
Although the two time wasters specified below are not unique to the pharmaceutical industry, I included them because they impact cost (specifically, the Cost of Goods), employee morale and the cost of our products to patients.
Emails: Perhaps the number one “polluter” of management’s time today is emails. In 2012, a McKinsey Global Institute study found that employees spent 28% of their day reading and responding to emails. (6) It takes only one click, one second, in the address book to send an email to 100 people in the company. It takes many times longer for the 100 employees to sort out their emails and determine that the one they received from you really is spam. I know one executive of quality who received on average 200 emails per day of which only five were worth reading.
Meetings: These are close to or greater than emails as time wasters. Any meetings that don’t start on time, don’t end on time, don’t have an agenda or clear objective, don’t result in a decision, don’t have an effective leader, etc. are usually ineffective and a waste of time. On the internet you can find many useful ideas for making meetings more effective, but it takes discipline. Before you set up a meeting, ask yourself: “Do we really need a meeting on this?”
Waste Impacts Cost
But what does all this waste mean for the industry? Ideally, each pharmaceutical company knows and measures the cost of waste and works conscientiously to reduce it. The costs of poor quality are significant and numerous. Nonroutine quality events—such as major observations, recalls, warning letters, and consent decrees—cost the medical device industry between $2.5 billion and $5 billion per year (7). The price of a consent decree can easily exceed $1 billion for larger companies (8). And the cost of compliance enforcement exceeded $30 billion in cumulative penalties in the United States alone between 1999 and 2012 (9).
The pharmaceutical industry continues to lag behind other industries when it comes to doing things Right First Time. Here, pharma usually scores 85–95% compared to world class factories that score 99.6% on Right First Time (3). Pfizer’s former head of global quality Gerry Migliaccio famously said of the industry, “We produce 6-sigma products from 3-sigma processes;” this occurs due to the application of very costly and less reliable Quality by Inspection practices (10). The COQ for 3-sigma processes is 20–25% (3).
Survey data also show that the cost of poor quality is rarely measured in our industry. A Georgetown survey found that 62% of respondents do not calculate the cost of poor quality and 92% do not evaluate the cost of improving quality against the potential cost of failure (11). The investigation of a simple failure can cost $10,000 while the cost of a complex one can be $100,000 (12). In general, the cost of poor quality is not measured and this severely impacts pharma.
I hope I have convinced you that there is a lot of opportunity to improve efficiency and reduce costs. This will not only benefit our customers, but also reduce frustration and improve morale of our employees, and improve the profitability of our company. The obstacles perhaps are many. In a future article, I will discuss these as well as some possible strategies for overcoming them.
(Note: This article originally appeared in the PDA Letter, a publication produced by the Parenteral Drug Association. February 8, 2016)
- Wechsler, J. “Drug-Pricing Backlash Reaches Fever Pitch.” Pharmaceutical Executive (Nov. 4, 2015).
- “American Society for Quality,” ASQ, Accessed Dec. 21, 2015.
- Benson, R.S. and McCabe, D.J. “From Good Manufacturing Practice to Good Manufacturing Performance.” Pharmaceutical Engineering 24 (2004) 26-34.
- Crosby, P.B. 1980. Quality is Free. New York: Mentor.
- Guidance for Industry: Process Validation: General Principles and Practices, U.S. Food and Drug Administration, 2011
- Yeager, M. “How to Stop Wasting Time on Email,” AOLJobs.com
- Fuhr, T., George, K., and Pai, J. The Business Case for Medical Device Quality.Oct. 2013, McKinsey Center for Government.
- “Prescribed Behavior: Operating Under a Consent Decree.” Pharmaceutical Executive (Dec. 1, 2013).
- Knoebel, J. “Quality Culture vs. Cost of Quality—Quality Culture Is Understanding the Value, not Just the Price, of Quality.” PDA Journal of Pharmaceutical Science and Technology 69 (2015) 562-565.
- Calnan, N., O’Donnell, K., and Greene, A. “Enabling ICH Q10 Implementation—Part 1. Striving for Excellence by Embracing ICH Q8 and ICH Q9.” PDA Journal of Pharmaceutical Science and Technology 67 (2013) 581-600.
- Shanley, A. “The Cost of Poor Quality, Too High a Price.” Pharmaceutical Manufacturing (Feb. 29, 2012).
- Zipp, F. “The Cost to Manufacturing for Poor Quality.” Presentation at the 2015 PDA Annual Meeting, Las Vegas NV, March 2015.
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