Deming, Finally! — Part 3
Pharma Industry Has Misunderstood Deming for 30 Years but Can Catch Up
Part 1 introduced why we believe Edwards Deming’s thinking has been only partially implemented by the pharmaceutical industry. By focusing on processes, control and exhortations, manufacturers have missed the essence of Deming’s message. Deming advised us to actually put the Human at the center of quality and to focus on how the system works. Out of Deming’s “14 points of management”, the first three (Part 1, Part 2) have been broadly misunderstood. Yet it is possible to operate along Deming’s original management philosophy, as exemplified by Sanofi Pasteur. Let’s keep exploring, through Deming’s points #4 and #5, what the pharma industry could do better.
4. “Minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust”
How it’s been misunderstood: an organization-centric focus, transactional relationships with suppliers and other partners. Self-interest and cost prevails over overall value
What would Deming do now: Partner with suppliers and other external stakeholders. Connect to co-create quality products or services for the benefit of all
Although we believe that always going for single suppliers might be somehow risky, it is important to appreciate that working with suppliers should be a partnership and not a traditional customer/supplier relationship where the company’s procurement organization only thinks about short term lowest cost of goods. Both parties should be successful.
Supply chains keep getting more and more complex. Being able to trust each other as producer and supplier is an important element in achieving a sustainable supply of high quality and reasonable cost. How companies do business is less so the company’s own business, with employees working for a cause (that is larger than just the company’s output) and with the widespread use of social media (that connects beyond traditional boundaries). All companies have a corporate social responsibility and must act as a responsible partner in the larger health care ecosystem.
In our case one of the things we are actively engaging in is how we can do our part in enhancing innovation and availability of vaccines worldwide (reducing shortages) and at the same time ask other stakeholders to do their part. We do that in a co-creation mode with the ambitious objective of improving public health globally.
Social and digital technologies make it possible to connect and engage at scale — not just for awareness, but in the objective of creating solutions together. What may sound like a challenge in a highly regulated industry is actually possible when organizations shift from being self-centered to addressing healthcare in a holistic perspective. An example of a shared value approach is exemplified in the Break Dengue Alliance which Sanofi Pasteur contributes to. Besides manufacturing safe and efficacious vaccines against dengue, we actively contribute to an engaged and efficacious ecosystem that combines the strengths of technology, people, vaccines and any other useful element. An organization-centric approach wouldn’t have allowed this initiative; a connection mindset for the greater good does.
5. “Improve constantly (…) quality and productivity, and thus constantly decrease costs”
How it’s been misunderstood: Cost reduction and budget targets have become the focus, rather than long term value creation. Continual improvement and operational excellence are now ritualized exercises with little consideration of the human factor and long term quality
What it really means: Put things back in the right order: focus on quality first and cost reduction will come as a consequence. Put the employees everywhere, not just in Finance or Industrial Performance depts., back in charge of operational excellence programs
Amidst growing competitive challenges and overall pressure on the cost of medicines, the pharma industry has been keen on cutting costs, reducing headcount, integrating business units to generate economies of scale. Purchasing departments everywhere are incentivized on finding the best low cost deals, and quality isn’t always considered with the right level of attention. We have numerous (too many to count) examples where focus on costs has resulted in an overall reduction in value. In one case the Purchasing department saved 2 million $ upstream for some raw materials, only to cause a loss of 6 million $ worth of product downstream.
Deming described already in the 1970’s that ‘quality’ equals ‘results of work efforts’ divided by ‘total costs’. When people focus on quality, total cost will decrease over time. However, when you focus on costs, costs tend to rise and quality to decline over time. It is interesting to see that a lot of the LEAN and general Operational Excellence activities are focused on cost reduction, and that as a consequence quality declines over time. This can be in the form of regulatory actions (Warning Letters always cost in the order of hundreds of millions of $), or simply too high write-offs.
Prevention is cheaper than correction. However, because investing in improved quality is a budget topic, whereas failure is a cost on the P&L, companies often accept the cost rather than increasing budget with improvement activities. There are many examples where a company doesn’t invest 1 million $ to reduce a risk, but is ready to spend 10 million $ to fix the issue once it has occurred.
Part of our work as Quality leaders consists in quantifying the financial gains of quality improvement. Quality needs to speak the language of the CFO: “It’s now time to shift the dialog from a cost-based conversation to a value-based conversation” (Magnani & Vinther, PDA)
While leadership generally is focused on finances this is not as much the case for employees, where a much more appealing currency is simplification achieved, saved doses of medicine, etc. Changing the currency has for us resulted in amazing results achieved by our employees at all levels, feeling a much stronger ownership for products and processes — and it has drastically improved overall quality performance in terms of timeliness, reduced deviations, and improved financial performance as well.
When we focus on our employees co-creating solutions, being inclusive, use massive volunteerism and truly empower decision making further out in the organization we see results that are amazing — even beyond what we as leaders thought possible. Continual improvement doesn’t only start from the top. Everyone wants to and can help to continually improve and simplify processes.
(Stay with us! To be continued in next post)