The participating companies were

• aaiPharma,
• AstraZeneca,
• Aventis,
• Bayer,
• DSM,
• Lilly,
• Patheon,
• Pfizer and
• Wyeth.

Participants in the survey were executives at manufacturing facilities highly regarded for their cost and performance management. The survey was designed to identify performance gaps, averages, and best-in-class measures. This gives executives a sense of magnitude concerning organizational differences, as well as identifying potential areas for needed improvement.

Product Breakdown
We asked participating plants to provide the following background metrics regarding their facilities:

For most participating facilities, focusing on one type of manufacturing process, or
a limited line of products, yields significant efficiencies, economies of scale, and a
fine-tuned operational excellence (see Figure 1). Such focus generally results in better facility performance as measured by other parameters in this study. Product diversity requires larger facility footprints (leading to more capital costs); potentially underutilized equipment and systems; diluted personnel expertise (such as maintenance, quality, testing, etc.); and management focus.

Figure 1

Figure 2

Converison Costs
We also looked into facility conversion costs as compared to total product sales attributable to the participating facilities. In this regard, conversion costs included those directly related to converting APIs to finished form, including employee-related costs (salaries, wages, benefits), depreciation (equipment costs) and other direct costs (including consumables, utilities, etc.).

Figure 2 explores the ratio between “Conversion Costs” and “Total Sales” (x 100%). Overall, higher conversion ratios are due to product complexity, capacity utilization, staffing decisions, degree of automation, and other factors. These responses demonstrate that contract manufacturers (C and B)—and those facilities that do some contract manufacturing or zero-profit product transfers—typically have considerably higher ratios than do more conventional facilities.

In understanding the conversion cost ratio, we must recognize the significant bearing market forces can have on such a calculation. Product pricing, number of competing products, market share, product availability, product types (animal health vs. human health, etc.) and other factors can greatly influence the ratio’s denominator (product sales), and therefore a facility’s relative standing. The higher ratio of conversion costs to total sales of other companies without such pricing issues are usually due to staffing issues, production productivity, degree of automation, newer equipment, or excess capacity.

Staffing
We asked participants to share their headcount in areas related to Conversion Costs, including

Figure 3

Figure 4

Figure 3 looks at relative headcount by function. Relative production headcount clearly is affected by the number of shifts in operation. Greater utilization via shift work reduces the conversion costs as a percent of total sales. For companies with similar shift strategies (as indicated on the capacity utilization slide), relative production headcount should be similar. Levels of automation also have a bearing on production staffing compared to the benchmark class.

QA and QC staffing levels are generally not dependent on the number of shifts run at facilities. Low staffing in these areas is often indicative of future quality problems and should be closely evaluated and acted upon by plant management.

Maintenance, engineering and utility (MEU) staffing typically is not dependent on the number of shifts employed at a facility, since most of these functions are staffed around the clock. High staffing levels in MEU usually increase the facility’s maintenance costs as a percent of replacement value (see Figure 7). Equipment reliability and on-site utility facilities can have significant bearing on such performance.

Validation figures reflect current efforts on 21 CFR 11 initiatives. A low percentage of people on validation issues generally indicates one of two scenarios. Either the facility could be ahead of the curve, with much of its validation efforts behind it; or it could be behind the curve, with more validation activity ahead of it. The number and type of systems to validate also have a bearing on such performance. Generally speaking, facilities on the far end of any measure warrant more detailed analysis to identify specific improvement and cost containment opportunities.

One such area for focus deals with the span of control, or how many workers are typically assigned to an individual manager or supervisor (on average).

Most facilities (9 of 11) reported very few directors and above at their plants compared to their relative number of supervisors or line workers. Contract manufacturers B, C and K, however, did report a noteworthy percentage of supervisors relative to production workers and presents an improvement opportunity for the industry. Interestingly, most of the facilities producing injectables reported a higher percentage of supervisors/higher than did the other benchmark partners. This is due, in part, to production complexity.

Facility span of control, defined as the number of workers assigned to managers (on average), was generally 10:1, which is consistent with other staffing studies performed by Best Practices LLC.

Figure 5

Figure 6

Capacity Utilization
We also asked participating plants to provide metrics regarding capacity utilization levels for areas producing Solid Dosage Forms (bulk product), Solid Dosage Forms (packaging), and Injectables (filling and packaging). Capacity utilization figures are based on a one-shift operation (average numbers in case of parallel equipment or lines). Those facilities with more than one shift are expected to have values in excess of 100% or 200%, as applicable (see Figure 5).

For solid dosage manufacturing, five plants in the benchmark class reported a significantly greater capacity utilization than did other participants. As expected, those plants reporting a greater capacity utilization a relatively low amount of production overtime expenditures.

Those facilities with comparatively low utilization have significant revenue-enhancing opportunities by consolidating company-wide production (bring in more products from other company facilities), performing additional contract manufacturing, or selling unneeded capacity (see Figure 6).

Participating facilities dedicated to a specific task usually enjoy a higher capacity utilization. For example, Company H’s facility is limited to injectable manufacturing, so its equipment and production commitments are focused to the task. Contract manufacturers (such as C and K) generally reported lower utilization, but this is typically driven by market forces rather than production train reliability, maintenance, or other issues.

Figure 7

Maintenance & Automation
We asked participating plants to provide the ratio between maintenance cost and replacement value (x 100%). Best-in-class maintenance cost performance (exhibited by a low ratio to replacement value) is due to very low maintenance costs, comparatively higher replacement values, or a combination of both (see Figure 7). Depreciation (a logical proxy for capital equipment and facility expenditures) is the biggest driver in such a calculation, with a low ratio (good performance) significantly impacted by high depreciation. For those companies with comparable depreciation figures, relative performance on the maintenance cost to replacement value ratio are more illustrative—especially with respect to cost controls. Large cost drivers in this area include MEU personnel, equipment reliability, equipment age, degree of preventive maintenance performed, consumable utilization, and corrective maintenance effectiveness.

Key Findings
In general, significant differences exist between contract manufacturing facility performance and that of their more conventional brethren. The following key findings emerged from the research:

Best practice benchmarking is an excellent tool for facility and corporate management to compare structural organizations, staffing levels, roles and responsibilities, and performance to critical measures. While benchmarking metrics illuminate the magnitude of performance gaps, more in-depth best practice surveys and interviews should be employed to identify specific best practices, lessons learned, mutual challenges, and prioritized improvement opportunities based on available resources and company culture.