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Fig. 4.6 Objectives of material management
Earlier there was no cutthroat competition to sell the products in the market. Thus, the
materials management was not considered to be so important. Nowadays, the materials
management has become an important management activity to streamline production.
Planning, purchasing, and scheduling are the main functions of the materials management.
The concept of the materials management is now used to reduce the cost, thereby
profitability increases, and the production becomes streamline. The purpose of it is to
improve productivity. At the planning stage, it is decided what are the materials would be
required and how much to be purchased. The materials management department decides
then when and which materials of which quantities are to be purchased from whom so that at
minimum cost and with minimum inventory such materials become available for
uninterrupted production. Thus, every manufacturing company should have materials
management department
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Objectives of materials management
The objectives of the materials management in an organization are represented in Fig 4.5
below. Based on the fulfillment of the above stated objectives, the functions of materials
management can be categorized into two – (1) primary, and (2) secondary. Planning for
materials requirement (MRP), purchasing, inventory planning control, ascertaining and
maintaining the flow and supply of quality materials, improvement of departmental
efficiency is considered as primary functions of materials management section. Similarly,
standardization and simplification, make and buy decision, coding and classification of
materials, forecasting and planning are considered as secondary functions.
However, the functions of the materials management can be summarized as follows:
As per requirement of the production, planning for materials in quantity and time
Arranging economic and prompt transportation
Purchasing the required materials
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Making and buy decision
Receipts and inspections of materials
Storage, warehousing securities, and preservation
Distribution of materials
Inventory control
Disposal of surplus, scrap, and salvage of materials
Developing new sources of supply at competitive way
Ancillaries industrial development
Searching for indigenous sources of supply for foreign materials
Material cost control and cost reduction
Coordination with other departments
The role of material manager is to handle all the activities related to materials appropriately.
The materials manager is supposed to procure the required materials at the lowest possible
cost so that profits can be increased. The effective material management must ensure
minimization final cost of the product
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Advantages of materials management
In an industry effective materials management system can bring about many benefits. The
labor productivity can be improved by 6% and additional saving can be raised to around 46%. The benefits of an effective materials management system are:
Better cash flow management,
Reduction of stock,
Saving in purchase,
Reduction of material storage,
Reduction of surplus materials,
Better relation with vendors,
Better material control,
Improvement in production schedule,
Improvement in labor productivity,
Reduction in duplicate orders,
Better handling of materials,
Reduction in overall cost of the materials, and
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Improvement in overall profit
Based on the size of the company and type the functions of different department of the
company can be summarized as shown in the Fig 4.7 below,
Fig. 4.7 Typrical structure and functions of a pharmaceitucal industry
Planning
Every month the planner will forecast the monthly demand for the next one year (12
months). The forecast of individual product in different regional markets would be
assembled and aggregated. The latest demand forecast is updated in the company every
month and according to the change of demand production schedule is adjusted. According to
the variety of products marketed, the company may have more than one production planner
under the production planning group, each is made in-charge of different product lines. The
monthly demand forecast is first included in a Master Production schedule (MPS) for each
product in the next year. Based on forecasted demand and production projection, the MPS
plans the inventory level
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. One important parameter in the MPS is the Month of Supply
(MOS) which is calculated as;
However, the planner must make sure that MOS never falls below the zero.
Material Management Function
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Based on the Master Production Schedule (MPS), the Master Requirement Planning (MRP)
is prepared. The quantity of raw materials required in the production is projected. Then the
information in MPS and MRP will be uploaded to the SAP (System, Application & Process)
system. The SAP system keeps the information on inventory level of all materials including
raw materials, intermediates and finished products
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The purchase team of the company may have few buyers in-charge of raw material
procurements for different product lines. Every planner determines the safety stock level
required for each of the raw materials. The SAP observes the level of inventory and informs
the buyers when to procure the raw materials and from whom (suppliers). The buyers should
determine the quantity of raw materials to be purchased.
The customer service team works as in-charge of finished product dispatching; material
management (MM) remains in-charge of all disposals of inventories in the warehouse. Due
to either quality rejects or material expiration, the inventories are discarded; whatever may
be the reason for rejection, it requires the approval of the MM director. The materials
management keeps the records of the entire raw material disposal.
Quality Function
The Quality Control department conducts the tests on each incoming raw material and
outgoing finished products including different intermediate products. The products sampled
from the different batches have to pass a series of stringent quality control tests to ensure
compliance with specifications enforced by FDA.
The cycle time for testing could vary from days to few weeks depending on the type of test
performed. The materials which pass the test should be labeled as ’Approved’ in the
warehouse. The approved finished materials are used for next production stage or
distribution/ shipment to the customer. During the quality control test if any anomaly is
observed, the batch of material would be labeled as ‘Hold’ in the warehouse and the batch
would be blocked for further use until the investigation of anomaly is cleared. The Quality
Control department keeps all the information about the intermediate and finished products.
When a product is rejected, the rejection information is recorded in the company’s trackwise system and is recoverable through the product batch identification number.
