Case 25. Supply Chain Strategy at Zophin Pharma
† Indian Institute of Management—Calcutta, Kolkata, India; [email protected]
Introduction
Zophin Pharma is a major player in the global generic drugs market with manufacturing facilities located primarily in India. Its biggest production facility is located in the state of Himachal Pradesh, India. Although the firm has become fairly successful in the global market, it has yet to really make a mark for itself in the domestic Indian market. Zophin has been trying to overhaul its operations so as to increase its profitability and market share in the national market.
After extensive deliberations among the senior executives of the firm, the company decided to hire external consultants to improve its performance. Navin Joseph along with his support team, who worked at the Delhi office of a major global consulting firm, started to closely work with company representatives from different hierarchy levels in the operations department. Navin and his team were experts in operations improvement tools and techniques, and they had successfully undertaken similar projects at other companies.
The Meeting
The first meeting between the external team and senior operations executives at Zophin was led by the President of Operations, Kishen Singh. During the discussions Joseph asked, “Who is your customer?” The Zophin team was taken aback. Joseph continued, “It seems that for a firm of your size, you have a very small presence in the Indian market. To change that, we must connect with our customer. And, in order to really understand our customer, we must first know who our customer is.” After much brainstorming, they came to the conclusion that their primary customer was actually the distributor. It was the distributor who ensured the availability of products throughout the country. In a price-driven country such as India, multiple companies sell the same drug under different names. Often, most of these are similarly priced. In such a situation, any player who is able to maximize its distribution footprint stands to gain. This is easier said than done, however, as competition is extremely intense. The market is full of international majors, domestic giants, as well as regional players. Additionally, alternative and traditional systems of medicines such as Homeopathy, Unani, as well as Siddha, which have been used in India for centuries, are also widely practiced. Moreover, due to the focus of the industry on price-based competition, maintaining profitability is also a major issue.
The discussion then moved to the requirements of the distributor. Joseph remarked, “We must identify the primary business of our customer so that we may be able to fulfill its needs better. Many retailers and distributors do not carry your product. It is essential to recognize that no matter what the other qualities of the product are, if it is not available to the customer, the company is losing money.” Singh realized the importance of the discussion and said, “We never really thought of our business in these terms before.” The executives continued their deliberations. After some time Ramesh Kriplani, a member of the Zophin operations team, said, “I think our customer is basically in the business of selling inventory. He essentially buys inventory, keeps inventory, and sells inventory. The more he moves his inventory, the more money he makes.” Joseph and Singh agreed and then it was decided that in the light of the discussion, the key performance indicator for the distributor should be inventory turnover, as it will essentially determine the distributor’s operating performance.
After this, they focused on the possible steps that could be taken to better serve customer needs. Joseph felt that this would require deeper probing at the operations level. It was decided that Darshan Dobriyal, a young member of Joseph’s team who could understand the local dialect, would spend the next Monday in the manufacturing plant managed by Kriplani. It was the largest of the three plants located within the facility. The plant primarily produced Emzine, which was the bestselling drug of Zophin and a major contributor to its bottom line.
Plant Visit
On Monday, Dobriyal met Kriplani in his office, which was located outside the plant. There he also met Sunil Makhija and Ramesh Dongru, the senior supervisors of production and inspection, respectively. Kriplani told Dobriyal that the plant was basically divided into two zones, material production (including material dispensing that provided the raw material for starting production) and packaging. Final dispatch took place from a separate global distribution center located within the same complex. It handled final outputs from all the three production plants.
The plant was approved by the Food and Drug Administration (FDA) of the United States. It entailed stringent control and monitoring of the operating conditions as well as a stringent focus on quality across the plant. Plant personnel and visitors had to put on special clothing, and those working in the manufacturing zones had to wear masks and gloves at all times. They also had to put on special rubber boots as well as an additional layer of clothing. Dobriyal had to report back to Joseph in the evening. He put on the gear and went inside the plant with Makhija and Dongru.
Inside the Plant
The visit started with the morning plant meeting involving senior staff. The previous day’s issues were discussed, and the production and dispatch plans for the day were reviewed. After that, Dobriyal decided to take a tour of the facility alone. He went inside the production modules (after putting on the required gear) and sat with the module supervisors for some time to understand the process. Later, he also watched the production process first hand. He noticed decreased levels of activity between 11:30 a.m. and 2:30 p.m. He checked the activity log books and noticed that there was a general trend of reduced activity/no activity during that period. He talked to one of the workers who responded, “Workers come in three shifts: 6 a.m.–2 p.m., 2 p.m.–10 p.m., and 10 p.m.–6 a.m. We (production and packaging staff who arrive in the early morning shift) have our lunch break from 11:30 a.m. to 12:30 p.m. Supervisory staff and other support personnel have their lunch break from 12:15 onward, and their working hours are from 9 a.m. to 5 p.m.”
After having lunch inside the plant, Dobriyal sat with Dongru. During the course of the discussion, Dongru said, “Space constraints prevent all of us from having lunch together, so we have to stagger the lunch timings.” Dobriyal also enquired about the overall management of the plant. Dongru said, “Ramesh follows a very hands-off approach and seldom comes inside the plant. So, we (Dongru and Makhija) handle the day-to-day functioning including micro-level planning, liasioning with the quality department, and adhering to the dispatch schedule.”
The discussion continued for some time, and, after talking about some other issues, Dobriyal took his leave. As he exited the facility, his mind went to his meeting with Joseph regarding the day’s findings. He started to make a mental note of all the issues that he had noticed.
Questions
1. Do you agree with the observation that the distributor is the customer of the company?
2. What alternatives to inventory turnover would you recommend for measuring the performance of Zophin vis-à-vis distributor requirements?
3. Analyze the impact of the current lunchtime arrangement at Zophin. Suggest possible avenues for improvement.