Eli Lilly and Company Case Study
GSB 723 Operations management
Spring 2015 Group 5
Scott Lozier, Timothy Little, Anas Hidar, Xiaocao Yu
Eli Lilly and Company is a big pharmaceutical company which ranks amongst the top 6 in the U.S. The pharmaceutical industry changed a lot since 1993. There are huge competitions and pressure on pricing, innovation, and manufacturing. Eli Lilly and Company decided to reduce the time and cost for new product to remain their profit margin. There are three new products have gone through the tests, will be produced and launched in the future, Alfatine, Betazine, and Clorazine. The company needs to make a choice between whether to build a ...view middle of the document...
This lost time and inability to adapt to changes was something Eli Lilly could not afford to lose in the ever-competitive pharmaceutical industry.
In order to combat the inflexibility seen in the specialized facilities, Eli was considering creating a Flexible facility that would be able to create multiple products at a time. These facilities would not have to be retrofitted at the end of the products market-life, and could convert any waste accrued into the production of a new drug. Flexible facilities would be much larger than the specialized facilities, and therefore able to house a greater variety of equipment to accommodate any changes that may be encountered along the production process. However, because these facilities were so much larger and had much more equipment, they were much more expensive to operate. The utilization rates were also lower, as the entire facility would not be dedicated to the production of one product, and the employees would therefore not be as skilled at producing it. This created a perplexing problem, as Eli Lilly seemingly has to choose between cutting costs and reducing production times, while they desire both goals to occur simultaneously.
In order to address this problem of choosing between low costs and low production speeds, we recommend that Eli Lilly implement a Hybrid Facility system. Basically, the plan should start by building a flexible manufacturing facility. This would result in a significant reduction in both lead time and manufacturing costs. Additionally, by using the flexible facility in its early years, Eli Lilly can avoid any loss due to wastage of resources. Although the flexible facility has a higher fixed cost the specialized facility (see exhibit 1), the flexible facility allows the company to introduce new products to the market one year earlier. This will lead to higher revenue in earlier years.
After 4 years of operation, it is logical financially for Eli Lilly to begin building the specialized facility. By this point, the company will better understand its customers’ demand. Thus, it will be able to dedicate a specialized facility to the drug that has consistently high demand (see exhibit 2 for demand and production schedules for each manufacturing approach). In this case, Eli Lilly should build a separate facility for the Alfatine drug only since this product’s demand increases significantly during the first four years. The other two drugs can remain being manufactured in the flexible facility.
Therefore, it is important to determine when a product has enough demand to warrant the construction of a specialized facility, or if the product should remain in the flexible facility. Moving a product to a specialized facility would maximize profits, as these facilities have reduced costs to produce, which would maximize profits. There...