Continuous Improvement Function
In a pharmaceutical manufacturing company it is necessary to identify the waste areas in
manufacturing processes and supply chain. This should be done by the continuous
improvement team because they are dedicated to do this. Lean Six Sigma Tools are used for
solving the identified problems to eliminate the waste, to improve operational efficiency and
to reduce the cost of the business. Subject Matter Experts (SME) work together continuously
to improve the stability of the process used and standardize manufacturing procedures
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The Lean Six Sigma Tools are combination of two tools – Lean tools and Six Sigma tools.
These are used in combination by pharmaceutical industries ( Fig 4.8 ).
The Lean tools include:
5S: It is a tool used to keep the working space in order.
Kaizen: It is a process accelerated by subordinates motivated to make at least small
improvements in the organization.
Gemba (Go & see): This refers to real-time observations of the process aimed
particularly to find out the process defects.
Value Stream Mapping (VSM): It is a tool used to identify the process waste and the
causes of waste.
Jikoda (Automation): This is a tool that stops production if defects are found.
Kanban: It is a system which manages the level of inventory and works to bring about
excessively low inventory.
Fig. 4.8 Combination of cGMP, six sigma and lean
Six Sigma Tools refer to use of a DMAIC framework to solve any problem that may occur.
The framework consists of following five stages:
Define: This stage refers to listing of definition of problems and aims of the project.
Measure: The process data, capabilities and variables are collected and measured at this
stage.
Analyze: In this stage, the root causes of a problem are analyzed.
Improve: Solutions are brought up to fix the defects and improve the process.
Control: In this stage a control system is put in place to assure that the improvements will
hold.
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In a pharmaceutical manufacturing company where the Lean tools are being used, cGMP
and Lean must work together with equal importance. The cGMP standards along with Lean
principles must be pushed into the culture of the company and this must be reflected in the
business strategy. When this is followed, fewer problems would occur because of recent
changes in regulatory thinking. In fact, the principles of FDA’s PAT initiative appear to be
extremely well aligned with lean manufacturing thinking, suggesting a positive outlook for
lean pharmaceutical companies such as Astra Zeneca, Johnson & Johnson, Pfizer, and others
who have successfully implemented and got the results.
Cross Function Investigation Board
By selecting personnel from different departments such as production, planning, material
management, research, and quality control, the Cross Function Investigation Board (CFIB) is
constituted. Periodically the committee CFIB meets and discusses on the production problem
and inventory issues, or quality- related if observed during the past weeks. The minutes of
the meeting should be recorded with opening and closing issues. The investigation of an
issue could continue for months. The Cross Function Investigation Board (CFIB) is
generally constituted to see that different departments can work together to solve the
complex issues, if any.
Problems in Procurement Planning
Material management of pharmaceutical industries generally face the following difficulties
in planning for procurement of materials:
Inaccurate Demand Forecast
In many cases pharmaceutical products face strong competition in the market. The demand
is mainly linked to the condition of the local drug market. Entry of new drug products and
change in the local drug regulatory policy can influence the drug market throughout the year.
The industry on receipt of updated monthly forecast plans for production. Depending on the
site from where the raw material is expected to come, the raw materials are procured before
the production is planned. If the demand suddenly drops, the production is to be postponed
or canceled. By this time if the raw materials have arrived, raw materials become excessive,
and these piled up in the warehouse. If the self-lives of the raw materials are short, these
may expire before use.
Long supplier lead time
Many pharmaceutical companies are distributed throughout the world. Usually, the
transportation used is sea shipment. The time required (lead time) for receiving may exceed
even up to 6 months and after arrival the raw materials are supposed to be tested in the inhouse quality control department for quality assessment before production. This long lead
time becomes difficult to decide the right amount of raw materials to purchase.
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Available self-life = self-life – replenish lead time – lab testing lead time
Purchasing
Before or during purchase of materials in a pharmaceutical industry, following points should
be considered:
All the materials being purchased according to an approved and appropriate specification
that define not only the grade and quality of the materials, but also the nature of the
packaging and container to be used. The quality of the material should clearly indicate the
physical, chemical and microbiological standards of in-house or of specific pharmacopoeia.
The quality parameters should also mention the specific characteristics such as amorphous or
crystalline nature of the powder, its bulk density, particle size, color, odor, specific isomer,
etc. Pharmaceutical materials should be purchased only from approved vendors or
manufacturers. The material management department should not depend on a single supplier
or manufacturer. Selection of supplier or manufacturer should be based on the following
criteria:
Quality of the material,
Consistency in quality,
Consistency in delivery,
Cost of the material
The purchasing department should have sufficient technical knowledge about the raw
material or packaging material being purposed. The material manager should have sufficient
experience in procurement of pharmaceutical materials.
Inventory strategies
The raw materials used in pharmaceutical manufacturing can be categorized into three
classes – class I, class II, and class III.
According to the available shelf life of the materials their inventory ordering strategies are
maintained.
