Successful Culture Change with Lean Six Sigma

Successful Culture Change with

Lean Six Sigma November 15th, 2005

Jeffrey T. KucVice President, Global Process Improvement

Copyright © 2005 Alpharma Inc. All rights reserved.

2Copyright © 2005 Alpharma Inc. All rights reserved.

Agenda

• Alpharma – Our Global Business

• The Pharmaceutical Industry today

Understanding your base line, a situational analysis

• 6 Elements for Effective Culture Change

• Alpharma’s Deployment of Lean Six Sigma

• Have we changed yet?

• Show me the Money!

• No more Dolphin Stories!


Alpharma - Worldwide

• A global company generating approximately $1.3 billion in revenues

• Alpharma is one of the top ten largest human generics pharmaceutical companies in the world

• Employ over 4,200 multinational associates in over 20 countries

• 1903 to 2003 - Celebrating a century of making medicines accessible

• Conduct Business in more than 70 countries

• Sell over 500 products

• Headquarters

New Jersey, USA

Oslo, Norway

Revenues by Region


Multinational Sites and Offices in Over 50 Locations


• Alpharma market positions in human generic pharmaceuticals in the U.S. and Europe:

#1 in the UK

#2 in Pan-Nordic countries

#7 in the US

• Animal Health Division - Worldwide Leader in Development of Medicated Feed-Additives

• International Generics - One of the Broadest Pan-European Generic Portfolios

Over 260 products - Rx and OTC

Growing Asian / MEA Businesses

China, Asia-Pacific, Indonesia

• Branded Products – Kadian - A Growing US Pain Franchise

Sales of $62 million in 2004

• Active Pharmaceutical Ingredients (API)

Worldwide leader in fermentation-based APIs

Active Ingredients for finished products (e.g. Neosporin tm)

Leading manufacturer of antibiotic APIs:

Bacitracin / Polymyxin /Amphotericin B (inject) / Vancomycin

Our Businesses

Revenues by Business


Understanding your Baseline/Starting Point

A situational analysis


The Way It Was!

• Icons of industry Merck, J & J, BMS, GSK, Pfizer

• Full market absorption of product

• End Customer willing to pay any price

• Consistent HIGH Gross Margin & ROI

• High cost barrier to entry; R & D, Lengthy product development timelines, Expensive sales channels

Very successful business models - Why Change!


“Culture Change becomes more difficult as organizations become more

established and successful. Early success can be a hindrance to needed change.”

Kotter and Heskett (1992)


Pharmaceutical Industry Today

Brand Companies

• Losing patent protection on existing products & Limited New Product pipeline

• Globalization of business model – Cross Border Competition

• Industry Consolidation

• Pressure from Generics Manufacturers

• Heightened levels of compliance and associated cost?

• Hierarchical Organizational structures hinder innovation & communication flow

• Saturated sales channels

• Unsure how to bring about change and when attempted PAINFULLY slow Generic Companies

• Lower cost barriers to entry breeds fierce global competition by allowing new entries into marketplace

• Price Pressure – Customer Reverse Auctions yield shrinking margins

• Creative Innovator Co. patent extension tactics

• Increased cost of Compliance when refusing to change operating processes

• Narrow Sales Channels – Limited Free market activity

Dynamic changes are occurring in the Pharmaceutical Industry


“You need to improve, other High Tech industries have achieved enormous productivity gains in manufacturing in the last 25 years. We should expect nothing less from the Pharmaceutical Industry.”

National Product Recalls – 176 in 1998, 258 in 2001, 354 in 2002

0.0001% of Semi Conductors are discarded for quality reasons during manufacturing

FDA Commissioner Dr. McClellan


Alpharma Focused on the 6 Elements of Effective Change Management

• Burning Platform

• Top Down Driven

• Robust Planning

• Communication

• Adequate Resources

• Execution Focus


Burning Platform

• Our Burning Platform was clear

Major revolution within Pharma Industry

Changing Market dynamics unlike anything seen before

Greatest rationale for change, ALO’s own poor performance!

