OPERATIONS & LOGISTICS MANAGEMENT: GLAXOSMITHKLINE

« OPERATIONS & LOGISTICS MANAGEMENT: GLAXOSMITHKLINE OPERATIONS & LOGISTICS MANAGEMENT: GLAXOSMITHKLINE Introduction In any given week, a large percentage of adults in the United Kingdom use some form of medication, half of these prescribed by a doctor.

Sales of creams, ointments, vitamins, herbal supplements, headache pills, digestive aids, and other overthe-counter medications amount to a large sum of money.

The pharmaceutical industry comprises of physical products which can be packaged, stored, and shipped, a primary reason this part of health production is truly international. Yet, the pharmaceutical industry is in an increasingly complex and dynamic environment.

There have been a lot of changes in recent years in the pharmaceutical industry and this trend is likely to continue.

The opening of markets, increased buyer cost sensitivity, global competition and technological advances have increased levels of uncertainty.

There has been an inexorable rise in patient expectations, increased costs of health-care and the inability of economies to meet the increased costs. Consequently, governments have introduced a number of measures aimed at increasing competition and accountability and thus reducing costs (2002). The top brand name blockbuster drugs have more than $2 billion in annual sales, and a single drug can make or break a company.

The largest pharmaceutical companies (Merck, Johnson & Johnson, Pfizer, GlaxoSmithKline) each have more than $30 billion in sales.

For this paper, the pharmaceutical giant GlaxoSmithKline will be used for discussion.

GlaxoSmithKline is the world's largest pharmaceutical company with pro forma sales of 15 billion pounds ($22.5 billion).

It has leading market positions in four classes of therapeutics. GlaxoSmithKline has number-one positions in central nervous system drugs, anti-infectives, respiratory products and vaccines.

It also has the number-two position in gastrointestinal and metabolic drug sales, taking into account the Kytril, Famvir and Vectavir divestitures, according to the company.

It holds an 11.6 percent share of the central nervous system drug market, 6.1 percent of the gastrointestinal and metabolic drug market, 16.7 percent of the anti-infective market, 17.7 percent of the respiratory market, and 26 percent of the vaccines market. Change is never easy, and the merger between Glaxo Wellcome and SmithKline Beecham in December 2000 to create GlaxoSmithKline Pharmaceuticals certainly caused a lot of change as the organization chose the best structures, systems and solutions with which to move forward.

Now, nearly seven years on, information management (IM) is emerging with an improved, streamlined information service to serve research and development (R&D) business needs with a holistic article access strategy, of which document delivery is recognized as an important part.

This situation is changing as new methods of accessing full text emerge. Funds that flow into GlaxoSMithKline are used in a variety of ways.

For example, they are used to support research and development efforts as the pharmaceutical company seeks to develop newer and better drugs before their competitors.

These funds are also used to support marketing and promotional efforts needed to get physicians to prescribe their drug rather than a competitor’s drug.

In addition, some of these funds are used to cover the costs of manufacturing, distribution, and administration that go along with any production process, and a portion of these funds are profits, which are either given to stockholders in the form of dividends or reinvested in the company in the form of retained earnings (2004).

A breakout of the uses of funds is shown in the table below: Uses of Funds for Pharmaceutical Products ________________________________________________________________ Cost of goods Research & development 30% 13% Sales, Marketing, administrations Taxes Net income 31% 6% 20% Source: CMS Health Care Industry Update – Pharmaceuticals, 2003. Before being able to analyze and comprehend the strategy used for a pharmaceutical company, it is important to first understand industry structure and competition.

The market of pharmaceutical products can be divided into three segments based on the type of buyer: individual patients, group purchasers, and government ( 2004).

The competition for sales differs significantly across these segments. The structure of the pharmaceutical industry is dictated by a single fact: the large and important costs are all sunk costs.

The value of a drug depends on how useful it is in treating disease, not how many years it took to conduct clinical trials or perfect the production process, nor on the number of failed projects the company had to fund in order to get a winner.

Research and testing to bring a pill to market costs so much more than manufacturing that there is essentially no rational connection between price and cost, however measured.

Instead, value and price depend on therapeutic effectiveness (1998). Marketing creates additional divergence between price and “unit cost” because the value of each pill increases as it becomes better and better known as a brand name drug.

While clinical value may not depend on marketing, economic value does.

Once the drug is launched in the market, any distinction between the value added from increased therapeutic effectiveness and the value added from increased marketing is not wonderful. Once GlaxoSmithKline marketing launches a drug, the brand name is worth something even if the drug has been superceded by superior competitors.

The brandname version will often continue to sell at the old high price even after the patent has expired in order to capture the consumer surplus of customers who are not price sensitive. In addition to broadening its product portfolio, GlaxoSmithKline has strengthened its sales and marketing position.

The merger creates a company with one of the drug industry's largest sales and marketing forces.

It has more than 40,000 sales and marketing personnel throughout the world, including roughly 8,000 representatives in the US.

Overall, the combined company will have 100,000 employees. Part A To some, providing a global service may feel a little daunting and it certainly does have its complications – differing copyright laws being just one of them – but on other levels it feels like the most logical way of providing a service which when it comes down to it, is the same whatever country you happen to be in.

When Jean-Pierre Garnier became boss of Glaxo Wellcome and SmithKline Beecham when they merged four years ago, he realized that without huge innovation the company was at risk.

Increasing competition from other pharmaceuticals and practically empty pipelines meant that Garnier had to rethink how the firm could maintain its 7 percent market share.

His solution was Tadataka Yamada, his top researcher, who was instructed to find a totally new way to discover drugs. It is easy to understand why quality is of utmost importance in the field of pharmaceuticals.

Alongside other industries where safety is critical, the pharmaceutical industry is heavily regulated and for obvious reasons: mistakes in product design or production can have severe, even fatal, consequences for patients (1999). To ensure a place in the emerging market, given today’s competitive environment, industries must achieve internationally accepted quality levels.

Global competition calls for higher levels of quality, efficiency and service.

As the pursuit for global manufacturing expanded, several standards organizations worldwide developed guidelines on quality.

Terms like quality control, quality assurance, quality management, quality policy, quality plan, quality system, etc., acquired different or conflicting meanings in different countries. However, it is all easier said than done.

Pharmaceutical companies cannot make new drugs just at a whim.

Neither can they sell them as easily.

These processes have to go through certifications and quality management.

There are certain series of standards such as the International Organization for Standardization (ISO).

Recognizing that there was a need of standardization for quality management as well as for quality assurance, the International Organization for Standardization (ISO), headquartered in Geneva, established ISO-TC - which was a technical committee on quality - to write new quality standards (1996). There creates the basis for thorough and unambiguous documentation and that each pharmaceutical product runs through various stages of the quality control process during production - from the laboratory analysis of the base materials and tests during each individual production stage right through to the final checks (1993).

These tests and checks, for example, verify that the active agent content and its release correspond precisely with the manufacturing specifications.

When numbering individual production batches and managing test and release information, provides the manufacturer with assistance (2002).

More extensive analysis options are also available, enabling product quality to be tracked through analyses of the number and type of fault reports per batch. This industry solution is also augmented by options for total quality control in the production of medications and sample data for various administration forms For example, pharmaceutical companies need to accurately weigh out all the substances and materials according to the formulas prescribed by the authorities before production actually begins.

(2002) The security of documents in the pharmaceutical industry has become a critical issue since the advent of electronic data transfer.

The regulations also require that secure, computer-generated, time-stamped audit trails are used to record.... »