Outsourcing & Lean Manufacturing: Product Quality & Waste Elimination

By Paul M. Reece & Leonard B. Antosiak , Paul M. Reece Consulting & Pharmaceutical Production TechSource | March 7, 2014

Lean philosophies can save your business time, energy and money.

Increasing costs are a stark reality for today’s supplement manufacturer. Many companies are addressing increasing costs and a more competitive marketplace by implementing and managing “lean manufacturing” practices. Lean requires a culture that believes in continuous improvement through the elimination of waste.

There are lean programs and lean definitions, but the whole purpose of lean involves driving waste from all aspects of the business. Lean manufacturing, a Japanese philosophy, is simply the elimination of waste through continuous improvement.
Selecting a contract manufacturer (“supplier”) with a strong lean culture and proven lean systems is your best insurance for avoiding price increases. Also, it helps to ensure that your cost and quality objectives are met, and will continue to be met.

Developing the Scope of Work — Planning and creating clear expectations are the key to successful outsourcing. For tablet manufacturing, develop a thorough, exact set of specifications/requirements that paint a clear picture of your desired outcomes. Include everything from the supplier’s vendor selection, tablet design, date and method of shipment and everything in between. Milestones are critical during the supplier planning/approval phase, launch phase and during production. Developing the initial contract is the most important step in the outsourcing process, although it’s not the only critical step.

Values and Culture — Subcontractors may not necessarily share your values, or they may not have a culture that is conducive to continuous improvement. Your supplier evaluation should include a review of the subcontractor’s philosophy, employee moral, housekeeping, teamwork and its commitment to continuous improvement. Underutilized human potential (ninth form of waste) is essential to a successful outsourced project. This is often overlooked, and it encompasses the greatest opportunity for achieving production cost, quality and delivery objectives. 

Managing the Scope of Work — Buyers who have their own set of requirements/needs may negotiate your production contract. While the production, sales and quality teams may all have different expectations or needs from that of the buyer, this is a recipe for a very difficult customer/supplier relationship. This is the time to focus on common goals to ensure that all the needs of the affected teams are met. An experienced program manager will ensure the scope of work is clear to all parties, from the negotiation stage to completion. A competent program manager will also ensure the scope of work is met while educating customers and suppliers to the documented agreement. You should get what you agreed to pay for! Defining that in the beginning and managing those expectations is crucial to a successful outsourced product.   

A RACI (responsibility, accountability, consultation and information) matrix is an effective tool for clarifying and ultimately managing the scope of work. RACI defines who is responsible for which deliverables: planning, setup, reporting, delivery, transportation, etc.

Supply Chain Management — The scope of work needs to define responsibilities for not only your supplier, but also for your supplier’s responsibility to manage their supply base. For example, you don’t want an ingredient substituted for in your finished tablet, not be told and not have it identified on the product’s label. Substitutions are not uncommon, and many times occur somewhere in the supply chain.

Lean Manufacturing Principles — Specific expectations should be spelled out in the scope of work for continuous improvement, in adherence to the lean manufacturing principles outlined below.

Assessing Lean Capabilities — The easiest and most telling place to start assessing a supplier’s lean capabilities is in housekeeping. This area is critical to eliminating waste and to the overall quality of your manufactured tablet! The supplier’s work areas, warehouse and office should be organized, labeled and in showroom condition. The supplier should ensure that only those things required for the work area are present there. Everything in the area should be labeled, have a home, a purpose and always be accessible to the operator.

Housekeeping and cleaning are drop-dead issues for the FDA. For good insight, visit the FDA website addressing regulatory expectations regarding cleaning: Title 21 Part III in the “Current Good Manufacturing Practice in Manufacturing, Packaging, Labeling or Holding Operations for Dietary Supplements.”

Forms of Waste
The Japanese have a word, “Muda,” which literally translates as “futility”; in lean this is called “waste.” There are seven forms of waste identified in lean manufacturing; there are additional forms of waste sometimes identified by different authors. We believe there are two additional, important forms of waste—for a total of nine.
  1. Defects: reworking or scrapping product is an unnecessary cost and motion
  2. Waste in the production process: corrected with line balancing
  3. Overproduction: making things not required by the customer 
  4. Wait time: operators should never have to wait for product
  5. Transportation: an opportunity to optimize the process
  6. Inventory: too much or too little raw material, work-in-process, finished goods, etc.  
  7. Unnecessary motion (of employees)
  8. Unsafe or non-ergonomic work conditions
  9. Underutilized human potential: skills, talents and creativity (ask your employees)
Lean philosophies should be applied throughout the supplier’s organization. Look for application(s) in the manufacturing suite, filling line, packaging operation, warehouse, quality control and anywhere you believe that waste can be eliminated. Companies tend to overlook the administrative process; this area doesn’t get the focus it deserves. While it’s true there are a lot of opportunities to improve manufacturing, no part of a business is exempt from the need to eliminate waste.

When assessing supplier capabilities, review its approach to dealing with each of the seven primary forms of Muda/waste:

Defects — Ensure the supplier counts all defects, tracks trends and makes decisions based on that data. “The ‘cost of quality’ isn’t the price of creating a quality product or service, it’s the cost of NOT creating a quality product or service.” — W. Edwards Deming.