High Inventories

Poor Customer Service levels

Degrading Financial results


Top-Down Leadership

• We Benefited from Top Down Leadership

Executive session to gain consensus

Top Team had Past experience as Green Belts & Black Belts

Indoctrinate the Formal & Informal Leaders – Awareness Training

Visibility and Public Support Throughout the Process

Investment of time and resources


Planning

• Recognized the Need for Initial Planning Recognition of ineffective previous internal program rollouts

Recognition of resistance to change because of past successes!

Critical Support from our Partnership with Six Sigma Academy

Global Operating Reach

History of successful LSS deployments (knows the pitfalls)

Master Consultants have actually worked as BB’s & MBB’s

Blended in with the ALO team and have superbly coached our project and leadership teams

Outstanding training techniques and capabilities

Break Through Value contract showed real commitment

http://www.6-sigma.com/index.html


Communication

• Communication – “Internal Marketing” Soft kick off of LSS Deployment

Letting Results speak for themselves

Understated communication – Pull Theory

Associates connect with different communication channels Multi pronged approach

• PowerSteering

• Awareness Sessions

• Email Updates

• Town Halls

• Staff Meeting Reviews

• KPI alignment


Resources

• Adequate Resources Dedicated

Core Deployment Team established

Previous Plant Managers, Change Management expertise, Communication resource

20 Black Belts, 91 Green Belts, 100 Project Champions Trained Globally

Focus on full-time resources

Dedicated Finance and IT participation

Full time resources have a quicker return on investment


Execution

• Execution

#1 reason why Global Deployments, Culture Change Initiatives, and Executives Fail – Lack of Execution Focus

Requires continuous attention and information to recognize success and overcome challenges

Continuous tracking and reporting of results to date, payback, and other program metrics


Critical Responses to Each Element

Ongoing reviews of process, progress and results.Execution Focus

Re-investment of proceeds into the program. Certification and BB effectiveness tracking.Adequate Resources

Centralized availability of tools, methods, best practices. Visibility of results.Communication

Enlisting Internal and External expertise. Continuous review and revision.Robust Planning

Engagement of leadership early and often. Ongoing visibility and reporting of progress and success.Top Down Driven

Communication of changes in the Pharmaceutical industry. “Business as usual” not good enough anymore.Burning Platform

PowerSteering provides key support throughout!


2006 Deployment Challenges

• Lack of alignment in LINE OF SIGHT Key Performance Indicators

Greater focus on 2006

Financial targets established by site and function

Focus on tracking in PowerSteering

• Struggling Project Pipeline

Global plant footprint too large

Greater focus on Project Champion training

• Revolutionary Changes of Pharmaceutical industry

• Pockets of “Support” not Leadership!


Impact of LSS on our culture

• Teaching discipline, accountability, and business maturity

• Creates a common platform / language for sustainable change

• Establishes mindset of continuous improvement

Creates a feeling of “Esprit de Corps”

• Forces us to make data driven decisions

• Highlights where we have broken processes

• Forces us to focus on the Customer, the driver of our business

• Gets people fired up!

Process Improvement is becoming part of our operating DNA


Results (ROI) – Show me the Money!

• Deployment Status

20 Black Belts, 91 Green Belts, & 100 Champions Trained Globally

The LSS Deployment has provided over $ 14.8 Million in benefits

72 Active Projects started in Alpharma, with over 66 closed to date

• Manufacturing site results

70% Reduction in Production cycle time

RM dispense to FG release from 86 to 25 days.

Reduction of 45 Supply Chain FTE's

66% Reduction in WIP Inventory

Batches “ Right the First Time” up from 69% to 95%

Plant product availability up from 84% to 99%

48 Hour Customer Service Levels up from 69% to 95%

YTD Cost of Deployment has returned 5:1


Our Biggest Success No Dolphin Stories


Questions?

Contact Information:

Jeffrey T. KucAlpharma Pharmaceuticals

14 Commerce Drive, Suite 301Cranford, NJ 07016

Telephone: 908-653-8104Fax: 908-653-8206

[email protected]

Successful Culture Change with Lean Six Sigma

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