The digitalization productivity bonus in pharma manufacturing
Editor's Note: The following is a guest post from Chris Wilkinson, Head of Sales for Healthcare and Public Sector for Siemens Financial Services.
Industry 4.0, the fourth industrial revolution, is inexorably gathering strength, enabling manufacturers in all sectors to improve performance through increased manufacturing productivity, more accurate planning and forecasting, enhanced competitive capabilities and greater financial sustainability.
The UK’s pharmaceutical sector is a significant and valuable asset to the UK economy and was the largest contributor to the UK’s increase in manufacturing output in 2016. Digitalization and data analytics can help companies in the sector reduce the high levels of downtime typically experienced by pharmaceutical plants.
Although, the various dimensions of productivity differ between industries and countries, increased manufacturing productivity - the ability to either produce the same number of products for less, or more products for the same - has a clear and calculable positive effect on costs and margins.
This effect – called the Digitalization Productivity Bonus by a recent Siemens Financial Services report - captures testimony from over 60 international industrial companies, expert management consultancies and academic specialists based in 11 countries. The potential Global Digitalization Productivity Bonus (all manufacturing sectors) is estimated to be between 6.3% and 9.8% of total annual revenue by 2025.
The research looks more specifically at the potential gains for the pharmaceutical manufacturing industry. Applying the model to this sector in each of 11 countries provides an estimate of the Digitalization Productivity Bonus to be gained as a result of investment in digitalized Industry 4.0 technology. The resulting totals are an estimate of the potential financial gain for the pharmaceutical industry as a direct result of improvements in manufacturing productivity from digital transformation.
In the global pharmaceutical manufacturing industry, it is estimated that conversion to digitalized technology could deliver a Digitalization Productivity Bonus of between $67 billion and $105 billion.
Estimated Digitalization Productivity Bonus: reduced production costs resulting from conversion to digitalized technology in the pharmaceutical industry
The Digitalization Productivity Bonus is a critical starting point for CFOs in the pharmaceutical industry. Nevertheless, there are other commercial benefits to be accrued from the move to digitalization.
Pharmaceutical plants typically experience high levels of downtime. According to one analyst, digitalization and data analytics could reduce this by 30% to 40% significantly improving overall equipment effectiveness (OEE). Internet of Things (IoT) communication between machines and machine-learning artificial intelligence (AI) deliver seamless processes, predictive maintenance and automatic corrective actions.
The pharmaceutical manufacturing environment is highly sensitive and tightly regulated. The smallest of errors can result in life-changing patient outcomes and have a disastrous commercial, legal and reputational impact on the manufacturer. For these reasons, “Pharma 4.0” can often deliver amplified operational and competitive value.
Mass customization is also important to the pharmaceutical sector in light of the increasing trend of individualized formulations. Although individualized manufacturing raises important issues about quality, batch stability and risk management, some areas may benefit from being able to manufacture short runs of customized therapies at the kind of price previously associated with mass production. One manufacturer is currently trialling such digitalized processes with analgesic combinations.
Digital integration of the distribution chain (through distributors, then pharmacists and retailers, to the clinician and patient) offers pharmaceutical companies greater opportunities to combat fraud.
One generics manufacturer became aware of several counterfeit versions of its products in certain countries. The company introduced an encrypted digital signature to its packaging that allowed genuine products to be tracked and traced down the distribution chain, with healthcare organizations able to verify the product through a secure portal in the cloud.
Digital information integration up the supply chain and down the distribution chain is also delivering greatly enhanced demand-supply management. One manufacturer that supplies a wide range of therapies has set up information links with all the hospitals in a single particular location. Links to these hospitals’ clinical information systems enables the gathering of aggregated anonymized patient data in a selection of specialties and uses predictive analytics to better plan manufacturing production volumes. This pilot has already demonstrated high levels of accuracy and is planned for gradual rollout across the country through to 2020.
While digitalization drives financial sustainability, access to a range of smart and appropriate financing techniques – Industry 4.0 Finance – is also critical to a company’s ability to sustainably invest in the new fourth-generation of digitalized technology and automation equipment.
Industry 4.0 finance covers a range of requirements from the acquisition of a single digitalized piece of equipment, right through to financing a whole new factory. Financing techniques have now been developed to allow an organization to in effect apply some or all of the Digitalization Productivity Bonus to fund the digitalized technology and equipment that makes the bonus possible in the first place. In simple terms, these financing methods seek to align payments for the new generation technology with the rate of gain from the Digitalization Productivity Bonus. Broadly speaking, this can help make the upgrade to digitalized technology affordable and potentially cost neutral (or better) for the manufacturer.
Examples of Industry 4.0 Finance:
Industry 4.0 Finance arrangements tend to be offered by specialist providers that have a deep understanding not only of how the digitalized technology works, but also of how that technology can be practically implemented to deliver the Digitalization Productivity Bonus as well as other benefits of digitalization. At times, the financing arrangement will be an embedded component of the value proposition, offered right at the beginning of the sales cycle. In other cases, the technology provider will refer its customer to one or more finance providers to fund a sale.
Complete solutions should be taken into consideration in order to identify the best finance package to effectively digitalize a manufacturing facility’s entire operation – from equipment to software to the production line to the whole enterprise. Between them, this range of Industry 4.0 Finance techniques allows pharmaceutical manufacturers to access the Digitalization Productivity Bonus.
Chris Wilkinson is Head of Sales for Healthcare for Siemens Financial Services in the UK. Chris focuses on working with new entrants into the sector and larger corporate customers (Private Hospitals). He uses his 20 years of experience to help customers realize their plans which can entail challenging, specialist situations.
- Siemens Financial Services The Digitalization Productivity Bonus