Waste in Production — Suppliers should balance their process using effective line balancing practices, and they should design their process to TAKT Time (the time available to complete the work).

Overproduction — Suppliers should manufacture to their customer’s needs. It is very easy to tie up a lot of money in raw material, work-in-process and/or finished goods. 

Wait time — Operators should be treated like surgeons. They should have everything they need within their reach to perform their jobs. Changeovers should be planned and choreographed so there is no wait time and no special tools are required. An effective documented preventive maintenance program will reduce wait time and production interruptions.

Operators should never have to wait for a batch to be blended for compression, a solution to be mixed for the filler or for bottles to be filled with capsules. An effective preventive maintenance program properly implemented and managed, along with precision planning and scheduling, can eliminate a large source of wait time.  

Transportation — Poorly designed internal material routes result in unnecessary transportation hours and congested traffic.
Repeatedly handling material, and not having material stored near the point-of-use creates waste. This should be done in compliance with your specific governing manufacturing guidelines per FDA, USDA, standards organizations, etc.

Inventory — Suppliers should set inventory levels (raw material, work in process and finished goods) at their lowest comfort level based on your demands. Too much inventory ties up money and can lead to obsolescence; it has to be stored, counted and rotated, and that all requires resources.

Unnecessary Motion — This entails non-value added activities like moving material, multiple handling of material and inspecting material. (Sometimes you need to inspect things, but inspection is a non-value added activity, and is the result of a process that produces defects).

The Cost of Injuries — All injuries are preventable. They are 100% wasteful and destroy trust in management and hurt morale. Suppliers must have an aggressive safety program that focuses on prevention and includes all disciplines. The safety program must set priorities that address the highest risks. Injuries at your supplier’s facility will affect your costs and security.

Underutilized Human Potential — This is the most costly and non-recognized form of waste. Not including all employees in solving problems in their areas, in making needed improvements, not soliciting everyone’s ideas, not listening, poor or ineffective leadership, poor personnel interactions, a lack of common goals between departments and shifts, and poor morale all result in a tremendous amount of waste.

Employees want to be a part of the solution. Employee empowerment is essential to your suppliers and to your success.

Your outsourcing system should evaluate the supplier’s level of empowerment, participative decision-making, gain sharing and continuous improvement initiatives. You should determine if the supplier has a formal program to solicit employee ideas.
Employees can identify waste in an operation better than any other source. They will tell you if asked, and if they feel it is their best interest to do so. Suppliers should involve their employees and everyone should feel a sense of ownership for housekeeping and organization.

If the supplier does not have effective leadership, teamwork and high morale, you should find another supplier. Everyone has to be on-board. Your outsourcing system should provide an evaluation of your supplier’s leadership effectiveness.

Quality — Quality and lean are synonymous. W. Edwards Deming once said, “Quality is conforming to specifications.” Conforming to specifications is achieved through documented systems and job instructions so the process is repeated. Employee training and reducing variation between shifts can best be addressed with documented repeatable systems and job instructions. To ensure system compliance, process audits should be a very important part of your system. If your supplier does not have documented systems and process audits, it does not have a repeatable process, and it is not manufacturing to specifications.

Key Performance Metrics and Goal Setting — Suppliers should track and post key performance metrics so everyone knows how they are performing, and what their goals should be. Ensure that each area of your business is driven by specific goals that drive continuous improvement, and that each goal ties into the company’s long-term goals, and that your organization agrees with those goals. Ensure that your supplier focuses on first-time quality throughput for your tableting. Having to reprocess your product can affect tableting flow ability, change particle morphology and affect compaction behavior.

The cost of improving your supplier’s process should be the supplier’s responsibility, along with the costs associated with receiving defective material. You are expected to deliver quality products; your suppliers should have the same expectation. Remember, inspection does not assure quality; only a process that is in control will produce consistent quality.

Your supplier telling its employees to work harder, or to offer more suggestions may create a short-term improvement (the Hawthorne Effect). However, identifying the systemic inefficiencies within an organization will provide sustainable improvement, and will help create the culture necessary to keep you competitive. Developing a culture where all employees have the skills needed to identify waste, take ownership for quality, solve problems and the motivation to care about the long-term success of the company, are essential in today’s global market. You need to be able to evaluate your suppliers’ culture as it relates to lean and continuous improvement.

Evaluating processes for the elimination of waste through continuous improvement in your supplier’s production processes, material, work-in-progress, scrap, administration, quoting, systems, administrative policies and rules, is an effective way for you to ensure that you are receiving value. That will reduce the pressures on your bottom-line.

Outsourcing production can be very successful but you cannot assume that any supplier will perform to your expectations, unless you have controls in place to ensure accountability. You will require a constant flow of information, a frequent presence, frequent milestone reviews, rewards and penalties and a very clear initial document that clarifies all your requirements.

Outsourcing production can expand your production capabilities and help you grow, but you cannot outsource the responsibility for delivery and quality. 

Paul M. Reece has more than 40 years experience in working for the Federal Government, and as a company owner and executive. He is a Certified Lean Executive through the Michigan Manufacturing Technology Center. Leonard B. Antosiak is president of Pharmaceutical Production TechSource. He can be reached at ppt@2020comm.net