Class I items: Just-in-time ordering strategy
The inventory values of class I items are high because these are expensive. These materials
are also highly susceptible to change in demand. For this reason, to this group of inventories
just-in-time ordering strategy is applied to ensure that the raw materials become available
when these are required for production. This method controls the inventory cost and avoids
the risk of expiring of the materials
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This approach depends on accurate forecast so that the safety stock level can be kept at zero
or at a minimum level. The safety stock can be calculated as;
Where, img
z = safety factor: number of standard deviation related to service level
MAD = Mean Absolute Deviation: error in demand forecast
L = Replenish lead time: time from placing the order to receipt of the material
LT = Lab testing lead time: time required for completion of tests in the laboratory
However, the equation is based on the following assumptions:
Demand is normally distributed,
Errors in forecast are independent in non-overlapping time periods, and
The replenished lead time and lab testing lead time are fixed.
Class II items: Fixed-order quantity Model
This model is applicable for procurement of the items belonging to this class. The inventory
level is continuously monitored. When the inventory level falls below the reorder point, R
next order is placed immediately. The reorder point, R is calculated as the sum of the
expected demand during the lead time and the safety stock based on the desired service
level. The reorder point is calculated as;
img
Where, d is the average monthly demand,
L is the Replenish lead time,
LT is the lab testing lead time,
z is the safety factor: number of standard deviation related to service level
σ(L + LT) is the standard deviation of usage during lead time based on forecast accuracy.
The average inventory level for this model can be calculated as:
img
Where, Q is the fixed quantity per order. However, Q should be determined by economic
order quantity (EOQ)
The above equation is based on following assumptions:
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Demand is independent in non-overlapping time periods,
Demand is normally distributed,
Forecast errors are independent in non-overlapping time periods, and
The replenish lead-time and lab testing lead-time are fixed.
Class III items: Periodic Review Model
The periodic review model or fixed-time period model is applicable to purchase of Class III
items. The inventory is counted at regular interval such as weekly or bi-weekly. The quantity
to be ordered using this model depends on the period to period. This model requires less
attention in monitoring inventory level. The safety stock required under this model is higher
than that for continuous review model because the safety stock needs to cover both the
replenish lead time and review period. Class III contains most of the items present with little
risk of getting expired. This group of items can be monitored less frequently compared to
other two groups.
The total inventory on hand and on order, A using this model can be calculated as:
A = µ(L + LT + r) + safety stock, and the safety stock for this model can be calculated as:
img
Where,
A = total inventory on hand and on order,
σ = average monthly demand, r = review period, others have the same meanings.
Again the average inventory level, laverage using this model can be calculated as:
img
img
Fig. 4.9 Raw material grouping
However, this model is based on the following assumptions:
Demand is independent in non-overlapping time periods.
Demand is normally distributed.
Forecast errors are independent in non-overlapping time periods
The replenish lead time and lab testing lead time are fixed.
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The raw materials can be grouped as shown in the Fig 4.9.
Handling and Transportation
It is one of the responsibilities of a pharmacist to avoid medication error. Medication error is
an error or failure in treatment process using medicines that may create problems to the
patient. There may be various reasons for medication error. For example, wrong formulation,
wrong strength, contaminants, wrong packaging, etc. Medication error may occur due to
wrong prescription, incorrect medicines, incorrect dosage, irrational drugs, wrong labeling,
wrong route, wrong dose, and wrong route, wrong dose, etc.
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Apart from all these reasons,
there may be other reasons. But none of the manufacturers in any country in the world can
supply its product directly to the end user (patient).
Medicines are being sold through distributor, retailers only. That is, there is a supply chain
process. The patient can get the medicines either in the hospital or in retail shop
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medication error can also occur in distribution system. For distribution from the place of
manufacture to different places of country or even to the other countries, drugs are
transported through various transport systems. Thus, the transport system plays an important
role in maintaining the quality of the medicines. In fact, through the distribution system only
a product can reach to the user from the manufacturer. Generally speaking, the products
move through distribution channel only. The products move from distributor to sub
distributor, from sub distributor to wholesaler, and from wholesaler to the retailer from
where the enduser can get it. According to the needs the distribution system has also
developed with respect to type and volume of the product, space and environmental
condition required so that the product remains safe for consumption. Therefore, the
manufacturer is supposed to transfer the knowledge about the product to the transporter. In
turn the distribution companies should absorb, acquire, and use the information (knowledge)
received from the manufacturer to improve their services so that the end-users become
satisfied and the sale of the product is also improved. A relationship is built up between the
manufacturer and distributor and both of them get benefit out of it.
As discussed above, distribution of product from manufacturer requires physical movement
of the product. Hence, transportation is an essential part of distribution system, similar to
storage of the product. The distribution company directly handles the transportation;
sometimes transportation is handled by another company. Whatever may be the process
used, the cost of transportation is a constituent of the MRP of the product. Ultimately, it is
desired that when the drug product reached the customer/ end user it must satisfy the
customer’s expectation, and the product must reach safe, in good condition, timely, cheap,
and without any error.
Transportation may take place on surface (land), air and on sea (water); each requires
different mode of transportation. Till this date, there are seven modes of transportation such
as maritime transportation, rail transportation, air transportation, mail transportation
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