Johana L. Diaz Charles
Case Analysis #1
Eli Lilly and Company: The Flexible Facility Decision (1993)
Eli Lilly and Company was one of the most important developers, manufacturers, and marketers of pharmaceuticals in the United States. The company’s case analysis is about the important decision that Steve Mueller, the strategic facilities planning manager, has to make about the type of manufacturing facilities to construct for the three products that the company is expected to launch in 1996. Lilly’s current manufacturing strategy consisted of having a specialized plant to produce a specific product or set of products. In the past, this had worked well for the company. However, with the increasing competition, the management set the goal of reducing the development leadtime by 50% to introduce a new product faster, and reduce manufacturing costs by ...view middle of the document...
However, there would be no reduction in the development leadtimes because the facility would not be flexible enough to accommodate changes to the product in case that the products did not get FDA approval, or simply produce a new product. Moreover, due to the time that is spent to design the facility for the specific product, the company would not able to introduce its products faster in the marketplace. Also, the company would incur retrofit costs for every new product. On the other hand, having a flexible plant provides flexibility in operations due to the ability of producing different kinds of products, and accommodate changes to products that are in process and reducing lead times; thus, responding faster to market demands increasing sales and market share. However, the output at this facility is lower, the costs per year are much higher, and effective utilization of the facility is 15% less than the specialized facility.
Based on my analysis, in the short term, a specialized facility would be more suited for the company, due to the reasons explained above. However, because of the uncertainty of the product approval, the probability of incurring retrofit costs is higher, and generating increased costs in the long term. On the other hand, even though the costs are much higher in the flexible plant and the output is lesser, the flexibility in operations would eliminate the costs on retrofits and increase the speed of product manufacturing responding faster to the market. Thus, this would generate more sales and increase market share. Therefore, it can be suggested to Steve Mueller and the company to use a combination between a specialized and a flexible plant. The product can be manufactured in the flexible facility, and taking in consideration that some products are forecasted to exceed the capacity of the flexible plant, these products can be transferred to a specialized facility as demand increases, and new products could start their production process in the flexible facility. As a result, the company would create more output at a faster rate, and reduce costs by being effective and efficient in capacity usage.